A Bermuda-based company specialising in buying up troubled insurance companies and selling off their assets and improving efficiencies was last night set to merge with the US company that helped set it up in business in 2001.

Castlewood Holdings is to be renamed as Enstar Group Limited in a deal that will create a new company with a market capitalisation of more than $1 billion.

For the US company Enstar Group, which is merging with the Bermuda operation, it provides a way to shield off-shore business revenue from US taxes.

It was in November 2001 that Castlewood, which has offices in Queen Street, was formed by the Georgia-based Enstar Group together with Trident Holdings and a number of individual investors.

Castlewood has made its business through managing and acquiring insurance and reinsurance companies, including companies in run-off, and also provides management, consulting and other services to the insurance and reinsurance industry.

Last May the prospect of a merger was publicly announced. At that point it was intended the two companies would join together in the latter half of 2006. The re-organising allows Enstar to benefit tax-wise from being an offshore entity although it will maintain a small office presence in Montgomery, Georgia.

The annual shareholder meeting for the Enstar Group doubled as a send-off party for Nimrod Frazer who helped steer the once-troubled Montgomery company into safer waters.

Shareholders voted to approve a merger with Castlewood Holdings. The deal, which has been in the works for more than a year and a half, will create an entity with more than $1 billion in market capitalisation. It also allows Mr. Frazer to retire, although he’ll continue as a director of the new company. “It’s been a great run,” said Mr. Frazer.

The comeback of Enstar began in the early 1990s, while the company was still in ruins after a series of missteps by former management. Mr. Frazer, a large shareholder and local investment banker, was asked to take the helm. He put the company into bankruptcy and for 15 years made slow, deliberate decisions to pay back the company’s creditors and simultaneously increase share price.

Since 1997 the stock has grown tenfold, from about $10 to more than $100 a share on Tuesday, when the merger deal was finally cleared.

Though many of his colleagues wanted to give him the credit, Mr. Frazer declined.

“This was certainly no ‘one-man deal’. I was simply a member of the orchestra and I look forward to continued successful investment,” Frazer said. “The biggest part of my personal net worth is invested in common shares of this company, so I’m going to be an interested shareholder.”

Dominic Silvester, the founder of Castlewood Holdings, will become CEO of the new company, Mr. Frazer will become a director and current Enstar president John Oros will be named executive chairman.

John Gengler, a New Yorker who is heavily invested in Enstar liked the new line-up.

“To me it seems like an awful good balance of old and young, with brilliant mathematicians,” said Mr. Gengler, who has 10 to 15 percent of his personal wealth tied up in the company’s stock.

Enstar and Castlewood Holdings have worked together for several years financing deals in the insurance run-off business, which involves purchasing distressed insurance companies and extracting value by selling assets and improving efficiencies.

In December, the Securities and Exchange Commission cleared the way for the two companies to merge move to Bermuda. The company will locate to the Island to take advantage of tax laws allowing money generated off-shore to stay clear of the US tax system.

Three members of Enstar’s staff will remain in Montgomery to handle certain requests from the home office.

“We think the future of Enstar is a pretty bright one. It may seem trite to say that trouble is a growth business, but people are really creating opportunities,” said Mr. Oros, who was a partner at investment firm Goldman Sachs before joining Enstar.

The merger was expected to officially close after 5 p.m. Bermuda time yesterday. When complete, the company’s shares will trade under ticker symbol “ESGRD” for about 20 days on the Nasdaq. Afterward it will go back to the current listing of “ESGR”.

Enstar’s stock increased nearly five percent on Tuesday’s merger news, gaining $4.72 a share to settle at $103.67. Enstar also paid a $3 dividend per share to its stockholders on Tuesday.