needed $420 million capital boost.

In exchange for the capital, three investor groups; Cayman-based Trident Partnership L.P., partially backed by Bermuda-based Mid Ocean Re, Fund American Enterprise Holdings Inc., and San Francisco-based Hellman & Friedman, will own about 82 percent of the insurance company's common stock on a fully diluted basis. Insurance broker Marsh & McLennan and investment firm J.P.

Morgan & Company are Trident's principals, Bloomberg business news service reported Tuesday.

The $420 million investment exceeds the $250 million Home Holdings -- which has lost about $300 million in the last 21 months -- sought.

The transaction is expected to close in the first quarter of 1995.

In the wake of the announcement, Home Holdings' shares rose 20 percent up $1.125 at $6.75 in early morning trading yesterday after falling 62.5 or 10 percent to $5.625 Monday.

The company has seen its stock drop from a 52-week high of $18.25 on January 13.

Mortgage banking company Fund American Enterprises Holdings Inc. of Norwich Vt., chairman, Mr. John Byrne, formerly of Geico Corp. and Fireman's Fund Insurance Co., will become chairman of Home Holdings.

Mr. Byrne said the group chose to invest because Home Holdings has put its biggest troubles behind it.

Home Holdings' capital surplus and its investment portfolio of short term government bonds made it an appealing investment, Mr. Byrne added.

The new capital prompted insurance rating firm A.M. Best & Co. to place the company's `B ' rating under review with positive implications. Best downgraded the company from `A-' in early November because of poor performance and low surplus.

Standard and Poors Corp. and Moody's Investor Service Inc. are reviewing Home Holdings' $280 million in debt and considering possible upgrades. They rate the company `BB-' and `Ba2', respectively.

In a move to assure investors, Home Holdings' parent and largest shareholder, Trygg-Hansa Spp Holding of Sweden, last month said it would forgive a $170 million loan to Home Holdings allowing the insurer to borrow $170 million from its banker to put toward capital.

Trygg-Hansa, which bought Home Holdings in four years ago, has invested $766 million in capital and loans.

As part of the transaction with Trygg-Hansa, common stock holders will be eligible to buy up to $60 million in newly issued stock at $4.50 a share.

The capital infusion, new loan, and stock sale are expected to bring about $630 million in new capital to the company and lift its surplus to over $1.3 billion from $706 million at September 30, 1994.

Home Holdings' third quarter losses were $131 million, down from $174 million a year earlier.

The company recently took a charge of $135 million to pay for hazardous waste cleanup costs.