(Reuters) - Shares of PSC Insurance Group rose to a record high on Thursday after UK-based broking business Ardonagh Group agreed to buy the Australian company in a deal valuing it at A$2.26 billion ($1.49 billion) amid rising confidence in the sector.

Shares of the Australian insurer gained as much as 5.4% to A$6.05, while the benchmark index was down 0.9% after a five-session rally.

Global insurance distribution platform Ardonagh will pay A$6.19 a share, representing a premium of 7.8% to the Australian firm's last close on Wednesday.

"The all-cash premium price in the deal highlights the significance of PSC to Ardonagh in expanding its footprint in the Australian market," said Hebe Chen, an analyst with IG Markets.

Policy prices have been rising globally and locally, and the Australian insurance market has been a prime target for M&A activity, with broker March & McLennan taking over Honan Insurance earlier this year.

"We think the acquisition may engender more confidence in the space," J.P. Morgan said in a note, adding that the deal by Ardonagh implies it is expanding its wings in Australia.

Analysts at brokerage Jarden raise their price target on the Australian insurance firm to A$6.19 from A$4.80 and said the prospects of a higher offer appear low.

"We now expect PSC shares to trade on newsflow around M&A rather than fundamentals," Jarden said.

Ardonagh, which places over $15 billion of premium globally for its clients and operates in about 30 countries, bought Australia's Resilium Insurance Broking in early 2021 and Envest in 2023.

The UK-based broking business said it would fund 50% of the deal from shareholders Madison Dearborn Partners and HPS Investment Partners and the rest from existing and new debt.

($1 = 1.5198 Australian dollars)

(Reporting by Rishav Chatterjee in Bengaluru; Editing by Subhranshu Sahu)

By Rishav Chatterjee