Bermuda reinsurer RenaissanceRe is to acquire the Swiss and UK operations of Tokio Milliennium Re (TMR) for $1.5bn.
The sum comprises cash ($1.22bn) and RenRe shares ($250m), valuing the deal at 1.02 times the tangible book value of TMR.
TMR’s parent company, Tokio Marine Holdings, said its earnings from the reinsurance business had been eroded by the soft market and competition from alternative capital, and the sale will enable it to focus on its primary insurance business globally.
With various acquisitions of primary insurers, such as Kiln, Philadelphia, Delphi and HCC over the last decade, the contribution of reinsurance to the firm’s overall earnings has dropped from 50% to less than 10%.
In connection with the transaction, Tokio Marine has agreed to provide RenRe a $500mn adverse development cover that will protect TMR’s stated reserves at closing, including unearned premium reserves.
In addition, Tokio Marine has agreed to purchase a portion of its reinsurance from RenRe.
Kevin O’Donnell, president and chief executive of RenRe, said: “This transaction will increase our scale, broaden our reach and extend our ability to apply our core strengths to a deeper customer base.”
TMR was originally established in Bermuda in 2000, but re-domiciled to Switzerland in 2013 and converted the Bermuda operation into a branch.
Last year, TMR Switzerland’s net written premiums were $1.3bn, while TMR UK wrote £5.4m ($6.9m) Net income was $159m and $8.5m , respectively.
Stephan Ruoff, chief executive officer of TMR, said: “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.”
This transaction is subject to regulatory approvals and expected to close in the first half of 2019. Until then, TMR and RenRe will continue to operate as separate companies.