Fitch affirms ratings for Ace and Chubb after acquisition
Fitch Ratings has affirmed all the ratings of insurers ACE and its subsidiaries and The Chubb Corporation (Chubb) and its operating subsidiaries after ACE’s acquisition of Chubb, which closed on January 14, 2016.
The rating outlook for all ratings is stable.
ACE acquired Chubb for roughly $29.5 billion and the combined company is now known as Chubb. On July 1, 2015, ACE announced that the company and Chubb had entered into a definitive agreement whereby ACE would purchase all outstanding shares of Chubb with a combination of cash, debt, and equity, or approximately a 30 percent premium relative to the prior day closing stock price for Chubb.
Fitch views the transaction favourably due to the increased size and scale of the combined entity which is estimated to write roughly $32 billion in global net premium with a historical five-year average combined ratio of near 90 percent. ACE has demonstrated past success in executing successful acquisitions which mitigates integration risk; however, the size and complexity of the Chubb acquisition represents a unique challenge and it will take time to realize the anticipated cost savings from this acquisition.
The combined company's rating strengths include a strong balance sheet position and financial flexibility with moderate leverage and diverse sources of revenues and earnings with the advantages of increased global size and scale and strong management teams, according to Fitch.
ACE's North America premium volume will increase to roughly 66 percent of total net premiums written from 56 percent as the acquisition adds Chubb's underwriting portfolio and expertise in several segments, including: professional liability, middle market commercial lines, and personal lines.
“Both ACE and Chubb's operating performance consistently exceeds peers, characterised by low combined ratios with manageable catastrophe losses, consistent favourable loss reserve development and stable investment income from strong operating cash flow,” said Fitch.
For the five-year period 2010 - 2014, ACE's average generally accepted accounting principles (GAAP) combined ratio was 91 percent and the operating return on equity was 12 percent. Chubb's average combined ratio and return on equity was 91 percent and 13 percent, respectively.
