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Commercial insurance sector poised for further consolidation

Commercial insurance sector poised for further consolidation

Ace Ltd.'s proposed $28.3 billion acquisition of Chubb Corp. could lead to further consolidation in the commercial insurance industry, according to observers.

The deal, which was announced July 1, is expected to close in January. The company will be based in Zurich, where Ace is based, but Ace Chairman and CEO Evan Greenberg said the combined company will operate under the Chubb name because of Warren, New Jersey-based Chubb's great brand and reputation, particularly in the United States.



Mr. Greenberg will become chairman and CEO of the combined company. 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.

Analysts said the transaction could lead to further insurance merger and acquisition activity.

Insurers “will be facing a big, more competitive company, and they have to find some way of matching that, which will lead to further merger activity,” said Meyer Shields, managing director at Keefe Bruyette & Woods Inc. in Baltimore. He said the transaction will also lead to “consolidation on the reinsurance side, because there is a big bite out of reinsurance premiums once this deal settles down.”

Robert Hartwig, president and economist at the New York-based Insurance Information Institute Inc., noted in an email that the deal, the largest in property/casualty insurance history, “comes on the heels of numerous other deals of increasing magnitude and importance,” notably XL Group P.L.C.'s $4.28 billion acquisition of Catlin Group Ltd., as well as numerous transactions in the global reinsurance sector.

“The economic drivers of consolidation remain in place — an abundance of capital in the primary and reinsurance space, a view that economies of scale and scope are increasingly important, declining reinsurance prices and stable pricing in many major commercial lines, strong underwriting results in the commercial insurance segment, a desire to grow beyond the limits of what can be achieved organically, low debt financing costs and a general pickup in M&A activity across the U.S. economy,” Mr. Hartwig said in the email. “Given the improving prospects for the US economy, record capitalization in some segments, an increased appetite for growth and strong underwriting results, it's likely that many management teams are evaluating options that could drive further consolidation in the second of half of 2015.”

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