Loud applause can be heard across the insurance industry, which is whole-heartedly rooting for the largest deal ever (in life and property casualty insurers’ space) on July 1, 2015. Swiss insurance company ACE Ltd. (ACE) announced that it would purchase high-end property insurer and its competitor Chubb Corp. (CB) in a $28.3 billion deal.
Per the agreement, Chubb shareholders will get $62.93 per share in cash and 0.6019 in ACE shares while Ace shareholders will be in possession of about 70% of the merged entity. The new company will take on Chubb’s name, and will be led by ACE’s Chief Executive Evan Greenberg. The deal is expected to be sealed in the first quarter of 2016.
Post announcement, Chubb skyrocketed over 26% and kept adding gains after market too. The merged entity will likely become ‘a global leader in commercial and personal property and casualty (P&C) insurance’. It will help both the entities to unlock value, bolster the balance sheet and make better use of diversification. The combined entity will focus heavily on the growth criteria.
Bloomberg noted that the insurance industry lately been thriving on an M&A spree and that it has not seen such extravaganza in the last 12 years. Experts expect more such activity in the industry going forward. In any case, corporate America is seeing a flurry of mergers and acquisitions. In the first half of 2015, the activity hit a historic $1.03 trillion, never made possible by a country in a semi-annual time frame (read: Bet on M&A Frenzy with These ETFs and Stocks).
Market Reaction
While Chubb’s shares jumped over 26% with more than 28 times its average daily volume to close at $119.99, ACE shares closed 0.80% higher on the day with 17 times higher the average daily volume following the announcement of the deal.
Below, we have highlighted four ETFs, two having exposure to the concerned companies and two that do not. Whatever the case, the news acted as a driver for the entire industry and pushed the funds higher yesterday (see all Financials ETFs here).
PowerShares KBW Property & Casualty Insurance Fund (KBWP)
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This fund closely tracks the KBW Property & Casualty Index, a modified market capitalization weighted index, which seeks to reflect the performance of approximately 24 property and casualty insurance companies. The $13.2 million-product charges a reasonable 35 basis points per year in fees. It currently pays out a decent dividend that yields 1.78% annually.
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More than half of its assets are invested in the top 10 holdings. The in-focus Chubb takes the second spot (7.68%) in the fund while ACE Ltd accounts for 7.52% of the basket taking the fifth position. The fund was up 3.6% on Wednesday and is up 4.4% so far this year. The fund holds a Zacks ETF Rank #3 with a moderate risk outlook.
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