A.M. Best Downgrades Ratings of Tokio Millennium Re, Puts RenRe Under Review

November 5, 2018

A.M. Besthas downgraded the financial strength rating to A+ (Superior) from A++ (Superior) and the long-term issuer credit rating to “aa-” from “aa+” of Tokio Millennium Re AG (TMR) (Switzerland). In addition, A.M. Best has placed these credit ratings under review with developing implications.

The rating actions follow the recent announcement that Bermuda-based RenaissanceRe Holdings Ltd. has entered into a definitive agreement with Tokio Marine Holdings Inc., under which it will acquire Tokio Marine’s reinsurance platforms, which include TMR and Tokio Millennium Re (UK) Ltd.

At the same time, the ratings agency also announced it has placed under review with developing implications the financial strength rating of A+ (Superior) and the long-term issuer credit ratings of “aa-” of Renaissance Reinsurance Ltd., Renaissance Reinsurance U.S. Inc., RenaissanceRe Specialty U.S. Ltd., and Renaissance Reinsurance of Europe Unlimited Co. (Dublin, Ireland).

Additionally, A.M. Best has placed under review with developing implications the long-term ICR of “a-” and all long-term issuer credit ratings of RenaissanceRe Holdings Ltd.

A.M. Best also has placed under review with developing implications the FSR of A (Excellent) and the long-term ICR of “a+” of two RenRe subsidiaries: DaVinci Reinsurance Ltd. and the long-term ICR of “bbb+” of DaVinci Re Holdings Ltd. All aforementioned companies are domiciled in Bermuda unless otherwise specified.

Under terms of the sale agreement, if closing tangible book value is unchanged from June 30, 2018, Tokio Marine would receive US$1.469 billion in a combination of cash and stock, or 1.02x TMR’s tangible book value, explained A.M. Best.

The agreement has been approved by each side’s board of directors and the transaction, subject to customary closing conditions and regulatory approval, is expected to close in the first half of 2019.

The transaction is being financed with RenaissanceRe’s cash on hand and equity. As part of the acquisition, Tokio Marine will receive $250 million worth of RenaissanceRe shares. Additionally, Tokio Marine has agreed to provide RenRe with a $500 million adverse development cover that will protect TMR’s book of reserves for five years.

RenaissanceRe also announced that State Farm will acquire $250 million in RenaissanceRe’s stock and become a 4.8 percent owner of the company, in an investment transaction which is not conditioned on the closing of the Tokio Marine reinsurance platforms’ acquisition.

The ratings of Tokio Millennium Re have been downgraded as A.M. Best believes that TMR is no longer strategic to the Tokio Marine group, although the parental guarantee and net worth maintenance agreement will remain in place until the closing of the transaction. Additionally, the downgrades align TMR’s ratings with those of RenRe.

RenRe’s ratings will remain under review pending completion of the transaction, said A.M. Best, noting that it will continue to monitor the company’s risk-adjusted capitalization, operating performance, business profile and enterprise risk management.

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