UPDATE 2-Three firms in race for Yapi Kredi Sigorta - sources
* Allianz, Dai-ichi, Zurich in the running for Yapi Kredi Sigorta
* Binding bids expected on Friday (Adds comment from Yapi Kredi, context, quotes)
By Seda Sezer and Dinesh Nair
ISTANBUL, Feb 14 (Reuters) - Three global insurers were expected to make binding offers for Turkish lender Yapi Kredi Bank's insurance arm on Friday, banking sources familiar with the matter said.
Germany group Allianz, Japanese company Dai-ichi Life Insurance, and Zurich Insurance are in the race for Yapi Kredi Sigorta - a joint venture between Turkish group Koc Holding and Italian bank UniCredit, three banking sources said.
"Binding bids will be submitted on Feb. 15," one of the sources said on Thursday , adding the deal was expected to close by the end of the first half.
Turkey, Europe's fastest-growing economy in 2011, is attractive for foreign insurers looking to diversify away from competitive home markets where there is less chance of growth.
Yapi Kredi Sigorta shares were up 2.7 percent at 20.65 lira by 1228 GMT. The business has a market value of $1.2 billion, according to Reuters data. The shares have risen 22.6 percent in 2013 and 75 percent in the past year in anticipation of a deal.
Yapi Kredi Bank said the assessment of bids for Yapi Kredi Sigorta was continuing in line with the planned timetable.
Another insurer, Sompo Japan Insurance, was short-listed but backed out, two of the sources said, speaking on condition of anonymity as the matter has not been made public.
Allianz, Dai-ichi, Zurich and Sompo Japan all declined to comment.
Citigroup is advising Allianz, with Bank of America Merrill Lynch advising Dai-ichi, and UBS on the Zurich side. Deutsche Bank and UniCredit are advising the sellers.
Aside from the insurance business, Yapi Kredi Sigorta has a pensions arm which some of the potential buyers are not interested in keeping, the sources said.
With a population of nearly 75 million whose average age is under 30, Turkey offers lucrative growth opportunities for global insurers. Government initiatives to encourage savings through private placement plans, which became effective from the beginning of 2013, has made the business more attractive.
"Turkey is an extraordinarily interesting market. It belongs to the few states in Europe that have a positive demographic development," Allianz chief financial officer Maximilian Zimmerer told Reuters in January. "We will always look at everything (every acquisition target that is on the market)."
Large deals have been few and far between in the sector which means a potential sale of Yapi Kredi's insurance business will be the largest ever in the industry.
Last July, U.S. insurer Cigna Corp agreed to buy a 51 percent stake in Finansbank's wholly owned insurance unit Finans Emeklilik for 85 million euros ($114 million).
A company owned by former AIG chief executive Maurice Greenberg and a unit of Dubai lender Mashreq Bank bought the Turkish insurance arm of Dubai Group in September.
Yapi Kredi Sigorta made a net profit of 64.8 million lira ($37 million) for the nine-months to September 2012, compared with 49.7 million in the 2011 period. ($1 = 0.7442 euro = 1.7635 lira) (Additional reporting by Asli Kandemir in Istanbul, Taiga Uranaka in Tokyo, Kathrin Jones and Arno Schuetze in Frankfurt, and Paul Arnold in Zurich; Editing by Dan Lalor and Nick Tattersall)