The insurance giant said it wanted to buy Berlinische Lebensversicherung AG from Europe's largest life insurer, Allianz, and Munich Re, the German reinsurer, who between them hold a 95 per cent stake.
The talks are part of the company's drive to establish a presence in European countries which are expected to encourage private insurance and move away from state provision.
Peter Foster, CU's finance director, said: "In Germany, the life insurance premiums are still a smaller market than the UK. Pensions are unfunded and at the moment most of it is still done through the state. This is part of a strategy to develop the life insurance business in Europe."
CU said it was convinced the German market for life insurance would grow sharply. Demographic problems would push the government into farming out pensions to the private sector.
In contrast to the UK market, Germany spends just 2.5 per cent of GDP on life insurance. In the UK, life insurance makes up 7 per cent of GDP.
Shares in Commercial Union eased 11p to 979p yesterday. Mr Foster said this reflected the rest of the insurance sector rather than reaction to its acquisition. "The reaction we have had from analysts is that it fits with strategy and that there is a good opportunity there," he said.
CU has already had a surprising run of success in Poland, where it already has 45 per cent of the market for selling life insurance to individuals.
Setting up its operation in 1993, CU has invested just pounds 5m on the operation. CU Polska now brings in pounds 57m a year in annual premiums. Lump sum investments leapt by 82 per cent last year to pounds 8m.
The company also has established operations in France, where it is aiming to sell UK-style individual pensions to French investors. A Czech operation was also set up in November last year.
CU, which employs more than 9,000 staff, takes more than pounds 3.7bn in insurance premiums every year, including general insurance, such as household and motor cover.
Berlinishe, which has 800 staff, had premium income last year of pounds 277m and has recently remoulded its management and changing its operations.