Swiss insurance giant ACE Ltd (ACE.N) is to buy upmarket property insurer Chubb Corp (CB.N) for $28.3 billion to get access to wealthy clients who pay higher premiums at a time when fierce competition has cut deeply into the industry’s profit margins.
The takeover, the biggest ever in the insurance sector, will create the world’s largest property and casualty insurer by underwriting income.
Rock-bottom catastrophe insurance premiums, the rise of catastrophe bonds, low interest rates and stiff competition have prompted a wave of acquisitions among underwriters.
Chubb shares rose to a record high of $129.31, above the offer price of about $124.13, suggesting some investors see potential for a rival bid. ACE shares rose 5.3 percent.
Potential rival bidders include Allianz (ALVG.DE), Berkshire Hathaway (BRKa.N), AXA SA (AXAF.PA) and Travelers Cos Inc (TRV.N), Wells Fargo analyst John Hall wrote in a note.
The combined company, which will adopt Chubb’s name, will be led by ACE Chief Executive Evan Greenberg, the son of AIG (AIG.N) ex-chief Maurice “Hank” Greenberg.
The new company will operate in more markets with less exposure to property and casualty insurance and the deal will be double-digit accretive within three years, Evan Greenberg said on a call on Wednesday.
The combined company is expected to save about $650 million in annual costs by 2018, he said.
The deal, at a premium of 30 percent to Chubb’s closing price on Tuesday, is the largest insurance takeover in an industry that rarely sees such high price tags.
Zurich-based ACE has been on an acquisition spree under Greenberg.
ACE bought Allianz’s Fireman’s Fund personal insurance unit for $365 million in December and Itau Unibanco Holding SA’s high-risk corporate insurance business for about $680 million last July.
Reuters reported in November, citing sources, that ACE was also interested in buying the pension and insurance arms of Turkey’s state-run Halkbank.
Chubb shareholders will receive $62.93 in cash and 0.6019 ACE share for each share held.
ACE, with operations in 54 countries, plans to issue $5.3 billion of senior notes to partly fund the deal, which is expected to close in the first quarter of 2016.
Chubb CEO John Finnegan will be the combined company’s executive vice chairman for external affairs for North America.
Morgan Stanley & Co LLC was ACE’s financial adviser and Sullivan & Cromwell LLP its legal counsel.
Guggenheim Securities LLC was Chubb’s financial adviser and Wachtell, Lipton, Rosen & Katz its legal counsel.