Arch Capital Group has entered into an a definitive agreement to acquire Watford in an all-cash transaction valued at around $622m.

Under the terms of the agreement, Watford shareholders will receive $31.10 in cash per share.

Arch currently holds nearly 13% of Watford’s outstanding shares. This is in addition to the around 2% Watford outstanding shares owned by Arch’s directors and executive officers.

The transaction, which is subject to approval by shareholder and regulators, is expected to close in the first quarter of next year.

Watford president and CEO Jon Levy said: “This represents a clear path forward for Watford, while also delivering an attractive premium to shareholders in a transaction with a high degree of certainty to close.

“We believe that Watford will be better positioned as a standalone business within Arch to execute its strategic priorities and growth plans. Importantly, we expect a seamless transition for our clients, trading partners and policyholders, who we think will benefit from Watford becoming part of a larger organization with greater resources.”

Watford will continue to operate as a standalone business and remain consolidated within Arch’s financials after the closing of the transaction.

Arch president and CEO Marc Grandisson said: “Since we launched Watford in 2014, the company has been a valued part of the Arch story and we are pleased to deepen our existing strategic and financial investment.

“Our longstanding contractual partnership with and financial consolidation of Watford expedited the due diligence process and should give all stakeholders confidence in our ability to close this transaction quickly.”

Arch intends to fund the deal through cash from its balance sheet. The company has the option to bring in additional investment partners as co-investors in the transaction.

Last year, Arch Capital Group finalised the purchase of insurance company, Barbican Group Holdings.