U.S. 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.
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The operations to be acquired include Cigna's A and 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.
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 and H business while expanding the company's Asia based life insurance presence.
Upon completion of the transaction, Asia Pacific's share of Chubb's global portfolio will increase from approximately $4 billion to $7 billion in premium and represent approximately 20% of the company (excluding China).
Over 80% of the premiums from the business to be acquired are from supplemental A&H products, further building Chubb's leadership in global supplemental A&H, with premiums growing from $3.7 billion to $6.1 billion.
Together, A and H and life will comprise 21% of the company's overall premium revenue compared to 14% today.
Upon close, the transaction is expected to be immediately accretive to Chubb's core operating earnings per share and return on equity (ROE) for full year 2023 by 6% and approximately 55 basis points, respectively. Deal ROE goes from 11% to 14% over five years after PGAAP adjustments.
The company also expects a strong return on investment (ROI), with a three year ROI of 15% and an IRR of approximately 20%. The tangible book value per share dillution is expected to earn back within six months. There is strong, steady cash generation with high dividend payout capacity of approximately 70% 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 transaction is expected to be completed in 2022 and is subject to required regulatory approvals and customary closing conditions. ■