Tokio Marine Holdings - which holds Tokio Marine & Nichido Fire Insurance (TMNF), as its main domestic P&C insurance subsidiary - has agreed to sell 100% of Tokio Millennium Re (TMR) and Tokio Millennium Re [UK] (TMRUK), currently owned by TMNF, to RenaissanceRe Holdings, a Bermuda based reinsurer.
Tokio Marine would receive approximately $1.5bn in total consideration, consisting of cash and RenaissanceRe common shares. Part of the consideration is likely to be a $250m equity ownership position for Tokio Marine Holdings in RenaissanceRe, which will make it a major shareholder in the reinsurer.
In connection with the transaction, Tokio Marine Holdings has agreed to provide RenaissanceRe a $500m adverse development cover that will protect TMR’s stated reserves at closing, including unearned premium reserves. In addition, Tokio Marine Holdings and RenaissanceRe will also enter a business cooperation agreement whereby the former will provide RenaissanceRe with unique access to its non-Japanese reinsurance placement over a multi-year period, which will enhance their business relationship and facilitate cooperation on a portion of the international reinsurance purchases of Tokio Marine Holdings and its affiliates.
The transaction is expected to close in the first half of 2019 and is subject to customary closing conditions and regulatory approvals.
Tokio Marine Holdings says in a statement that the deal will allow the Group to focus on its primary insurance businesses globally, whilst strengthening its relationship with RenaissanceRe, which was established in 1993 and has offices in Bermuda, Ireland, Singapore, Switzerland, the UK and the US.
Explaining the divestment, Tokio Marine Holdings says, “Tokio Marine Group established TMR in 2000 as a subsidiary to write overseas reinsurance risks. Since that time, TMR and TMR(UK) have contributed to Group profits and more recently have broadened the classes of business written into non-catastrophe exposed classes of business. However, the global reinsurance market has recently undergone various changes such as continuing soft market environment driven by steady inflow of capital from outside the reinsurance industry, which has been causing impact on the return earned from the business.
“From 2007 onwards, through the significant acquisitions of Kiln, Philadelphia, Delphi and HCC, the Tokio Marine Group has created a diversified global portfolio focusing primarily on specialty insurance classes of business. As a result of this, the contribution of reinsurance business in profit terms to our international operations has reduced significantly from approximately 50% to below 10% in a decade. Our core strategy is focused on expanding profitable and stable primary insurance business, and as a result we have taken the strategic decision to divest TMR and TMR(UK) as dedicated reinsurance companies.”