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Ace-Chubb merger creates $US31 billion ‘P&C powerhouse’

Zurich-based global property and casualty (P&C) insurer Ace will acquire US rival Chubb for $US28.3 billion ($37 billion) and take its name, to create the second-largest commercial insurer in the US, with combined revenue of $US31 billion ($40.63 billion).

The friendly takeover, the largest in the insurance sector, adds momentum to the consolidation under way in the industry.

An environment of low interest rates, intense competition and pressure on premiums has fuelled the rush to grow through acquisition. Analyst Dealogic says mergers and acquisitions worth $US72.5 billion ($95 billion) have been transacted so far this year.

Ace is no stranger to acquisitions, making 15 over the past 12 years.

Last year it bought Allianz’s Fireman’s Fund personal insurance business for $US365 million ($478 million) and Brazil P&C insurance business Itau Seguros for $US685 million ($897.7 million).

Ace has a presence in 54 countries, Chubb in 25. The Ace-Chubb business will have a combined workforce of 33,000 and will reap annual cost savings of $US650 million ($852 million) a year.

In a memo to brokers, Chubb CEO John Finnegan flags job losses.

“As we begin… integrating the two companies, we will evaluate our needs across our businesses and locations, and where there is overlap the most qualified people from Ace and Chubb will be selected for these positions,” he says.

Ace CEO Evan Greenberg – who will lead the merged company as Chairman and CEO – says the tie-up will create a “unique” business.

“We are combining two great underwriting companies that… 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.”

Mr Finnegan had planned to step down at the end of next year, but will now stay on as Executive VP for External Affairs in North America. He will “assist” with the integration, but will not have operational responsibilities.

Mr Finnegan says the merger will create a “best-in-class global franchise in P&C insurance”.

The merged company’s board will be expanded from 14 directors to 18, with the addition of four independent directors from Chubb’s current board.

The transaction is expected to close in the first quarter of next year, pending approval by shareholders and regulators.

In an often-sentimental internal memo to Ace employees around the world seen by insuranceNEWS.com.au, Mr Greenberg speaks with pride about Ace and with confidence about the merger.

“Ace and Chubb together will create a global P&C powerhouse,” he says, but he also sounds a note of caution. “It is one thing to buy and quite another to integrate and manage well.

“Integration with two companies the size of Ace and Chubb… won’t be easy for either company.”

Analysts have also reflected on the integration challenge. AM Best warns of “uncertainty regarding Ace’s ability to execute on its plan given the complexity, size and scope of this acquisition”.

“Furthermore, to achieve the greatest efficiencies and long-term gains, a successful integration must be achieved within a reasonable time period,” it says.

However, AM Best says the “execution risk” is “partially mitigated by the collaborative nature of this transaction”.

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