Background
Tokio Millennium Re Ltd. (TMR) was incorporated in Bermuda on March 15, 2000, and is licenced as a Class 3 reinsurer under the Insurance Act, 1978 to write all classes of property and casualty business.

The company is a wholly-owned subsidiary of the Tokio Marine and Nichido Fire Insurance Co., Ltd. TMR participates in various excess of loss property catastrophe reinsurance contracts. Property catastrophe reinsurance covers unpredictable events such as hurricanes, windstorms, hailstorms, earthquakes, fires, freezes, floods and other man-made or natural disasters.

Because TMR has large aggregate exposures to these risks, its claims experience is always likely to be characterised by relatively low-frequency and high-severity claims. The occurrence of claims from catastrophic events is likely to result in substantial volatility in the company’s financial results for any particular period.

Catastrophe reinsurers are unlike, say, utilities in this regard. The financial results of a prop cat reinsurer are entirely subject to the level of claims experienced. TMR endeavours to manage its exposures to catastrophic events by limiting the amount of its exposure in each geographic zone.

The company also provides non-traditional customised insurance, reinsurance and financial solutions for its clients’ worldwide property and casualty exposures on both a treaty and facultative basis.

In June 2003, Tokio Millennium Agency Ltd. (TMA), a wholly-owned Bermuda subsidiary, was incorporated. Its primary activity is to facilitate risk swap agreements between Tokio Marine and Nichido Fire Insurance Co., Ltd. and other insurance companies, for which TMR receives agency fees.

Spotlight – Japan comes to Bermuda
TMR’s Japanese lineage has added breadth to the Bermuda insurance market.

Japan’s largest non-life insurance company, The Tokio Marine and Nichido Fire Insurance Company, Limited (TMN*) took a visionary step in 2000, establishing TMR in Bermuda.

TMR’s mission is to act as a strategic risk diversifier for the Tokio Marine Nichido group, by writing high layer natural catastrophe risks outside of Japan. TMR’s other role within the Tokio Marine Nichido group is to strengthen its expertise in the ART market and to share the knowledge gained with the entire group so that similar products can be marketed to their Japanese clients.

For a company of the strength of TMN to come to Bermuda to share in this expertise underlines the Island’s dominance in the global property catastrophe and ART markets.

(* In October 2004, Tokio Marine and Fire Insurance Company merged with Nichido Fire and Marine Insurance Company, making the new, merged company by far the largest in terms of profitability and size among non-life companies in Japan.)

Analysis

Advanced risk analysis, capital management, transactional skills and a large capital commitment allow TMR to pursue its objectives.

Fiscal 2004 saw the continuation of TMR’s strategy to geographically diversify the risk of its parent by accepting North American and international property catastrophe excess of loss reinsurance business and by participating in capital market transactions.

TMR strengthened its expertise in the alternative risk transfer market by continuing to grow its structured reinsurance portfolio, negotiate risk swaps and transform reinsurance to derivatives.

In the traditional catastrophe reinsurance arena, TMR’s strength is the security and large capacity it provides to clients. The company’s continued growth has been aided by the market’s increasing shift to high quality security, the “flight to quality” that has occurred in the global insurance industry, especially after 9/11, and has proved to be one of the drivers of Bermuda’s continued success.
Many of TMR’s transactions in 2004 were private layers, where the placements were not reported in the open market; as a result, TMR was often the sole reinsurer.

The company’s extensive research and expenditure on internal and external pricing model tools has enabled it to conservatively control both territorial and peril accumulations while maximising returns on capital employed.

Underwriting has been concentrated in territories where the company believes the data was more reliable and the catastrophe modelling more robust. The territorial breakdown at January 1, 2005 was: US 41percent; UK/Europe 37 percent; Australia and New Zealand 10 percent; worldwide 6 percent; and other 6 percent.

Catastrophe bond maturities in 2004 totalled $39 million. TMR reinvested $15 million of these proceeds in one new catastrophe bond that matures in 2007. That brought the company’s catastrophe bond holdings to $25 million at December 31, 2004, compared to $49 million at year-end 2003. The reduced holding reflected the lower pricing environment for these bonds.

Earnings in 2004 were dramatically affected — net income was halved — by the four hurricanes that hit the US and Caribbean in rapid succession.

Senior management
President and CEO: Yuichi Takeda
Acting CFO: Yuichi Takeda

Financial data
(year to December 31, 2004)
Reinsurance premiums assumed: $102 million, down 1 percent
Net premiums earned: $123 million, up 121 percent
Net income: $26.2 million, down 51 percent
Shareholders’ equity: $595 million, up 2 percent

Website
www.tokiomillennium.com