In addition to the cash from GRE, which includes pounds 141m of goodwill, PPP Healthcare Medical Trust, the charity which owns PPP Healthcare, will receive pounds 125m in dividends from PPP Healthcare, bringing the total paid to pounds 560m, the largest single donation ever made to a UK charity.
The purchase will add PPP Healthcare's 28 per cent share of the UK health business to Guardian's 4.5 per cent to create a business with almost one-third of the UK health insurance market.
John Robins, GRE's chief executive, said the deal would give GRE a "significant platform for future growth." He said that in addition to a strong position in private medical insurance, PPP Healthcare had an 85 per cent market share in the rapidly growing dental care finance market and a 60 per cent share in the long-term insurance care market.
Growth prospects were excellent in these businesses, he said. "In the UK less than 25 per cent of the traditional core market for private medical insurance - namely ABs - has a policy." The new Guardian business will have 2.5 million direct customers in the UK, all of whom will have access to Guardian's other insurance products, said Mr Robins.
GRE's enlarged health insurance business will be led by Peter Owen, PPP Healthcare's chief executive. Mr Owen said: "In choosing Guardian Royal Exchange we have found an excellent parent. Today's announcement brings tremendous opportunities for PPP Healthcare.
"With GRE's significant distribution opportunities we will be able to offer our customers an even better service and explore new ways to help more people address their healthcare needs."
Guardian's shares fell 10p to 324p after the announcement. However analysts said the insurer had paid a good price and the fall was related more to a cautious trading statement accompanying news of the deal. Guardian is paying a 48 per cent premium to the value of the PPP business.
GRE said profits this year would be lower than expected because of losses, including a pounds 15m loss relating to a fire at a Boots factory in October.
Competition in the private medical insurance industry has intensified in recent years with flat sales and new entrants squeezing profits.
Nevertheless, healthcare is one area where pressure is likely to grow on governments around the world to encourage individuals to make their own provision and offset the rapidly escalating costs of state provision.