XL Capital faces a surprise competitor in its bid for the UK life insurance arm of General Electric, the Daily Telegraph reported on Friday.

XL and Swiss Re qualified for the second round of the bidding last month, but Deutsche Bank AG has emerged as a surprise bidder, the newspaper reported.

The three bidders are close on price with offers between ?350 and ?380 million, and the closing date for second round bids is September 8, the report said.

If Deutsche Bank succeeds in winning the bidding battle, the group could unlock value at GE Life by securitising some of the assets and using derivatives and guarantees to refinance the business.

Industry sources told the daily the model could be similar to that used by the entrepreneur Hugh Osmond, who bought Pearl Group from fund manager Henderson for ?1.07 billion last year.

The German bank could also look at breaking up GE Life, keeping the closed life funds, but selling off the specialist retirement plans operation which remains open to new business, the report said.

Deutsche would be the first investment bank to compete to take over closed life funds a market that has so far been dominated by insurers, the report said.