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Analysts laud Ace, Chubb merger; will other insurers reassess?


Ace Ltd.'s proposed $28.3 billion acquisition of Chubb Corp. 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.”

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