Canadian investment and insurance company Fairfax Financial Holdings Ltd has agreed to buy Allied World Assurance Company in a $4.9 billion cash and stock deal.

The proposed transaction has been unanimously approved by the directors of both companies.

Allied World was among a number of insurers and reinsurers formed in the immediate wake of the 9/11 attacks in the US. The company was set up in Bermuda as a joint venture between American Insurance Group, Chubb Corporation and an investment fund managed by Goldman Sachs & Co.

In 2010, Allied World redomiciled from Bermuda to Switzerland, however it maintains an office in Bermuda.

Globally, the company has 1,040 employees, according to a Forbes report. Two years ago, it expanded its North American insurance operations by opening a branch in Toronto.

In the proposed deal, Toronto-based Fairfax will pay $54 for each Allied World share, which is about 18 per cent higher than their closing price on Friday.

Allied World shareholders will receive about $10 cash and $44 of Fairfax’s stock for each share they own. Fairfax has an option to increase the cash portion up to $30 per share.

Prem Watsa, chief executive officer of Fairfax, said: “We are excited to have Allied World join the Fairfax group. Allied World is a high-quality company with an excellent long-term track record and an outstanding management team led by Scott Carmilani.

“Allied World will operate within the Fairfax group on a decentralised basis after closing, and we are looking forward to supporting Scott and the entire team at Allied World in growing their business over the long-term.”

Mr Carmilani will continue as chief executive officer of Allied World, according to a report by The Washington Post, which quoted Mr Watsa as saying Allied World “will be the largest and the best company that Fairfax has purchased in 31 years”.

Meanwhile, Mr Carmilani called it a tremendous opportunity. He said: “Our shareholders are being rewarded for the strong performance of Allied World over the last ten years since going public.

“We are strategically aligning ourselves with Fairfax, one of the premier companies in the insurance industry which has a great track record of supporting their operating companies and creating value for shareholders.

“We are excited to be joining the Fairfax organisation — we share their passion for underwriting excellence and their entrepreneurial approach to growing the business with a long-term orientation.

“Our shareholders will benefit from Fairfax’s tremendous investment capabilities as demonstrated by its superior long-term investment track record.”

He added: “The success of Fairfax’s decentralised approach in empowering their management teams to drive profitable underwriting and combining Fairfax’s investment philosophy will position us to create long-term value for shareholders.

“Fairfax provides a great home for Allied World to continue to build a strong business for our customers, business partners and employees.”

It is intended that the transaction will be effected by way of an exchange offer, followed by a squeeze-out merger, and conclude in the second quarter of 2017.

The acquisition deal is subject to a sufficient number of the outstanding Allied World shares having been tendered in the offer, approval by Allied World shareholders and, to the extent required by applicable regulations, Fairfax shareholders, approvals from applicable regulators and satisfaction of other customary closing conditions.

In a statement, Allied World said its position “as a market-leading global property, casualty and specialty insurer and reinsurer, its major worldwide presence and its disciplined approach to underwriting make it a natural candidate to join Fairfax’s expanding worldwide operations”.

The company said its “growing international reach is highly complementary to Fairfax’s existing worldwide operations and the acquisition further diversifies Fairfax’s group risk portfolio.

“In addition, Allied World will be able to leverage Fairfax’s expertise in Canada, the US and international insurance and reinsurance markets, thus enhancing Allied World’s global product offering and providing it with expanded underwriting opportunities and support”.

Last year, Fairfax Financial acquired insurance and reinsurance group Brit Plc.