FRANKFURT (Reuters) - Europe's biggest insurer Allianz (>> Allianz SE) has secured the top spot in Turkey's fast-growing insurance market by agreeing to buy Yapi Kredi Sigorta (>> Yapi Kredi Sigorta A.S.) for about 1.6 billion Turkish lira ($883 million, £584.2 million).

The German group said on Wednesday it was buying a 93.9 percent stake in the Turkish insurer from local lender Yapi Kredi Bank (>> Yapi ve Kredi Bankasi A.S.). After closure of that deal, it will make a mandatory tender offer for the remaining 6.1 percent stake.

Turkey's growing population and rising standard of living have prompted a sharp increase in demand for car, property health and life insurance, but price competition among insurers is intense and many have suffered losses in recent years.

DZ Bank analyst Werner Eisenmann said the valuation of the deal, Allianz's largest takeover since 2007, was reasonable and financing should not be a problem. He retained a "buy" rating on Allianz shares.

The stock was down 1.6 percent to 106.55 euros by 10.10 a.m. British time, versus a STOXX Europe 600 insurance index <.SXIP> off 1 percent.

Allianz finance chief Dieter Wemmer told analysts a squeeze-out of minority shareholders in Yapi Kredi Sigorta would make it easier to achieve efficiencies from the deal.

Yapi Kredi Sigorta shares dropped 9.5 percent, having risen sharply recently in anticipation of a deal, while Yapi Kredi Bank's shares were down 0.4 percent.

Under a so-called bancassurance agreement over 15 years, Allianz will also get the right to sell insurance through Yapi Kredi's network of bank branches, Turkey's fifth largest with 6.5 million customers.

GROWING MARKET

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 saving through private placement plans, which became effective from the beginning of 2013, have made the business more attractive.

Property and casualty premiums in Turkey rose nearly 17 percent to 16.9 billion Turkish lira in 2012, according to data from the Insurance Association of Turkey.

Allianz already has 1.6 million customers in Turkey, mainly motor and health insurance policy holders. It says that made it the No. 2 market player in non-life insurance and No. 3 in life and health, with distribution primarily through agents.

Yapi Kredi Bank, owned by Turkish group Koc Holding (>> Koc Holding AS) and Italy's UniCredit (>> UniCredit SpA), had said on Tuesday talks were continuing on a sale of its insurance business after sources told Reuters that Allianz had agreed to buy it.

The sources said at the time that Japan's Dai-ichi Life Insurance (>> Dai-ichi Life Insurance Co Ltd) and Zurich Insurance (>> Zurich Insurance Group Ltd) had also been in the race for Yapi Kredi Sigorta.

Yapi Kredi will retain a 20 percent stake in Yapi Kredi Emeklilik, the life and pension subsidiary of Yapi Kredi Sigorta.

In January, Allianz struck a 10-year bancassurance agreement with HSBC (>> HSBC Holdings plc) to distribute life and pension products, which is expected to take effect in the second quarter of 2013 following regulatory approval.

($1 = 1.8143 Turkish liras)

(Editing by Maria Sheahan and Mark Potter)

By Jonathan Gould and Ludwig Burger