NU Online News Service, June 13, 2:51p.m. EST

Yesterday, Transatlantic Holdings, Inc. and Allied WorldAssurance Company Holdings, AG announced a $3.2 billion merger dealthat executives say will create a global specialty insurer andreinsurer operating in 18 countries on six continents.

In addition, the “new and vibrant competitor” in the globalmarketplace, to be known as TransAllied Group Holdings, will manage$8.5 billion in total capital, Robert Orlich, president and CEO ofTransatlantic, said on a conference call describing the deal thismorning.

The capital figure puts TransAllied behind global giants ACELimited and XL Group and ahead of PartnerRe, according to a slidethat executives of the new entity presented during this morning’scall.

The combined capital base “puts us in a very competitiveposition [and] establishes TransAllied as a first port of call forany opportunities that become available,” says Mike Sapnar,executive vice president and chief operating officer ofTransatlantic. “It makes us a market leader with producers acrossindustry cycles. In a soft market, size gives you more clout andoptions,” Sapnar adds.

Transatlantic brings $5 billion in capital to the merged entity,with Allied World bringing roughly $3.5 billion in capital, saysScott Carmilani, chairman, president, and CEO of Allied World.

In addition, the combined entity will have total invested assetsof $21 billion, and combined gross premiums of nearly $5.9billion—$4.1 billion on the reinsurance side from Transatlantic,and $1.8 billion from Allied World, which writes mainly specialtyinsurance with a sprinkling of reinsurance, he says.

The transaction is being structured as a merger of equals, withshareholders of Transatlantic receiving 0.88 Allied World commonshares for each Transatlantic common share held, the New York andSwitzerland-based companies say.

Following the merger, which is expected to close in the fourthquarter, Transatlantic shareholders will own approximately 58percent of the combined company, with Allied World shareholdersowning roughly 42 percent.

Orlich, who will retire upon the close of the deal, describes itas a “homerun for each company,” adding that both deal participantsview the merger as a “grand slam for the combined entity.”

“Packaged together, we are better positioned to leverage ourrespective strengths” in key global markets, especially Europe andemerging markets, he says.

Orlich and Carmilani note that the insurance and reinsuranceoperations under the TransAllied Group Holdings umbrella willcontinue to offer their respective products under two distinctexisting brands—Transatlantic Reinsurance and Allied WorldInsurance—going forward.

Sapnar, who will serve as president and CEO of globalreinsurance going forward, says the merged entity will have 39locations around the world all together, with nearly 500 of its1,300 employees dedicated to non-U.S. business.

Carmilani will become president and CEO of the new holdingcompany.

TransAllied will “have the ability to write business at thesource, leveraging local market knowledge and relationships,”Sapnar says. A pie chart shown during his remarks put 52 percent ofthe merged organization’s global premiums in the United States, 25percent in Europe and the balance elsewhere.

The global reach “enables us to identity and seize opportunitiesahead of competitors, especially in emerging markets,” he says,adding that the deal structure gives the company the capability toallocate capital to the highest return geographies.

Both Carmilani and Sapnar touted the specialty bent of bothorganizations, with Sapnar noting that the combined entity willhave half its business in specialty lines like D&O, E&O,med mal, surety and credit.

The mix of business is now heavily reinsurance—a fact not loston one analyst, who questioned whether this marked a change instrategic direction for Allied World. Moving in a seeminglydifferent direction in a recent prior deal, Allied World bulked upits U.S. specialty insurance capabilities with the $550 million acquisition of Darwin ProfessionalUnderwriter, a small-account professional liability insurer in2008.

Carmilani replied that “the concentration in specialty insurancedomestically in the United States” that Allied World has beenbuilding “does not lose focus whatsoever. We will continue to growthat, continue to pursue that, when and where it makes sense,” hesaid.

Prior to the Darwin deal, Allied World bought Converium Insurance (North America) in adeal that Carmilani then told NU would be a first step in hiscompany’s strategy to grow its U.S. reinsurance book.

Reacting to the deal, A.M. Best and Moody’s announced thatfinancial strength ratings on both entities were unchanged,although Moody’s put Allied World’s A2 on review for possibleupgrade. Best says all entities are rated A, and Carmilaniconfirmed that Standard & Poor’s, which upgraded Allied Worldto “A” last week, has also affirmed Transatlantic’s “A-plus”rating.

American International Group owned a majority stake inTransatlantic until 2009, when AIG sold its stake for over $1 billion to helprepay government bailout funds.