* Goldman, Morgan Stanley to advise on options -source
* Insurance last part of disposals forced by EU regulators
* May struggle to fetch 4 billion pounds -analysts (Adds details on Santander IPO, RBS asset sales)
By Steve Slater and Victoria Howley
LONDON, Oct 28 (Reuters) - Royal Bank of Scotland (RBS) has appointed advisors to assess options for its insurance arm, which could include the flotation of the home of Direct Line and Churchill motor insurance brands, a source said.
U.S. investment banks Goldman Sachs and Morgan Stanley have been appointed by the bank, a person familiar with the matter said on Thursday.
RBS is being forced to dispose of Britain's biggest motor insurer by the end of 2013 by European regulators, after it received government bailout cash during the financial crisis.
RBS, which declined to comment, has indicated in the past its preferred option would be an initial public offer in 2012.
Spanish rival Santander is set to beat it to market with the IPO of its UK business.
Santander said on Thursday it wants to list the business in the first half of next year. It said advisors have not been appointed, but bankers expect Bank of America Merrill Lynch to win the mandate on that deal, which could raise 4 billion pounds and value Santander UK at near 20 billion pounds.
MOTOR MARKET
RBS Insurance is at present unlikely to fetch more than its net asset value of about 4 billion pounds ($6.3 billion), analysts reckon, despite a recovery in Britain's motor insurance market from late last year.
The industry has paid out more in claims than it has taken in premiums for the last 14 years, according to the Association of British Insurers.
The slump was due to the combination of soaring claims and falling investment income, which meant insurers had little option but to raise prices, having cut or frozen them for the best part of a decade due to intense competition.
Majority nationalised RBS has already sold a number of assets to satisfy European regulators for taking taxpayer help.
It raised over 4 billion pounds from the sale of a network of over 300 UK branches, most of its holding in the RBS Sempra commodities joint venture, and an 80 percent stake in the WorldPay payment processing business.
It has also raised over 1.5 billion pounds from selling a string of assets over the last 18 months, as Chief Executive Stephen Hester streamlines the bank and reverses a decade-long acquisition spree by his predecessor. ($1=.6321 Pound) (Additional reporting by Sudip Kar-Gupta; Editing by Douwe Miedema and Karen Foster)