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

Hello, everyone. I'm the President and CEO of MS&AD Holdings, Noriyuki Hara. I'd like to thank you for taking part in our information meeting today. As with our previous information meeting in May, today's meeting is also being held remotely to prevent the spread of COVID-19 infections. It has almost been a year since reports of the new coronavirus emerged in December 2019, and its momentum is still strong with infections continuing to spread in second and third waves around the world. Under these circumstances, the MS&AD Group is playing a role in maintaining the business infrastructure of society, such as doing its utmost to ensure the swift and appropriate payout of insurance benefits. Moving forward, we are committed to making a group-wide effort in concert with stakeholders to bring back steadily stability to the society and the economy once more. Now I would like to begin today's meeting. Today, I would like to discuss how the MS&AD Group will achieve growth in the medium and long term in light of the social environment that is likely to change considerably due to COVID-19. After that, I will share the progress on our medium-term management plan and talk about shareholder return in the current period. This year, the MS&AD Group observed its tenth anniversary. Over this period, our profit level has grown from JPY 50 billion to JPY 60 billion before the group management integration to a forecast group adjusted profit of JPY 300 billion for fiscal 2021. When we look at the business environment to gauge our growth over the next decade, dramatic shifts are expected due to the advance of digital technology, worldwide demographic changes and the changing global environment. We believe that the changes in our lifestyles, how we work, and business activities brought about by the recent COVID-19 pandemic are not temporary. And instead, represent a further acceleration of social and economic changes that were already underway. These changes bring with them a host of social issues such as worsening natural disasters due to climate change, expanding cyber risks and widening regional disparities. The MS&AD Group hopes that working with customers to develop solutions to these social issues will lead to growth. For example, the recent uptick in cyberattacks and similar incidents will further expand cyber risks in this increasingly digitized world. The field of cybersecurity services is forecast to be JPY 1 trillion market by the year 2024. By providing cyber risk insurance and consulting, we will solve customer issues and turn threats into growth opportunities for the MS&AD Group. This rapidly changing society will produce many of these risks and the needs to solve them. The MS&AD Group will actively identify these needs and provide solutions to turn changes in the business environment into a source of growth. To date, the MS&AD Group has anticipated social changes and led the industry in developing new fields of business. One example is the risk consulting business that various non-life insurance groups are now pursuing. The MS&AD Group was involved with this early on and developed the risk consulting market in Japan. Another example is large-scale international M&A activities that serve as one of the growth drivers for various non-life insurance groups in Japan. The group's acquisition of Aviva's Asian operations was a pioneering move in the industry. There's also telematics-based automobile insurance, which is expected to increasingly expand in the future. Back in 2004, when even the concept itself didn't exist in society, we developed pay-as-you-drive type automobile insurance and offered it as a cutting-edge insurance product. In the years ahead, changes in the society are expected to continue their rapid advance and we will channel our DNA as a pioneer of new business fields to achieve continued growth driven by change. In this medium-term management plan, the MS&AD group declared its aim of achieving a resilient and sustainable society by the year 2030. Traditionally, insurance has been a business that compensates for economic losses. But we aim to be a company providing risk solutions that add features to this, such as preventing risks from occurring and ensuring swift recovery in the event an accident does take place. In terms of solving social issues, we maintain distinct and world-leading products and services, and we aim to expand further by rolling out these solutions around the world. We aim to achieve profit growth through these activities, and we hope to meet the expectations of our shareholders and investors as a corporate group expected to achieve steady profit growth 10 or even 20 years down the line. Next, I'd like to discuss the group's medium- to long-term growth strategy. Under the current medium-term management plan, CSV has been placed as a core element of our business activities as we strive to grow in step with society while solving social issues. We will combine these efforts with DX to work at a higher level. Now I would like to describe the specific implementation of CSV by DX. The MS&AD Group possesses various strengths from broader partnerships we maintain and the largest customer base and agent network in Japan to a diverse range of group companies and network spanning 50 countries and regions and a presence in the growing Asia region. We have the ability to ascertain the needs of a more diverse variety of customers, possess an extensive variety of data and have the capabilities to expand around the world and into markets where future growth is expected. By working on CSV by DX, we will achieve 3 kinds of transformation: innovative products and services, sales channels and sales methods transformation and the creation of new businesses. And these transformations will be rolled out in Japan, Asia and across the world. I'd like to talk about the first of these transformations, innovative products and services. Conventional insurance involves only providing economic compensation in response to a claim when an accident or other event has occurred. With CSV by DX, we provide products that find and convey risks, prevent risks from occurring and minimize those risks and facilitate swift recovery when risks still occur, all in a seamless way. Take telematics-based automobile insurance, for example. Customer's driving data is collected in real time, issues alerts when it detects speeding or traveling in the wrong direction on a highway and provides safe driving advice with the provision of driving diagnosis reports. This has helped reduce automobile accidents by around 30%. Even when an accident does occur, if the system detects that the vehicle has stopped after experiencing a major impact, the customer is immediately contacted to confirm their safety and an ambulance or tow truck will be dispatched if required. There are cases where this has actually saved lives overseas. In addition, insurance premiums are adjusted based on the safe driving level of the customer and the distance they travel, enabling us to offer coverage at more convincing premiums. Next, I would like to talk about sales channels and sales methods transformation. Traditionally, insurance sales have been dependent on the individual skills and experience of agents. But by providing a system that supports agent activities with the use of various data and digital technologies, we can provide the most suitable proposal to all our customers. This system will also help agents gain the trust of customers and reinforce the management foundation of agents. This is actually achieved by MS1 Brain. MS1 Brain is an agent support system equipped with AI. It analyzes the customer data maintained by an agent, along with the policy and accident data held by the insurance company, examples of best practices and corporate information to conduct the predictive analysis of customer needs, manage the proposal activity process, generate explanatory videos customers -- customized for each individual customer and help agents build management strategies. Many agents have already begun using MS1 Brain and are developing proposals that were previously not possible for them. New market holders are also emerging due to digitalization. We will work with new market holders, emerging in fields such as mass, smart cities and health care to propose new business models and launch joint ventures with digital platform holders, thereby building new products and developing new sales channels. For example, we are pursuing efforts to link with the systems of digital platform holders and implement an insurance proposal process that will appear partway through the product purchase steps of e-commerce websites. We will also create new businesses. For instance, there are growing needs to quantitatively assess the impact of climate change and to achieve the early detection of dementia in connection with the aging population and risk solutions are needed to deal with these new social issues. In response, we are taking on the challenge of new businesses, such as providing a consulting service that quantitatively assesses the impact of climate change and developing algorithms for the early detection of mild cognitive impairment through voice analysis. These areas in which the MS&AD Group is able to create new businesses while solving social usages through a combination of CSV and DX will continue to expand as society changes. One example of a business that has already launched is our telematics business in the United States. The business analyzes the vehicle data of customers, converts that data into a form that allows it to be used for designing insurance and providing safe driving advice and sells it to local insurance companies. The business has already established a steady track record in conjunction with U.S.-based leading insurance companies, including nationwide and progressive. Another example is RisTech, which provides risk solutions by using AI to analyze MS&AD's data, customer data and external data. RisTech has already produced results in the form of more than JPY 17 million in insurance underwriting. In the future, we will develop a data services and consulting business as paid offerings and expand into a wide range of fields, including smart mobility, smart city, social infrastructure maintenance and climate change risks. In the near future, we expect to generate annual sales of around JPY 5 billion through these paid RisTech services. We are focusing on securing and developing digital-savvy human assets to support the combination of CSV and DX. In addition to actively recruiting professional talents from the outside, we are working to boost the digital literacy of employees by offering a range of human resource development programs such as training courses in partnership with universities. We have also launched the digital innovation challenge program to transform actions, mindset and skills of all group employees and discover digital-savvy human assets. Last year, which was the first year of the program, we solicited ideas for utilizing 18 advanced digital technologies building the future across the 2 themes of developing new business models, products and services, and business reforms. Around 1,200 ideas were submitted and 14 were selected for implementation. Demonstration testing on social infrastructure maintenance support utilizing dashcams, which was announced last month, came about due to this program. Moving on, I would like to talk about the international business. For the international business, in the current fiscal year, we expect to post group adjusted profit of JPY 4 billion due to JPY 47 billion in losses from temporary special factors, including COVID-19. And in fiscal 2021, however, profit is expected to grow to JPY 75 billion due to the exclusion of these special factors as well as a return to profitability for MS Amlin and expansion of the overseas life insurance business. Our next medium-term management plan will call for the strong rollout of CSV by DX initiatives to our overseas businesses as well developing businesses capable of generating profits of between EUR 100 million and JPY 125 billion. In terms of our medium- to long-term strategy for overseas business, during the current medium-term management plan, we are first focused on strengthening and stabilizing the profitability of existing business foundations, such as by returning MS Amlin into profitability, and expanding earnings in Asia. Next, by fiscal 2023, we will transform into a growth model based on the combination of CSV and DX to get on track for further growth. In terms of business investment, our main targets will be Asian countries expected to grow in the future, such as India, Vietnam and the Philippines, as well as the world's biggest insurance markets such as the United States. To expand CSV by DX initiatives globally and establish growth models, we have established global digital hubs in cities of innovation around the world. Working through these sites, we will utilize expertise and resources on the reciprocal group-wide basis and encourage coordination with pioneering start-up companies to promote digitalization endeavors around the world. Digitalization initiatives overseas have already produced wide-ranging results. For example, and AI-based automobile insurance fraudulent claim detection system that was developed in Japan was rolled out in Brazil and significantly improved the accuracy of insurance benefit payouts. We have also started introducing the system in India and are considering doing the same in Malaysia and Hong Kong. Loss control due to wildfires in North America was posting problems for MS Amlin. In response, the company created detailed risk maps based on external data on building distribution, topography, climate and past claims and combined it with actual underwriting data to enable more appropriate risk analysis and underwriting decisions. One excellent example of a DX initiative overseas is the strategic partnership with Hippo that was announced the other day. Hippo, a U.S.-based insurtech MGA, is a promising unicorn company ranked 8th on Forbes' 2019 list of AI companies leading the United States. The company develops risk-segmented homeowners insurance using data and technology and also offers accident prevention and mitigation services using smart home devices and weather data, something that the MS&AD group is also pursuing. Through this alliance, we hope to absorb expertise in the utilization of digital technologies and expand them globally. Next, I'd like to discuss business style reforms. In response to society-wide behavioral changes that have emerged against the backdrop of the growing COVID-19 pandemic, we will work to reform business styles to boost productivity and competitiveness. Specifically, we will pursue business style reforms that include reviewing our business processes through digital transformation, establishing business operations that consider customers' aversion to physical contact and firmly established remote work practices and introduce hot desking. In addition to the effects of R&D investments we have made to date through the improved efficiency from these new business styles, the improved efficiency of organizations and personnel gained as a result and the zero-based review of property expenses, we will achieve a JPY 20 billion in domestic business streamlining set out in stage 2 of our management plan, and we will also cut operating expenses by at least JPY 50 billion by 2030. The these efforts have now been accelerated further. We will bring forward and achieve additional cost reductions and plan to build further upon those efforts moving forward. Now I would like to talk about our current business results and the progress of our medium-term management plan. While it is difficult to clearly isolate the impact of COVID-19, our incurred losses directly attributable to the COVID-19 pandemic are listed on Page 33 of the materials. As for the impact on insurance underwriting profit in the domestic non-life insurance business, alongside the current circumstances, we have also seen reduced loss ratios in automobile insurance and personal accident insurance, and overall, the impact over the full fiscal year will be limited. Therefore, when we compare initial plans with our full year forecast to gauge the impact of the COVID-19 in terms of overseas incurred loss and decline in asset management profit, our loss -- incurred loss has increased from JPY 20 billion to JPY 39 billion. We expect the fall in asset management profit shrink from JPY 60 billion to JPY 28 billion. In terms of the impact on after tax profits, we expect an improvement of JPY 7 billion. In response to this, we raised our forecast group adjusted profit for fiscal year 2020 to JPY 210 billion, JPY 30 billion higher than initially forecast. Similarly, we now expect a group adjusted ROE of 6.8%, a rise of 0.7 percentage points. Setting aside temporary factors that includes profit due to the restructuring of overseas businesses in the previous fiscal year, group adjusted profit is on track to rise steadily. In addition, excluding the impact of COVID-19, group adjusted profit is expected to reach JPY 267 billion, making steady progress towards our goal of JPY 300 billion in fiscal 2021. Next, I'd like to talk about the status of sustainability initiatives in the current period. The MS&AD Group is promoting CSV initiatives through group value creation stories, illustrating how it is solving social issues such as climate change through its business activities. This fiscal year, we made a declaration that we will hold insurance underwriting loans and investments for newly established coal-fired power plants as a general rule, and also withdraw from underwriting investments and loans connected to companies that manufacture cluster munitions. The status of our efforts, dealing with climate change, natural capital and respect for human rights, 3 areas we recently declared as priority issues are listed on Page 81 of the materials. We are pursuing various endeavors through our products and services as well as internally throughout the MS&AD Group. Going forward, we will advance these efforts while exchanging views with all our stakeholders. Now I'd like to talk about capital policy. The MS&AD Group's greatest feature is a consistent earnings capabilities of the robust and stable domestic non-life insurance business. To achieve sustained growth we will use this business as a base and position the life insurance business and international businesses pillars for future growth. We will also pursue a shareholder return policy targeting 40% to 60% of group adjusted profit. ESR, an indicator of financial soundness, improved by 23 points to 209% compared with the end of March, a response to a rebounding stock market and rising yen denominated interest rates. We will continue to ensure appropriate levels and will maintain the current capital policy. Lastly, I would like to talk about shareholder return. Our shareholder return policy to provide shareholder return based on shareholder dividends and repurchase of our own shares by adopting a benchmark of 40% to 60% of group adjusted profit remains unchanged. Therefore, we plan to issue an annual dividend of JPY 150; interim, JPY 75; end of fiscal year, JPY 75, in line with our initial forecast. We have also decided to implement share buybacks up to JPY 20 billion to improve share prices and make ongoing improvements to capital efficiency. While the coronavirus is still running rampant, progress has been made in the development of vaccines and other areas, offering a glimmer of light in the battle with this disease. Humanity has long ways recurring battles with disease from the play to the 1918 flu, and each time, we did overcome, but furthermore, utilized the victory to drive innovation in various ways. Today, with the digital technologies we have available, things thought of as impossible in the past can now be achieved. While 2020 turned out to be an extraordinary year, when we look back on it in the future, it may be recognized as a significant milestone of social change. The MS&AD Group is committed to working with stakeholders to overcome these difficult times. Even during and after the COVID-19 pandemic, we will turn solutions to social issues into opportunities, contribute to the realization of a resilient society and continue to grow in step with the community. We will continue to do our very best to meet the expectations of our investors and various other stakeholders in the future and ask for your continued support.

Muraki of SMBC Nikko Securities. I have 2 questions. First of all, I'm on Page 35 that refers to overseas M&A and the future policy. Could you explain the future policy of overseas M&A, especially if you intend to conduct a major M&A outside of Japan? Some time ago, Sompo Japan, they did that during the next medium-term plan, they are interest in the resort to major M&A. I know that you have been engaged in remediating profitability of Amlin. But once you determined that there is a clear conversion in sight, a remediation in sight, are you going to consider major M&A in such markets such United States, outside of Japan? And could that happen during the next medium-term plan? Or are you considering conducting that in the current medium-term plan or the medium-term plan that follows the next one? Next, relating to the expense reduction, which is described on Page 40. According to the initial plans that might have been quite conservative, but you planned a significant increase in expenses, but you lowered that outlook in that context. This page refers to the continued efforts to reduce costs furthermore. During this fiscal year and the next fiscal year, it seems that you have lowered by 1 percentage point the further costs. So could you share some numbers as well, the figures specifically with respect to cost savings?

Thank you for your question. First of all, with respect to the international or M&A outside of Japan, Mr. Matsumoto, in charge of our international business, will respond to that.

Matsumoto is my name. Thank you for your question. With respect to M&A initiatives outside of Japan, I believe we have explained our policy several times in the past. We are always on the lookout for good opportunities for M&A. And in terms of our potential target, as Mr. Muraki mentioned in the question, one potential area is the United States. And without me specifically mentioning it, the U.S. market is the biggest insurance market in the world, and it's been growing. So we have been constantly studying the opportunity in that market. Including a major M&A, we are studying the potential in U.S. market, but we are not only focused on major M&A opportunities. Including niche opportunities or niche sort of targets, we constantly study the potential in the U.S. market. And the -- not only in the United States but in Asia, where we are particularly strong -- there are various opportunities, as was mentioned, including DX. There are markets where the potential for further activities is expected. We have various -- I just have been brought to us, and therefore, in terms of priority, the United States and also Asia are in our thoughts. In terms of the timing, of course, timing will be decided in the various factors. And therefore, I cannot specifically mention any time frame of such potential M&A. So please allow me not giving you a specific answer to that. That's all for myself. Next, I would like to talk about the current status of expense reduction, including the situation during the current fiscal year as well as next. Mr. Higuchi will respond to that question.

Higuchi is my name. Thank you very much for the question. With respect to the expenses, let me say that significantly, we have been making proactive efforts to reduce expenses during the current fiscal year. In terms of the materials that I can refer you to, if you could look at Page 27, it refers to business style reform. And in the context of that, the various initiatives to reduce costs described there. According to the initial plan, JPY 20 billion in Japan and JPY 10 billion outside of Japan are scheduled to be reduced by 2021 fiscal year. And we plan to reduce JPY 30 billion in expenses. So that was our initial plan. But by 2023, as described here, in addition to that, we are planning to reduce additionally JPY 50 billion in expenses. So we are stepping up our initiatives in those areas up until fiscal 2021. So the original JPY 30 billion expected cost reduction related to that. And we expanded that savings to JPY 33 billion. And as I mentioned earlier, with respect to the further reduction by JPY 50 billion. Rather than implementing that in the context of a next medium-term management plan, we front-loaded those activities currently. And the benefits of that could be felt in fiscal 2020 and 2021. So those will be added to JPY 33 billion I mentioned earlier. So those additional benefits will be felt. And various digital investments and digitalization areas have been made, which produced a higher efficiency for our business. And in addition to those benefits through the online renewal, the paper-free operations are being implemented or realized. And for example, in terms of issuance of policies, without issuing actual physical paper-based policies, we can save printing expenses among others. So quite a broad-based expense reduction efforts, both personnel and nonpersonnel expenses will be implemented, which will generate benefits. And because of the COVID-19 pandemic, we reexamined various cost items, including the business trip expenses, among others, although have been realized earlier than originally anticipated. And therefore, as mentioned on Page 40, in FY 2020/'21, compared with the initial stage, probably 0.1 or, compared with '21, 0.7 percentage point additional reduction has been achieved. So that's included here. Did that respond to your question?

With respect to the expense or cost reduction let me ask further. On Page 40, in terms of the amount invested, impacted by COVID-19, the project had been reexamined because of the typhoon. In the claims adjustment, probably I think you changed some specifications or usage. So am I right in understanding that you won't be making any changes to the investment schedule, am I right?

Basically speaking, we are not contemplating changing the schedule of investment. So we'll implement those investments according to the schedule. And at the same time, on that basis, we will continue the depreciation of these investments and also and the range of expense reduction efforts than in the past.

Now we go onto Daiwa Securities, Watanabe-san, please?

Watanabe-san, Daiwa Securities. I have 2 questions. One at Page 89, shareholder return. And you're not going to increase the dividend. You are prioritizing share buyback. What is your thinking? And what will be the conditions for increased dividend? And also Page 38, about fire insurance. In 2021, I think you showed the outlook that is the time to going profitable is shown, and Hippo was introduced. What will be the direction in Japan? And what will be the premium framework in Japan? It's not going to change for fire insurance?

Thank you for the question. About shareholder return, I would like to give an explanation. As mentioned earlier, the adjusted profit, 40% to 60%, would be how we would like to return to shareholders. And on the interim, the share buyback was prioritized because we looked at the current stock price situation. And with regards to stock price, we thought that it could be higher. And so we prioritized the share buyback. And with regards to dividend, end of term results situation,or the capital situation, economic outlook could be considered in making our judgment. And in the past, basically, we wanted a stable and also upward trend for the shareholder return. And based on that way of thinking, we will continue to try to meet the expectation of our shareholders. Now about the fire insurance, the second question, Ohkawabata will be answering.

In the fire insurance, making it profitable, and the outlook for that. As we have been explaining, after fiscal 2022, no -- in fiscal '19, there was the large natural disaster. And that is discounted at an early date in the medium-term fund. We wanted to turn profitable and so that -- there's no change to that. And in the product revision in January, the rates will go up and also, for the profitability, the improvement on the rates will be considered. That will be at the basis. And fiscal year '19, when we had the natural disasters, the catastrophe, the rate revision will be soon. And with that, we will have early profitability, and there is no change to that stat. However, not just rate provision. Of course, we need to have efficiency, and we will make efforts in the area of efficiency, too. That will not change. Also, disaster prevention, for each company, there will be proposals with regards to the disaster reduction so that it will -- the business will be profitable. And we will work steadily towards that. Now I'd like to talk about Hippo from my side. Now to state the conclusion first. The product, Hippo itself, the objective was to bring that -- was not to bring that product in Japan. And depending on the country, the risk in terms of fire insurance or the natural disaster situation differs. And however, the characteristic of Hippo is, well, there's the risk common to fire and insurance and the approach to the problem-solving is very characteristic. And so that methodology and the way of collecting information, the way of analysis, with regards to all these points, we wanted to introduce them, and that's why we have the alliance. Therefore, the framework for the fire insurance, the product framework, is it going to change? Well, no, we don't assume that. And Hippo's side too. There is fire insurance in the U.S., and it's not -- the intent is not to change that. Rather, we want to improve the existing products. In other words, upgrade our services. That is the approach. And therefore, we want to include that know-how, and we want to improve and sophisticate the product and services in Japan. That is the objective to the alliance with Hippo. Thank you. Did that answer your question?

Yes.

Moving on. From Morgan Stanley, Mr. Nagasaka, Morgan Stanley MUFG Securities.

Thank you very much for your presentation and explanation. I have 2 questions, if I may. One relates to your digitalization strategy and the other one relates international business. And you just talked about Hippo and your partnership with them. But in addition to Hippo, in rapid succession, you announced alliance with the group knowledge and the database usage from the group knowledge, among others. But in relation to those digitalization alliance, what sort of benefits are you expecting from those? And in terms of timing-wise, when are you expecting to generate effects? And also, your human resource enhancement in relation digitalization. Those are described. What is your strength and advantage in terms compared with others? The other question relates to Page 23, based upon reorganization of your international business. In terms of capturing growth opportunities, what sort of discussion is underway? And furthermore, when are you expecting benefits of those to become manifest and the size of the benefit that you can share with you as well as the current status. Is something I would like you -- I'd like to be enlightened.

The first question, in terms of advantage of our digital strategy compared with our competitors is the first question. Mr. Funabiki will respond to that.

If you could turn to Page 12, that gives you the response to that because this page describes most significantly our digital strategy of our group. This shows the metrics of our strategy. Since we are the insurance company, as you see in the center of this stage, offering compensation was what we were doing, selling products by compensating for those risks when they manifest and try to generate profit. So that was the core of our business. From that perspective on our global endeavors in collaboration with BPI Bank in the Philippines using MS1 Brain, we started bancassurance business, among others, and we are trying to generate profits by accelerating the sales of those insurance products so that we can enhance the revenue growth. At the same time, the alliance with Fin TLV in Israel and also our alliance with Hippo that was announced recently relate not directly to the increase of product lineup, but rather, in terms of Page 12, which refers to what is described on the left-hand side, that is to say the prevention of risks or preventing risks from becoming manifest. And so we are trying to develop services in that area. Or unfortunately, should an accident actually take place, to try to minimize the impact of accident or to shorten the time required for achieving recovery so that the amount of insurance claims benefits to be paid can be reduced. And also, for policyholders or for the insurance companies paying out those claims. We are trying to develop in services that will generate advantage to both policyholders and also insurance companies. So that's what we are contemplating to do. Investments, of course, can be divided into short term, medium and long term. But the ultimate objective is to reduce those risks using MS1 Brain in the short run. It can produce in terms of short-term benefits, there is the development of new development policies. And also, combined, we can try to bring about greater advantage. I don't want to compare ourselves, our own advantage to our competitors, but please refer to our own advantage. But through those investments in those initiatives and developing products and services, by doing so, those initiatives would mean we'll be using [ MI ] to collect data and also analyze that. And those initiatives will be conducted by our employees, and those employees would be quite limited in number currently. But rather than just having our -- limited number of employees in your own department conducting the analysis or data collection, but rather more broad-based employees engaged in all departments should be able to earn capability, being able to use those AI-based expertise, find new customers to enhance the products of development using those capabilities. So in net analysis, to enhance the capability and skills of employees overall would be the best way to take advantage of those investments and regenerate benefit from them and, therefore, to enhance the skills and capability of employees as well as giving them the programs of training is most important. And that's why, as shown on Page 22, we are engaged in offering programs that can enhance capability of employees overall. Those are the mechanisms that can enhance capability in the short run. So after a few months or few years, maybe 60% or 70% of employees can participate in those courses or training sessions. So to make sure that those infrastructure can be utilized fully by employees, we will enhance the talent enhancement and talent management. So that's the best way we can do that. So in a sense, I think we are the number 1 in doing, I'd say, by producing such a virtuous cycle. And next one relates to the sort of discussion underway to generate the benefits of growth generated by International Business. Mr. Matsumoto will respond to that.

Matsumoto is my name. In terms of the growth strategy of our International Business, as I just mentioned, based upon the reorganization of International Business, what are some of the discussions going on was the question. First of all, under the head office on the global basis, we are achieving group-wide optimization. So from that perspective, the major executives of overseas subsidiaries or capable talents are gathered, and we had in-depth discussion with them. Concretely speaking, when are we going to see concrete results of that in terms of timing, right? If you could refer to Page 22, as we have just mentioned, in the context of next medium-term management plan, and although there is no concrete figure that I can share with you at this point in time, but when we are able to share with you the medium-term management plan, the sort of things we are now discussing will be included in the next medium-term management plan. So long-term strategy, that will be the core. The next medium-term plan is steadily discussed with the key members of overseas subsidiaries and also for specific regions as well as combining that with overall strategy. We are now producing the growth strategy for the entire International Business. If I may just refer to some examples, group-based reinsurance and also the asset management as well as the application of digitalization technology across different international subsidiaries are included in some of the discussion underway. And that's the extent to which I can share with you specifically about the plan. In terms of international business, we are using DX initiatives as well. So with respect to Page 25, I'd like to ask Mr. Funabiki to give you a short explanation of that. Thank you.

What Page 25 intends to describe is as follows. In different countries, what we are developing currently in terms of AI and other products would be implemented in different way. And at the same time, in each of those companies, the human assets that would be required most would vary and, therefore, we are trying to achieve at the way that would be most effective in each of the regions that we operate, the way in which that can generate the greatest benefit. So that is described for different regions on Page 25. And in the case of London, the Lloyd's market is there. And therefore, there are extensive experience using digitalization, but those experiences have not been translated into data and authorized that. And therefore, we are now trying to take initiative in creating those information and experience into data. And also in Asia, the population continues to grow. And therefore, in order to monetize in the short run by applying MS1 Brain from Japan and launch those -- the usage of the -- those in Asia, we start soliciting business starting next month and trying to increase profit from that. In the case of Israel, that's a country where new technology is created and generated. That's its outstanding future. So what we would like to see in terms of the devices or technology or mechanism is something that will be acquired in terms of information in Israel. And at a lower cost, we are trying to build most effective mechanism and systems. So for that purpose, we are trying to establish the most effective hub for doing that in Israel. So to most effectively implement the regional strategy is predicted in the process. Did that respond to you? Thank you.

[Operator Instructions]

Mitsubishi UFJ Morgan Stanley. Tsujino is my name. Can you hear me?

Yes, we can hear you.

First question, I think there's a lot of big picture here, so numbers is what I want to ask. This time in Japan, the adjusted profit, excluding tax, JPY 20 billion was the upward adjustment this time. Next year, how should we view the starting line, the starting point? In other words, does COVID effect and non-COVID effect and it's difficult to distinguish them. So the expense ratio, the reduction of expenses, the system cutover, if it's delayed, then it will be next year response, but -- so the starting point from next year, that -- what's -- is it going to be on the line of this year's results? Or what is the cutover? There's the service and there will be an increase. And then there's going to be JPY 50 billion add-on of cost reduction, and that effect will gradually be seen. Is that the way to understand this?

So that's the first question, about the cost?

And the adjusted underwriting profit other than that, for example, automobiles, should improve. Next year will go back to the usual pace or also personal accident. But the loss for fire worsened, and I think that was reflected in the change this time that is other than the cat, it's been zoning -- worsening, maybe JPY 10 billion to JPY 20 billion? And next, well, what's this kind of leakage? Is it going to continue into the next fiscal year?

Thank you for those questions. The first question was about the starting point of next year, and Higuchi will give an explanation on the first question.

Yes. Higuchi speaking. So the starting point or starting line of next fiscal year. As Tsujino-san touched on earlier, the system cutover is delayed, but that's not the case. And the system development, as Mr. Hara explained earlier, it's proceeding according to the initial plan. So there will be progressive cutover. And at the time of the starting line, there's no change in that sense. And therefore, the expense reduction, where is it going to come from? The new system that's introduced, is it going to come from there? Well, in the past, the system that was developed, in order to make it more effective, we're going to do that. And also, other than the efficiency from systems, this time, there's the impact of COVID. For example, we talked about the travel expense and also the office space, more than before, that can be reduced. And also, there are various other efforts that are being made, which will accumulate, and that will lead to quite a big reduction. So for example, printing or logistics cost, real estate cost, all of this, to the extent possible, will be reviewed on a 0 basis. The cost structure will be reviewed, and we will pile up all these savings. And the top line was also mentioned by you. And the top line, true for this year, but also in the beginning of the next year, especially for the non-life, there will be an impact. That was the assumption. But if you look at the premium increase rate, it's slightly positive. And if you keep that in mind, that trend should continue into the next year. And at the starting point, it won't be as negative as this year. I don't think we need to be as negative as this year. As for loss, now the loss from automobiles around April and May, there was a reduction quite a bit, and then it's come back quite a bit now. So that present trend will be assumed in coming up with the forecast for next fiscal year. For fire, this year, this fiscal year, there will be small damages, and that impact was not very big. So we have not estimated that to be a very big number. But there are facilities which are aging, and there's also some large-scale disasters. And so what will happen going forward, well, that's been taken into consideration. However, we do understand that there are issues here, and we have tried to improve on the loss ratio. So the effect of the loss ratio improvement will be taken into consideration in our planning. Does that answer your question?

For full year, this year, plan, there is worsening, excluding cat, and automobiles are included. And if you look at next year, other than cat or for fire, what's worsened is going to have the high level of claims? Is that the view? If that's not related to COVID, so maybe it will stay high. That is what I wanted to ask you.

For fire insurance, it's being high because of COVID. Is it going to continue? We do not necessarily forecast that to be a very high level. So for fire insurance, we believe next fiscal year will be more stable.

And with regards to International Business this time, MS Amlin, against the initial plan, what is the effect -- impact of hardening? In other words, the impact of hardening on Amlin was how much? What is the understanding? If you have such an understanding, I would like to know what that number is.

For Amlin, the effect of hardening, how do we view that? Matsumoto will give you an answer.

Matsumoto speaking. Thank you for the question. Now in MS Amlin, well, depends on the line or the past, but there's North America, June, July, the renewals, 20% or sometimes, it went up to 50%, depending on the policy. In terms of the non-cat risk, it's come up year-over-year. And on a cumulative basis, it's now about 15%. And in the first half of this year, it's averaged 6% rise, and it is higher than what we assumed. And for next fiscal year, for next year, between insurance, what is the risk and what is it -- going to be, property or liability? Depending on that, the rise will be different. So it's difficult to generalize, but we expect that hardening will continue next year. Thank you.

Well, I wanted a monetary amount, if possible.

A percentage for how much for what, we have not disclosed that number. Have we?

A profit or premium, either one?

Well, if we can't give you the number now, we can give it to you perhaps later. Oh, we can give you the number.

The rate increase in terms of profit, the contribution is, in Japanese yen, JPY 5 billion -- corresponding to JPY 5 billion.

From Mizuho Securities, may I invite Mr. Sato for his question?

Mizuho Securities, Sato is my name. Can you hear me?

Yes, we can.

I have 2 questions, both relate to International Business, especially on the previous location when you had IR Day in September. The question -- one of the questions was the underpricing or valuation of the stock. And it was mentioned that the International Business growth is not fully factored in. So I would like to ask about the growth of International Business. The first question relates to the profit volatility. In terms of the underwriting loss, maybe due to natural catastrophe or COVID-19, specific to the current fiscal year, so those were the [ relative ] factors. But in order to contain or restrict those volatility of losses, are you engaged in any specific measures? Earlier, you mentioned your initiatives making to wildfire in North America. So other than that, including some technical aspects, I would like to be enlightened on those. Furthermore, for revising the plan -- profit plan for the International Business, I think there was rather substantial reduction, the downward revision of International Life Insurance Business. And maybe the increase in loss may have been made up for by investment activity to asset management, but those investment activities would be affected by market conditions or market volatility. So somehow, would you be able to restrict those market volatility impacting your profit? If you have any measures in place, please let us know. And second major question relates to the fact that you are now trying to achieve the remuneration of profit rather than substantially trying to increase profit, but top line and volume and also the pricing rate. What are some of the approaches you are trying to implement vis-à-vis Amlin? So those are some of the questions relating to Amlin, the volume and rate rather than seeking a top line.

In terms of measures to contain or restrict volatility of top line, we need to [ answer the ] first question and also the Amlin. In terms of our International Life Insurance Business, I'd like to ask Mr. Higuchi. And then Amlin, Mr. Matsumoto.

Matsumoto is my name. Thank you for your question. First of all, with respect to the underwriting profit volatility of Amlin and efforts to contain a restricted debt relates to the following. First of all, we are now seeing some fruits of those efforts. With respect to non-cat risks, so the risks other than natural catastrophes, well, this year, we were hit by COVID-19. So this is totally unexpected, so that somehow undermined our efforts. But basically, the -- in the non-cat risks, which is less volatile than natural catastrophe, we are trying to generate profit. And steady efforts and benefits are generated by loss ratio reduction therein. In terms of natural disaster, earlier, you talked about the risk analysis of wildfire, and we also described them. But in addition to those concrete activities, in underwriting some natural catastrophe risks, we are reducing the lower layer of those risks and trying to convert them, we try to take higher layers of those risks. So by combining those efforts, we are trying to limit the volatility. In addition to that, with respect to top line of Amlin and the future course of that, efforts are underway for remediating profitability of Amlin, and it is progressing quite smoothly, we believe. And as was mentioned earlier, the hardening of the market is likely to stay for sometime to come. And therefore, in those area where Amlin has particular strength, we intend to take risks proactively. So in this approach, those will be reflected in the figures for next fiscal year and beyond, and they will be implemented now.

Higuchi speaking now. With respect to the Life Insurance Business, including that aspect, the efforts to minimize the impact of a market volatility or market fluctuation was the question. And currently, the areas which is easily affected by market volatility is as follows, and I'm sure you have a good understanding of that. Outside of Japan, the mark-to-market is conducted. And therefore, the market fluctuation directly fits the profitable statement. So those areas in which the mark-to-market accounting standards apply, it's a source of volatility. The impact of a mark-to-market, trying to minimize that, basically speaking, the risk that we take in the investment areas are being ubiquitous, are trying to take [indiscernible] asset management activities. And in addition to that, what is being attempted at Amlin is to combine long and short positions in fixed income investment to minimize the -- those fluctuations so that the overall market volatility will not directly hit the profitable statement. Therefore, by achieving duration managing, by combining long and short positions, the company is trying to generate global profits for investment activities and investment return. So with those investment efforts, we are trying to minimize or lower the direct impact of a market volatility.

Did that respond to your question?

One additional point I would like you to supplement further is the following. Other non-life insurance companies have been successfully increasing pricing more than the -- what the market average, and they seem to be focusing on that in their information meeting. I'm not saying that you are below the market in terms of pricing increase. But trying to achieve a higher rate increase in the market average, are you taking any additional measures, for example, hiring talents from outside the country, for example?

I would like to ask Mr. Matsumoto to respond to that.

In terms of strengthening underwriters, in the Lloyd's company in -- which is the core company of Amlin, we hired Andrew Carrier, the Chief Underwriting Officer, who has a very strong track record in the market. So he has just begun to working for this matter. And we now have a new CEO, Johan Slabbert, who used to be the famous CEO in the famous syndicates. So by hiring those people, including the growth strategy, those 2 gentlemen are leading the way in Amlin. And in terms of rate increase per se, in the case of Amlin, it will continue to do what it has been doing. That is to say, in the Board manner, it has been reexamining and also withdrawing from unprofitable lines. And that may have had a negative impact on top line. It appeared to have a negative impact on top line. Did that answer your question?

Yes.

From Citigroup Security, Niwa-san.

Niwa from Citi. Can you hear me?

Yes, we can.

The strategic shares and global development is what I want to ask you about. And first question is on Page 75. So it is with -- ask that question. First off, with regards to risk amount and in the next medium term, is it going to be reduced, this risk value? And sensitivity, I think, is getting smaller. So peak risk, I think, is being contained. Or is that how I should view it? And asset management, under the low interest rate environment, dividend income is clearly very attractive. So if you could comment on that. And second question, as others have said, with regards to global development, if you look at Page 22, I want to ask a question from 2 aspects. That is the next meeting for management -- right now, the target is 2021, and I think it was about JPY 120 billion. And so what I want to ask you is with regards to Amlin, yes, you've spoken about that. But what about Asian business, the American business? Should we anticipate some acceleration? If you could comment on that. And ROR, Amlin, in a sense, might be the reason overseas -- I don't think there is sufficient results. But you're going to keep expanding? And is it going to be selection and consolidation concentration? What is your criteria in those respects?

Thank you for those questions. About the strategically health sales and reduction and appeal in terms of the asset that is managed, Higuchi will give an answer first.

Yes. Higuchi speaking. About the strategic equity holding, in terms of risk amount, on Page 75, at the bottom right, you see the weight and the risk amount in the group. The target is to be less than 30%. And in this medium-term plan, we have set the target. And right now, at this point in time, it's 28.9%, which is less than 30%, as you see. However, the total risk of the -- the risk of a strategic holding within the total is still there. And so controlling the risk from that perspective, the selling of strategic shares is something that has to be considered continued. And the pace of this going to change in the next medium-term plan, well, what to do in the next medium-term management fund will be discussed in-house. And that being the case, we will make a decision, and we would like to indicate that this isn't to you. It's something that has to be done, we believe. But what to be the speed, the pace, what's to be the priority, in that respect, we are going to have internal discussions. Now as for the appeal as a managed asset, well, selling it. And then if you think about other assets, the return, it's -- well, the environment right now is that it's difficult to get as much return as the dividend from shares. So what is the appeal? Well, that cannot be ignored, yes, but we did talk about the amount of risk. So if you compare the risk and look at return from the amount of risk, it is very important. So controlling the total risk and what kind of asset portfolio to gain return, this has to do with the portfolio structure. And so where we can maximize return against the risk is a matter of how we control the portfolio. And therefore, in that sense, in terms of a managed asset, there is sufficient appeal, but we have to think about the position looking at the entire picture.

Next, about the International Business, other than Amlin, that is. And also in the future, is the overseas business going to accelerate? Or are you going to select and concentrate? Matsumoto-san, please?

Yes. Matsumoto speaking. Thank you for the question. Other than Amlin, in the future, we think that there will be more acceleration, especially in Asia, the economic growth of the region, yes. And also if you take ASEAN, it's a 650 million population, average age, 29, very young. India, it's 1.3 billion, and average age is 25, so it is an extremely young country. So clearly, the middle class is going to grow. And because it's a young country, as we have been saying, they are digitally-savvy or accustomed to digital. So in those regions already, we have sowed the seeds, and there are some fruits from those seeds, Indonesia's biggest e-commerce site, for example, or in Thailand, the -- is the biggest online travel agency selling the overseas travel insurance. And so by region, by country, using digital technology, various schemes are being tried. And I think that will further expand in the future. And in that sense, we will take a spread, for example, to grow with -- and that will have a good impact on ROI. As for the selection and concentration that you mentioned, is it assuming sales of something? It could -- your question could sound like that, but it's not assuming selling something, but rather productivity, profitability, those are the perspectives, especially inclusive of the small-scale sites. How can we be more efficient, how can we be more profitable, we are always studying that. And on that extension, withdrawing from a business might be possible or stopping a business is possible, but that's not the end in itself. Did that answer your question?

In connection with what was mentioned at the end, in the West, among the large companies, there are those that are specialized, and they focus on certain reasons. And I think you are -- looking at your cost of capital, do you have such ideas in your company? In other words, are you taking that into consideration?

Well, in terms of the large direction -- the major direction, corporate value needs to be enhanced, and we are always thinking about the strategy to make that happen. In that sense, our business and -- it could be that we need to concentrate, maybe we need to come up with a strategy of concentration, so that could be a general direction. But right now, it's not like there is something material. But in terms of direction, we try to broaden our perspective and think of various options. So naturally, we will think of -- continue to think about that strategy. Did that answer your question?

Next, moving on from Tokai Tokyo Research Center, Mr. Majima, please?

Majima speaking. I have 2 questions. CSV x DX is something that you talked about in your presentation. In relation to CSV and DX, which department would be the control center for those initiatives? And how many specialists and experts of DX in the department? And in terms of the head of that department, in the specific area of DX, what sort of specialty or expertise that head of that department has? The second question is also very short. On Page 19, you referred to RisTech to reach -- you are expecting to generate JPY 5 billion -- the JPY 5 billion from RisTech. Is that in the form of a premium? Or are you going to receive that in the form of a consultancy fee? These are the questions.

Thank you very much. In terms of CSV x DX, the control center for that is located in the holding company. And our corporate planning department will be the control center for that. And within the holding company, there's a department in charge of digitalization difference, so it will be collaborating with that. And Mr. Funabiki is in charge of the area relating to digitalization. So with respect to that and the expertise there, Mr. Funabiki will give you the answer.

Actually, the department or the unit who will be controlling DX is located in different business companies, the specialist in IT, the data scientists or the individuals who can talk extensively with the digitalization with respect to the partners, the potential partners. So within the entire group, those people directly involved with digitalization could number around 100 people. And not just those who are hired by the company right after college, but the mid-career hire, of those individuals who used to work in other companies, working in digitalization area or data-related areas. So within the diverse context, we are making sure those activities can be conducted. And another aspect of your question was to what extent the head of that department is specialist in DX. I have been working for this company for many years, and I'm a specialist of insurance so I have been engaged in insurance activities. But I think I do have an extensive experience of leading those people who have expertise in DX areas. And also, RisTech-related question, yes, the JPY 5 billion from RisTech, excluding the insurance premium revenue, simply by selling data, the revenue generated by sale of data is JPY 5 billion. So the premium income is counted separately. And during 1 year over last year, we booked about JPY 17 billion, so that JPY 5 billion is separate from that JPY 17 billion from the premium income. Did that answer your question?

Tsujino-san of Mitsubishi UFJ Morgan Stanley?

One question. Next fiscal year, if there's hardening, not just JPY 5 billion, but there could be a higher rate increase effect and, I don't remember the page number, profit increase factors. I think there was a breakdown of that in one of the slides, JPY 24 billion, excluding COVID effect. So hardening is not incorporated into this figure? And I've asked you a number of times before, the strategic holdings, the risk amount has to be compared to economic capital or exclude hybrid capital or exclude EEV of life insurance. I think there are various views. But within your company, there is some target. But as shown in the slide, for the time being, you have set some goals. So over the mid to long term, what is your target?

So that is hardening effect of MS Amlin next year. Matsumoto will answer.

Yes. Matsumoto speaking. Thank you very much. The factor for hardening next year is included. And next year, with regards to increased profit in MS Amlin, it's hardening. And also this fiscal year, there are lines that they withdrew from, and I think that will have an effect next year, from 1 site after 1 cycle. And not just hardening, but there is the improvement and conditions of contracts, and that is also included in next year's forecast. That's all.

It's included in the JPY 4 billion? I see.

With regards to the strategic shares, Higuchi will give the explanation.

With regards to the risk amount of strategic holdings, compared to what in setting the target, I think that's what you're trying to ask. Is that right? Am I understanding you correctly?

Yes. In other words, what is the long-term view? You do have a long-term view.

I see. Yes. Thank you very much. So presently, with regards to the strategic equity holding, what to do about the weight? As you see here, against the risk amount, well, what is the risk amount is what we think about and, within the total asset, the NAV weight and ultimate target. We don't have one at the moment other than this, but one way of thinking is to compare to the at risk -- our net asset. And well, asset management, we have the insurance liability that we use, and we manage the asset investment. In fact, if you compare to net asset, maybe some people will think that's different, that should not be the case. And I think you should compare to total asset. But what you asked about, ultimately, to do what against what, I think that's what you're trying to ask. Right now, we don't have such a metric that we use.

I see. Personally speaking, when something happens, well, that will affect net assets, so I thought you were comparing with net asset, which is why I asked that question. But I understand your answer.

Thank you very much. Since all the questions seem to have been exhausted, so we would like to conclude the Q&A with this. If there are any questions that are not covered in current attention today, we are willing to capture that at the IR department, so please get back to us. And on the Zoom, there are very simple questionnaire survey prepared. And if you could just refer to that on the Zoom, I hope you will just key in before you log out from Zoom so that we would like to use that to help us improve our [indiscernible] going forward. So with this, we would like to conclude information meeting of MS&AD Insurance Group Holdings. We thank you very much for your participation today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]