Willis Group is buying US rival Hilb Rogal & Hobbs (HRH) for $2.1 billion (£1.1 billion) in the biggest deal between insurance brokers for a decade.

The transaction - in which Willis will pay $1.7 billion for for HRH’s equity and assume $400 million of its debt - come as brokers seek to mitigate the effects of falling rates for personal and casualty insurance. It is also seen as a possible harbinger of further consolidation following last week’s amendent on US rules governing contingent commissions, or bonuses paid by insurers to brokers.

Willis, the world’s third-largest insurance broker behind Marsh & McLennan and Aon, is paying $46 a share, for HRH, the eighth largest in America - a near-50 per cent premium to HRH’s closing price of $30.89 on Friday.

The acquisition - from which Willis is seeking to draw annualised cost savings of $140 million by 2012 - is the largest such tie-up since Marsh bought Sedgwick Group for $2 billion in 1998. Willis said the deal will help it expand its footprint in North America, taking revenues from the region from 30 per cent to around 45 per cent. Post-merger the group will be known as Willis HRH in North America.

HRH’s revenue in 2007 was $800 million, with all but $57 million of that derived from North America. Together, Willis and HRH had combined revenues of about $3.4 billion last year, trailing Aon’s $7.5 billion and Marsh’s $11.4 billion.

Following a 2004 invesigation by Eliot Spitzer, the former New York attorney general, large insurance brokers in the US are not allowed to accept contingent commissions. However, a revision last week means they can accept them on existing business for up to three years if they buy a broker that accepts commissions.

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