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Tokio Marine JV surplus losses could reach $2bn

International reinsurers are facing losses of up to $2bn on three surplus treaties purchased by Tokio Marine's Thai joint venture (JV).

Separately, sources are also speculating that the surplus treaties covering Sompo's Singapore subsidiary could add a further $1bn of losses for underwriters.

Sri Muang Insurance, Tokio Marine's long-established Thai JV, buys three separate treaties - a first surplus, a second surplus and a special surplus treaty.

These Willis Re-brokered treaties are set to suffer the biggest local Thai loss and are the subject of a great deal of talk in the market.

The Insurance Insider understands that Scor, Argenta's discontinued Syndicate 1965 and Toa Re are participants on the treaties.

Tokio Millennium Re is thought to lead significant portions of the placement.

But Singapore's attention has been focused on the participation of Asia Capital Re (ACR) and Lloyd's insurer Hardy.

ACR is said to write a 9 percent line of these reinsurance covers, which would be equivalent to a gross loss of $180mn if the overall loss on the treaties came in at $2bn.

Hardy, meanwhile, is understood to write a significant line that could expose it to a heavy loss on one of only two surplus treaties that it writes in the region.

The quoted Lloyd's insurer put itself up for sale on 1 December after revealing heavy net Thai exposures, which it currently estimates at between £10mn and £25mn.

According to sources on the programme, Kiln Syndicate 1880 will pick up an even bigger share of the gross loss than Hardy.

Sompo Japan Insurance (Singapore) wrote $64.2mn of gross business in 2010, with 36 percent of this coming from offshore property risks. It retained $27.6mn of premiums and has equity of $119.5mn.

MS&AD will also hand on considerable losses via proportional treaties, but it is thought that these losses are ceded back to Japan before being handed over to reinsurers.

ACR's A- financial strength rating has been placed on credit-watch with negative implications, due to the impact of the Thai floods.

"The credit-watch action reflects our view that ACR's credit profile could weaken if the ultimate losses from the recent floods in Thailand exceed the company's current protection from its retrocession cover," said Standard & Poor's credit analyst Paul Clarkson. "While market loss estimates are still evolving, the company's ultimate aggregate losses could be much higher than the company's current known losses."

ACR - which has a reputation for being a savvy reinsurance buyer - did try and place up to $100mn of cat cover in the market this year on a facultative and proportional basis, but according to sources it was not able to place the business.

The embattled Asian reinsurer is also part of a regional cat pool but this will only cover losses that ACR assumes via cat excess of loss treaties - implying somewhat absurdly that the cover will not attach. ACR wrote $752mn of gross premiums in 2010 and had $694mn of common equity at year-end.

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