Insurer Chubb needs to pay up to bulk up with Hartford
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[March 20, 2021] By
Alwyn Scott and David French
NEW YORK (Reuters) - Chubb Ltd's $23.4
billion bid for Hartford Financial Services Group Inc would catapult it
well up the rankings of U.S. property and casualty insurers, if it is
willing to sweeten its offer enough to clinch the deal, equity analysts
said.
Chubb on Thursday offered to buy Hartford for $65 per share in cash and
stock, a premium of about 13% to its stock price the previous day.
In combining forces, Chubb would significantly boost its footprint among
small commercial businesses, where Hartford is a leader. Building scale
in that sector is critical, because small businesses tend to pay small
premiums, said analyst Paul Newsome at Piper Sandler in Chicago.
Hartford Financial or "The Hartford" as it is known, dates back to 1810
when it was founded as the Hartford Fire Insurance Co.
Some analysts said the offer undervalued Hartford and suggested the
price could rise to more than $29 billion. Other acquisitions in the
sector have fetched prices that were 151% to 176% of book value,
compared with Chubb's bid at 144% of Hartford's book value.
"We view the $65 per share as too low," Wells Fargo analyst Elyse
Greenspan said in a note, arguing Hartford could command more than $80 a
share.
The combined company could book about $51 billion in net premiums earned
in 2022, a key revenue metric for insurers, Greenspan estimated.
That would make Chubb bigger than Progressive Corp, which analysts
expect will report about $48 billion in net premiums earned in 2022,
according to Refinitiv.
The P&C insurance market has been hit by claims associated with the
COVID-19 pandemic, including payouts to some business for losses caused
by lockdown measures.
This comes on top of terrible wildfires in western states, the most
active Atlantic hurricane season on record, and civil unrest, which have
all raised claims by policyholders, and pushed losses onto insurers.
While a potential deal would be the largest in the P&C space since Chubb
was created by ACE Ltd's $28.5 billion purchase of Chubb in January
2016, this part of insurance has seen a steady flow of smaller
acquisitions.
[to top of second column] |
A firefighting bulldozer battles the Bond Fire wildfire near Lake
Irvine in Orange County, California, U.S., December 3, 2020. The
U.S. insurance industry has been hit by claims associated with
wildfires in Western states and other disasters. REUTERS/Mike
Blake/File Photo
Transactions such as MetLife Inc selling its car and home insurance business to
Farmers Group, part of Zurich Insurance Group AG, reflect how those with smaller
operations are exiting the sector in the face of fierce competition.
The deal is unlikely to encounter regulatory challenges given how fragmented the
P&C industry is, Newsome said. Chubb has a narrow advantage as the largest
writer of commercial lines policies ahead of Travelers Companies, according to
S&P Global Market Intelligence. Adding eighth-ranked Hartford would give the
combined entity an 8.4% market share overall.
In personal lines insurance, a joint Chubb-Hartford would be the 11th-largest
writer, S&P Global figures show. Ranking by net premiums written would put
Chubb-Hartford just below fifth-ranked Liberty Mutual Insurance Co, based on
2020 results, according to AM Best.
If Chubb does not pay up for Hartford, others might be more willing. William
Hawkins at Keefe, Bruyette & Woods wrote in a note that Allianz SE and Zurich
could offer $87 and $84 a share, respectively, while still accruing benefits to
earnings.
Allianz and Zurich declined to comment.
The deal also appeared likely to spur more activity.
"Every significant-size insurance company is going to ask themselves, 'If Chubb
thinks they need scale, what about me?'" Newsome said. (This story corrects name
of company to S&P Global Market Intelligence instead of S&P Global Intelligence,
paragraph 13)
(Reporting by Alwyn Scott and David French in New York; Additional Reporting by
Carolyn Cohn in London; Editing by Matthew Lewis)
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