Bermudian reinsurance company RenaissanceRe has announced that it is to acquire Japanese holding company Tokio Marine’s reinsurance units, which include Tokio Millennium Re AG and Tokio Millennium Re (UK) Limited.
RenaissanceRe said it has entered into a definitive agreement with Tokio Marine Holdings, Inc. to acquire the firm’s reinsurance platform, which has entities in Bermuda, Zurich and the United Kingdom.
The terms of the acquisition state that Tokio Marine will receive 1.02x the tangible book value of Tokio Millennium Re delivered to RenaissanceRe at the closing of the deal.
Should the closing tangible book value be unchanged from June 30th 2018, Tokio Marine would get roughly $1.5 billion in total consideration for its reinsurance unit, with the payment made up of around $1.22 billion of cash and $250 million of RenaissanceRe common shares.
RenRe shares received through this deal by Tokio Marine will be valued at today’s closing price of $128.37, the company said, subject to any adjustment at closing as well as a one-year holding period starting at closing. The cash portion will be funded by RenaissanceRe from cash at hand, as well as a potential pre-closing dividend from TMR, subject to regulatory approval.
RenRe said that the deal will be immediately accretive to the reinsurers book value per share, tangible book value per share, operating earnings per share and operating return on equity.
Kevin O’Donnell, President and CEO of RenaissanceRe commented on the acquisition, “We are very pleased to have entered into a definitive agreement to acquire Tokio Millennium Re from Tokio Marine. This transaction will increase our scale, broaden our reach and extend our ability to apply our core strengths to a deeper customer base. Our unique ability to capitalize on large, one-of-a-kind opportunities underscores our global reinsurance leadership, including in Casualty and Specialty lines, and our ability to execute on our successful, highly differentiated strategy.”
The arrangement doesn’t stop at the acquisition though and RenaissanceRe as acquirer will benefit from a $500 million adverse development cover provided by Tokio Marine, that will protect TMR’s stated reserves at the closing, including any unearned premium reserves.
On top of this, Tokio Marine and RenaissanceRe are set to strike up a business cooperation agreement, which the pair said “will enhance their business relationship and facilitate cooperation on a portion of the international reinsurance purchases of Tokio Marine and its affiliates.”
So as well as a greatly expanded platform, RenaissanceRe will benefit from protection on the reserves of the entity it is acquiring and gain access to risk through the cooperation agreement between it and the seller.
Both RenaissanceRe and Tokio Millennium Re are expected to operate as separate companies until the closing of the transaction, which is expected to be in the first-half of 2019.
Stephan Ruoff, Chief Executive Officer of Tokio Millennium Re, said, “This transaction with RenaissanceRe, a broadly acknowledged leader in the reinsurance business, reflects well on TMR. Today, TMR is a client-focused global specialist reinsurer, with a well-respected team and a strong brand, bringing the highest service standards to clients and capital markets partners.
“We believe that the transaction opens new opportunities as we integrate TMR into a much larger global reinsurance organization, ready to meet the challenges of a dynamic reinsurance market. TMR will continue to honor its commitments, with the backing of Tokio Marine until the transaction is officially closed.”
RenaissanceRe also announced an expanded arrangement with insurer State Farm, a long-time partner on certain transactions and on the firm’s Top Layer Re vehicle.
State Farm Mutual Automobile Insurance Company (State Farm) will invest $250 million in RenRe, purchasing common shares in a private placement valued at today’s closing price of $128.37 per common share.
After this investment is completed, State Farm will own around 4.8% of RenaissanceRe’s shares, which RenRe said reflects a “broader relationship with RenaissanceRe that includes State Farm’s investments in RenaissanceRe-managed vehicles Top Layer Reinsurance Ltd. and DaVinciRe Holdings Ltd.”
O’Donnell commented, “We are also honored that State Farm has agreed to broaden its relationship with RenaissanceRe by investing in our common shares and extending a long-standing partnership between our two firms. Our acquisition of TMR and State Farm’s investment further enhance the relationship between our respective companies, which I am confident will prove equally beneficial to our shareholders. After these transactions close, we anticipate that we will continue to have the very strong capital and liquidity position you have come to expect from RenaissanceRe.”
State Farm Executive Vice President, Paul Smith, added, “We see this as an opportunity to strengthen the long term relationship we have with RenaissanceRe.”
This transaction positions RenRe with an expanded platform, which provides the firm with synergies and a greater footprint in global reinsurance markets, as well as enhanced access to risk from a key Japanese trading partner and a key investor that also provides the firm with efficient access to risk.
The Tokio Millennium Re platform is renowned for expertise in a number of areas of reinsurance, both as an underwriter and as a facilitator, traits that will fit well into the RenRe platform.