updated 11/18/2005 10:12:33 AM ET 2005-11-18T15:12:33

Swiss Reinsurance Co., the world's second-largest reinsurer, said Friday it will acquire General Electric Co.'s insurance unit for $6.8 billion.

The acquisition of GE Insurance Solutions, the world's fifth-largest reinsurer, should help Swiss Re compete with Germany-based Munich Re, the world's largest reinsurer.

Swiss Re said it would help finance the purchase of GE Insurance Solutions by raising $7.5 billion in new capital. Swiss Re will also assume $1.7 billion in debt in the deal.

Chief Executive John Coomber said Swiss Re expects the transaction to be accretive to earnings per share and return on equity beginning in 2007, and called it "a powerful business fit offering tremendous opportunities to strengthen our franchise."

Based in Kansas City, Missouri, GE Insurance Solutions had net premiums earned of US$6.2 billion in 2004 and total assets of $41.5 billion as of June 2005, excluding GE Insurance Solutions' U.S. life and health business, which will not be part of the transaction.

Swiss Re will now have an estimated annual revenue of 46 billion Swiss francs ($34.9 billion), compared to Munich Re's 58.6 billion francs ($44.5 billion). The addition of the GE unit will add approximately 8.2 billion francs ($6.2 billion) in revenue.

General Electric said the transaction should be completed by the middle of 2006, but is still subject to regulatory approval.

Reinsurers sell backup insurance to other insurance companies, spreading risk so that enormous losses from natural catastrophes can be covered. GE said last month in its third-quarter results that it incurred US$377 million in hurricane-related reinsurance losses.

"Insurance Solutions has been a tough strategic fit for GE," said Chairman and Chief Executive Jeff Immelt. "Over the last five years, the Insurance Solutions business has lost $700 million  and required the infusion of $3.2 billion of capital." (MSNBC is a joint venture of Microsoft and NBC, which is a GE company.)

Some analysts were skeptical about the deal because Swiss Re will have to tap fresh capital to pay for the acquisition. It will also mean that Swiss Re will have a bigger slice of the U.S. reinsurance market.

"Swiss Re is almost turning into a U.S. company with this deal," Viktor Dammann, an analyst at the Zurich-based Bank Vontobel, told Dow Jones Newswires.

Many analysts had expected Swiss Re to launch a major deal this year, but most guessed the insurer would most likely purchase run-off insurance operations.

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