Fairfax Financial Holdings Ltd. agreed to sell a Bermuda-based reinsurance unit that’s being acquired as part of a deal with American Safety Insurance Holdings Inc. to Catalina Holdings Bermuda Ltd. Terms weren’t disclosed.

As part of the deal, Tower Group International Ltd. will give up its right to acquire American Safety Reinsurance in exchange for a $5 million payment from Fairfax, the Toronto- based insurer said today in a statement. Catalina also agreed to vote its American Safety shares in favor of Fairfax’s takeover bid of the Bermuda-based insurer, according to the statement.

Fairfax, owned by investor Prem Watsa, agreed to buy American Safety in June for $306 million, or $29.25 per share, representing a 22 percent premium to the insurer’s May 31 closing price. Fairfax boosted its offer to $30.25 a share on Aug. 7. Shares of American Safety closed at $31.06 on Aug. 16 in New York.

Fairfax raised its offer after Catalina increased its own bid for American Safety to $29.75 and sent two letters to the board commenting on a “flawed auction process.” On Aug. 14, Catalina increased its offer to $30.75 per share.

John Varnell, Fairfax’s vice president of corporate development, didn’t immediately respond to a phone call seeking comment.

–With assistance from Zachary Tracer in New York. Editors: Steven Crabill, Steve Dickson