OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has placed under review with negative implications the financial strength rating (FSR) and the issuer credit ratings (ICR) of the insurance subsidiaries of ACE Limited (ACE) (Zurich, Switzerland) [NYSE: ACE], as well as the ICR and senior debt ratings of “a+” of ACE. (Please see link below for a detailed listing of the companies and ratings.)
The rating actions follow the recent announcement that ACE entered into a definitive agreement to acquire The Chubb Corporation (Chubb Corp) (headquartered in Warren, NJ) [NYSE: CB] and its subsidiaries. Under the terms of the transaction, Chubb shareholders will receive $62.93 per share in cash and 0.6019 shares of ACE stock. Based on the closing price of ACE stock on June 30, 2015, the total value is approximately $124.13 per Chubb share, or $28.3 billion in the aggregate. This is the equivalent of $125.87 per Chubb share using ACE’s 20-day volume weighted average share price for the period ending June 30, 2015. Upon closing of the transaction, ACE shareholders will own 70% of the combined company, and Chubb shareholders will own 30%. The consideration represents an approximately 30% premium to Chubb’s closing price of $95.14 on June 30, 2015. The close of the transaction is expected during the first quarter of 2016, pending approval of ACE and Chubb Corp shareholders, and regulators, as well as the expiration or termination of the applicable waiting period required under U.S. anti-trust regulation.
The rating actions reflect the uncertainty regarding ACE’s ability to execute on its plan given the complexity, size and scope of this acquisition. Furthermore, in order to achieve the greatest efficiencies and long-term gains, a successful integration must be achieved within a reasonable time period. This execution risk is partially mitigated by the collaborative nature of this transaction.
The proposed transaction combines two high quality insurance organizations with experienced management teams, complementary business scopes, global capabilities and adequate risk-adjusted capital positions. To this point, following the close of the transaction, the level of debt and goodwill created serve to limit the consolidated group’s risk-adjusted capital position and increase its debt leverage on a total and tangible capital basis. These measures, as well as the balance sheet quality, are expected to improve over time given the consolidated entity’s planned increase in shareholders’ equity driven by strong earnings and limitations on share repurchases.
The under review status will be removed shortly after the transaction has closed and A.M. Best reviews the final integration plan and financial position. Factors that could lead to a negative outlook or rating downgrade include A.M. Best's view that the transaction, integration plan and resulting capital structure represent a potentially material risk to the organization. Factors that could lead to a stabilization of the ratings include a sound integration plan, retention of key personnel and moderate debt and leverage measures.
For a complete listing of ACE Limited and its subsidiaries' FSRs, ICRs and debt ratings, please visit ACE Limited.
This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.
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