A half-billion dollar deal that would make Lloyd’s insurer Chaucer part of Massachusetts-based The Hanover appears all but done.

Terms of the transaction, announced this morning, involve a cash-for-stock swap valued at $510 million, which The Hanover said it plans to pay for with cash on hand as well as a $250 million debt issue to fund the purchase.

Chaucer is one of Lloyd’s 10 largest MGAs and underwrites specialty insurance in marine, energy, non-marine and aviation, as well as auto insurance in the United Kingdom. Chaucer reported gross written premium of approximately $1.3 billion in 2010 and net earned premium of around $925 million. The London-based company has regional operations in Whitstable, England and international operations in Houston, Singapore, Buenos Aires and Copenhagen.

Low premiums and natural catastrophes have weighed down Chaucer’s share price over the last year, and its directors have unanimously endorsed the sale as fair value for the company — approximately 1.26 times its estimated book value at the end of last year.

The deal is subject to shareholder and regulatory approval.

In a conference call with investors this morning, The Hanover’s CEO, Frederick H. Eppinger, said his company had been looking at acquisition targets for a year, and that Chaucer was on its list. Chaucer’s expertise in specialty markets and global distribution complements The Hanover’s existing presence and opens several new roads for its growth.

Eppinger called the deal “a significant step forward in our journey to build a world class property and casualty company” that would “enable us to further advance our specialty strategy, given its recognized expertise in underwriting energy, marine, aviation and other risks.”

One reason for that interest is brokers’ and agents’ increasing focus on specialty markets and product lines for markets with unusual or international exposures, Eppinger said.

Bob Stuchbery, chief executive officer of Chaucer, said the firm “remains fully focused on delivering our corporate strategy with the aim of further positioning us as the Lloyd’s specialist insurer of choice in our areas of expertise. Furthermore, under the ownership of The Hanover, we expect to build on The Hanover’s market position, and access attractive specialty business through its strong U.S. retail distribution.”

“Overall, this is a great cultural fit that brings together two businesses with the same ambition and complementary strengths, and creates an excellent platform for future profitable growth,” Stuchbery said.