* Ergo says non-binding offers too low
* To run down portfolios itself on new platform
* Peer Generali continues sale of own portfolio
* Clearance from watchdog Bafin seen a challenge (Adds details on valuation)
By Arno Schuetze and Alexander Hübner
FRANKFURT, Nov 29 (Reuters) - Munich Re's Ergo unit has dropped plans to sell run-off life insurance policies, saying non-binding offers received by the company were too low.
"In Ergo's view, the current value of the portfolios and its potential appreciation is not adequately reflected in the offers submitted," Ergo Chief Executive Markus Riess said late Tuesday.
Ergo and rivals are struggling to pay guaranteed returns to clients because of record-low interest rates. Combined with more stringent European capital rules, this has prompted insurance companies to offload some life insurance operations.
According to people close to the matter, run-off specialists backed by buyout groups Cinven, Apollo and Fosun as well as UK peer Resolution put in offers worth around 1 billion euros ($1.2 billion) for the portfolio of roughly 6 million contracts backed by 60 billion euros in capital investments.
Munich Re had expected significantly more, with one person putting the asking price at around 2 billion euros.
Ergo is now expected to run down the portfolio on an in-house platform being developed with IBM, the people said.
Obtaining German financial watchdog Bafin's approval of any deal was seen as an uphill battle, as the regulator aims to ensure that customers receive promised pay-outs, people close to the matter said.
But Riess said on a conference call that Ergo never got to the stage of discussing a transfer of the portfolio with Bafin.
"Although an outright sale of the back book now appears unlikely, we expect there still remains the opportunity to allow third-party investors to take a stake in the new organisational entity," Jefferies analysts said.
Separately, Ergo peer Generali is continuing efforts to sell its German life insurance portfolio of roughly 4 million contracts, which is backed by 40 billion euros in capital investments, people close to the matter said.
"Generali's talks with Cinven, Apollo and Fosun continue. But the real challenge is whether they will figure out a solution with Bafin," one of the people said.
$1 = 0.8460 euros Additional reporting by Maria Sheahan; Editing by Sherry Jacob-Phillips and Mark Potter