China's Union Life to sell majority stake, draw local, overseas bidders -sources

* Plans to sell up to 51 pct with option to go to 100 pct later

* Union Life expected to be valued between $1.5-$2 billion

* AIA, Prudential and Chinese insurers expected to bid

* Beijing in process to ease foreign ownership limit in insurance

By Kane Wu and Sumeet Chatterjee

HONG KONG, Jan 23 (Reuters) - China's Union Life Insurance is planning to sell a controlling stake, and the deal could attract locals and foreigners looking to tap into the country's growing demand for insurance products, three people familiar with the matter said.

Union Life, expected to be valued at $1.5 billion to $2 billion, plans to sell as much as 51 percent, with an option to raise that to 100 percent later, said the people, who declined to be named as the deal process is not public yet.

AIA, the world's second-largest life insurer by market value, and the Asian unit of Prudential are among the foreign players likely to submit initial bids due over the next few weeks, the people added.

News of the deal comes as China is in the process of easing foreign ownership curbs for life insurance joint ventures to 51 percent from 50 percent. Beijing also pledged in 2017 to remove the limit completely in three years as it pushes to open up its financial sector worth trillions of dollars.

If Union Life sells a majority stake to a foreign firm, it would mark a rare purchase of a financial services company by an overseas player and indicate Beijing's efforts to lure investors to the world's third-largest insurance market were paying off.

It would also help dispel concerns about China's commitment to opening up its financial sector while it remains in the grips of a crippling trade war with the United States.

The shortlist of buyers interested in Union Life after the first-round bids is likely to be completed by the end of this quarter, one of the people said.

Spokespeople at Union Life could not be reached by Reuters even after several calls to its headquarters at Beijing. AIA and Prudential representatives declined to comment.

NEXT BATTLEGROUND FOR INSURERS

With a low market penetration at 3 percent of gross domestic product, a growing middle-class and increasing awareness, the easing up of ownership curbs is set to make China the next battleground for global insurers.

Chinese life insurance premiums grew 21 percent in 2017, above its 10-year average of 14 percent and compared to a fall of 2.7 percent in advanced markets, including the United States, according to Swiss Re data.

To capitalise on stellar growth prospects and draw in more foreign funds, Beijing will accept applications from early 2019 from foreign insurers seeking to take control of their local joint ventures and is weighing giving them full ownership sooner than flagged, sources have told Reuters.

As of now, Hong Kong-based AIA is the only wholly-owned foreign life insurance firm in China as its operations were set up before the ownership restrictions were introduced. Prudential has a 50:50 joint venture with China's CITIC Ltd.

INTEREST IN UNION LIFE

Foreign insurers are expected to be drawn to Union Life due to its customer base and product distribution network, which has been a challenge for overseas players given limited physical presence in the country, the people said.

If talks with a foreign bidder reach an advanced stage, the prospective buyer would have to seek regulatory approval, one person said. It is not clear how the Union Life business would be merged with existing operations.

Founded in 2005 in central China's Hubei province, Union Life is a national insurer with over 80 billion yuan ($11.8 billion) in assets, offering life, property and medical insurance products, its website shows.

A company controlled by Union Life's founder is its majority shareholder, with a 46 percent stake.

Its life insurance business raked in 14.5 billion yuan in premium over January-November 2018, versus 22.8 billion yuan a year ago, sector regulator data shows.

($1 = 6.7850 Chinese yuan)

(Reporting by Kane Wu and Sumeet Chatterjee; Editing by Himani Sarkar)