LONDON (Bloomberg) — Catlin Group Ltd. agreed to buy Wellington Underwriting Plc for $591 million ($1.22 billion) to create the biggest insurer on the Lloyd's of London market.Catlin, a property insurer that wrote coverage for New York's World Trade Center, will pay 35 pence and 0.17 of its own shares for each share of Wellington, Catlin said in a statement today. The offer is valued at 121 pence a share, 25 percent more than Wellington's share price on Oct. 23, the day before it started talks with Catlin.

The takeover will create the largest syndicate, or underwriting unit, on the Lloyd's insurance market, with gross premiums of about $2.4 billion. Catlin provides coverage ranging from boats to nuclear reactors and plans to save costs through its domicile in Bermuda, where regulation is lighter and taxes are lower than the UK.

"It is a very good deal for Wellington shareholders, and Catlin will be able to squeeze enough out of it for its shareholders as well," said Gerald Farr, an analyst at Seymour Pierce in London. He has an "outperform" rating on Catlin shares and a "hold" on Wellington.

"The new company will be the lead in virtually all the classes of business they write at Lloyd's, which will give a slight element of pricing power," said Farr.

Shares of Wellington rose 4.7 percent to 116.75 pence at 2.20 p.m. in London, valuing the company at $568 million. Shares of Catlin fell 3.5 percent to 490.75 pence, giving it a market value of $802 million .

Stephen Catlin, 52, will be chief executive officer of the enlarged company, which anticipates cost savings of $70 million in 2008 from the takeover, the statement said. The enlarged company would hasten Catlin's expansion plans in the US by two years and be able to insure as much as $1.25 billion in premiums at Lloyd's, the statement said.

The takeover, recommended by Wellington's board, would be Catlin's biggest purchase since founder Catlin sold shares two years ago in an initial public offering in London. Catlin includes a Bermuda property and casualty insurer and a unit at Lloyd's that insures professional indemnity, cargo ships, aviation and satellites.

"In the US, our operations form a natural fit, and the acquisition will accelerate our announced US expansion," said CEO Catlin. "We have identified substantial synergies in reinsurance, tax, operations and investments, which will benefit earnings in 2008 and beyond."

Rates for property and casualty insurers and reinsurers may come under pressure in 2007, after rising in response to last year's record losses from US hurricanes. Profits this year may benefit from a relatively benign storm season.

The CEO, a former underwriter who created the insurer in 1984, led the company to be one of the first Lloyd's insurers to set up headquarters in Bermuda. Other Lloyd's insurers including Hiscox Plc and Omega plan to follow the move.

Catlin's first-half profit rose 32 percent to $147.3 million pounds, the company said in September. Catlin expects to raise its 2006 dividend by 48 percent to 23 pence a share, the company said.

Wellington CEO Preben Prebensen, 49, a former JPMorgan Chase & Co. head of UK investment banking, will become deputy CEO of the new company. Wellington posted a 66 percent decline in first-half profit because of a fall in the dollar. Director and chief underwriting officer David Foreman left the company in March.

"The key challenge will be the amalgamation of the two Lloyd's syndicates" and avoiding the departure of their insurance underwriters, said Nick Johnson, an analyst at Numis Securities in London who has a "hold" rating on Wellington.

Individual investors, known as Names, which support Wellington's Lloyd's business, can choose to be bought out or remain as investors in the Lloyd's syndicate for at least the next two years, the company said.

Catlin was advised by JPMorgan Cazenove Ltd. and Wellington by Lexicon Partners, the statement said.