Endurance Specialty Holdings Ltd has agreed to acquire fellow Bermuda-based reinsurer Montpelier Re Holdings Ltd in a $1.83 billion deal.

The new combined company will be run by Endurance’s senior management team from its headquarters in Waterloo House on Pitts Bay Road, Endurance said in a statement today.

Endurance chairman and chief executive officer John Charman said the acquisition represented a good deal for his company’s shareholders, and would add a Lloyd’s of London franchise and a third-party capital management business to the company.

The cash-and-shares deal is worth $40.24 per Montpelier Re share and Montpelier shareholders will own just under a third of the combined company.

Both boards of directors have unanimously approved the merger and Montpelier Re’s largest shareholder, Charlesbank Capital Partners, has agreed to vote in favour of the deal, which is expected to close in the third quarter of this year.

Between then the two companies wrote $3.6 billion in premium last year.

Endurance expects the efficiencies created by the deal to result in annual cost savings of about $60 million. There was no word on how many jobs may go in Bermuda, where Montpelier employed 67 people as of last summer.

According to reports by The Insurance Insider, the deal is the culmination of an auction process and other bidders including Aspen, Hamilton Insurance Group and the Chinese group Fosun.

“Endurance’s strategic acquisition of Montpelier represents a compelling value creation opportunity for Endurance’s shareholders, with accretion to earnings per share and return on equity,” Mr Charman said.

“As a result of the transaction, we expect to achieve meaningful transaction synergies through cost savings and greater capital efficiencies. Importantly, the acquisition materially increases our breadth of distribution with the addition of a good-sized and scalable Lloyd’s platform and an attractive property catastrophe business that complements our existing reinsurance portfolio.

“The acquisition also provides Endurance with a natural introduction to the business of managing insurance and reinsurance investment products for third-party capital investors. Montpelier’s historic high-quality portfolio reflects a disciplined approach to underwriting that is consistent with Endurance’s strong risk management and underwriting culture.”

Endurance will pay $9.89 in cash and 0.472 shares of Endurance for each Montpelier share. The total consideration is $450 million in cash and approximately 21.5 million Endurance shares.

The cash portion of the consideration will be funded through a pre-closing dividend paid by Montpelier to its common shareholders.

Endurance common shareholders’ equity will increase from $2.8 billion to $4.1 billion, while total capital will rise from $3.7 billion to $5.5 billion, and total cash and invested assets will increase from $6.7 billion to $9.3 billion on a pro-forma basis.

Montpelier CEO Christopher Harris said: “This transaction with Endurance provides significant value for Montpelier shareholders through upfront cash and an equity interest in a combined Endurance with enhanced scale, greater market presence and substantial product and geographic diversity. The combination of our balance sheets, our diverse underwriting platforms and high-quality books of business is a compelling opportunity for our shareholders, customers and distribution partners.”

The Endurance board will be expanded when the deal closes to include three of Montpelier’s current directors.

Consolidation is sweeping across the reinsurance industry and Bermuda has been the epicentre of mergers and acquisition activity. RenaissanceRe has completed its merger with Platinum, while XL-Catlin and Axis-PartnerRe mergers have been agreed.

Endurance’s financial advisors in connection with the transaction are Morgan Stanley and Jefferies, and its legal counsel is Skadden, Arps, Slate, Meagher & Flom. Montpelier’s financial adviser in connection with the transaction is Credit Suisse Securities (USA) LLC, and its legal counsel is Cravath, Swaine & Moore. In Bermuda, Appleby also advised Montpelier.