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updated 3/16/2004 10:51:47 AM ET 2004-03-16T15:51:47

Safeco is to sell its life assurance and investment operations, including its mutual funds business, for $1.4 billion to a group of investors led by Bermuda-based White Mountains Insurance and Warren Buffett's Berkshire Hathaway. 

The deal, unveiled on Monday evening, comes nearly six months after the Seattle-based insurer announced plans to divest the unit to concentrate on selling property and casualty insurance. 

White Mountains and Berkshire Hathaway have each pledged to inject $200 million into the unit, which will be recapitalised as a new company with about $1 billion in equity. 

The sale answers one of the big open questions in the US insurance industry, which is experiencing a flurry of dealmaking activity. Last month, CNA Financial agreed to sell its life assurance business to Swiss Re for $690 million, while last year Manulife of Canada agreed to buy John Hancock for $11 billion and The St Paul Companies agreed a $16 billion merger with Travelers Property Casualty. 

Mike McGavick, Safeco chairman and chief executive, said Monday's deal would allow the company to focus on what "[it does] best - auto, home and small-commercial insurance". At the end of last year, the unit in the proposed sale had $22.5 billion in assets and $2.6 billion in GAAP book value. 

In a separate transaction, Safeco on Monday said it had agreed to sell its insurance brokerage business for $90 million to a group of investors led by senior management of Talbot Financial. 
Both deals are expected to close in the third quarter. Safeco's Nasdaq-listed shares closed down 1.1 per cent on Monday at $43.86, valuing the company at $6.1 billion.

© The Financial Times Ltd 2010. "FT" and "Financial Times" are trademarks of the Financial Times.

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