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RenaissanceRe to Consolidate Presence in Reinsurance Market

Zacks

RenaissanceRe Holdings Ltd. RNR recently received the pending regulatory approvals for the buyout of Tokio Marine Holdings, Inc.'s reinsurance platform – Tokio Millennium Re AG and Tokio Millennium Re (UK) Limited (“TMR”).

With this deal, RenaissanceRe will be able to penetrate into the reinsurance market further. The acquisition will also increase its scale, widen the reach and enhance its ability to deliver core strengths to a wider customer base.

Per the terms of the transaction, Tokio Marine will receive 1.02x, the tangible book value of TMR, delivered to RenaissanceRe at closing. As declared earlier by the company, Tokio Marine would get around $1.5 billion in total consideration, consisting $1.22 billion in cash and $250 million of RenaissanceRe common shares. The cash will be funded through the company’s available resources and a prospective pre-closing payout from TMR.

Tokio Marine has earlier agreed to provide a $500-million adverse development cover to RenaissanceRe, which will protect TMR’s stated reserves at closing including unearned premium reserves. Moreover, Tokio Marine and RenaissanceRe will enter into an agreement with which both will be able to boost business relationship and easily cooperate on a portion of the international reinsurance buyouts of Tokio Marine and its associates. Notably, TMR will also gain traction from the acquirer’s superior risk selection capabilities.

The acquirer expects the closure of the acquisition contract to be immediately accretive to its book value per share, tangible book value, operating earnings and operating return on equity.

RenaissanceRe also hopes to improve TMR’s combined ratio on completion of this deal.

The company has been purchasing and expanding businesses with scope for growth. It acquired Platinum Underwriters, which helped strengthening its U.S. Specialty and Casualty reinsurance platform. Other examples of the company’s strategic investments include Tower Hill Companies, Essent Group Ltd. and Trupanion Inc. We expect such tactical efforts to enable the company to focus on and broaden its core operating business.

Given the insurance industry’s sturdy capital level, there has been a spate of acquisitions in the space of late. Recently, Beecher Carlson Insurance Services, LLC, a subsidiary of Brown & Brown, Inc. BRO, has purchased certain assets of Donald P. Pipino Company. The transaction will not only aid the insurance broker to enhance its service portfolio but also provide a wide range of resources and extended service plus consulting capabilities to its clients. Arthur J. Gallagher & Co. AJG has acquired Interstate Insurance Underwriters to drive its Risk Placement Services in northern Louisiana. Cincinnati Financial Corporation CINF recently concluded the takeover of MSP Underwriting Limited, a reputed global specialty underwriter and a unit of Munich Re.

Shares of this Zacks Rank #3 (Hold) company have rallied 15% in a year’s time, underperforming its industry’s rise of 18.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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