Bermuda reinsurer Validus Holdings Ltd has agreed to buy Flagstone Re in a $623.2 million deal.The transaction provides Flagstone shareholders with a 19.4 percent premium over yesterday's closing share price, and is valued at $8.43 of value per Flagstone share.Under the terms of the agreement, Flagstone shareholders will receive 0.1935 Validus voting common shares and $2 in cash for each Flagstone share.The companies expect to close the deal in the fourth quarter of this year.The combined company will maintain Validus's name, headquarters and executive management.Validus has obtained agreements from investment funds associated with Lightyear Capital and Trilantic Capital Partners, which collectively own around 22.5 percent of the outstanding Flagstone shares, to vote in favour of the transaction.Validus and Flagstone were both formed in 2005 in order to capitalise on high reinsurance rates in the wake of Hurricane Katrina.While Validus has seen rapid growth, fuelled by the acquisition of fellow Bermuda reinsurer IPC Holdings, Flagstone has been shrinking.After suffering heavy losses due to hefty catastrophe claims last year, Flagstone sold its Lloyd's unit and its interests in Cayman-based insurer Island Heritage in recent months."This is a compelling transaction for us that allows Validus to further build upon our market leading position in catastrophe risk,” Validus chairman and CEO Ed Noonan said.“Flagstone brings a strong client base that will add scale to our business. Validus has an established track record of integrating acquisitions quickly and effectively with a focus on the needs of our clients and intermediaries. We are confident that this transaction will generate excellent value going forward for Validus and Flagstone shareholders."Flagstone CEO David Brown said: "We believe this transaction offers a significant premium and immediate value for our shareholders, and provides a more stable capital base with which to underwrite over the long-term.“Over the past ten months, Flagstone has taken steps to strategically shift our business model, becoming a more focused and efficient underwriter and we believe this transaction reflects our progress. Further, we believe that Flagstone and Validus share a strong technical, analytical approach and a commitment to providing exemplary service for our clients.“We look forward to working with Validus to complete this combination and create shareholder value. The transaction, which our board of directors has unanimously concluded, is in the best interest of Flagstone, concludes a lengthy and extensive process in which the board carefully considered a broad range of strategic alternatives."