The message from Allied World (AWAC) and Transatlantic was a positive one. Here was a deal which would create a new underwriting superpower not only that one where there was little overlap and therefore the economies of scale would be the key driver.

The pair said the signing of the definitive merger agreement “will create a leading, global specialty insurance and reinsurance company”. The combined entity will have total invested assets of $21 billion, total shareholders’ equity of nearly $7 billion, and total capital of $8.5 billion.

Upon completion of the merger, Scott Carmilani, current Chairman, President and Chief Executive Officer of Allied World Assurance Company Holdings, AG, will serve as the President and Chief Executive Officer of the new company, with overall responsibility for the global organization.

Mike Sapnar, presently Executive Vice President and Chief Operating Officer of Transatlantic, will serve as President and Chief Executive Officer, Global Reinsurance.

Both Mr Carmilani and Mr Sapnar will serve on the combined company’s Board of Directors, which will have 11 seats, six appointed by Transatlantic and five by Allied World. Richard Press, Transatlantic’s non‐executive Chairman, will serve as the non‐executive Chairman of the Board of Directors for the combined company for the first year following the closing of the merger.

The New entity will operate under a holding company structure with the corporate name TransAllied Group Holdings, AG, with two distinct brands – Transatlantic Reinsurance and Allied World Insurance.

The statement said: “The transaction is structured as a merger of equals, with shareholders of Transatlantic receiving 0.88 Allied World common shares for each transatlantic common share held.” However it adds that following the merger, Transatlantic shareholders will own approximately 58% of the combined company on a fully diluted basis, with Allied World shareholders owning approximately 42%.

A conference call the day after the announcement revealed that should Transatlantic withdraw from the deal it would cost them a penalty of around $125 million.

Robert Orlich, President and Chief Executive Officer of Transatlantic, who will retire upon the closing of the transaction, said, “Transatlantic and Allied World make great merger partners in every sense of the term. For Transatlantic in particular, the transaction delivers strategic and financial benefits, including primary insurance operations, a Lloyd’s presence and a bigger capital base outside the U.S., allowing for greater capital allocation flexibility. I look forward to helping see this transaction through to completion, after which Scott and Mike are the right team to move this forward and capitalise on the great opportunity for the new company to create value for shareholders.”

Mr Carmilani added: "We are very excited about this strategic combination of two industry leading insurance and reinsurance franchises. The combined company will enjoy significant scale with $8.5 billion in capital and $21 billion in invested assets. More importantly both companies’ operations will benefit from a significant global footprint with access to distribution channels within all major markets as well as attractive geographic and product diversity. Collectively, we will have 39 offices located throughout 18 countries worldwide.

"I have long admired Bob Orlich, Mike Sapnar and the management team at Transatlantic and the specialty reinsurance business they have built, which very much complements Allied World’s specialty insurance focus. This merger will only serve to strengthen the combined company’s market profile and competitive position, greatly enhancing our capabilities to post strong returns through all phases of the industry cycle. Both management teams have a strong track record of building value for their shareholders over the long run, and we are eager to continue doing just that as part of one organisation.”

The companies say the merger will result in an operation which will have an Increased financial strength, a stronger capital base and greater business diversification

It will also provide access to additional growth opportunities with greater diversity, enhanced structural flexibility, and improved earnings stability

The merger has the backing of the two company’s boards and if the shareholders give their approval the deal is expected to be finalised in the fourth quarter of the year.

However the announcement has been met with a mixed reaction form analysts.

Barclays' analyst Jay Gelb, published in a note on the say of the announcement, that Transatlantic would probably attract further suitors before the deal with Allied closes.

It has echoes of the battle for IPC Re in which the deal for a merger with Max Capital prompted a rival bid from Validus group which was eventually accepted by the IPC Re shareholders forcing max Capital to merge with Harbor Point to form Alterra Capital.

However analyst Mark Dwelle, insurance analyst with RBC Capital Markets said he felt that the merger announcement was not the trigger for a new wave of market consolidation.

 “I don't think deal greatly increases or decreases the likelihood of these transactions taking place,” he said.  “I think it's more particular to these two companies agreeing on a structure and format.”