In order to further explore the fast-growing South Asian market, property and casualty insurer ACE Limited (ACE) recently announced its decision to acquire Jakarta-based Asuransi Jaya Proteksi (“JaPro”), one of the top 10 general insurers in Indonesia. The purchase consideration comprises a cash payment of about $130 million on closing. Subject to the approval of the regulatory bodies, the deal is likely to be sealed in the third quarter of this year.

ACE will not only benefit from the wide network coverage that JaPro has already established in the Indonesian market, but will also have a defined structure for marketing and distributing its products. The growing customer base in this region is expected to support its revenue growth. Moreover, with both the companies having almost similar service offerings, ACE will find it easier to amalgamate JaPro’s business with its own.

The news of this acquisition comes on the heels of positive ratings assigned on ACE Limited and its subsidiaries by A.M. Best Co. a couple of days ago. The outlook for the ratings remains stable. The company’s cash position also manifests a favorable image that supports the acquisition. It has a free cash balance of $2.2 billion. Continued improvement in top and bottom line results are expected to boost shareholders value in the near term.

ACE retains a Zacks #3 Rank, which translates into a short-term Hold rating. We also maintain a long-term Neutral recommendation on its shares. The company competes very closely with EMC Insurance Group Inc. (EMCI) that currently retains a Zacks #1 Rank (a short-term Strong Buy rating).

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