Allied World Assurance Company Holdings and Darwin Professional Underwriters have entered a definitive merger agreement whereby Allied World will acquire Darwin.

Darwin’s business and technology model to underwrite small professional liability business, is expected to complement Allied World’s account, specialty insurance, and reinsurance strategy.

Under the terms of the merger agreement, security holders of Darwin will receive approximately $550 million in cash, or $32 per share, in exchange for 100% of their interests in Darwin Professional Underwriters. The $32 per share purchase price is subject to a downward adjustment in the event that certain representations by Darwin in the merger agreement with respect to its capitalization are breached and, as a result of such breach, the aggregate consideration payable by Allied World in the merger is increased by more than $1 million.

The boards of directors of both companies have approved the transaction, which is subject to customary closing conditions, including obtaining various regulatory approvals and the approval of Darwin’s shareholders. A subsidiary of Alleghany Corporation has agreed to vote 40% of the outstanding Darwin shares in favor of the transaction.

The transaction is expected to be completed during the fourth quarter of 2008 and is anticipated to be accretive to Allied World’s earnings in the first full year after the closing. Pending the completion of this transaction, both companies will continue to conduct business as usual.

Scott Carmilani, president and CEO of Allied World, said: Acquiring Darwin is expected to immediately enhance both companies’ market profile and accelerate Allied World’s expansion of its US specialty insurance operations. Darwin’s strong reputation for both product and technology innovation will continue as a hallmark of Allied World.

Jack Sennott, CFO of Darwin, who will become the COO of Darwin upon the closing of the transaction, added: The Darwin Team is very excited about becoming part of Allied World. Darwin will reap the benefits from being part of a global company with strong ratings, a worldwide distribution network and over $3 billion in capital.