Bermudian reinsurer RenaissanceRe has struck a $1.5bn cash and paper deal to acquire Tokio Millennium Re (TMR).
The transaction - which will see RenRe acquire Tokio Marine’s reinsurance platform, including Tokio Millennium Re AG and Tokio Millennium Re (UK) Limited – values the business at 1.02x tangible book value at the date of closing.
If closing tangible book value is unchanged from 30 June 2018, this would result in a total consideration of c.$1.5bn, consisting of around $1.22bn of cash and $250mn of RenaissanceRe common shares, with the cash portion part funded by a potential $250mn pre-closing dividend from TMR.
The deal has been unanimously approved by the boards of directors of both companies.
The announcement comes after RenRe faced recent pressure from an activist investor to commence a strategic review of the company, including the consideration of a potential sale.
According to an investor presentation, the acquisition is expected to boost RenRe’s gross written premiums from $3.2bn to around $3.9bn on a pro-forma twelve-month trailing basis.
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 and RenRe will enter a business cooperation agreement, which will enhance their business relationship and facilitate cooperation on a portion of the international reinsurance purchases of Tokio Marine and its affiliates.
It was also announced that US insurer State Farm has agreed to invest $250mn in the Bermudian reinsurer through its purchase of RenRe’s common shares in a private placement, after which State Farm will own about 4.8 percent of RenRe’s common shares.
RenRe president and CEO Kevin O’Donnell commented: “We are very pleased to have entered into a definitive agreement to acquire Tokio Millennium Re from Tokio Marine. This transaction will increase our scale, broaden our reach and extend our ability to apply our core strengths to a deeper customer base.
“Our unique ability to capitalize on large, one-of-a-kind opportunities underscores our global reinsurance leadership, including in casualty and specialty lines, and our ability to execute on our successful, highly differentiated strategy.”
State Farm executive vice president, Paul Smith, added: “We see this as an opportunity to strengthen the long-term relationship we have with RenaissanceRe.”
RenRe said that is expects the deal to be immediately accretive to book value per share, tangible book value per share, operating earnings per share and operating return on equity upon closing, with “material synergies” within the first two years.
The transaction is slated to close in the first half of 2019, subject to customary closing conditions and regulatory approvals.