Bermuda-based CastlePoint Reinsurance Company Ltd. has agreed to buy US insurance comany Hermitage in a $135 million deal.

The agreement continues a trend of well-capitalised Bermuda reinsurers extending their reach into the US primary insurance market through acquisitions.

CastlePoint's parent company CastlePoint Holdings Ltd. is itself in the process of being bought out by the Tower Group.

CastlePoint will pay the seller, a subsidiary of Brookfield Asset Management Inc., $27 million in cash plus the adjusted closing book value of Hermitage, making the deal worth around $135 million in total. No external financing required, Tower and castlePoint said in a joint statement yesterday.

Hermitage is expected to generate $100 million in gross premiums this year. It is a specialty property and casualty insurer with an excess and surplus lines platform covering 29 states and the District of Columbia.

Hermitage's operating subsidiaries, Hermitage Insurance Company and Kodiak Insurance Company also have admitted licences in 10 US states.

CastlePoint's and Tower's distribution network in the US will be enhanced through the transaction by gaining access to 150 retail agents in the southeast.

Michael Lee, chairman and chief executive officer of both Tower and CastlePoint, said: "Through this transaction, Tower and CastlePoint will be able to acquire a very profitable business similar to Tower's business by utilising CastlePoint's capital.

"In addition, CastlePoint will be able to shift more of CastlePoint Reinsurance Company's capital from reinsurance to insurance in response to current market conditions. The transaction further supports Tower's national expansion plans by focusing on underserved market segments through wholesale agents while expanding its retail distribution system in the southeast."

Tower announced the deal to acquire CastlePoint on August 5 and the transaction is expected to close in December this year.