ACE to Boost Personal Lines for Wealthy with Fireman's Fund - Analyst Blog

ACE LIMITED ( ACE ) has inked a deal to buy Fireman's Fund - a high net worth personal lines insurance business in the U.S. - from German insurer Allianz. The purchase consideration totals $365 million. The transaction, pending approvals, is expected to close in the second quarter of 2015.

The acquisition would make ACE a premier high net worth personal lines insurer in the U.S. The company has been judiciously investing in coverage for the wealthy and identified high net worth personal lines as a strategic growth area. Hence, adding Fireman's Fund would be a strategic fit.

Fireman's Fund wrote $891 million in personal lines gross written premiums and was the #3 insurer serving the U.S. high net worth consumer market last year. The acquisition will be accretive to ACE's earnings immediately.

Upon closure, the Fireman's Fund business will be combined into ACE's high net worth personal lines business, ACE Private Risk Services. This business has been providing wide coverage from homeowners, automobile, umbrella and excess liability, and collectibles to yachts.

The transaction also include renewal rights for new and existing business, reinsurance of all existing reserves, and access to an extensive network of about 1,100 agents and brokers.

Looking at the other side of the coin, the divestment by Allianz will help it to deepen focus on the U.S. property and casualty (P&C) business. Allianz has been weighing options to divest the personal lines part of its business. In addition, the sale proceeds will help Allianz inject funds to restructure its U.S. P&C operations that include combining legacy problem areas like asbestos, environment and worker's compensation as a separate unit focused on winding down these businesses.

ACE Limited has always considered acquisitions as a prudent strategy to boost growth and expand its global footprint. Over the years, ACE Limited made significant acquisitions to widen its global presence and diversify its product offerings. It has expanded its Brazil, Mexico and Thailand operations in recent years. The acquisitions are boosting ACE's premiums and taking it closer, a step at a time, to its long-term ROE goal of 15%.

The company has been strengthening its balance sheet, which is enough to travel the inorganic path and perk up operational performance. While cash balance improved 39% over the 2013 level, retained earnings grew 17%. ACE Limited has also been effectively lowering its leverage ratios.

Moreover, ACE Limited has been witnessing rising estimates on the strength of solid earnings results, and effective capital deployment. The Zacks Consensus Estimate for 2014 and 2015 moved up as most of the estimates were raised over the last 60 days. It increased 3% to $9.52 for 2014 and 0.2% to $9.34 for 2015. The expected long-term earnings growth rate is 10%. The property and casualty insurer carries a Zacks Rank #2 (Buy).

It seems acquisitions are increasingly becoming a common and prudent approach by insurers to ramp up their growth profile as the takeover saga rages in the insurance space. XL Group plc ( XL ) is in talk with Bermuda based Catlin Group Ltd. to acquire the latter that has a leadership presence at Lloyd's.The transaction will straightaway widen quite a few lines of business of XL Group in which it has lately made investments.The Progressive Corporation ( PGR ) inked a deal to buy the majority stake in ARX Holding Corp., the parent company of American Strategic Insurance (ASI) and its affiliates, for a cash consideration of $875 million. The acquisition well positions Progressive to serve customers opting for a combination of home and auto insurance. Earlier this month, Kemper Corporation ( KMPR ) agreed to buy Alliance United Group and its wholly owned subsidiaries for a cash consideration of $70 million in order to expand its presence in California.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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