April 24, 2013 / 1:26 PM / 4 years ago

German Provinzial public insurers edge toward merger-sources

DRESDEN/DUESSELDORF (Reuters) - Large shareholders in German public sector insurers Provinzial Nordwest and Provinzial Rheinland are pushing for the two to merge and put paid to an advance from Allianz (ALVG.DE), three people familiar with the situation said.

The two public insurers, owned by German savings banks and municipal authorities, began exploring possibilities for a merger last year after Europe's largest insurer, Allianz, put out feelers toward Provinzial Nordwest, the country's second-biggest public insurer.

Sources close to Nordwest's owners at the time said Allianz was prepared to pay the insurer's book value of around 2.25 billion euros ($2.93 billion).

Germany's public sector banks and insurers have a special status under German law and traditionally have closed ranks to ward off any threat of influence from the private sector.

But like their private sector counterparts, public insurers are under pressure to cut costs in the face of low interest rates, which are squeezing the margin between what insurers earn from their investments and what they pay out to policy holders.

"Significant synergies can only be achieved through a merger, not a mere cooperation," one of the people told Reuters on Wednesday.

While the savings banks are pushing for the merger of the two Provinzials, the municipal authorities that are also big shareholders are worried about potential job losses.

A study by consultancy Oliver Wyman shows the merger would cost around 500 jobs, people familiar with the study said.

However, one source close to the savings bank owners said the perceived threat from Allianz was probably sufficient to overcome the doubts and get a merger done.

"A simple cooperation between Provinzial Nordwest and Provinzial Rheinland would be an unconvincing response to Allianz's approach," one of the sources said on Wednesday.

($1 = 0.7683 euros)

Reporting by Andreas Kroener and Matthias Inverardi; Writing by Jonathan Gould; Editing by Mark Potter

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