In a second major P&C insurance-industry M&A deal this week, ACE Limited and The Chubb Corporation announced today that the boards of directors of both companies have unanimously approved an agreement under which ACE will acquire Chubb.
As a result of the acquisition, the new company will move up into the "elite" group of global P&C insurers, with a combined total shareholders' equity of nearly $46 billion and cash, investments and other assets of $150 billion. The transaction is expected to close during the first quarter of 2016.
The combined company, which will assume the Chubb name, is expected remain a growth company with complementary products, distribution and customer segments.
"We are thrilled to announce the acquisition of Chubb, a venerable company with a great brand," Evan G. Greenberg, chairman and CEO of ACE Limited, said in a statement. "We are combining two great underwriting companies that are highly complementary. We will make each other better and create a unique company in a class of its own that has greater growth and earning power than the sum of the two companies separately."
John D. Finnegan, chairman, president and CEO of Chubb, said, "The combination brings together two highly respected and successful companies with complementary capabilities, assets and geographic footprints. We are pleased that the combined company will adopt the Chubb brand and view this as an affirmation that both companies share a commitment to the attributes of quality and service the brand represents."
ACE's U.S. commercial lines business provides a broad range of product and services for industrial, commercial, multinational and upper middle market companies, and relies heavily on brokers for distribution. Chubb is best known in the U.S. primarily as a middle-market commercial, specialty and surety insurer with a broad product portfolio and a major agency network. Chubb may be best known in the U.S. for its personal lines coverage to high-net-worth customers—a market that ACE also has been targeting.
Outside the U.S., ACE has a stronger international presence, with operations in 54 countries and a broad product, customer and distribution capability. Chubb's international business, in only 25 countries, will complement ACE's current business. ACE has a leading market position in global accident and health, although both companies offer complementary personal lines products in Canada, Europe, Asia and Latin America.
Combined company reduces overall risk, loss potential
"We will be well balanced with greater presence and capabilities in product areas that have less exposure to the commercial P&C cycle," said Greenberg. "We have complementary product strengths—where one of us is not present, the other is. Where one of us is strong, the other is even stronger. Where there is overlap in product, generally one of us is more present at the large end of the corporate market while the other is serving the smaller or mid-market segment.
"The data and insight we will gain from our respective skills and experience will allow us to do so much more," he continued. "For example, Chubb will enhance ACE's ability to serve the upper middle market, while ACE will provide more products to serve Chubb's middle market clients, and our combined strengths will enable us to pursue the small and micro markets globally.
New management structure
Upon completion of the transaction, the combined company will be led by Greenberg as chairman and chief executive officer. Finnegan has agreed to serve as executive vice chairman for external affairs of North America and will assist with integration. The company's board will be expanded from 14 directors to 18 directors with the addition of four independent directors from Chubb's current board.
Chubb will continue to operate under its name while the combined company transitions to operate under the Chubb name globally. The combined company will remain a Swiss company with principal offices in Zurich. Chubb's headquarters in Warren, N.J., will house a substantial portion of the headquarters function for the combined company's North American Division. ACE will continue to maintain a significant presence in Philadelphia, where its current North American Division headquarters is based.
More mergers?
It remains to be seen whether 2015 becomes "the year of M&A" for the P&C industry. Although the combined companies present stronger balance sheets and appear to be good news for investors, as newly merged companies "improve efficiency," they often consolidate operations and reduce staff. The challenge for the new Chubb will be to maintain its well-regarded levels of customer service and its strong brand presence as it merges operations with ACE.
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