US insurer Chubb has agreed to buy health insurer Cigna Corp's life, accident, and supplemental benefits businesses in Asia Pacific and Turkey for $5.75 billion in cash, in what is seen as the latest consolidation in Asia's insurance sector.
Chubb will acquire Cigna's $3 billion premium revenue personal accident, supplemental health and life insurance business in seven Asia-Pacific markets, which will take Asia's share of Chubb's global portfolio from approximately $4 billion to $7 billion in net premiums written, or approximately 20 per cent of the company (excluding China).
The operations to be acquired include Cigna's A&H and life business in Korea, Taiwan, New Zealand, Thailand, Hong Kong and Indonesia and its interest in a joint venture in Turkey. These operations generated approximately $3 billion in net premiums written in 2020.
Chubb said its global A&H premiums will grow from $3.7 billion to $6.1 billion while its Asia life company premiums will increase from approximately $1 billion to $4 billion.
"The addition of Cigna's business, which is overwhelmingly A&H, will further balance our global portfolio toward this important region," said Evan G Greenberg, chairman and chief executive officer of Chubb. "We have long admired and respected Cigna's business in Asia including its talented people, innovative products, technical and analytical capabilities, distribution and management. We know these businesses well as we already have a sizable operation of our own in the region and globally,” he added.
The company expects the acquisition to be immediately accretive to core, raising operating income per share and ROE for full-year 2023 by 6 per cent and approximately 55 bps, respectively.
This highly complementary transaction advances Chubb's strategy to expand its presence in the Asia-Pacific region, a long-term growth area for the company, and adds to an already sizable A&H business while expanding the company's Asia-based life insurance presence.
The company also expects a strong return on investment (ROI), with a three-year ROI of 15 per cent and an IRR of approximately 20 per cent. The tangible book value per share dilution is expected to earn back within six months. There is strong, steady cash generation with high dividend payout capacity of approximately 70 per cent of operating income. The company will maintain its strong balance sheet and does not expect the transaction to impact its current AA investment grade rating or its capital management commitments, including its current share repurchase program and annual dividend.
The $5.75 billion cash consideration is not contingent upon financing. Chubb estimates that it will realise in excess of $80 million of expense savings. The transaction is expected to be completed in 2022 and is subject to required regulatory approvals and customary closing conditions.