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Chubb (CB) to Strengthen Asia-Pacific Presence With Buyout

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Chubb Limited CB inked a definitive agreement to take over the life and non-life insurance companies of Cigna Corporation CI in seven Asia-Pacific markets for $5.75 billion in cash. The transaction is a testimony to Chubb’s effort to expand its presence in the Asia-Pacific region.

Per the deal, Chubb will acquire Cigna's accident and health and life insurance operations in Korea, Taiwan, Hong Kong, New Zealand, Thailand and Indonesia as well as a 51% stake in the Turkey joint venture. These operations together generated about $3 billion in net premiums written in 2020.

Pending regulatory approval, the transaction is expected to close in 2022.

Financing the Deal

Chubb intends to finance the deal with its cash balance. It may also issue up to $1.1 billion of senior notes to finance the purchase.

Chubb boasts a strong capital position, with sufficient cash generation capabilities. Its excellent underwriting and investment performance produced strong operating cash flow

Rationale of the Transaction

Chubb identified the Asia-Pacific region as a long-term growth area. Thus, this acquisition appears to be a strategic fit. The addition of Cigna’s business will boost Chubb’s A&H business as well as expand its Asia-based life insurance presence. It will contribute 21% of Chubb’s premium revenues compared to 14% at present. Chubb’s Asia-Pacific portfolio will hence increase to $7 billion in premiums from $4 billion at present. The company estimates more than 80% of the premiums from the business to be acquired from supplemental A&H products, thus strengthening Chubb's leadership in global supplemental A&H, with premiums growing to $6.1 billion from $3.7 billion.

The acquisition is estimated to be accretive to Chubb’s bottom line by 6% and to return on equity (ROE) by 55 basis points by 2023. ROE is thereafter expected to improve to 14% from 11% over five years after PGAAP adjustments. The company also expects a strong return on investment (ROI), with a three-year ROI of 15% and an IRR of approximately 20%.

Chubb expects to realize in excess of $80 million of expense savings

The acquirer expects one-time integration costs of about $100 million. The tangible book value per share dilution is expected to earn back within six months.

This Zacks Rank #3 (Hold) insurer has always considered acquisitions as an effective strategy for inorganic growth and global expansion. Acquisitions provide the company with a competitive edge in terms of scale, efficiencies and balance sheet size, which would lead to considerable value creation in the future. Through acquisitions, Chubb has expanded its international and domestic footprint and built a superior portfolio of products and services.

Price Performance

Chubb shares have gained 48%, outperforming the industry’s increase of 24.1% year to date. Improving pricing, new business growth, high renewal rates, and sturdy financial position should help it retain the momentum.

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Zacks Investment Research

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Acquisitions in the Insurance Space

Given the insurance industry’s adequate capital level, players are pursuing strategic mergers and acquisitions. Arthur J. Gallagher & Co. AJG has acquired Briat Insurance Ltd in its efforts to boost its footprint in Cayman Islands. Brown & Brown, Inc.’s BRO subsidiary Bridge Specialty Group, LLC has acquired substantially all assets of Gremesco of New Jersey, LLC.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Chubb Limited (CB) : Free Stock Analysis Report

Cigna Corporation (CI) : Free Stock Analysis Report

Arthur J. Gallagher & Co. (AJG) : Free Stock Analysis Report

Brown & Brown, Inc. (BRO) : Free Stock Analysis Report

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