Alleghany, a US-based property and casualty insurer, has agreed to acquire reinsurer Transatlantic Holdings for $3.4bn in cash and stock.

Alleghany will pay Transatlantic shareholders $59.79 per share, consisting of $14.22 in cash and 0.145 shares of Alleghany.

Upon completion of the transaction, Transatlantic will become an independent stand-alone subsidiary of Alleghany and Joseph Brandon, former CEO of Berkshire’s General Re unit, will serve as chairman of Transatlantic’s board.

Upon closing, Michael Sapnar will retain his current role as Transatlantic’s president and will become CEO effective 1 January 2012 and Robert Orlich, who will retire as Transatlantic’s CEO at the end of 2011, will continue to serve as a director and senior advisor to Transatlantic.

Alleghany president and CEO Weston Hicks said for Alleghany stockholders, this is a transformational transaction that, immediately upon closing, will be accretive to Alleghany’s book value and earnings per share. The transaction will significantly increase their capital base, and provide greater diversification and superior risk-adjusted returns with minimal integration risk.

The transaction, which is subject to regulatory approvals, customary closing conditions, is expected to close in the first quarter of 2012.

UBS Investment Bank and Morgan Stanley served as financial advisors to Alleghany. Goldman, Sachs & Co. and Moelis & Company served as financial advisors to Transatlantic.