Seeking Alpha: ACE Puts Its Excess Capital To Work In A Big Way

With iffy near-term prospects for premium rate growth in the property & casualty insurance market and plenty of under-earning surplus capital on the balance sheet, I expected ACE Limited (NYSE:ACE) to continue looking for deals as a way of creating long-term value for shareholders. In that same piece back in April, I speculated that either Hartford (NYSE:HIG) or Chubb (NYSE:CB) could be an attractive target for ACE and that is what has happened - ACE has announced its intention to acquire Chubb in a $28 billion deal that makes ACE the largest P&C insurance company in the world.

ACE is not getting Chubb at a bargain price, but then I wouldn't expect that it would, as Chubb is a well-run and well-regarded insurance business with a very strong, high net worth personal lines business. I'm a little concerned that ACE may be overselling the revenue synergy potential from this combination, but I do think that expense reductions seem reasonable. For now, I'm only increasing my fair value on ACE by $3/share, but that still leaves ACE as one of the more attractive options in the insurance space, and it likewise may be leaving upside from deal-related synergies.

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ACE Puts Its Excess Capital To Work In A Big Way