Reinsurance News

TMR deal provides RenRe with access to preferential risk at a valuable time

31st October 2018 - Author: Luke Gallin

Bermudian reinsurer RenaissanceRe (RenRe) expects to access up to $1.4 billion of incremental reinsurance premium following its $1.5 billion acquisition of Tokio Millennium Re (TMR), and has entered into an agreement on the firm’s non-Japanese reinsurance placements, which provides it with “preferential access to risk” at a valuable time.

RenaissanceRe buildingThe deal was announced yesterday, and under the terms of the acquisition, Tokio Marine will receive 1.02x the tangible book value of Tokio Millennium Re delivered to RenaissanceRe at the closing of the deal.

Following the announcement, management at RenRe discussed the transaction during the firm’s third-quarter 2018 earnings call, and highlighted it has an innovative deal structure that provides it with a reinsurance portfolio as well as strategic options.

Kevin O’Donnell, the President and Chief Executive Officer (CEO) of RenRe, said during the call that the deal provides the firm with “preferential access to risk, which is valuable when risk is scarce.”

As well as its agreement on the firm’s non-Japanese reinsurance placements, the ongoing relationship with Tokio Marine also suggests enhanced access to risk as well as providing RenRe with expertise, and, it could also offer the reinsurer enhanced access to Tokio Marine’s renewals.

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Furthermore, the fact State Farm has invested and will own roughly 4.8% of RenRe’s shares also enhances RenRe’s access to risk, underlined by an expanded and deepened relationship between the pair.

Ultimately, the two deals bring RenRe closer to both State Farm and TMR, and could facilitate greater access to risk and expertise for the Bermudian reinsurer, which is valuable during the current competitive market landscape, as highlighted by O’Donnell.

At the same time, RenRe expects the deal to enhance its ability to leverage its gross-to-net and third-party reinsurance capital capabilities. For shareholders, RenRe states that following the deal it expects to maintain substantial and financial flexibility, and also anticipates achieving material synergies in the first two years.

The firm’s access to risk is expected to be enhanced by the transaction, and RenRe management was eager to highlight that it increases operating leverage as well as investment float, and at an attractive price.

The two companies have had a relationship since 1994, and under the agreement, Tokio Millennium is to provide adverse development cover for substantially all stated reserves and unearned premiums, which, reduces exposure to legacy liabilities.

Ultimately, this transaction gives RenRe an expanded platform, which provides it with synergies and a greater footprint in reinsurance markets around the world. At the same time as providing enhanced access to risk from a key Japanese trading partner and a key investor, that also provides RenRe with efficient access to risk.

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