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Ace's purchase of Chubb shifts industry dynamic

Will create new global insurance force

Ace's purchase of Chubb shifts industry dynamic

Ace Ltd.'s proposed $28.3 billion acquisition of Chubb Corp. plays to the strengths of both companies and will create a formidable international insurer, according to both the parties involved and market analysts.

The combination will “make each other better,” Ace Chairman and CEO Evan G. Greenberg said in a July 1 conference call discussing the transaction shortly after it was announced.

The deal is expected to close in January. Shareholder equity would total almost $46 billion, and investments and assets would equal $150 billion based on Dec. 31, 2014, figures, the companies said in a statement. Under terms of the deal, Chubb investors will receive $62.93 per share in cash and 0.6019 shares of Ace stock. Chubb shares rose after the deal was announced, closing at $121.47 on Thursday.

Mr. Greenberg, chairman and CEO of Zurich-based Ace, will become chairman and CEO of the combined company, which will remain based in Switzerland. John D. Finnegan, chairman, president and CEO of Warren, New Jersey-based Chubb, will become executive vice chairman for external affairs of North America and will work on the integration of the two companies.

The company will operate under the Chubb name in acknowledgment of Chubb's great brand and reputation — particularly in the United States — Mr. Greenberg said.

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

In addition, the combination of the companies is expected to result in $650 million of annual run-rate cost savings by 2018, the companies said.

During the conference call, Mr. Greenberg said Ace approached Chubb “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.

“This was a proposal that came to us and we thought it was a very good one,” he said.

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

“Where one of us is not present, the other is; where one of us is strong, the other is even stronger,” Mr. Greenberg said. 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.

Market analysts agree.

“The No. 1 outcome is you're really creating an elite global P/C insurance franchise,” said Mark Dwelle, an insurance analyst at RBC Capital Markets, a unit of RBC Dominion Securities Inc. in Richmond, Virginia.

“Their strengths very much complement each other,” he said. “Chubb brings a little more to the table in personal lines and middle market. Ace brings a broader international presence to the table. The combination doesn't have a lot of weak spots.”

“Ace has a very attractive track record of executing on acquisitions, and I expect this will be a big success for them,” said Cliff Gallant, an analyst with Nomura Securities International Inc. in San Francisco.

For example, late last year Ace acquired Fireman's Fund Insurance Cos.' high-net-worth personal lines business from Allianz S.E. for $365 million.

Gretchen K. Roetzer, director-insurance at Fitch Ratings Inc. in Chicago, noted the positive credit aspect of the deal. “Both go into this with low-leverage, high-coverage and strong conservative balance sheets.”

“It's great news for Chubb; it's good news for Ace” in reference to the merger's affect on the respective companies' shareholders, 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. It 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 effect of the proposed merger could extend beyond these two insurers, said J. Paul Newsome, managing director at Sandler O'Neill Partners L.P. in Chicago, in a research note.

“We think this causes virtually every insurer to reassess if they should remain independent,” he wrote. “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.”

The Ace/Chubb announcement came on the heels of the June 30 announcement that Willis Group Holdings P.L.C. and Towers Watson & Co. plan to merge in a deal valued at around $18 billion.

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