© Reuters. FILE PHOTO: A fire fighting bulldozer fights the Bond Fire wildfire near Lake Irvine in Orange County, California
By Alwyn Scott and David French
NEW YORK (Reuters) – Chubb (NYSE 🙂 Ltd's $ 23.4 billion offer for Hartford Financial Services Group (NYSE 🙂 Inc would catapult the US property and casualty insurer ranking well if it did willing to sweeten its offer enough to win the deal, said stock analysts.
Chubb on Thursday offered to buy Hartford for $ 65 per share in cash and stock, a premium of about 13% over the previous day's share price.
By joining forces, Chubb would greatly improve its presence in small trading companies where Hartford is a leader. Building economies of scale in this sector is critical as small businesses tend to pay low premiums, said Piper Sandler (NYSE 🙂 analyst Paul Newsome of Piper Sandler (NYSE 🙂 in Chicago.
Hartford Financial, or "The Hartford" as it is known, dates back to 1810 when it was founded as Hartford Fire Insurance Co.
Some analysts said the offer undervalued Hartford, suggesting the price could soar to more than $ 29 billion. Other acquisitions in this sector have fetched prices that were 151% to 176% of book value compared to Chubb's offer at 144% of Hartford's book value.
"We think the $ 65 per share is too low" Wells Fargo (NYSE 🙂 Analyst Elyse Greenspan said in a note that Hartford could charge more than $ 80 per share.
The combined company could post roughly $ 51 billion in net written premiums in 2022, a key revenue metric for insurers, Greenspan estimated.
That would make Chubb bigger than Progressive Corp (NYSE :), which analysts expect to see net premiums of around $ 48 billion in 2022, according to Refinitiv.
The P&C insurance market has been hit by claims related to the COVID-19 pandemic, including payouts to some companies for losses caused by lockdown measures.
This is on top of the horrific forest fires in the western states, the most active hurricane season in the Atlantic ever, and the unrest that has made claims by policyholders and has left insurers with losses.
While a potential deal would be the largest in the P&C since Chubb was founded through ACE Ltd's purchase of $ 28.5 billion in Chubb in January 2016, that part of the insurance company has a steady stream of smaller acquisitions recorded.
Transactions like MetLife Inc (NYSE 🙂 selling their auto and home insurance businesses to Farmers Group, part of Zurich Insurance Group AG (OTC :), reflect how those with smaller operations are leaving the sector in the face of fierce competition.
Given the fragmentation of the P&C industry, the deal is unlikely to face regulatory challenges, Newsome said. According to S&P Global (NYSE 🙂 Market Intelligence, Chubb has a close advantage as the largest commercial line policy writer to Travelers Companies (NYSE :). The addition of Hartford in eighth place would give the combined company a combined 8.4% market share.
In personal insurance, a joint Chubb-Hartford would be the eleventh greatest writer, as S&P Global figures show. According to AM Best, Chubb-Hartford would rank just below fifth on Liberty Mutual Insurance Co's 2020 results.
If Chubb Hartford doesn't pay, others may be more willing. Wilhelm Hawkins (NASDAQ 🙂 at Keefe, Bruyette & Woods wrote in a note that Allianz (DE 🙂 SE and Zurich could offer $ 87 and $ 84 per share, respectively, while still gaining profit advantages.
Allianz and Zurich declined to comment.
The deal also seemed to stimulate more activity.
"Any major insurance company will be asking, 'If Chubb thinks they need a scale, what about me?'" Newsome said. (This story corrects the company's name to S&P Global Market Intelligence instead of S&P Global Intelligence, paragraph 13)