A $250 million payoff is on the table if the proposed $11 billion merger between Axis and PartnerRe fails to go ahead.

Each firm will be liable to pay a break fee to the other if the deal — which would create the fifth-biggest reinsurance company in the world — gets called off.

The figure is one of the biggest termination fees in recent history in the Bermudian market.

The deal is described as “a merger of equals”, but Morgan Stanley analysts estimated the proposed transaction valued Axis shares at 1.03 times and PartnerRe at 0.90 times their projected 2014 year-end value.

On that measure, the $250 million break fee represents between 4.5 per cent and 4.8 per cent of the total value of the transaction.

The break fee is second only to the $50 million fee set during IPC Re’s aborted $912 million merger with Max Capital in 2009, which was the equivalent of 5.5 per cent of the total deal.

Investors are known to dislike break fees as they are a barrier to competing bids and can prevent shareholders cashing in on a better offer.

During the successful hostile takeover of IPC by Validus in 2009, Validus took legal action over the merger agreement between the firm and Max Capital, which in part challenged the termination fee.

It is understood, however, that the case never made it to court and the fee was paid.

Validus argued the fee was “excessive” and amounted to an unlawful penalty under Bermuda law.

Merger and acquisition fees in Bermuda generally range between three to four per cent of the deal total.

Platinum Re and Renaissance Re, who announced a merger last year, agreed a $60 million fee of the $1.9 million deal does not go ahead, amounting to around 3.2 per cent of the value.

And the unsuccessful Allied World and Transatlantic Re merger of 2011 was subject to a $115 million penalty — 3.6 per cent of the deal.

But the other large merger announced in recent weeks, XL and Catlin, has no break fee if either decides to pull out of the $4.2 billion deal, due to UK laws on takeovers.