8 April 2015ILS

Best of both worlds

Comparatively speaking, Tokio Millennium Re (TMR) is far from the largest reinsurer in Bermuda. But what it may lack in size it makes up for in financial strength and global reach. Backed by the Tokio Marine Group and co-founded by Tatsuhiko (Tats) Hoshina, the company has grown over 15 years from a Bermuda-based monoline reinsurer to a global player domiciled in Zurich, Switzerland, with offices in Bermuda, the US, Australia and in London through an affiliate.

Now, with Hoshina stepping aside to become vice chairman, Stephan Ruoff is gearing up to take the helm. A trained engineer whose previous roles include group chief underwriting officer and head of Europe for TMR, and before that executive client manager for Munich Re, he aims to move the company forward by preserving the strength of the brand while ensuring that TMR stays relevant in an increasingly competitive environment.

Key to its success, he says, is the company’s strong client focus and its ability to innovate and adapt to clients’ needs. As competition grows stronger in the current market, smaller reinsurers risk being relegated to the lower tiers, and possibly jettisoned, so the more services TMR can offer to its clients, the better.

“We already have the analytical, modelling, and big data skillsets, but a major component of our plan for the future, which we call TMR 22, is what we call ‘client-centricity’,” he says. “We aim to increase our relevance to, and develop our relationships with, our client base to ensure that we are seen as a tier one reinsurer.

“We need to demonstrate that while we are a smaller reinsurer, we are part of a larger group which can enhance the service provision to our clients.”

TMR will be doing this against a backdrop of increasing mergers and acquisitions (M&A) in the industry, but has no plans to pursue M&A itself—largely, says Ruoff, because being anchored to Tokio Marine gives it strength while allowing it to preserve the agility and responsiveness that go with small size.

“We may be a relatively small reinsurer but we are part of a top global player, so we enjoy many of the advantages of a major player including the brand, the financial strength and the access to risk. At the same time we enjoy being small and nimble.”

He also perceives an opportunity emerging as the increase in M&A leads to a reduction in the number of players on reinsurance panels. As cedants seek to counter this uncomfortable concentration of risk, their quest for diversification may open doors for TMR.

“A player like us, that can provide financial strength, would be on the top of the list of any reinsurance companies being considered,” he says.

Challenge of competition

Nevertheless, increased competition is an issue Ruoff takes very seriously. In his hands, TMR will seek to maintain an edge by responding swiftly to changes in the risk landscape.

“Having turned a monoline and mono-location company into a multiline P&C and multi-location operation, we must enhance the operational piece behind us and work with new technologies to embrace change,” he says.

This approach is exemplified by TMR’s response to the growing threat—and opportunity—of cyber risk. TMR is exploring cyber risk not only through talks with ceding companies to establish how they underwrite and monitor that risk, but also through its research facility, Tokio Marine Technologies in Atlanta.

This analytical approach is one of several strengths Ruoff intends to build on as he leads TMR forward.

“We’ve always been considered a state-of-the-art modelling company that is analytics-driven. Our financial strength in ratings is certainly outstanding and we have a unique shareholding and we belong to one of the largest insurance groups in the world.

“Having the backing of the Tokio Marine Group sets TMR apart from a number of its competitors.”

Another strength is the operational platform that has been built up over the last four or five years, with a Swiss-based operation and branch offices around the globe.

“It’s very capital-efficient and also cost-efficient from a management perspective,” he says.

Warehousing risk

With the capital markets now firmly entrenched in the reinsurance space, Ruoff believes that TMR’s convergence platform, Tokio Solution Management (Tokio Solution), sets the reinsurer apart from the other players. Crucially, it enables TMR to potentially warehouse certain risk and access the capital markets for further distribution of risk, where appropriate. This, he says, will be a major part of TMR’s work going forward.

“The way risk is handled today and in the future is changing. When you look at our capabilities at the frontier between traditional reinsurance and the alternative capital markets, I believe risk warehousing is going to happen more and more.

“Whereas in the past a reinsurer was very often the ultimate risk carrier, today it can also be a facilitator between third party capital and the risk markets.”

Tokio Solution facilitates access to risk to capital market participants.

“Tokio Solution also tries to bring products to the market and make them tradable for interested investors. These are the strategic directions we have established for Tokio Solution and so far they have been successful.”

Thanks to Tokio Solution and its alternative capital relationships and capabilities, Ruoff believes TMR will have plenty of opportunities in the future. He says that as a strong property cat underwriter the company should have an abundant supply of risk for warehousing. Being part of the larger Tokio Marine Group also enables TMR to access risk from other group companies which can benefit from third party capital markets

Global reach

Having worked in the European and Asian markets, Ruoff is comfortable with the prospect of directing TMR’s increasingly global operations. He believes that networking and communication and coordination between its five offices will be vital to its ongoing success.

“As a leader I aim to take a collaborative approach, while still providing direction. I aim to be trustworthy and I try to be trusting and empowering. I embrace diversity, and I think TMR is a great example of diversity. In our Zurich office we have more than 10 nationalities working together, and it’s a similar story in our other offices. In the company as a whole we have 23 nationalities working for us.”

As he takes on the role of CEO, Ruoff aims to be loyal to the company’s core values of reliability, innovation and strength.

And the company’s long history of giving back will also be continued under his watch, with many of the sporting charities it supports continuing to benefit from the company’s patronage.

“This philanthropy is an integral part of the company and this will not change with me becoming CEO of the company,” he says.

“It’s an honour to follow in Tats’ footsteps. He has built a successful franchise with a very strong brand and a loyal employee base and I feel a great sense of responsibility. It’s hard to compare my leadership style to his because the company is now facing a very different market.

“When the company was initially set up in 2000 it was for a specific purpose in the property cat field, serving as a risk diversifier for the Tokio Marine Group, and for the last 15 years we have had mostly relatively sound market conditions.

“If you look at it today we have moved towards a diversified company with global scale. There is also convergence with the capital markets and we have a highly competitive environment for reinsurance—so the task I’m assigned to, compared with when Tats started the company, presents very different challenges.

“Maintaining TMR’s underwriting results will remain a key to its success. Further geographical diversification may also be on the cards. Ruoff sees Asia and Latin America as presenting opportunities, while the US offers potential for further penetration following the opening of the company’s Stamford office last June, bringing TMR much closer to its clients.”

He adds that TMR’s redomestication to Switzerland has enhanced its standing in the European markets and given it further access to risk.

“The redomestication is part of our global expansion but as a side effect our acceptance in Europe has increased—plus, our standing should further increase provided that the Swiss solvency test is considered a Solvency II equivalent.

“At the same time, changes in governance and compliance requirements have had implications for our operations. For example, we have relocated the enterprise risk management function as well as the finance function from Bermuda to Zurich, so the move to Zurich has done more than just giving us increased access to business.”

Ruoff takes control of TMR at a stage of the company’s development when it has realised one of its long-term goals—that of becoming a truly global business. What happens next lies in his hands.

“We are excited about moving into a new phase for TMR,” he says. “We are now laying down the tracks for further prosperity and growth—although the main driver will not be growth but underwriting results and income for our shareholders.

“I thank Tats for his great leadership in bringing TMR to what it is today. That hard work, dedication and commitment to employees and clients is certainly something we will carry on going forward.”