* Insurance unit has estimated value of $800 mln -sources
* Business could draw insurers from Japan, Canada
* NAB keen on long-term marketing deal with buyer -source (Adds analyst comment, background on NAB performance)
By Swati Pandey and Denny Thomas
SYDNEY/HONG KONG, Sept 24 (Reuters) - National Australia Bank is considering the sale of its life insurance unit worth an estimated $800 million, seeking to boost earnings and returns on capital, people familiar with the matter told Reuters.
Under new CEO Andrew Thorburn, Australia's fourth-largest bank by market value hopes to speed up the disposal of assets to help it focus on its domestic and New Zealand franchises.
Last month, it announced plans to list U.S. bank Great Western Bancorp Inc, adding that it could offload 100 percent of its ownership over time. Expectations are also high that it will move to sell its UK assets, Yorkshire Bank and Clydesdale Bank.
Melbourne-based NAB is likely to test potential buyer interest for the life insurance unit before deciding whether to launch any formal sale, the people said, adding that an advisor had yet to be appointed.
Insurers from Japan, Canada, Hong Kong and Australia could be interested in the business, they added.
A spokeswoman for NAB declined to comment. The sources declined to be identified as the discussions were private.
A sale would come amid tougher times for much of Australia's life insurance sector.
"There's a greater number of claims, the claims have been more expensive and have taken longer to resolve, there's been a greater lapse in policies and reduced life insurance amount," said Morningstar analyst David Ellis.
"It's a not a big issue for the major banks (but) it's not immaterial."
NAB has said its life insurance business is "challenging" but has not disclosed earnings for it.
NAB will likely negotiate a long-term marketing deal with the buyer which would allow it to continue to sell insurance products under its own brand, said one of the sources familiar with NAB's thinking.
It would be a similar arrangement to its general insurance products, which are underwritten by Allianz Australia Insurance Ltd. This would help NAB take capital risks off its balance sheet while ensuring customers don't defect to rivals.
As global capital rules become more onerous, banks are under greater pressure to dispose of non-core assets and scale back capital intensive businesses.
"For life insurance business you got to have scale and specialty," one of the sources said. "And historically general insurance has outperformed life for the industry. So you would think hard if you really want to be in this space."
NAB and other major Australian banks have notched up years of record profits, helped by a focus on plain vanilla mortgages and business lending. But NAB has underperformed its rivals, partly due to problems at its UK businesses.
It has the worst return on equity among Australia's 'Big Four' banks at 12.5 percent, lagging by far the 18.5 percent for Commonwealth Bank of Australia, according to Thomson Reuters Starmine. That is, however, still better than the global average of 10.9 percent.
NAB acquired the life insurance business as part of its wealth management division MLC, which it bought from Lend Lease in 2000 for around $4 billion. The life insurance operations account for around 20 percent of MLC, the sources said.
NAB has no plans to sell the wealth management business, they added.
The bank's shares were down 1.3 percent in afternoon trade, underperforming a 0.7 percent decline in the benchmark Australian share index.
$1 = 1.1222 Australian dollar Reporting by Swati Pandey in SYDNEY and Denny Thomas in HONG KONG; Editing by Edwina Gibbs