MS&AD Insurance Group Holdings, Inc. (8725) Earnings Call Transcript & Summary

Hello, everybody. I am Noriyuki Hara, President of MS&AD Holdings. Thank you for participating in IR Day 2020. I took office as President and CEO of MS&AD Group in June. Today, I would like to discuss my view on the management policy and the group's growth strategy. I hope you find this presentation interesting. Let me describe what I value in the management of the MS&AD Group. First of all, I value sustainability. In the medium-term management plan, Vision 2021, the group has raised a resilient and a sustainable society as a vision to realize. To achieve this goal, the group identified 7 priorities and has taken steps to create shared value or CSV with the society. For example, we launched dashcam-based automobile insurance product called Mimamoru or Safeguards in January 2019. It has been well received by our customers because dashcam video helps to resolve car accidents and prevent damages caused by tailgating, which has recently become a social issue. In the city of Kobe, in linkage with its ordinance related to dementia, we are entrusted with a relief system operation to help people who are involved in absence. We have built a comprehensive 3-part compensation scheme: Financial aid through insurance; recommendations for early dementia test to penetrate the scheme; and accident prevention through a GPS-based emergency response service by a security service company. As shown in these examples, CSV initiatives are very important and also sustainable for the group since it helps to address social issues and drive our growth. As an insurance and a financial group, we will promote CSV initiatives centered on our value creation story, and fulfill our role to underpin our customers' lives and the social stability. Secondly, high-value innovation. Digital technology is advancing very rapidly. The group established a corporate venture capital firm in Silicon Valley in 2018. Since then, it has made a number of investments in start-up companies. On the other hand, the group has 3 nonlife and 2 life insurance companies in Japan, each taking full advantage of their strength. The group also has bases in 49 countries and regions, creating an extensive network with partners both in and outside of Japan. Furthermore, we have accumulated a large amount of knowledge and data as we have been in the business for as many as 127 years. Taking advantage of the group's diversity as well as digital technologies that we can leverage from start-up companies, we will provide new products and services that are not available from our competitors. In the insurance business, digitalization is progressing in every process. We will digitize the entire processes, starting from sales by agents, sales and policy administration, adjustment of damages and then to claims payment. This will help provide greater convenience for our customers and achieve operating efficiency. We also established global digital hubs in Tokyo and Singapore. Furthermore, we formed a partnership with an Israel-based firm to pave the way for obtaining up-to-date knowledge, mainly in the cyber domain and the network of pioneering the startup companies. In this way, we have built the foundation for promoting digitalization. I believe that those initiatives, in pursuit of innovation, will be the cornerstone of the group's growth. Thirdly, I value a professional company where employees can find high job satisfaction. In order to link CSV and digital strategies with the company's growth, it is necessary for each employee to demonstrate professionalism while sensing a purpose in life. Especially, it is important to encourage active participation by female employees and foster global-minded and digital-oriented talents. Next, let me discuss changes in the business environment. The global economy and the financial markets have fluctuated significantly in the aftermath of COVID-19. Various social issues have also manifested. As the pandemic still spreads worldwide, it is feared that it will take 2 to 3 years before the economy recovers in earnest. As we must coexist with coronavirus in daily life and in business activities, changes in behaviors are seen in the society, such as penetration of teleworking and a consumer preference for noncontact services. As a result, the social environment and the industrial structure are expected to change as well. For example, noncontact transactions are accelerating, such as purchases and use of goods and services via smartphones. This trend also applies to financial services, including insurance. Most customers used to prefer to meet salespeople to get products and services explained. However, there is increasing orientation towards noncontact transactions, where description and the entire procedures are completed on a remote basis. We need to revisit all the aspects of our operations, including current product offerings, sales channels and the sales methods. Given those changes in the environment and achievement of management targets at the end of stage 1 in Vision 2021, we have identified 2 particularly important management issues. The first issue is on improving capital efficiency. Of the indicators that measure the achievement of the group's vision, which is to become a world-leading insurance and financial services group, we already achieved scale and financial soundness at the end of stage 1. However, group adjusted ROE remained at 8%, falling short of the 10% target. We are going to improve capital efficiency by reducing operating expenses drastically, improving profitability of the Fire and International businesses as well as making efficient business investments and leveraging the synergies across the group. The second issue is on distinctive growth strategies and productivity improvement. We will turn around the Fire Insurance business and restore the profitability of MS Amlin. The outcome of these endeavors will be demonstrated as actual earnings growth. In response to changes in the business environment, we will transform our business style by taking advantage of the effects of digitalization. We will improve competitiveness and productivity, while executing the group's distinctive growth story. Let me explain the group's growth strategies based on the management issues that have been discussed. First, we will implement our strategies steadily in stage 2 of Vision 2021. I'll describe the main points. In the domestic business, while maintaining the profitable automobile insurance business, we will improve profitability in the Fire Insurance and enhance profit in Casualty. As a result, we'll strengthen our earnings capacity in the domestic nonlife insurance business, which is a foundation of the group. With regard to Fire Insurance in particular, we aim to achieve profitability in the early phase of the next medium-term management plan by product revisions and catastrophe prevention and mitigation measures. As for drastic reduction of operating expenses, we'll achieve the JPY 20 billion reduction target in Japan, which was formulated in stage 2, by efficiency improvement. In addition, in order to achieve even greater reduction in expenses, we will reform our business style by reviewing business processes, through digital transformation, operations addressing customers' noncontact orientation, establishing remote working environment and creating nonterritorial offices. In addition to improving operational efficiency through this new business style, we will implement other measures to reduce the expense ratio of domestic nonlife businesses by extra 2 percentage points during the next medium-term management plan period. Those measures will include improvement of organizational and personnel efficiency, a review of non-personnel expenses from scratch. Let's move on to the International Business. Our first priority is to restore profitability of MS Amlin. We'll establish a foundation for MS Amlin to generate profit constantly and then we'll put the company back on the growth track. In Asia, we'll increase profitability by improving the loss ratio, mainly in automobile insurance, and efficiency in clerical operation. We will tap into the retail market in partnership with platformers and banks. We will expand infrastructure development and the commercial business by using MS First Capital's underwriting expertise. In the overall International Business, we will make steady progress to achieve JPY 10 billion reduction in expenses, taking advantage of the reorganization conducted in January. We will also implement globally aligned growth strategy. Through those initiatives in Japan and overseas, we will make steady progress in stage 2 to achieve the group adjusted profit target in fiscal 2021 of JPY 300 billion and group adjusted ROE target of 10%. Next, I would like to describe the group's growth strategies in the medium to long term. We are discussing various subjects internally. We will explain details in the future information meetings as well as on other occasions. Today, I will touch on our strategic directions. We are going to promote CSV initiatives at the higher stage by combining the initiatives undertaken in the current medium-term management plan with digital transformation. Through those initiatives, we will improve customers' convenience and the group's productivity, and will change our business style in an aim to achieve growth in Asia and in the rest of the world. Japan is expected to see decrease in population as well as the number of cars owned by households in the future. Meanwhile, the need for dealing with new risks emerging from changes in the society and the environment, and also from technological innovation, is expected to increase. Based on the largest Asian network in Japan and diverse partnerships, we will change business styles, both in nonlife and life insurance through digital transformation while promoting CSV. This will lead to sustainable growth of the society and the enhancement of our group's corporate value. For example, we will develop insurance products and the services to address customers' issues using digital technologies as well as the claims data that the company has accumulated and the data owned by customers. Many agents have introduced MS1 Brain, an AI-based agent support system. These agents recommend the most suitable product for each customer in an easy-to-understand manner by using video. Collaborating with partners such as e-commerce operators, we will build a digital sales platform that will act as a one-stop shop. Customers will be able to purchase relevant insurance products while shopping for other items and services. In the field of claims service, we will have the entire claims handling completed online and repair expenses authorized using AI. We will be leveraging digital technology-based on BRIDGE, a joint claim services system that will be operational in fiscal year 2021. In new business domains, we will promote RisTech as a paid consulting services to help companies solve issues through the analysis of big data. We will also develop data business in the field of telematics automobile insurance. We will implement such changes globally in order to achieve growth and improve productivity for the entire group. MS&AD Group operates in 49 countries and regions and is the only nonlife insurance group in Asia that has a primary insurance business in 10 ASEAN countries. We are ranked first in the ASEAN region in terms of gross premium written and have facilities both in the nonlife and life insurance businesses in major Asian countries. This is the strength of our group. By establishing an influential market position in each ASEAN country, we will achieve a profit growth rate exceeding the GDP growth rate of the region. India, Vietnam, Myanmar and the Philippines, among other countries in Asia, are the promising markets, where the economic growth is expected to continue. The group will expand by tapping into the growth of this region. During the period of the next medium-term management plan, we will double the profit to be generated from Asia. Meanwhile, in the United States, which is the largest insurance market in the world, we'll explore opportunities for making appropriate investments in business that will contribute to the group's growth. In overseas markets, digitalization is expected to progress more rapidly due to different regulatory and market environments. We will create a new business model that will address issues in different countries using the skills of start-up companies, mainly driven by the corporate venture capital in Silicon Valley and the global digital hubs. The group will apply the expertise we have developed through operations in Japan and overseas horizontally, across group entities overseas to promote digitalization with a sense of unity. These initiatives will lead us to achieve profit exceeding JPY 100 billion in the International business at fiscal year 2023. The group is undertaking CSV initiatives one after another to solve social issues, leveraging the digital transformation. For example, to create a safer mobility society, we have been offering automobile insurance products using telematics technology since 2004, in partnership with the Toyota Group. As a pioneer in the field of telematics automobile insurance, we promote telematics mobility service not only in Japan, but also overseas. On resilient community development, as we announced in the press release at the end of August this year, we are going to participate in Smart City X, an open innovation program of U.S.-based Scrum Ventures together with Toyota, JR East and Nihon Unisys. Furthermore, RisTech, a service we have developed together with Accenture, has been utilized in over 100 projects, generating JPY 16 billion in insurance underwriting. In the future, on top of the traditional risk management, we'll expand RisTech into a broader range of fields, such as smart city initiatives and support for maintenance of social infrastructure. We will also make RisTech a paid service. We are going to undertake these challenges and initiatives in a speedy manner. In this way, we are going to realize sustainable growth by combining CSV and digital transformation or DX, while transforming to adapt ourselves to environmental changes. We will also strive to expand profit as a source of shareholder returns. We are going to sustain incremental dividends and ensure stability in returning to our shareholders. At the same time, MS&AD Group will contribute to the creation of an environment where our customers can live and conduct business activities with a sense of security and comfort. We will also dedicate ourselves to the stable development and establishment of a resilient and sustainable society. MS&AD Group will strive to live up to the expectation of the investors and other stakeholders. We truly appreciate your continued support. Thank you very much for your kind attention. [Statements in English on this transcript were spoken by an interpreter present on the live call.]