July 9, 2015 (Updated December 2015)

Update: Questions about Ace Limitedʹs Acquisition of The Chubb Corporation

ACE continues to make announcements concerning the future management team of the “new Chubb.” For details see, http://www.acegroup.com/media-center/ace-in-the-news/ace-chubb-are-becoming-one.aspx?link-loc=banner. For most of our clients, the November 24 and 20 announcements (which address the future North American claims organization and the North American Professional Lines Divisions, respectively) are the most important.'

North American Professional Lines Division: While how fiduciary liability will be handled is not yet identified, the executive management team appears to be Bob Cox, Mike Maloney, and Evan Rosenberg. All are currently executives within Chubb and have executive responsibility for fiduciary liability. All are known to Segal Select and, as part of the ACE acquisition of Chubb, we have recently met with both Mike Maloney and Evan Rosenberg. We hope and believe their ongoing executive responsibility for fiduciary liability, including fiduciary liability for Taft-Hartley multiemployer benefit plans, is very positive.

North American Claims: Professional liability claims will report to Douglas Poetzsch, who is from ACE. While it is still too early to tell how these appointments will translate into day-to-day underwriting, service, and claims adjustment, it is good to see.

On July 27, 2015, the Chief Operating Officers of Chubb Specialty Insurance, Chubb Surety and Chubb Commercial Insurance posted a message to their customers about Chubb’s pending acquisition by ACE. The message confirms that the transaction is expected to be completed in the first quarter of 2016.

On July 1, the boards of directors of both Ace and Chubb announced agreement of a transaction where Ace will acquire Chubb for $28.3 billion in cash and stock. It is anticipated this deal will close in the first quarter of 2016. Based on 12/31/14 financial data, the combined company will have total shareholders’ equity of approximately $46 billion and cash, investments and other assets of $150 billion. The combined company will assume the Chubb name.

A joint ACE/Chubb press release outlines the way the two companies view the benefits of the combination. Here are the links to that press release: http://news.acegroup.com/press-release/corporateglobal/ace-acquire-chubb-283-billion-cash-and-stock and http://www.chubb.com/corporate/chubb20706.pdf.

This webpage answers questions many plan sponsors are asking about the acquisition.

What should we do now in response to the news?

The short answer is “nothing.” The deal will not close until approximately the first quarter of 2016. In a July 1, 2015 email to Chubb agents and brokers, John Finnegan, Chairman, President and CEO of Chubb, said: “Until the transaction closes, it is business as usual, and both Chubb and ACE will continue to operate as two separate and competing companies.” Because of this, it is our view, that in the short term there will be no immediate changes as a result of this announcement.

What will change next year once the transaction takes effect?

Recognizing that any projection is difficult at best, Segal Select expects a number of changes, which may include the following:

  • Some market capacity may be lost. For example, if Chubb is primary and Ace is excess on a single policy and both are offering their “maximum” limit of liability, we may need to replace some of that capacity with a new carrier. This should be a very rare event and, based upon current and projected market capacity, should be easily resolved.
  • Ace has said it expects both meaningful growth and substantial additional revenue. Achieving this may require its underwriters to be more flexible and aggressive in their underwriting style.
  • In the multiemployer industry segment, Chubb is a dominant insurer. We anticipate Ace will want to use the size and financial strength of the combined entity to grow this market segment.
  • Finally, due to projected annual expense savings, staff layoffs are likely to occur. This means many staff will find new positions with other insurers and brokers. In turn, this may lead to more competition.

While there are bound to be exceptions, we anticipate that most of these changes will be at least neutral and, more likely, favorable to our clients. As in the past, we will continue to monitor market developments and communicate them as appropriate.

Who can answer my questions about what the deal might mean for my plan’s coverage?

Please direct your questions to Segal Select experts Mark A. Dobrow at 312.984.8660 or Matt Jackson at 212.251.5387.

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Segal Select Insurance is not a law firm. Nothing herein is to be considered a binding interpretation of coverage. Only the insurance carrier can provide such an interpretation. Insurance policies are a legal contract and legal counsel should always be consulted.

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