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CEOs tout benefits of Ace buying Chubb

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Ace Ltd.'s acquisition of property/casualty and specialty insurer Chubb Corp. for $28.3 billion will “make each other better,” Ace Chairman and CEO Evan G. Greenberg said Wednesday.

The deal is expected to close early next year.

Total shareholder equity would equal almost $46 billion, and investments and assets would equal $150 billion based on Dec. 31, 2014, figures, the companies said in a statement.

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This is the second major industry consolidation move in two days. On Tuesday, Willis Group Holdings P.L.C. and Towers Watson & Co. announced they are merging in a deal valued at around $18 billion.

Under the terms of the deal announced Wednesday, Chubb shareholders will receive $62.93 per share in cash and 0.6019 shares of Ace stock. Ace will own 70% of the combined entity that will operate under the Chubb name and Chubb will own 30%.

Mr. Greenberg will become chairman and CEO of the combined company, which will remain based in Zurich.

John D. Finnegan, chairman, president and CEO of Chubb, will become executive vice chairman for external affairs of North America and will work on integrating the two companies.

During a conference call announcing the acquisition, Mr. Greenberg said Ace approached Chubb about the deal “a few weeks ago.”

Mr. Finnegan said Chubb had not been looking for a buyer, but was convinced by what it saw as the “compelling” nature of Ace's offer.

“We weren't out shopping it,” Mr. Finnegan said. “This was a proposal that came to us, and we thought it was a very good one.”

Mr. Greenberg said during the conference call that he was “delighted, simply thrilled” to announce the deal he said would combine two of the great companies in the property/casualty insurance industry.

“We are both great on our own,” he said. But the complementary nature of the companies means there is “an opportunity to create so much more,” Mr. Greenberg said. “This is a growth story.”

“We have complementary capabilities, assets and global footprints,” said Mr. Finnegan.

“Where one of us is not present, the other is. Where one of us is strong, the other is even stronger,” Mr. Greenberg said. “We are confident we will only make each other better.”

When asked how the combined company would retain the best staff, Mr. Greenberg said, “There is nothing more important to us than retaining the best across both organizations.”

He said the companies believe that growth opportunities provided by the merger would be an incentive for the best staff to stay. “We are a meritocracy. We reward great performers and will incentivize them” to stay,” he said.

There will be some overlaps in areas outside of underwriting, Mr. Greenberg said, and the combined company would seek to improve its competitive position while preserving the businesses' existing franchises.

Size is important for insurance companies in the current marketplace, Mr. Greenberg said when asked about the timing of the deal. The greater interconnectedness of economies is part of the backdrop to the “compelling strategic nature of this transaction,” he said.

Will other insurers reassess?

The proposed acquisition is good news for both companies, analysts say.

Zurich-based Ace's acquisition of Warren, New Jersey-based Chubb is expected to close early next year. Combining the companies' strengths will establish commercial insurance giant of the first order, according to analysts.

“This is a huge transformative deal for both companies and will immediately vault the combined (entity) to a global elite status,” Mark Dwelle, an insurance analyst at RBC Capital Markets, a unit of RBC Dominion Securities Inc. in Richmond, Virginia, wrote in an investor note. “It will put them on par with the largest European and Asian franchises,” making the combined company larger than American International Group Inc. in property/casualty insurance.

Mr. Dwelle said the “only outside bidder that we could foresee that might emerge is Berkshire Hathaway, who has long been viewed as a potential suitor to Chubb. That said, bidding wars aren't really their thing, so we'd be somewhat surprised.”

“We see two strong global brands with complementary businesses,” Cliff Gallant, an analyst at Nomura Securities International Inc. in San Francisco, said in a research note. “Ace has wanted to be bigger in high net worth (personal lines business) and now is the leader. Chubb has specialty expertise in areas such as professional lines that fit well into Ace. Chubb's international high net worth (business) in Brazil complements Ace's impressive global position.”





But Mr. Gallant added: “With any big deal, there's always risk,” such as losing key people to competitors, Mr. Gallant said in an interview. “But Ace has a very attractive track record of executing on acquisitions, and I expect this will be a big success for them.”

“Overall, it's positive to the credit profiles of both companies,” said Gretchen K. Roetzer, director of insurance at Fitch Ratings Inc. in Chicago. Both have “strong, conservative balance sheets.”

“It's great news for Chubb; it's good news for Ace,” said Meyer Shields, managing director at Keefe Bruyette & Woods Inc. in Baltimore. “It provides a platform for more aggressive competition, and I don't mean that in a reckless sense. (Combining) enhances their product portfolio. It probably reduces their reliance on reinsurance because it's bigger and more diversified than it was before, and fundamentally it has a lower expense base,” he said.

The potential impact of the proposed merger extends beyond Ace and Chubb, J. Paul Newsome, managing director at Sandler O'Neill & Partners L.P. in Chicago, said in a research note.

“We think this causes virtually every insurer to reassess if they should remain independent,” Mr. Newsome said. “If the much-admired Chubb does not believe it can be independent with its scale and franchise value, then other insurers might change their mind about their long-term viability. We do not think there is any particular obvious candidate that will reassess their position since most of Chubb's direct competitors are other giant insurers. Instead, we think most midcap insurers will be likely to reassess.”