(Adds XL and Catlin CEO comments)
By Richa Naidu
Jan 9 (Reuters) - XL Group Plc said it would buyunderwriter Catlin Group Ltd for about 2.79 billionpounds ($4.22 billion), increasing the Dublin-based insurer'sshare of business written in the Lloyd's of London market tonearly 10 percent.
The deal is the latest in a string of European insurancemergers as the region's 5,000 underwriters face stricter capitalrules. Mergers usually make it easier for companies to cutexpenses relative to assets, helping them to raise capital.
"We are forecasting that we will, at a minimum, have about$200 million in cost savings across the two organisations whenthey are combined," XL Chief Executive Mike McGavick, who willhead XL Catlin, said in an interview.
"That's about 10 percent of the combined expenses of thecompany," he added.
It is too early to say how many jobs will be cut, he said.
Catlin writes about 7.5 percent of all Lloyd's premiums,making it the biggest syndicate on the market, while XL accountsfor about 2 percent.
The offer of 388 pence in cash and 0.13 new XL share valueseach Catlin share at about 715.3 pence - a premium of 8.3percent to the stock's close on Thursday.
Shares in London-listed Catlin were trading at 708 pence inafternoon business, while XL shares were up 1.6 percent at$35.99 in early trading on the New York Stock Exchange.
Bermuda-based Catlin, which sells insurance for everythingfrom flooding to kidnapping, said it would pay a final dividendof 22 pence, reversing a decision made in December to forego thepayout after an approach from XL.
At the time, XL - which has a market value of more than $9billion - had offered 2.53 billion pounds for Catlin.
Stephen Catlin, who founded the company that bears his namein 1984, told Reuters that some of Catlin's investors had"showed a very clear preference" for the final dividend and tohave the amount subtracted from the purchase price.
Catlin's top investors include BlackRock Institutional TrustCo, Cantillon Capital Management and MFS Investment Management.
"This bid both highlights the attractions of Lloyd's forexternal players and increases the scarcity value for theremaining companies," Shore Capital analyst Eamonn Flanagan saidin a research note.
Earlier this week, brokerage Westhouse Securities flaggedNovae Group Plc and Lancashire Holdings Ltd asthe next possible Lloyd's takeover targets. ($1 = 0.6612 pounds) (Reporting by Richa Naidu in Bengaluru; Editing by SavioD'Souza and Ted Kerr)