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Ace-Chubb deal could spark $500mn legacy sale

The $28.3bn acquisition of historic US carrier Chubb by comparative newcomer Ace could spark a $500mn asbestos legacy sale, The Insurance Insider understands.

In many respects the acquisition makes sense for the two carriers. But with regard to legacy management the two are diametrically opposed.

Chubb - first established in 1882 - has a heavy asbestos burden, with estimated reserves of $500mn at the end of last year.

Ace, on the other hand, has historically preferred to keep a tidy backyard by shifting the bulk of its asbestos, pollution and health liabilities, acquired with its 1999 purchase of Cigna, to a run-off specialist.

The Evan Greenberg-led carrier disposed of its Brandywine portfolio in a protracted auction process in 2006.

The $900mn portfolio was eventually sold to Randall & Quilter (R&Q) for a total consideration of around $950mn, after a drawn-out negotiation with the Pennsylvanian regulator.

Ironically, the added regulatory interest was largely stoked by Chubb, which filed an objection to the portfolio transfer.

If Ace chooses to dispose of Chubb's legacy book it would be a boon for the run-off sector, which has experienced a dearth of potential acquisition targets in recent years.

Chubb bolstered its net loss reserves by $51mn in 2013. It blamed the strengthening in part on attempts to reclassify claims originally made under a products policy as non-product claims.

And the Brandywine portfolio transfer could hardly have been described as easy.

In April 2012, R&Q filed a declaratory suit with the aim of ensuring that the former Ace subsidiaries, now named R&Q Re (US), were "not liable under a reinsurance treaty by which R&Q Re (US) allegedly reinsured Horace Mann because, among other things, that treaty was excluded from the contracts and liabilities acquired by the group in 2006 as part of its purchase of R&Q Re (US)".

The two sparring entities eventually settled the dispute for an undisclosed sum in January 2013.

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