Endurance expects the deal will add to earnings immediately, and create $60 million in cost savings annually. Both companies’ boards have unanimously approved the deal, which is expected to be completed in the third quarter, according to the statement.

New Shares

The deal will be financed through $1.4 billion of newly issued Endurance shares and a $450 million cash consideration funded by a special pre-closing dividend by Montpelier, Endurance said in a presentation. Montpelier will be redeeming $150 million of preferred notes, Endurance said.

Shares of Endurance dropped 3.8%, the biggest intraday decline since May 2013, to $61.81 at 10:04 a.m. in New York. Montpelier gained 0.8% to $38.45.

The agreement accelerates consolidation among reinsurers and providers of specialty coverage. With each deal, small and medium-sized carriers feel more pressure to find a partner so they can keep up with rivals who gain scale to win contracts and improve relations with insurance brokers.

“It’s tough out there,” Mark Cloutier, CEO of Brit Plc, said Feb. 25, the week after agreeing to sell his Lloyd’s of London insurer to Prem Watsa’s Fairfax Financial Holdings Ltd. “There are enormous capital inefficiencies, so consolidation will bring some of that efficiency back. There is also the herd mentality so I expect to see more deals over the next 12 to 18 months.”

Lloyd’s Market

Buying Montpelier will give Endurance access to the Lloyd’s market to expand globally, Charman said, adding that Endurance’s lack of a presence in London was one of its “inherent weaknesses.” London insurers have also been consolidating since the Brit takeover, including Catlin Group Ltd.’s agreement in January to sell to Dublin-based XL Group Plc. Catlin, a Lloyd’s of London company, is also based in Bermuda.

Pension and hedge funds have piled into insurance in recent years, seeking opportunities like weather-related bets that aren’t correlated with financial markets. The flood of capital has pushed down the rates that insurers charge for coverage.

Montpelier was founded by White Mountains Insurance Group Ltd. and reinsurance broker Benfield Group Plc, and began operations in 2001 after the Sept. 11 attacks roiled the industry.

‘Compelling Opportunity’

“This transaction with Endurance provides significant value for Montpelier shareholders through up-front cash and an equity interest,” Montpelier CEO Christopher Harris said in the statement. “The combination of our balance sheets, our diverse underwriting platforms and high-quality books of business is a compelling opportunity.”

Morgan Stanley and Jefferies Group LLC advised Endurance on the deal, and Credit Suisse Group AG was Montpelier’s financial adviser. Skadden, Arps, Slate, Meagher & Flom LLP were the acquirer’s lawyers, while Cravath, Swaine & Moore LLP advised the target.

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