EUR 850.00 For Business Accounts Only

Morningstar | The combination of ACE and Chubb created a large, moaty insurer.

In January 2016, ACE acquired Chubb in a deal valued at about $28 billion. While ACE was the acquirer, the combined entity assumed the Chubb name, as management believed the Chubb brand was more established. We like that the deal looked fairly valued and that there are meaningful cost benefits involved, and management has run ahead of its initial targets. However, from a long-term perspective, we are most enthusiastic about the fact that the combination created a moaty international insurer with exposure across most insurance lines for the first time, marking Chubb as potentially the most attractive name in the space from a fundamental point of view.In our view, while moats are possible in some niche areas, insurance is at its heart a commodity industry in which it's difficult to achieve sustainable excess returns. In this light, we think large, highly diversified insurance operations will tend to be mediocre performers, as any strengths they might enjoy in some areas will be offset elsewhere. As a result, our narrow-moat-rated insurers tend to be focused on specific areas. However, we view Chubb is an exception to this rule, as we think the majority of its business lines are moaty. On a pro forma basis, the company's historical combined ratio results are the best of any insurer we cover over the past 10 years, and we believe the new company will maintain this level of performance. The company's performance since the merger supports this idea.Like other insurers, Chubb was hit by the flurry of natural catastrophes in 2017. Typically, the industry sees pricing firm following large catastrophes, and the early indication is that this will be the case again. However, our expectation is that the increases will be modest, and lower than what we've seen in the past, as the industry remains well-capitalized. In our view, this adds up to an underwriting environment where a cautiously managed firm such as Chubb should be able to use its competitive advantage to generate a reasonable level of excess returns.