Ace seeks merger targets: report

Ace Ltd., the multinational insurer whose U.S. operations (including the old Insurance Co. of North America) are run from Philadelphia, plans rapid expansion that may include buying life and health insurers, says Paul Newsom, insurance analyst at Sandler O'Neill & Co. in New York.

Citing remarks to investors by Evan Greenberg (son of ex-American International Group boss Maurice Greenberg), Newsom tells clients in a report today that Greenberg "would like to see Ace's business mix change to include more personal lines,  accident and health and life insurance. In particular, he would like to see the proportion of personal lines rise from 2% to 20% over the next five to seven years. That suggests very rapid growth of Ace's current businesses and/or an acquisition...

"In the past several years Ace has been building a U.S.-based high net worth-focused personal lines operation. This operation competes with companies such as Chubb, AIG and Fireman's Fund which have well established operations that cater to insuring expensive homes and automobiles...

"Many investors were disappointed that Ace continues to resist repurchasing its shares despite the low price of the shares currently. The company doesn't rule out stock repurchases, but it is clear from their comments in the recent past
and at the analyst day that senior management would much rather hold onto the capital.

"In the long term, holding onto (an estimated $2 to $4 billion in) excess capital might be the right thing to do... There will come a day when Ace will want more capital to grow." Though, he also warns, "there is a long history in the property-casualty insurance industry of insurance company management investing excess capital in unprofitable growth, poor acquisitions and bad investments...

"Ace management said they were interested in both property-casualty and life insurance acquisitions... The company is generally more interested in international business."