RenaissanceRe to Acquire Tokio Millennium Re in $1.5 Billion Deal

Bermuda-based RenaissanceRe Holdings has agreed to pay about $1.5 billion to acquire Tokio Marine’s reinsurance platform (TMR), which includes Tokio Millennium Re AG and Tokio Millennium Re (UK).

If closing tangible book value is unchanged from June 30, 2018, Tokio Marine would receive approximately $1.5 billion in cash and RenaissanceRe common shares.

At the same time, State Farm Mutual Automobile Insurance Co., which has current investments in two RenaissanceRe subsidiaries, has agreed to invest $250 million in RenaissanceRe. Following the completion of its investment, State Farm will own approximately 4.8 percent of RenaissanceRe’s total common shares outstanding, reflecting a broader relationship with RenaissanceRe that already includes State Farm’s investments in RenaissanceRe-managed vehicles Top Layer Reinsurance and DaVinciRe Holdings.

Also, as part of the transaction, Tokio Marine has agreed to provide RenaissanceRe a $500 million adverse development cover that will protect TMR’s stated reserves at closing, including unearned premium reserves. In addition, Tokio Marine and RenaissanceRe will enter a business cooperation agreement, which will enhance their business relationship and facilitate cooperation on a portion of the international reinsurance purchases of Tokio Marine and its affiliates.

RenaissanceRe said it expects that the transaction will be immediately accretive to 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, said the deal will increase his company’s scale, broaden its reach and provide a deeper customer base. O’Donnell thanked State Farm for agreeing to broaden its relationship with RenaissanceRe.

“We see this as an opportunity to strengthen the long term relationship we have with RenaissanceRe,” State Farm Executive Vice President Paul Smith said in prepared remarks.

Tokio Marine Holdings President and Group CEO Tsuyoshi Nagano said selling TMR will allow Tokio Marine Group to “focus on its primary insurance businesses globally, whilst strengthening its relationship” with RenaissanceRe.

“Through the divestment of the reinsurance activities of TMR and TMR(UK), the Group will reduce volatility in its results and also unlock the capital that was held to support these operations. Our strategic focus will continue to be on primary insurance business in developed countries as well as emerging market,” Nagano said.

Stephan Ruoff, chief executive officer of TMR, commented: “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.”

The agreement has been approved by the boards of directors of both companies and is expected to close in the first half of 2019. No shareholder approval is required.

The acquisition announcement comes following a call less than two months ago by one RenaissanceRe’s institutional investors for the insurer to explore strategic options including a possible sale of the company. On Sept. 7, Ian Anthony Rosenthal and Seth Bienstock, partners of TimesSquare Capital Management, a RenaissanceRe investor since 2008, wrote RenaissanceRe CEO Kevin O’Donnell with their pitch to explore other strategic options. They argued the company’s position as a standalone reinsurer hasn’t led to any value creation for shareholders, due in large part to dampening prices. Noting the increasing consolidation of the industry, TimesSquare asked the RenaissanceRe board to consider strategic alternatives, including a possible sale, in order to boost shareholder value.

The TimesSquare letter drew a non-committal response from RenaissanceRe management.

Tokio Marine Group established TMR in 2000 as a subsidiary to write overseas reinsurance risks. Since that time, the insurer said TMR and TMR(UK) have contributed to profits. However, during the continuing soft market in the global reinsurance market TMT’s contribution to overall profit has fallen significantly from approximately 50 percent to below 10 percent in a decade.

According to TMR’s 2017 annual report, natural and manmade catastrophe losses last year resulted in the biggest bottom-line net loss in TMR’s history—$158.9 million. RenRe also took a hit from last year’s record-breaking insured catastrophe losses for the industry, recording a net loss of $244.8 million for the year.

According to an analysis by Carrier Management, property-cat premiums of $1.1 billion represented 39.5 percent of RenRe’s $2.8 billion of total premiums written last year, and more than three-quarter of the total property reinsurance book. For TMR, property-cat premiums of $390 million represented on 24.3 percent of total assumed premiums of $1.6 billion and just over 60 percent of the total TMR property reinsurance book.

About two-thirds of TMR’s business—$1.1 billion of the $1.6 billion total —comes from North America. At RenRe, North American business was roughly one-third of the 2017 property book and 20 percent of the casualty and specialty segment.

Today Tokio Marine consists of 245 subsidiaries and 32 affiliates worldwide. Tokio Marine’s non-life domestic businesses include Nichido Fire, Nishin Fire, E.design and Millea SAST. Starting in 2007, the insurer began making significant acquisitions including Kiln Group, Philadelphia Insurance, Delphi Financial, HCC, Seguradora and Mellennium Re, building a diversified global portfolio focusing primarily on specialty insurance classes of business.