By Leslie Scism
Hartford Financial Services Group Inc.'s board unanimously rejected Chubb Ltd.'s unsolicited proposal to acquire the Connecticut-based insurer.
Chubb, a global powerhouse whose roots trace back even further than the 211-year-old Hartford's, now must decide how to respond, if at all.
Wall Street analysts and industry executives and consultants say it is unclear if Chubb's chief executive, Evan Greenberg, would be willing to increase the company's proposal to a level high enough to force talks. Chubb didn't respond to requests for comment.
Neither company desperately needs to do a deal to expand revenue and profits. Since Mr. Greenberg is respected in the industry for years of above-average underwriting results even as he has shown a bent for acquisitions, he could well walk away from the March 11 proposal. In 2016, Mr. Greenberg merged a business insurer, ACE Ltd., with the personal-property and business insurer Chubb, and kept the better-known name.
Should Chubb abandon the Hartford takeover effort, its board might still have deal-making on its plate. News of the Chubb proposal, which surfaced last Thursday, may end up unleashing other proposals, according to analysts and consultants. Hartford declined to comment on the possibility of additional approaches.
"I would be surprised if there aren't teams at virtually every large global property-casualty insurer that are looking at potential mergers" with Hartford right now, said Paul Newsome, an analyst at Piper Sandler.
Hartford's market capitalization stood at about $24 billion in the wake of the Chubb proposal. That fairly large size limits the number of potential bidders. Names bandied about by analysts as potential bidders include Travelers Cos., Berkshire Hathaway Inc., Allianz SE and Munich Re.
On Tuesday morning, Hartford said its board, after consulting with outside advisers, "determined that entering into discussions regarding a strategic transaction would not be in the best interests of the company and its shareholders." The board reaffirmed "its commitment and resolve in the continued execution of The Hartford's strategic business plan."
In a statement last week, Chubb said the March 11 proposal would value Hartford at $65 a share. Analysts at Piper Sandler said the $65 proposal price represented a premium of about 26% on its 20-day volume weighted average share price of $51.70 as of March 10. The shares jumped nearly 19% last Thursday, when the Chubb proposal became public.
Hartford's chief executive, Christopher Swift, has made some acquisitions over the past few years as the firm narrowed its focus. Those include buying a specialty insurer, Navigators Group, to bolster a franchise selling coverage to small and midsize businesses. He also bought a unit from Aetna Inc. to expand an employee-benefits group business. Hartford also has a mutual-funds unit.
While a combination of Chubb and Hartford would bring together two of the best-known U.S. insurers, it wouldn't change the competitive landscape dramatically or spark U.S. antitrust concerns, Mr. Newsome said. There are hundreds of insurers competing in the U.S. to sell business insurance.
Chubb has a total U.S. market share for property-casualty premium of about 3.3%, while Hartford's is 1.8%, according to Piper Sandler.
Mr. Greenberg grew up in a household where pioneering moves were the norm. He is a son of Maurice "Hank" Greenberg, who built American International Group Inc. into a global financial-services behemoth before leaving the company in 2005. Evan Greenberg worked at AIG for many years, then later took a top job at ACE, which was founded in 1985 by blue-chip companies to provide liability insurance.
Mr. Greenberg helped transform ACE into a leading insurer with an acquisition in 1999 of Cigna Corp.'s midsize property-casualty company. In ACE's subsequent acquisition of Chubb in 2016, Mr. Greenberg led the biggest deal in property-casualty insurance at just over $30 billion, according to Dealogic.
In Hartford, Mr. Greenberg sees an opportunity to boost Chubb's business of selling insurance to small and midsize businesses.
Mr. Greenberg hopes to acquire "a fiercely independent company," said Cathy Seifert, a vice president and equity analyst at CFRA Research.
Hartford was one of the hardest-hit U.S. insurers during the 2008-09 global meltdown. The firm took federal aid, which it fully repaid. A couple of years later, Hartford fended off demands by hedge-fund manager John Paulson to split the company in two, saying it would stick to its own plan for a turnaround.
Over the years, Hartford shed its individual life-insurance arm and a unit that was winding down its once-industry-leading business, as measured by sales, of variable annuities, among other changes.
Big deals have been relatively scarce in the property-casualty insurance industry in recent years. The Covid-19 pandemic injected uncertainty about the economy, which is just now abating.
Chubb's overture surprised some because it and other business insurers are enjoying double-digit premium-rate increases in many product lines, thanks to the end of longstanding price competition. The higher premium rates allow companies to boost their revenue and profit margins without the integration and other risks of an acquisition.
Write to Leslie Scism at leslie.scism@wsj.com
(END) Dow Jones Newswires
03-23-21 1719ET
