NEW YORK (Bloomberg) — Shares of PXRE Group Ltd. rose as much as 18 percent after the Bermuda-based reinsurer agreed to be acquired by Argonaut Group Inc. for $422.4 million in stock.The shares rose 48 cents, or 11 percent, to $4.94 at 11:49 a.m. in New York Stock Exchange composite trading, after earlier touching $5.27. The transaction values PXRE at $5.17 a share, the companies said today on a conference call.

PXRE, a reinsurer of companies who cover catastrophes, suspended sales after credit-rating downgrades triggered by losses from a record 2005 hurricane season. The company has lost about four-fifths of its market value since Hurricane Katrina.

Argonaut and PXRE will combine to form a new Bermuda-based company, called Argo Group International Holdings Ltd. Argonaut, based in San Antonio, sells policies in niche U.S. markets such as restaurants and public schools. It will gain PXRE's operations in Bermuda and Europe.

Argonaut Group shares fell 20 cents, or 0.6 percent, to $33.95 at 11:49 a.m. on the Nasdaq Stock Market.

Stockholders of PXRE will exchange each share for one in the new company, while each Argonaut share will convert to 6.4672 shares. Based on yesterday's closing share prices, those terms value PXRE shares at $5.28. A $60 million dividend that Argonaut expects to pay before the deal is completed lowers the figure to $5.17, said Jamie Tully, a spokesman for Argonaut.

Argo Group will be run by Argonaut Chief Executive Officer Mark Watson, and the new board will have nine directors from Argonaut and four from PXRE. PXRE CEO Jeffrey Radke will resign when the deal closes, Watson said today on the call.