The merger between Ace and Chubb will create the second largest commercial lines insurer in the US with the combined entity sandwiched between American International Group (AIG) in first and Travelers in third.
Figures from SNL Financial show Ace Ltd wrote almost $8.82bn of commercial lines direct premium, which includes accident and health, within the US in 2014, up 1.9% compared with the previous year. Chubb on the other hand wrote just over $7.56bn of direct premium last year, an increase of close-to $188.8m year on year.
Combined, the two businesses wrote approximately $16.32bn of commercial lines direct premium in 2014.
For 2014, Ace sat in fifth place and Chubb in eighth when it comes to the largest commercial lines insurers based on direct premium written. However, combined, Ace/Chubb would be in the second spot of 2014’s largest US commercial lines insurers behind AIG which wrote almost $16.87bn of commercial lines direct premium last year, a reduction on the close-to $17.07bn it wrote in 2013.
Travelers sits in second place when looking at the figures for 2014, having written almost $15.96bn of commercial lines direct business last year. That was a marginal increase on the $15.9bn it wrote in 2013. However, it would be pushed down into third factoring in the combined Ace/Chubb business.
Source: Keefe, Bruyette & Woods, Inc and SNL Financial
It makes a change from 2013 when a combined Ace and Chubb would have been behind both AIG and Travelers in the list of largest commercial insurers by direct premiums written, at least according to figures from the Federal Insurance Office (FIO). While those numbers from SNL Financial indicate Ace/Chubb would once again sit behind AIG and ahead of Travelers, the numbers from the FIO suggest differently.
According to the FIO’s Annual Report on the Insurance Industry, Ace wrote $8.69bn of direct commercial lines premium in 2013, while Chubb wrote $7.43bn. Combined, that puts the two businesses at almost $16.04bn, slightly less than the $16.13bn Travelers wrote in 2013 and some $500m below the $16.5bn generated by AIG during the year.
However, there is little doubt Ace and Chubb merging will shake up the domestic US property and casualty market. As Evan Greenberg, the chairman and chief executive of Ace Ltd and Ace Group, explained in a call to investors and analysts on Wednesday morning, the two business’ strengths complement each other.
Indeed, Greenberg gave three examples of how the two companies are well aligned.
“Secondly, Ace will provide more products, particularly specialty, to serve middle-market clients. And third, together our strengths will enable the combined entity to pursue both small and micro markets around the world.”
Ace’s acquisition of Chubb has been described as a “historic deal” and “compelling combination” by Nomura analyst, Cliff Gallant.
“Ace has wanted to be bigger in high net worth and now is the leader,” said Gallant.
Chubb’s international high net worth business in Brazil complements Ace’s large global position. Meanwhile Chubb’s specialty expertise in areas such as professional lines compliment Ace.
“We believe that Chubb has growth challenges and a succession issue; in our view, with Ace, there is reinvigorated growth and succession is solved,” she said.
With Willis and Towers Watson announcing their merger the day before Ace and Chubb, mergers and acquisition (M&A) fever is upon the industry, “and size is critical,” according to Gallant.
These recent deals are a game changer for major re/insurers and brokers. They must, “rethink their global ambitions and consider actions perhaps not previously considered. Small deals are likely irrelevant,” he said.
The deal helps Ace to avoid the falling reinsurance rates, business Ace was already cutting back on, as Chubb is predominately a primary insurer.
Ace has a hybrid reinsurance facility with Blackrock, ABR Reinsurance. Ace is the sole source of reinsurance business ceded to ABR Re, and BlackRock provide exclusive investment management services.
ABR Re underwrites a portion of reinsurance treaties that Ace places with the traditional reinsurance market and invests its assets in a diversified alternative investment portfolio managed by BlackRock.
“Ace’s reinsurance facility has a large pool from which to pick premium, and the new company’s size and diversity will make it less dependent on reinsurance,” said Gallant.
However, there is a question mark over whether this facility will be extended to share the same relationship throughout Chubb’s business, too.
In conclusion, Gallant said: “Ace is now a major, well-run insurer with specialty franchises worldwide and an excellent balance sheet. Ace/ Chubb’s ability to enter new lines or to grow further in established lines has risen, and their leverage versus reinsurers has increased.”