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ACE Ltd Well Poised on Chubb Corp Buyout, Low Rates Nag - Analyst Blog

On Jul 10, we issued an updated research report on ACE LimitedACE .

In its effort to ramp up its inorganic growth story, ACE Limited recently inked a deal to buy The Chubb Corporation CB in a 50:50 cash-stock consideration of $28.3 billion. ACE shareholders will have control over a 70% stake. The combination of the two, with complementary products and services, will position ACE Limited as #1 on the basis of P&C underwriting income, #2 U.S. public P&C insurer by market capitalization, #2 in U.S. commercial lines by direct written premiums, and as the #4 public global multiline insurance company by book value and operating income.

Hence, ACE will have a competitive edge with increased scale, efficiencies and balance sheet size. Put together, these would lead to considerable value creation in the future.

ACE Limited expects the acquisition to be accretive to earnings per share and book value immediately. By the third year, it will be accretive to the bottom line by double digits and will contribute to return on equity. Also, ACE Limited estimates pre-tax annual expense savings of about $650 million by the third year of completion. The acquisition will also result in considerable top-line growth by 2020. Moreover, return on investment is estimated to exceed ACE's cost of capital within two years and drive double-digit returns by the third year.

In addition, tangible book value per share will return to its current level in the third year. Subsequently, earnings accretion is estimated to be balanced between revenue and expense-related synergies by the fifth year.

Apart from focusing on inorganic growth, ACE Limited made investments in various strategic initiatives that should pave way for long-term growth.

ACE Limited boasts a strong capital position that helps it deploy capital, thereby enhancing shareholders' value.

However, exposure to catastrophe losses, escalating expenses eating away margins, and a persistent low interest rate environment are headwinds to the company's growth.

ACE Limited is scheduled to report second-quarter results on Jul 21. The Zacks Consensus Estimate for the same is pegged at $2.31, translating to a year-over-year decline of 4.41%. The property and casualty insurer currently has a Zacks Rank #4 (Sell).

Stocks to Consider

Some better-ranked property and casualty insurers are Argo Group International Holdings, Ltd. AGII and PartnerRe Ltd. PRE . Both these stocks sport a Zacks Rank #1 (Strong Buy).

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

CHUBB CORP (CB): Free Stock Analysis Report

PARTNERRE LTD (PRE): Free Stock Analysis Report

ACE LIMITED (ACE): Free Stock Analysis Report

ARGO GROUP INTL (AGII): Free Stock Analysis Report

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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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