German insurer Allianz to form joint venture with UK rival LV=

* Transaction to take place in two phases

* Allianz (Swiss: ALV-EUR.SW - news) to ultimately get 69.9 percent stake

* Products to be marketed under LV= brand (Adds Allianz CEO, analyst comments)

FRANKFURT, Aug 4 (Reuters) - German insurer Allianz has agreed to create a joint venture and strategic partnership with British rival LV= to form the third-largest property and casualty insurance company in Britain.

Allianz will pay 500 million pounds ($657.35 million) in exchange for a 49 percent stake in LV='s general insurance business, a deal that is expected to close in the second half of this year.

In a second stage, Allianz will pay 213 million pounds for a further 20.9 percent stake in 2019. The transaction is split in phases for tax reasons.

The deal gives 174-year old LV= financial strength, while it offers Allianz an increased presence in a highly competitive market.

Allianz Chief Executive Oliver Baete said products would be marketed under the LV= brand rather than under its own name, deviating from past acquisitions. In a statement, Baete called LV= "one of the UK's most respected and loved brands".

"We must be flexible in the modern world," Baete said in a call with journalists.

The strategic rationale is good, analysts with RBC Europe wrote in a note to investors. It "fits with Allianz's stated aims of increasing its presence in markets where it already has an established position that can be boosted by increased scale, in our view".

Bournemouth-based LV= has nearly six million British customers and offers a range of products from car, home, travel and life insurance to investment and retirement solutions.

LV= also ranks as one of one of Britain's biggest financial services mutuals, with about 5,700 employees.

($1 = 0.7606 pounds) (Reporting by Tom Sims; Editing by Maria Sheahan and Susan Thomas)