ACE–Chubb: Combined Financials Will Be Leveraged but Comfortable
ACE to Acquire Chubb for $28 Billion: New Insurance Sector Record
Pro forma capital structure
ACE’s (ACE) acquisition of Chubb (CB) will be funded partially using senior debt totaling $5.3 billion. This will result in a pro forma debt-to-total-capital ratio of 20.7%, compared to existing ratios of 12.2% and 11.8% respectively.
The combined entity will have total debt of $11.76 billion, as compared to existing debt of $6.5 billion. Its total assets will total $149.5 billion, 34% of which will be contributed by Chubb. Its net debt position will be strong, as the combined entity’s cash and equivalents will total $107.1 billion.
Operating performance
Mergers and acquisition activity has increased in the insurance industry (XLF), with the equity value of takeovers sealed this year reaching its highest level since at least 2000. ACE will benefit from the series of acquisitions it has undertaken once interest rates start rising. Any such rise will have a direct positive impact on the profitability of insurance companies as well as their valuations.
The combined entity will generate a total gross premium of $37 billion, 36.7% of which will be contributed by Chubb. The ACE-Chubb gross premium will be higher than that of Travelers Companies (TRV) and Allstate (ALL).
The combined entity is expected to generate operating income of $5.2 billion, 36% of which will be contributed by Chubb. Together, the two companies will grow at a faster pace than they would have individually, especially in a scenario where interest rates are rising.
Under the leadership of Evan Greenberg since 2004, ACE has expanded into new overseas markets, added new coverage lines, and grown to become one of the largest property and casualty companies in the world. ACE shares have returned more than 1.5x since Evan Greenberg took charge of the company.
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