30 September 2014Life

TMR: coming of age

Tokio Millennium Re (TMR) began life back in 2000 as a risk management vehicle for its parent company, Tokio Marine & Nichido Fire Insurance Co. Ltd. (TMNF). Under the tutelage of the company’s CEO, Tatsuhiko Hoshina, TMR’s scale, geographical footprint and capabilities have since developed to fulfil the full potential of its DNA.

Initially envisaged as a means to enhance the position of the wider Tokio Marine Group at a time when the Japanese non-life market faced deregulation and a slide in pricing and terms and conditions, TMR has grown to become an increasingly important part of the group—one that is driving innovation and gaining an increasingly global footprint.

“Our parent company wanted to diversify the geographical spread of its portfolio, away from its traditional concentration on Japanese windstorm and earthquake,” explained Hoshina. As a result, TMR entered the international property catastrophe space, initially writing US hurricane, European windstorm and New Zealand earthquake business as a monoline reinsurer, which complemented TMNF’s Japanese-centric portfolio.

These attributes—TMR’s focus on analytics and innovation—have stood the company in good stead in a fiercely competitive market. “From the outset, we wanted to be a company that really invests in analytics,” explained Hoshina. “We were one of the first reinsurers to license all three property catastrophe models, in addition to developing our own proprietary models. We wanted to be experts in our field and be constantly at the cutting edge of property catastrophe analytics.”

"From the outset, we wanted to be a company that really invests in analytics"

Hoshina explained that in its early days, “TMR was not evaluated on its profitability or its premiums written. Instead, focus was placed on our ability to enhance the results of the wider group, as well as how well we could contribute to the group’s return on risk.” Leveraging on its trademark analytical approach and constant drive for innovation, TMR celebrated one successful year after another, making it a significant player in the Tokio Marine Group’s portfolio of international companies.

Hoshina added that as part of its corporate culture, the company strives to apply a scientific approach to its understanding of risk. TMR’s analytical capabilities are a key differentiator among its peers and as such the company has placed significant investment in its R&D centre, Tokio Marine Technologies, based in Duluth, Georgia. The researchers at Tokio Marine Technologies are in constant collaboration with TMR in their efforts to better understand, model and analyse complex and emerging risks in both the property catastrophe space and across its non-catastrophe lines of business. TMR continues to place significant emphasis on its analytical capabilities.

By line and geography

From its early days as a Bermuda monoline reinsurer, the company has since evolved into a multi-line, multi-class reinsurer. In 2013 TMR established its headquarters in Zurich, a move that aligns with its goal of developing its European footprint. Despite its growing presence in overseas markets, Hoshina remains appreciative and fond of TMR’s beginnings in Bermuda, attributing much of the company’s success to its island location, where one of TMR’s branches remain. As he explained, Bermuda’s gravity, pulling in clients and brokers, has been of enormous benefit to TMR as it developed its presence on the Island and beyond. “We wouldn’t be where we are now were it not for being located in Bermuda for so many years.”

TMR is now looking increasingly further afield as it develops a global footprint that continues to build on its initial ambitions as a risk diversification vehicle for the Tokio Marine Group. In addition to its headquarters in Zurich, TMR has branches in Hamilton and Sydney, a sister company in London, and a newly opened US office in Stamford, Connecticut. TMR’s global presence has enabled the company to locate its teams in key geographies, achieving proximity to an increasingly international and growing client base.

It has also helped the company diversify from its initial focus on property catastrophe reinsurance into longer tail casualty lines. As Hoshina explained, “The softening of prices within property catastrophe following the influx of capital markets capacity has helped us concentrate on non-catastrophe business and geographical spread outside the US.”

So too has a desire to further diversify its book of business, much as TMR did for the Tokio Marine Group from the outset. This has meant that TMR has become less and less reliant on its parent’s balance sheet, driving real value for the Tokio Marine Group by building on its international business. Hoshina said that TMR’s ambitions include further geographical expansion;  the company already “has eyes on Asia”—with Singapore being a possible business hub—as well as Latin America.

The success of each new strategy that TMR has implemented has helped to foster a sense of confidence within the company. “When we first set TMR up, we asked ourselves, ‘Will we be able to compete with the major companies already in this space? Can we keep up?’” TMR has proved that it can go one better and has established a strong track record in the market, one that has enabled it to pursue growth, geographical and line diversification, as well as a number of strategic acquisitions.

An active acquirer

The Tokio Marine Group has been active in the M&A space, acquiring Kiln and Philadelphia Insurance Company in 2008 and Delphi Financial Group in 2012, in moves that have strengthened the capabilities of TMR and the wider group. Hoshina says that there tends to be two approaches when considering M&A: the first being to pursue strong companies and letting them continue operating much as they are; the second being to acquire distressed companies and turning them around.

“Tokio Marine Group has consistently pursued the former approach, building on the strengths of existing teams and businesses,” Hoshina said. “The common thread with all our acquisitions is that the management is strong, the companies are well-run and have great potential for growth. We put members of the board in place, but let the companies continue doing what they have been doing with success. When we acquire a strong company, we have no intention of changing the existing culture.”

"The common thread with all our acquisitions is that the management is strong, the companies are well-run and have great potential for growth."

This philosophy reflects TMR’s emphasis on the importance of human capital. As Hoshina explained, “When developing by line and geography and pursuing acquisitions, hiring the right people is key. We can build strategies, but what we need are the people to execute those plans, and that is difficult in any market.

“It is particularly difficult when you are a newcomer—as we were in Zurich, Sydney, and Stamford—but our reputation has enabled us to attract and retain the top individuals in the market, no matter where our offices might be located.” Its careful, considered method of hiring both internally and at acquired entities has resulted in one of the lowest staff turnovers in Bermuda, for example.

Third party capital

Complementing TMR’s geographic expansion has been its deepening involvement in the capital markets through Tokio Solution Management (TSM), allowing the company to further diversify its book of business and pursue innovative and creative products, resulting in knowledge transferred to the Tokio Marine Group and its clients.

Formed in 2012 in order to capitalise on and manage third party capital entering the reinsurance industry, TSM was created as a “fusion of the capital and reinsurance markets” and has helped to drive an increasingly innovative approach to the convergence space. Already it has established itself as the leading fronting entity in the third party space and there are further ambitions for growth.

“Our intention is to utilise the capabilities of TSM even further, collaborating more with hedge funds and asset managers to bring new products and capacity to the market.” Hoshina added that the market can expect more activity on its TSM and Shima Re platforms as the company continues to build out its already impressive third party capabilities.

Third party capacity will also help TMR realise its ambitions for further growth. As Hoshina explained, capacity and line size will be among the leading measures of future success, and it is through TSM that the company intends to deliver larger line sizes on a gross basis. Additional capacity through the capital markets should also enable TMR to pursue two other key measures of growth: “customer-centricity” and the ability to offer multi-line structured products to clients, said Hoshina. So too will its growing international footprint and the increasing diversity of its underwriting.

Reflecting on developments in the wider industry, Hoshina describes the market as dynamic. He said that companies should not be complacently satisfied with their current position, but instead strive to pursue new opportunities and embrace change in order to move forward.

TMR’s geographical and line expansion and the development of TSM reflect such a philosophy. Addressing the current tough cycle, Hoshina warned that the sector should “never lose sight of the underwriting—never go for the top line”, adding that if companies continue to emphasise analytics and put the right people in place, they can expect to outperform the market and move beyond expectations, much like TMR has done.