Bermudian reinsurer RenaissanceRe Holdings Ltd has agreed to buy Tokio Millennium Re in a cash-and-shares deal worth $1.5 billion.
The agreement has been unanimously approved by the boards of directors of both companies. The transaction is expected to close in the first half of 2019 and is subject to customary closing conditions and regulatory approvals. No shareholder approval is required, RenRe said in a statement released last night.
TMR is the reinsurance platform of Japanese company, Tokio Marine Holdings, Inc and has a branch office in Bermuda, headquarters in Switzerland, and operations in the UK, US and Australia.
The company was originally established by Tokio Marine Group in Bermuda in 2000.
RenRe also announced that US insurer State Farm Mutual Automobile Insurance Company has agreed to invest $250 million in the Bermudian reinsurer through its purchase of RenRe’s common shares in a private placement.
After completion of the deal, State Farm will own about 4.8 per cent of RenRe’s common shares.
State Farm already has investments in RenaissanceRe-managed vehicles Top Layer Reinsurance Ltd and DaVinciRe Holdings Ltd.
Kevin O’Donnell, chief executive officer of RenRe, told The Royal Gazette in an e-mailed statement: “We are pleased to announce our planned acquisition of Tokio Millennium Re. The transaction accelerates our strategy and further enhances our global reinsurance leadership.
“It strengthens our position in an increasingly competitive market by expanding our scale, global presence and product range, and enhances the diversity of products and services we offer client and brokers.
“Tokio Millennium built a strong franchise and we look forward to operating as one company after closing.
“We are also pleased to simultaneously announce that State Farm has agreed to broaden its relationship with us through this new investment. State Farm’s investment extends the longstanding partnership between our two firms.
“I’m excited about what the future will bring and know that RenaissanceRe is ideally positioned for what’s next.”
Under the terms of the transaction, Tokio Marine will receive 1.02 times the tangible book value of TMR delivered to RenaissanceRe at closing. If closing tangible book value is unchanged from June 30, 2018, Tokio Marine would receive approximately $1.5 billion in total consideration, consisting of cash and RenaissanceRe common shares.
RenRe expects the acquisition will be immediately accretive to book value, operating earnings and operating return on equity.
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 co-operation agreement, which will enhance their business relationship and facilitate co-operation on a portion of the international reinsurance purchases of Tokio Marine and its affiliates.
Stephan Ruoff, chief executive officer of TMR, 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 organisation, ready to meet the challenges of a dynamic reinsurance market.
“TMR will continue to honour its commitments, with the backing of Tokio Marine until the transaction is officially closed.”
Paul Smith, State Farm executive vice-president, said: “We see this as an opportunity to strengthen the long term relationship we have with RenaissanceRe.”
• RenRe also announced third-quarter net income of $32.7 million despite taking a $151.9 million hit from a string of catastrophes during the quarter.
Typhoons Jebi, Mangkut and Trami, Hurricane Florence and wildfires in California combined to dent the reinsurer’s earnings.
RenRe said it made an underwriting loss of $29 million and a combined ratio of 105.5 per cent.
Gross premiums written during the quarter decreased by $14.6 million, or 2.3 per cent, to $625.7 million.
Total investment result was a gain of $94.3 million during the July-through-September period, generating an annualised total investment return of 3.3 per cent.
The company added that it estimated a net negative impact of $100 million on its fourth-quarter earnings from Hurricane Michael, which made landfall in Florida this month.