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Pembroke, Bermuda-based RenaissanceRe Holdings Ltd. has entered into a definitive agreement with Tokio Marine Holdings Inc. to acquire Tokio Marine’s reinsurance platform, which includes Tokio Millennium Re AG and Tokio Millennium Re (UK) Ltd., in a transaction valued at about $1.5 billion, RenRe announced Tuesday.
The agreement has been unanimously approved by the boards of directors of both companies, said RenRe in a statement. The transaction is expected to close in the first half of 2019 and is subject to customary closing conditions and regulatory approvals. No shareholder approval is required.
Under the terms of the agreement, if closing tangible book value is unchanged from June 30, 2018, the transaction consideration would consist of approximately $1.22 billion in cash and $250 million in RenaissanceRe common shares, according to the statement. The shares received by Tokio Marine will be valued at Oct. 30’s closing price of $128.37 per common share, subject to adjustment at closing and a one-year holding period commencing at closing. The cash consideration will be funded through RenaissanceRe’s available funds and a potential preclosing dividend from Tokio Millennium Re subject to regulatory approval.
In connection with the transaction, Tokio Marine has agreed to provide RenaissanceRe a $500 million adverse development cover that will protect Tokio Millennium Re’s stated reserves at closing, including unearned premium reserves. “In addition, Tokio Marine and RenaissanceRe 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,” said the statement.
“This transaction will increase our scale, broaden our reach and extend our ability to apply our core strengths to a deeper customer base,” said Kevin O’Donnell, RenRe’s president and CEO, in the statement.
In addition, the statement said State Farm Mutual Automobile Insurance Co. has agreed to invest $250 million in RenaissanceRe through its purchase of the reinsurer’s common shares in a private placement. The shares purchased by State Farm will be valued at Oct. 30’s closing price of $128.37 per common share. Following the completion of its investment, State Farm will own approximately 4.8% of RenaissanceRe total common shares outstanding.
“We see this as an opportunity to strengthen the long-term relationship we have with RenaissanceRe,” said State Farm Executive Vice President Paul Smith in the statement.
Headwinds including excess capacity will continue to challenge the reinsurance sector and drive consolidation, according to a report from S&P Global Ratings Inc.