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CHICAGO-Four months after Xerox Corp.'s $2.7 billion sale of its Talegen Holdings Inc. property/casualty insurance operation fell through, Xerox has begun its piecemeal divestiture of the operation by selling Chicago-based Coregis Group Inc. to GE Capital Corp. for $450 million.

The sale price for the largest Talegen underwriter consists of $375 million of cash and $75 million of debt assumption, according to a Xerox spokesman. He and a GE Capital spokesman would not provide details on the debt GE Capital would assume if regulators approve the deal. Coregis' 1996 gross premium volume was $423 million. It ended the year with $271 million of statutory surplus.

Insurer rating agency A.M. Best Co. likely will issue a ratings update on Coregis, which specializes in public entity coverage, later this week, said Eric Simpson, a vp in Best's property/casualty insurance division. But, noting that Best's recent formal review of Coregis showed "business persistency and stability," he suggested that Coregis' A rating would be affirmed with at least a stable outlook.

After Xerox's $2.7 billion Talegen deal with Kohlberg Kravis Roberts & Co. fell apart in September, Best reaffirmed the A rating with a negative outlook because of its concerns about potential market disruptions after the busted deal, ownership uncertainty and insurer competition.

Mr. Simpson said the sale creates "some potential business opportunity" both for Coregis and GE Capital unit Financial Guarantee Insurance Corp., which writes financial guarantee coverage for municipalities, if they can cross-penetrate their overlapping markets. The acquisition also broadens GE Capital's stable of insurance products, GE said.

Based on Coregis' third-quarter 1996 statutory net income of $2.2 million, the sale price is "significant," said John Wicher, a managing director with San Francisco-based investment bank Russell Miller Inc., which specializes in insurance. "But again, this is a specialty company," he said. He noted that specialty insurers are "the darlings" of the property/casualty industry because of their superior performance compared with the industry as a whole. Xerox said the sale price exceeds Coregis' book value "and is consistent with the estimated value for the unit when Xerox discontinued insurance operations in 1995."

Another "important story" surrounding the acquisition is GE Capital's growing stake in the insurance industry, Mr. Wicher said. GE Capital Corp., which owns Overland Park, Kan.-based Employers Reinsurance Co., also recently bought two life insurers from Aon Corp., Life Insurance Co. of Virginia and Union Fidelity Life Insurance Co.