Tokio Marine’s Sale of Reinsurance Units to Boost Operational Efficiency: Fitch

November 16, 2018

Tokio Marine Holdings Inc.’s (TMHD) sale of two European reinsurance subsidiaries is likely to streamline its holdings and boost operational efficiency in the group’s underwriting businesses, Fitch Ratings said.

RenaissanceRe Holdings is buying Tokio Millennium Re AG (TMR) and Tokio Millennium Re (UK) Ltd., both owned by Tokio Marine & Nichido Fire Insurance Co. Ltd., a core subsidiary of TMHD.

RenaissanceRe will pay 1.02x the tangible book value of TMR and TMR (UK), or approximately US$1.5 billion, noted Fitch. TMHD will receive US$1.22 billion in cash and US$250 million of RenaissanceRe common shares. The transaction is likely to close in the first six months of 2019 after receiving regulatory approvals in several jurisdictions, such as Switzerland and the United Kingdom.

“Fitch believes it does not really make sense for the Tokio Marine group to retain a sizable reinsurance business, based on the potential material losses from severe catastrophes in the future relative to the continued weakness in reinsurance premiums,” said a market briefing issued by the ratings agency.

Further, the sale of TMHD’s reinsurance business follows the company’s strategy to focus on primary insurance, “especially more-profitable and less catastrophe-related risks, such as specialty insurance, in developed countries as well as emerging markets,” explained Fitch.

Fitch noted that TMHD has spent the last decade developing “a high-quality primary insurance business franchise outside Japan – especially in the United States – and as a result, the contribution of reinsurance to the group’s profit from international operations has fallen to below 10 percent from about 50 percent over that time.”

The deal is likely to cut TMHD’s total risk amount, including catastrophe risks relative to its available capital, added Fitch.

“It will also allow TMHD to focus on the more stable and more profitable primary insurance business, especially specialty insurance, which requires high-quality underwriting expertise,” said the ratings agency, which also expects TMHD’s earnings to be less volatile after the deal.

Source: Tokio Marine Holdings

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