ACE-Chubb combo would be ‘significant player’ in Canadian personal insurance: MSA

If ACE Ltd.’s US$28.3-billion proposal to acquire insurance carrier The Chubb Corp. is approved, the combined firm would be a “significant player,” in Canada, in the market for high net worth consumers and would also “present a challenge” to the largest commercial insurers in Canada, MSA Research Inc. suggested in a recent report.

ACE and Chubb announced July 1 their boards approved an agreement under which ACE would buy each Chubb share for US$62.93 cash and 0.6019 ACE shares.

The proposed acquisition is subject to regulatory approval, plus approval of shareholders of both ACE and Chubb, which are traded on the New York Stock Exchange.

Joel Baker – founder, president and chief executive officer of Toronto-based MSA Research – noted in a report that Chubb’s operations in Canada “date back to the 1940s” while ACE entered Canada in 1999 when it acquired CIGNA. Baker made his comments in MSA’s Quarterly Outlook Report for 2015, which includes commentary and detailed statistics on the Canadian insurance industry.

“The combined group in Canada presents a challenge to the largest commercial writers,” Baker (pictured, left) wrote of ACE’s agreement to acquire Chubb, alluding to the Canadian branches of American International Group Inc., Zurich Insurance Group Ltd., The Travelers Companies Inc. and “competing Lloyd’s syndicates.”

The combined firm, in Canada, will also “be a significant player on the personal lines side, particularly for high net worth consumers,” Baker added.

MSA’s most recent quarterly outlook report includes combined financial data on Chubb and ACE, aggregate figures for the Canadian personal and commercial property & casualty insurance sectors and commentary on other issues including interest rates, overland flood coverage and the Office of the Superintendent of Financial Institution’s capital tests.

ACE said July 1 the Chubb acquisition is expected to close in 2016 and the combined firm will be led by ACE chairman and CEO Evan Greenberg (pictured, right).

John Finnegan, chairman, president and CEO of Chubb, would be executive vice chairman of external affairs for North America.

In Canada, Chubb owns Chubb Insurance Company of Canada. In the U.S., the Chubb Group of Companies includes Pacific Indemnity Company, Executive Risk Specialty Insurance Company and Great Northern Insurance Company, among others.

ACE, in Canada, writes commercial insurance including property, auto, surety, liability, marine, environment and computer network security. Its Canadian subsidiaries include ACE INA, ACE Tempest Re Canada Inc. and Rain and Hail Canada, which provides agriculture insurance.

“Chubb will continue to operate under its name while the combined company transitions to operate under the Chubb name globally,” ACE stated July 1. “The combined company will remain a Swiss company with principal offices in Zurich. Chubb’s headquarters in Warren, New Jersey, will house a substantial portion of the headquarters function for the combined company’s North American Division. ACE will continue to maintain a significant presence in Philadelphia, where its current North American Division headquarters is based.”

Because it’s a combined stock and cash offering, the US$28.3-billion valuation of the acquisition is based on the closing price of ACE shares June 30. What ACE is offering to Chubb shareholders costs essentially 30% more than the price at which Chubb shares closed June 30.