Aon shares up, Willis Towers Watson down as merger fails; Q2 earnings roll on

Two now-former merger partners saw their stocks move in opposite directions after their deal was called off.

Insurance companies tracked fairly close to the broader market for the week ending July 30. The SNL U.S. Insurance Index edged down 0.19% to 1,388.44, while the S&P 500 slipped 0.37% to 4,395.26.

Aon PLC and Willis Towers Watson PLC at the start of the week said they terminated their $30.55 billion merger amid the prospects of a long legal fight against the U.S. Department of Justice, which had sued to block the deal on antitrust grounds. Aon executives during a conference call to discuss earnings said the federal government demands, which included divestitures beyond what the two sides already announced, would have compromised the company's U.S. business to an unacceptable degree. They also noted that, even if they were successful, the court battle would have pushed the timeline for closing the deal well into 2022.

For Willis Towers Watson's part, the deal's termination leaves it in a bit of a vulnerable spot. Sell-side analysts noted that Willis Towers Watson lost talent during the merger process and the company's CEO, John Haley, is set to depart at the end of the year.

The merger's cancellation impacted Arthur J. Gallagher & Co.., which was set to acquire a number of Willis Towers Watson businesses. However, that transaction had been contingent on the Aon/Willis Towers Watson deal closing.

CEO J. Patrick Gallagher was looking forward to closing its planned purchase, saying that there were a number of Willis Towers Watson employees that would have been great additions to their team. Nevertheless, Gallagher struck an upbeat tone about the broker's position and during an earnings call said he is "excited" about the future.

Aon shares closed the week up 11.85%, while Willis Towers Watson slumped 8.98%. Arthur J. Gallagher's stock declined 2.61%.

Across the insurance industry, earnings season kicked into high gear with a number of high-profile companies reporting results.

Chubb Ltd. recorded second-quarter core operating income, net of tax, of $1.62 billion, or $3.62 per share, compared with a loss of $254 million, or a loss of 56 cents per share, in the prior-year period. That result came in well ahead of the S&P Capital IQ normalized EPS estimate of $3.01.

CEO Evan Greenberg during an earnings call said the company will continue to capitalize on a hard or firming market for commercial property and casualty in most areas of the world. However, on the cybersecurity front, Greenberg said sharply rising rates for cover would not be enough to address the problem posted by breaches and ransomware attacks. He called on federal regulators to do more and suggested that companies be required to ask authorities for permission to pay hackers who are holding their operations or data hostage their ransom demands.

Chubb's stock added 1.10% for the week.

During the same week, The Hartford Financial Services Group Inc. reported second-quarter net income available to common shareholders of $900 million, up 94% from $463 million in the prior-year period. EPS for the period was $2.51, while core earnings were $2.33 per share. The consensus estimate had called for EPS of $1.34.

The insurer's shares finished the week up 3.62%.