Chaucer’s board of directors consider the terms of the acquisition to be fair and reasonable, and they have recommended that shareholders approve the deal, says a press release.

According to rating agency A.M. Best Co., the offer made by Hanover takes into account the effect of the Tohoku earthquake and tsunami on Chaucer. It’s “A” rating of Hanover and ratings to Chaucer Holdings and its Lloyd’s syndicates are unchanged.

Chaucer on Monday announced losses from Japan could reach about $57 million. It says catastrophe events in 2011 “resulted in limited ceded reinsurance erosion” and it has plenty of protection for future events. Simultaneously, Chaucer confirmed it was in talks with a number of companies interesting in buying it.

Chaucer underwrites global marine, non-marine, aviation, motor vehicle and nuclear business at Lloyd’s.

Frederick H. Eppinger, chief executive officer at Hanover, says the purchase “would represent a significant step forward in our journey to build a world class property and casualty company,” and allow Hanover to “advance our specialty strategy.”

“Increasingly, many of our partners are seeking carriers that can deliver product solutions and risk placement capabilities in highly specialized markets with growing international exposures,” Eppinger says in a statement. “In addition to earnings and risk diversification, we would benefit from Chaucer's strong market position as one of the lead insurers and managing agents at Lloyd's.”

Chaucer CEO Bob Stuchbery says the acquisition will allow it to “Build on Hanover’s market position, and access attractive specialty business through its strong U.S. retail distribution.”

A.M. Best says the transaction could result in better cross-selling opportunities for Hanover and Chaucer.

Hanover says it plans to finance the purchase with cash, and it will sell about $250 million of debt.