ACE Limited to acquire Chubb for US$28.3 billion

ACE Limited and The Chubb Corporation announced on Wednesday that the boards of directors of both companies have unanimously approved a definitive agreement under which ACE will acquire Chubb.

The total value of the acquisition is about US$28.3 billion in the aggregate. Upon closing of the transaction – expected by the first quarter of 2016 – ACE shareholders will own 70% of the combined company and Chubb shareholders will own 30%.

A press release from ACE said that the combined company will be led by Evan Greenberg, chairman and CEO of ACE Limited, who will hold the same titles. John Finnegan, chairman, president and CEO of Chubb, has agreed to serve as executive vice chairman for external affairs of North America and will assist with integration, the release said. The company’s board will be expanded from 14 to 18 directors, with the addition of four independent directors from Chubb’s current board.

Chubb will continue to operate under its name while the combined company transitions to operate under the Chubb name globally, the release said. The combined company will remain a Swiss company with principal offices in Zurich. Chubb’s headquarters in Warren, N.J., 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.

“Together, ACE and Chubb will create a global leader in commercial and personal property and casualty (P&C) insurance, with enhanced growth and earning power and an exceptional balance of products as a result of greater diversification and a product mix with reduced exposure to the P&C industry pricing cycle,” ACE said in the release. “The combined company will remain a growth company with complementary products, distribution, and customer segments, a shared commitment to underwriting discipline and outstanding claims service, and substantially increased data to drive new, profitable growth opportunities in both developed and developing markets around the world.”

Greenberg said in the release that the transaction combines “two great underwriting companies that are highly complementary. We 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,” he suggested.

In the United States commercial lines business, ACE provides a broad range of products and services for industrial commercial, multinational and upper middle market companies with distribution substantially through a major brokerage presence. Chubb is primarily a middle-market commercial, specialty and surety insurer with a broad product portfolio and a major agency presence. In personal insurance, Chubb is a major provider of personal lines coverage to high net worth customers in the U.S., while ACE has been increasingly focused on these customers as well.

Outside the U.S., ACE is a commercial insurer with a presence in 54 countries, the release said, adding that Chubb’s operations in 25 countries will “complement and deepen ACE’s presence.” Both companies offer complementary personal lines offerings in Canada, Europe, Asia and Latin America. “The combined company will have a leading position in professional lines globally with broad product offerings for all sizes of commercial customers,” ACE said.

Greenberg suggested that the new company will provide “greater presence and capabilities in product areas that have less exposure to the commercial P&C cycle. Chubb will enhance ACE’s ability to serve the upper middle market, while ACE will provide more products to serve Chubb’s middle market clients, and our combined strengths will enable us to pursue the small and micro markets globally,” Greenberg said.

The release said that by the third year after closing, the company expects to realize annual expense savings of “approximately US$650 million pre-tax where both companies overlap.” As of Dec. 31, 2014, on an aggregate basis, the combined company had total shareholders’ equity of nearly US$46 billion and cash, investments and other assets of US$150 billion.