NEW YORK (Bloomberg) — Bermuda re/insurance rivals Max Capital Group Ltd. and Harbor Point Ltd. have agreed to merge to create a company with $3.5 billion of book value.

The combined company will be called Alterra Capital Holdings Ltd., the firms said in a statement yesterday. Harbor Point was founded in 2005 with backing from Stone Point Capital LLC, a Connecticut-based private equity firm whose chairman is Stephen Friedman, a director and former chairman of Goldman Sachs Group Inc.

The merger is the latest indication that Bermuda-based reinsurers, many of them formed by hedge-fund and private-equity firms, are looking for deals that would allow them to grow and differentiate from rivals. Wall Street formed the most recent crop of companies with $35 billion of new capital in 2005 after Hurricanes Katrina, Rita and Wilma boosted the price of insurance coverage.

When the deal is completed, Alterra plans to pay its shareholders a special cash dividend of about $300 million, or $2.50 a share, the firms said. The merger values stock of Max and closely held Harbor Point at the same ratio to tangible book value, or assets minus liabilities, said people with knowledge of the terms.

Max Capital rose 35 cents, or $1.46, to $24.27 in Nasdaq Stock Market trading yesterday.

Harbor Point was founded with $1.5 billion of capital, taking on some reinsurance clients from insurer Chubb Corp., which became a shareholder. The firm earned an average return on equity of about 7.4 percent annually from 2006 through 2009 and has a book value of about $1.9 billion, according to the company's annual reports. It helps insurers spread their risks on both liability and property coverage.

Max chief executive officer Marston Becker struck a deal last year to merge with IPC Holdings Ltd., another Bermuda reinsurer, only to see Validus Holdings Ltd. break up the deal with a higher offer. Max Capital's book value was about $1.6 billion as of December 31.

Perry Corp., the New York hedge fund manager run by Richard Perry, last month urged Bermuda-based Endurance Specialty Holdings Ltd. to seek a buyer. Perry helped found Endurance in 2001 and controls more than 12 percent of the company.

Mr. Becker will become chief executive of Alterra, while Harbor Point's CEO, John Berger, becomes chief of Alterra's reinsurance business and vice-chairman of the board, the firms said. Michael O'Reilly, a former Chubb executive who is Harbor Point's chairman, will take the same role at Alterra.

Stone Point, which was spun off from insurance broker Marsh & McLennan Cos. in 2005, has raised $10 billion from clients to invest in financial services companies, according to its web site.