16 May 2013News

TMR comes of age as reinsurer goes increasingly global

Switzerland will provide a global platform for Tokio Millennium Re as it looks to pursue international strategic ambitions, crack the European market and reduce group volatility.

That is the view of Tatsuhiko Hoshina, president and CEO of Tokio Millennium Re (TMR), who told Bermuda:Re that the move formed part of the company’s “feet on the ground” strategy—which has in recent years seen the opening of branch offices in Zurich and Sydney—with a strengthened European presence enabling the reinsurer to be “closer to the European market and its clients”.

Hoshina said that Europe was a “preferred market” that TMR is keen to develop, with Switzerland proving the natural fit for such a push. He stated that the conservatism of European insurers was a factor in opting to redomicile to Switzerland, adding that “European cedants tend to want their reinsurers to have European paper and while we have a Zurich branch, we have a number of clients that want a balance sheet based in Europe”.

Hoshina said that the initial focus would very much be on western Europe, but that over time there would be opportunities in central and eastern Europe as the company develops its global footprint. He did however warn that models in such developing markets would need to be more robust—particularly on the flood side—before TMR would make a push eastwards.

The move into Europe is set to be complemented by a push into the US, with TMR due to establish an office there shortly. Hoshina explained that Europe and the US would form two significant strands of TMR’s long-term global strategic ambitions.

A new multi-line approach

Hoshina said that the reinsurer’s focus in both the European and US markets would be in extending a multi-product offering to small to mid-sized insurers. Typically such players display strong demand for reinsurance, said Hoshina, and value the proximity of reinsurance partners—hence the company’s feet on the ground approach.

They are also less prone to significant business interruption losses. As Hoshina explained “we have found that following big events, the surprise factor often comes from the business interruption element. Actual losses on large commercial or industrial portfolios often deviate significantly from modelled results. For small to mid-sized companies the deviation is far less significant”. He added that a focus on small and mid-market players ties in with efforts to reduce volatility at TMR and the wider Tokio Marine Group.

Hoshina said that Tokio Marine has become increasingly wary of aggregations—particularly on its cat business in the US—following its acquisitions of Kiln Group, Philadelphia Insurance Companies and Delphi Financial Group. As a result of these additions, “we are seeing an accumulation of natural perils aggregation, particularly on US hurricane”, with TMR’s focus on small and mid-sized insurers and a multi-product offering part of efforts to drive down volatility within the group.

As Hoshina explained, “reducing volatility is a key strategic consideration nowadays—very different from TMR’s early days when we only had property cat business and our portfolio was full of volatility. Then, the only way to reduce volatility was to increase our geographic spread”. Now the company has the opportunity to diversify by geography and line.

Hoshina said that TMR would be extending both cat and non-cat products to clients in Europe and the US, with existing cat business helping to open doors as the company diversifies its product offering. He said that the company would likely be rather lighter on cat in the US due to group aggregations, but that the company’s “new approach” and non-cat lines would help reduce volatility and add real value for existing clients.

Touching upon TMR’s decision to redomicile away from Bermuda, Hoshina said that Bermuda will remain a core branch for the company and that cat and ILS business will continue to be written on Island.