Ace Agrees to Buy Rival Insurer Chubb For $28.3 Billion -- 5th Update

By Lisa Beilfuss And Leslie Scism 

ACE Ltd. agreed to buy Chubb Corp. for $28.3 billion in cash and stock, a deal that comes as property-and-casualty insurers are facing pricing pressures on top of diminished interest income from many years of low interest rates.

In Chubb, ACE gets one of the most well-known brand names in the industry, as its Masterpiece homeowners coverage is the choice of wealthy Americans to protect their houses. ACE also targets high net worth customers in its personal lines business.

In the tie-up, which marks one of the biggest deals the year, Chubb holders will receive $62.93 in cash and 0.6019 shares of ACE, valuing the company at $124.13 a share. The price tag represents a 30% premium over Tuesday's closing price. Chubb shares surged 36% to $129 in premarket trading. ACE shares jumped 12% to $113.76.

The companies expect to complete the deal during the first quarter of next year.

ACE shareholders will own 70% of the new company, which will operate under the Chubb name globally. Evan Greenberg, the chief executive of ACE, will lead the combined company. Chubb CEO John Finnegan will serve as executive vice chairman for external affairs of North America and will assist with the integration.

"This is a landmark deal that puts two awfully good companies together and forms a global powerhouse with deep and defensible U.S. market penetration," said David Havens, a credit analyst with Imperial Capital LLC.

Mr. Greenberg appears to be following in the footsteps of his father, Maurice R. "Hank" Greenberg, who built his own insurance empire as the long-time chairman and chief executive of American International Group Inc.

Evan Greenberg abruptly left AIG in 2000 as the heir apparent to his father after a 25-year career there and joined ACE as CEO the following year. His father, meanwhile, is currently fighting the U.S. government over the terms of AIG's 2008 bailout.

By the third quarter post-closing, ACE said it would realize annual expense savings of about $650 million pretax. The deal will immediately add to earnings and book value.

Four independent directors from Chubb's board will be added to the combined entity's board, the companies said.

Zurich-based ACE has made a series of smaller deals over the past year, buying with a local partner most of Thailand-based Siam Commercial Samaggi Insurance PCL last year, along with a property and casualty business from Brazil's Itau Unibanco Holding SA and certain Fireman's Fund operations from Allianz SE.

Last year, Ace earned $2.9 billion on $19.2 billion in revenue.

For its part, Chubb is one of the biggest personal-lines and business insurers in the U.S. Last year, the New Jersey company reported a profit of $2.5 billion on $12.6 billion in sales. Its conservative underwriting and investment approach enabled it to weather the 2008 financial crisis with little damage to its balance sheet.

But low interest rates are hurting insurers' investment income, which accounts for a substantial portion of their profit as they invest premium dollars until claims have to be paid. What's more, property-casualty insurers are facing pressure from what most people view as a stroke of great luck: no major hurricanes making landfall in the U.S. since 2005. Insurers' capital bases are growing in the absence of sending claims checks to individuals and consumers, and their stepped-up competition with each other to put the capital to work is depressing prices.

Numerous deals already are in the works involving reinsurers, the companies that take on some, or all, of the risk of policies sold by insurers to individuals and businesses, from another interest-rate driven phenomenon: a huge influx of money into the reinsurance business from pension funds, family wealth offices and sovereign wealth funds, among others, as they seek diversification and higher-yielding alternatives to low interest rates.

Broadly, merger and acquisition activity has been on fire this year, as companies gain more confidence about the economy, use stockpiles of cash to reach for future growth and get boosts from low interest rates and the surging stock market. Ace's bid for Chubb lands the deal near the top of the heap, adding to the more than $2 trillion in M&A deals or offers unveiled globally so far this year.

Write to Lisa Beilfuss at [e-mail] and Leslie Scism at [e-mail]

Access Investor Kit for ACE Limited

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=CH0044328745

Access Investor Kit for The Chubb Corp.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US1712321017

Subscribe to WSJ: http://online.wsj.com?mod=djnwires