Greenberg’s Grab for Chubb Stokes Insurers’ Deal Fever: Real M&A

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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 as increased competition drives down prices on some policies, curtailing 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 percent 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 to records, while Cincinnati Financial Corp. gained the most since 2011 and XL Group Plc climbed 2.1 percent. All are valued at less than $15 billion.

Hartford Financial with a market capitalization of $19 billion, surged 6.3 percent.

“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.

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