RenaissanceRe gets regulatory approval to acquire Tokio Millennium Re

RenaissanceRe, the Bermudian reinsurer, third-party reinsurance capital and ILS investments manager, has received approval from regulators for its $1.5 billion acquisition of Tokio Millennium Re.

RenaissanceRe (RenRe) announced back last October that it would pursue an acquisition of the Tokio Millennium Re reinsurance operations of Japanese giant Tokio Marine Holdings.

The acquisition, valued at $1.5 billion at the time of announcement, would bring together an insurance-linked securities (ILS) capital manager in RenRe and a leading reinsurer that also operates as an ILS facilitator through its fronting and risk transformation in Tokio Millennium Re (TMR).

But it quickly became clear that RenRe had no desire to maintain the fronting and risk transformation operations of the TMR business, with the strategic focus of the acquisition being the portfolio and reinsurance underwriting platform, as well as the enhanced access to Tokio Marine’s international reinsurance placements that this deal secures for RenRe.

The acquisition involves the TMR reinsurance underwriting entities based in Bermuda, London and Zurich, with the value of the M&A deal a roughly $1.5 billion in total consideration, made up of payments from RenaissanceRe to Tokio Marine of around $1.22 billion of cash and $250 million of RenaissanceRe common shares.

It’s worth noting that RenRe’s share price is up by around $20 per share since the announcement of the acquisition.

RenRe said yesterday that it has now received all necessary regulatory approvals to proceed with the transaction, removing any final hurdles to sealing the deal.

With regulatory approval now received, RenRe said that both parties believe they can close the transaction as soon as possible, subject to satisfying any customary closing conditions. This would be on-target with the first-half of 2019 goal from the time of the original announcement.

Once the deal is completed, RenRe and Tokio Marine are set to offer continuity to the fronting cedants and business partners that had been working with TMR for a defined period.

Tokio Marine is also providing RenRe with a $500 million adverse development cover to protect it on TMR’s stated reserves at closing of the acquisition, including any unearned premium linked.

This helps RenRe by removing any exposure to tail risk in the TMR portfolio, some of which would have been assumed through fronting activities, allowing the reinsurer to move forwards with greater certainty, after the acquisition and integration are completed.

The ADC may also help to provide part of this certainty for fronting and business partners of TMR, we’d imagine.

So with this acquisition now set to close on schedule, the removal of one significant player in the fronting for ILS arena is assured, opening the way for any others that may choose to step into this segment of the market.

As we revealed previously, the gap in terms of fronting services for collateralised reinsurance and ILS markets left by the acquisition of TMR has already been partially filled by some of the other usual suspects that find this facilitation business attractive.

While as we said recently, Bermudian insurance and reinsurance group Arch Capital is also expected to step into the fronting for ILS business, having hired some former TMR employees.

RenaissanceRe has been growing its third-party capital assets under management in recent months, now reaching approximately $5 billion of ILS related assets.

The enhanced access to risk and broadened underwriting platform that RenRe will benefit from with this acquisition of TMR can only help to provide even more risk that can be shared with third-party investors through the firms ILS funds and joint-venture vehicles.