(Bloomberg) — Evan Greenberg just took dealmaking to the next level.
The chief executive officer of property-and-casualty insurer Ace Ltd. on Wednesday announced a $28 billion deal for rival Chubb Corp. It's the biggest acquisition in the industry since the 2008 government bailout of American International Group Inc., the insurance giant formerly led by Greenberg's father, Hank.
After the busiest quarter for insurance dealmaking in at least 12 years, the magnitude of this latest takeover is going to drive even more “M&A fever” across the industry, according to Cliff Gallant of Nomura Holdings Inc. Insurers from W.R. Berkley Corp. to Hartford Financial Services Group Inc. rallied on the news amid takeover speculation.
The scale gained through acquisitions is crucial for insurance providers struggling with falling policy rates and curtailed profitability. Reinsurers have been merging in droves and insurance broker Willis Group Holdings Plc just struck a more than $8 billion transaction for consultant Towers Watson & Co. Now, property-and-casualty providers are getting in on dealmaking in a big way, too.
“The management teams of virtually every large property-casualty company will be having a conversation today about whether they should be more active acquirers,” said Paul Newsome of Sandler O'Neill & Partners. “These are two well-run companies that probably could have done very well on their own but they're trying to build something even bigger.”
Ace shares rose as much as 9% on the news of the takeover. That may embolden other competitors to consider acquisitions, said Josh Stirling of Sanford C. Bernstein & Co.
Sellers' Expectations
While Ace is offering a higher-than-average premium to buy Chubb, its bid values the provider of coverage for mansions and yachts at about 1.7 times book value. That's a discount to what high-quality businesses in the industry have typically commanded, according to Newsome of Sandler O'Neill.
Would-be sellers may want to take that into account and not wait around for too high a price. That's especially true for smaller insurers, which may face greater pressure as market leaders get even bigger.
“It actually lowers sellers' expectations for what they can get,” the Chicago-based analyst said. “I probably need to reassess what I'm holding out for because I'm never going to get that big price-to-book multiple now. If a much-vaunted, well- regarded shop gets 1.7 times book value, what should the mid-cap company that lacks scale and is kind of struggling get?”
Buyers Club
AIG, Allstate Corp. and Travelers Cos. are among insurers that could look to make a big purchase. Their smaller property-and-casualty peers surged on speculation they could be targets.
W.R. Berkley and Arch Capital Group Ltd. both rose the most since 2012 on an intraday basis, while XL Group Plc surged the most since last July and Cincinnati Financial Corp. climbed the most since December. All are valued at less than $15 billion.
Hartford Financial with a market capitalization of $18 billion, surged as much as 5.9%.
“There is now literally no deal that cannot be contemplated in P&C,” Todd Bault, an analyst at Citigroup Inc., wrote in a report on Wednesday.
–With assistance from Selina Wang in New York.
Copyright 2018 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
Want to continue reading?
Become a Free PropertyCasualty360 Digital Reader
Your access to unlimited PropertyCasualty360 content isn’t changing.
Once you are an ALM digital member, you’ll receive:
- Breaking insurance news and analysis, on-site and via our newsletters and custom alerts
- Weekly Insurance Speak podcast featuring exclusive interviews with industry leaders
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical converage of the employee benefits and financial advisory markets on our other ALM sites, BenefitsPRO and ThinkAdvisor
Already have an account? Sign In Now
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
