Transatlantic Shares Popped: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of specialty insurer Transatlantic Holdings (NYSE: TRH  ) climbed 10% after announcing plans to combine with Allied World Assurance (NYSE: AWH  ) in a deal valued at $3.2 billion.

So what: The deal is being structured as a "merger of equals," with Transatlantic shareholders receiving 0.88 Allied World shares, or $51.10 per share, representing a 16% premium over its Friday closing price. Today's announcement continues the recent trend of midsized reinsurers hooking up to gain scale, as well as geographic and product diversification.

Now what: The new couple will certainly be worth following. Upon the completion of the deal, the combined company will have a total of $21 billion in invested assets, shareholders' equity of nearly $7 billion, and total capital of $8.5 billion, which, in turn, should put it in a stronger competitive position going forward. Couple that larger scale with a likely decrease in earnings volatility, and conservative investors might have an ideal way to invest in the space.

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