Tower Group is to acquire Canopius Group’s Bermuda-based reinsurance business, a move which will enable the US insurer to create a Bermuda-based holding company.The New York-based Tower Group, said last night in a statement that it was exercising an option to combine with Canopius Holdings Bermuda Ltd and Canopius Bermuda Ltd.Tower’s option came when the company agreed to invest around $75 million to acquire a 10.7 percent stake in Canopius Group, subject to the closing of Canopius Group’s acquisition of Omega Insurance Holdings Ltd, a Bermuda company.In commentary on the proposed deal last night, Fitch Ratings said: “This structure will allow Tower to take advantage of the lower tax rate afforded by the holding company’s Bermuda domicile and it is similar to the structures employed by many of its Bermuda-based competitors.”The American provider of niche-oriented property and casualty insurance products and services said last night that the combination would allow Tower to create an “efficient international holding company structure” and should increase the company’s profitability.“Tower believes that the merger is a significant step towards the creation of an efficient globally diversified specialty insurance company that supports its expansion plans, building upon its existing quota share reinsurance business in London and Bermuda,” Tower Group stated.Tower did not put a precise price tag on the deal but said it believed Canopius Bermuda’s net tangible asset value would range between $240 million and $290 million by the time the deal can be consummated, which it said was unlikely to happen until the fourth quarter at the earliest.Tower Group CEO Michael Lee, said: “We believe that a merger with Canopius Bermuda is another significant step towards our strategic objective of establishing an efficient global specialty insurance platform to access the world’s three major insurance markets, the US, Bermuda and London, enhancing our profitability and creating new business opportunities.“While the transaction is still subject to several steps, and can be terminated by Tower at will, we will now commence the necessary steps to complete this transaction over the next several months. We will continue to evaluate the capital markets and will consummate the merger when and if we believe the transaction will be advantageous to Tower.”By exercising the option to combine, Tower said it had executed an “Agreement and Plan of Merger” with Canopius Bermuda. This would involve an affiliate of Canopius Bermuda acquiring all of Tower’s common stock. However, the statement adds that Tower will be the acquiring company under applicable accounting rules.Tower paid Canopius Group a $1 million fee to exercise the option.Under the agreement, Tower shareholders will receive a yet-to-be-determined number of Canopius Bermuda shares, plus $1.25 in cash, for each Tower share they own.UK-based Canopius Group, which is privately held, expects to sell its shares in Canopius Bermuda to third-party investors in a private placement before the merger goes through, Tower said.Tower added that current shareholders of Tower will own more than 75 percent of the merged company. The deal would boost 2013 operating earnings by four to six percent, Tower added.