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

I am Noriyuki Hara, the President and CEO of MS&AD Insurance Group Holdings. I would like to thank you for taking part in our information meeting today. As Tokyo is under its third state of emergency declaration and the situation still requires thorough measures to prevent the spread of infection, today's meeting is also being held remotely. It's really a shame that it's been so difficult to meet in person with investors and analysts over this period. But for the meantime, we are preventing the spread of infections as our first priority. And I look forward to meeting you in person in the near future. It's been around the year since I was appointed Group CEO in June last year. Looking back on that period, fiscal year 2020 was a year in which mankind did battle with COVID-19. Worldwide, the number of people infected has risen to around 160 million, with more than 3 million deaths. Social and economic activities have been severely restricted. And in 2020, the global economy saw negative growth that dipped below the 2008 global financial crisis. The MS&AD Group was also affected. We incurred large insurance payouts due to COVID-19, particularly among our overseas insurance companies, which ended up placing downward pressure on profits in the international business. However, in the midst of this global crisis, we continue to make smooth and appropriate insurance payouts to support the lives and businesses of our customers. Meanwhile, the spread of COVID-19 infections shifted business style reforms into another gear, while also providing the opportunity to achieve significant cost reductions. Fiscal 2020 was also -- was always going to be a difficult year, from the impact of amendments to the civil code regarding obligations in April and the full year effect of the consumption tax hike from October 2019. But as a result of promoting business streamlining, we were able to achieve an expense ratio 1.4 points lower than initially forecast for the domestic non-life insurance business. Looking at the results for fiscal 2020, although there are special factors, including the impact of COVID-19 in the international business and the burden of accumulate policy reserves in the domestic non-life insurance business due to strong performance in voluntary automobile insurance, the domestic life insurance business and the effects of additional cost-cutting measures, we managed to end the year exceeding our forecast for both the group adjusted profit and net income. Fiscal 2021 is the final year of Vision 2021, our midterm management plan. While working to fully achieve the goals and strategies outlined in the plan, we'll also be clarifying our vision in the medium to long term and considering the steps needed to achieve it. Today, I would like to start by talking about where the MS&AD Group wants to be in 2030 and the basic strategic vision for doing so and then describe our progress within the current medium-term management plan. After that, I'd like to address questions you frequently ask and talk about shareholder return in the current fiscal year. Looking at the business environment going forward, with medium to long-term growth in mind, we predict significant changes due to the advance of digital technologies, a shifting balance in the world economy and changes in the global environment. In light of these environmental shifts, the MS&AD Group hopes to solve social issues using technological innovation, including digital solutions, namely achieving sustainable growth through CSV combined with DX approach. We will also maintain our competitive advantage in the domestic non-life insurance business, while capturing growth in the Asian market and strengthening our presence in the global insurance market to enhance corporate value. The MS&AD Group's vision for the year 2030 is to become a corporate group that supports a resilient and sustainable society. Traditionally, insurance has been a business that compensates for economic losses. But we aim to be a company providing risk solutions that as functions to prevent the risks of these losses and facilitates smooth recovery in the event of an accident. Particularly in responding to climate change, which is predicted to become increasingly serious, we hope to take the initiative in contributing to the formation of a sustainable society. The specific indicators we will aim toward for 2030 are as shown here. We will aim to achieve a profit level of JPY 500 billion and an ROE of 12%, as is depicting one of the world's leading insurance and financial groups. We have also revised our medium- to long-term targets for CO2 emissions reductions toward achieving net-zero carbon emissions by 2050. We aim to achieve a 50% reduction in emission compared with 2019 levels by 2030 and reach net-zero emissions across the entire supply chain on a Scope 3 basis by 2050. In addition to cutting CO2 emissions from our own activities, we are looking to contribute to the realization of a decarbonized society together with customers, agents and all stakeholders through the provisions of business solutions, such as insurance products and consulting services. In terms of diversity and inclusion, D&I, indicators, we have already set the target of having our Board of Directors comprise at least 30% female officers by 2025. But in addition to this, we will also aim to have female officers account for at least 30% of executive officers at our holding company by 2030 and to have female employees take up at least 30% of managerial positions and 15% of line manager positions group wide. To achieve these targets, we will maintain a pipeline for the appointment of female officers and continue to diversify the decision-making layers across the organization. Next, I'd like to describe our growth vision to achieve our target profit level in 2030. To start with, we will address the challenges to our existing businesses, such as improving the profitability of fire insurance and reducing the expense ratio in order to steadily strengthen and improve our earnings rate. After that, using CSV x DX by global as a base, We will work with a sense of speed as a unified group, expand our overseas operating base, and invest in new overseas businesses to generate revenue in the areas accelerated coverage, and to create new businesses and make them profitable. Among these endeavors, the entire group will make strong efforts to generate revenue and create new businesses through CSV x DX in the areas ancillary to coverage and aim to generate JPY 10 billion in profits in these 3 areas by 2030. We will largely implement 2 patterns to generate revenue in the areas ancillary to coverage. Firstly, we will incorporate additional services into insurance contracts in the form of riders to our dedicated products. As an example, this is already in practice in Mimamoru automobile insurance with product -- we provide safe driving assistance alert and automatic emergency notification services in the event of an accident. And an accident response service through dash cams loaned to customers, we generate profit by receiving rider insurance premium for these services. The second pattern is to conclude separate service usage contracts with customers to provide paid services integrated with insurance. A specific example of this is Mimamoru Cyber Insurance, which went on sale on a trial basis from April. With this product, our group companies InterRisk Research & Consulting entered into a service usage contract to provide support to prevent incidents and ensure fast recovery for usage fee of JPY 12,000 per license. New businesses created through CSV x DX includes data business and consulting business that provides critical solutions. In terms of data business, we already have a telematics data business in the U.S. Additionally, in April, we established MOTER Technologies to provide insurance software. MOTER is a type of insurance software installed in vehicles to perform risk analysis and calculate insurance premiums in real time. A platform for exchanging data between automobiles and insurance companies can be built, and the data obtained can be utilized to provide various solutions. We are also working on a consulting business based on RisTech, which provides risk solutions by using AI to analyze data held by MS&AD, customer data and external data. We plan to roll out this business across a wide range of fields, such as smart mobility, smart cities, social infrastructure maintenance and climate change risks. We will also strengthen business portfolio management to improve capital efficiency and achieve profit growth. To raise capital efficiency, we will diversify risks from a profit structure that is biased towards the domestic non-life insurance business and automobile insurance in particular and aim to achieve a well-balanced business portfolio. Moreover, in light of capital efficiency, growth potential and profit volatility, we will clarify the issues faced by each business and replace businesses needed, taking into account progress on improvement effects and their strategic significance. Next, I'd like to talk about the progress of Vision 2021, our medium-term management plan. We ended fiscal year 2020 with group adjusted profit of JPY 214.6 billion and group adjusted ROE of 6.7%, more or less in line with our forecasts. Our FY 2021 full year forecast for group adjusted profit is expected to be JPY 300 billion, which is the same as our medium-term management plan targets. However, in response to rising share prices at the end of March, our forecast for group adjusted ROE is 8.5%, 1.5 points below the target. Group adjusted profit in fiscal year 2020 is on a steady upward trend, excluding temporary factors, raising profit accompanying the restructuring -- the reorganization of the international business in the previous year. Additionally, excluding the effect of incurred losses due to COVID-19, group adjusted profit was JPY 274.1 billion. And we are making steady progress towards achieving the target of JPY 300 billion in fiscal year 2021. Incurred losses directly attributable to COVID-19 increased by JPY 17.8 billion to JPY 65.8 billion in response to the U.K. Supreme Court ruling on business interruption insurance and other factors. On the other hand, the negative impact, JPY 28 billion, on asset investment incorporated into the earnings forecast did not materialize in large part due to the recovery of financial markets and other factors. Next, I'd like to talk about the status of individual businesses. Firstly, the domestic non-life business maintained its industry-leading premium growth rate in fiscal year 2020, further cementing its #1 position in the market. Excluding fiscal year 2018, with significant losses, the combined ratio has been stable at the 95% level and the bottom line is steadily increasing. In the domestic life insurance business, gross premium income declined approximately 7% in fiscal year 2020 due to the impact of COVID-19. The decline was especially pronounced in the first quarter, but more recently, has returned to normal levels. Group adjusted profit for domestic life has gradually increased steadily from the JPY 5 billion level at the time of the group's inception in 2010 to the JPY 40 billion level and has become one of the drivers of the group's profit growth. Next is the situation of the international business. Although the top line declined in 2020 due to the business portfolio improvement initiatives at MS Amlin, excluding those effects, we have seen steady growth over the years, from an initial JPY 260 billion in 2010 to a scale of JPY 900 billion. In fiscal year 2021, we expect to achieve adjusted profit of JPY 80 billion with the elimination of the COVID-19 impact, the effects of business investment in international life insurance business and the capturing of market hardening. Next, I'd like to report on the progress of the 3 key strategies outlined in our medium-term management plan. In Vision 2021, we committed to pursue the group's comprehensive strength, promote digitalization, and reform portfolio and 3 key strategies to create resilient systems that will achieve sustainable growth in the future. On pursuing the group's comprehensive strength, we have made efforts to achieve growth through group-wide coordination and improve productivity by way of collaboration and standardization. As a result, we managed to achieve an industry-leading growth rate in Japan for direct premiums written for 3 years running. We have made progress on additional cost reductions announced last year ahead of plan. And for fiscal year 2020, we achieved cost reductions of JPY 34 billion, exceeding the initial plan by JPY 14.5 billion. In fiscal year 2021, we expect to achieve cost reductions of JPY 49 billion, JPY 19 billion higher than the initial plan. We will further accelerate these efforts in the next medium-term management plan and reduce costs by JPY 80 billion in fiscal year 2023 and JPY 100 billion in fiscal year 2025. Now let's move on to the status of digitalization promotion initiatives. In the previous meeting, I spoke about our plans to pursue 3 reforms positioning CSV x DX as a pillar over medium- to long-term growth strategy, combining the power of digital technologies with the CSV approach that has taken fruit during the current medium-term management plan. These efforts have steadily advanced over the past year. For example, the terms of insurance products providing risk solutions and salary to coverage in addition to Mimamoru Automobile Insurance, we have expanded our product lineup to include health and productivity management support insurance and Mimamoru Cyber Insurance. In the area of new businesses, the [seas] of new business models have been spreading one after another, including the establishment of an insurance software company derived from the existing U.S.-based telematics data business. On diversifying our business portfolio, we have set the target of generating 50% of profits from operations other than the domestic non-life insurance business. And in fiscal 2021, we expect to achieve a roughly even split between the domestic non-life insurance business and our other businesses. Risk portfolio diversification, due to the recent higher share prices, it's become difficult to achieve our targets of less than 30% of risk and less than 10% of consolidated total assets. However, at the end of holding fiscal 2020, we did manage to achieve our target sale of strategic equity holdings of JPY 500 billion over a 5-year period from fiscal 2017 to 2021. In fiscal 2021, we will continue to produce sales to the value of around JPY 100 billion and continue with efforts to achieve the diversification of our risk portfolio. Next, I'd like to go over the status of our CSV initiatives. The MS&AD Group has selected 7 priority issues from the perspectives of impact on the long-term growth of the group and degree of contribution to a sustainable society. Awareness of CSV initiatives among employees was high from when the current medium-term management plan started in 2018. And it has further taken root since, with 92.9% employees saying they felt their own work was connected to CSV in fiscal 2020. As a result, we have accelerated the development and provision of products and services connected to CSV. For example, as products and services for customers to address new risks, we were among the first to offer a comprehensive telecommuting compensation plan that takes the COVID-19 environment into account and develop a compensation plan for GIGA school program sales business in response to the government's GIGA school program. These efforts have enabled customers to take on new businesses, with this in mind, and at the same time, led to profit growth in the MS&AD Group. Please refer later to Pages 71 and 72 where we can find more information about the status of the other priority issues. At this stage, I would like to briefly address the questions we often field from you. The first relates to the reduction of operating expenses in the domestic non-life insurance business. At the beginning of fiscal 2020, we expected a 2-point increase in the expense ratio due to the consumption tax hike, the CALI rate revision and depreciation expenses from large scale systems investments. However, by bringing forward additional cost reductions, we managed to reduce the expense ratio by 1.4 points compared with the planned level. In fiscal 2021, we will continue to implement cost reductions ahead of schedule and expect to be able to lower the expense ratio by 0.9 points compared with the levels set at the beginning of the previous fiscal year. Of JPY 100 billion in additional cost reductions made, the reductions from the domestic non-life insurance business are shown in the graph on the left. We will continue to pursue business style reforms from revisions, the business process, utilizing digital technology, business operations oriented towards no physical contact with customers, the firm establishment of remote work practices and hot desking offices. Next, I'd like to talk about our efforts to improve the profitability of fire insurance. In recent years, incurred losses due to natural disasters have continued to surpass the initial expectations. On top of that, in 2020, there was an uptick in damages associated with change in lifestyles due to COVID-19, and many large-scale losses have arisen. Insurance underwriting profit before catastrophe loss reserve for fiscal 2020 posted a deficit that exceeded that of fiscal 2019. In response to the situation, we are pushing ahead with the strong efforts to improve losses, including activities to recommend measures to prevent and mitigate fires using digital technology, reviewing the underwriting conditions of high-risk policies and introducing rate system temp to instant rates for condominium management associations. We will also continue to examine product -- rate revisions, while taking into account the actions by General Insurance Rating Organization of Japan and how to bring the fire insurance back into profitability at the earliest possible juncture during the next medium-term management plan. Let me talk about the profit in the international business. The medium- and long-term growth driver in the international business going forward will be profit growth at MS Amlin, capturing growth potential in Asia for both non-life and life insurance, in organic growth, particularly in the United States, and creation of new businesses. Additionally, supporting that growth will be the demonstration of the group synergy and CSV x DX global strategy. Looking first at MS Amlin. As a result of ongoing efforts to exit from unprofitable lines and tightened underwriting discipline since fiscal 2017, in fiscal 2020, we achieved a combined ratio of 98%, excluding the impact of the COVID-19. For this reason, we can expect an expansion in underwriting profit associated with top line growth. Moving forward, we will take advantage of the hardening of market steadily while gradually promoting the growth strategy of the new CEO of Amlin's Lloyd's Syndicate AUL shifting from the profit recovery phase to the expansion phase. Another growth driver is Asia. We expect Asian insurance markets to show high growth up to 2030. Going forward, we will capture the growth of these markets and continue to drive growth in the group's international business. The international life insurance business mainly expanding in Asia has finally completed its investment in China's BoComm Life Insurance. In addition to this, in fiscal 2021, we also expect to see the effects of ReAssure and Phoenix stock swaps and profit recovery for Challenger after FY 2020. The Asian Life Insurance business as a market is expected to grow due to Asia's growing middle-class population. And we will continue to capture market growth while making business investments. Due to the reorganization of the international business in January last year, organizational strength and improvement in business client streamlining have steadily produced results. In the future, we will leverage this new structure to pursue growth synergy and further growth on a global scale. We are promoting efforts aimed at group synergy across the range of fields, including the utilization of the group's networks, collaboration in terms of underwriting and sales expertise and enhancement of asset management. We have also produced synergistic efforts in various areas with global insurance companies through mutually complementary relationships. Going forward, we will continue to expand synergy efforts across a wide range of fields to achieve global business streamlining and growth. Moving on, I'd like to talk about global governance. In light of the reorganization of the international business, we have been working to strengthen management globally by function. Specifically, we have established meeting bodies organized by dedicated departments and head office to build a structure where global personnel engage in the discussion and monitoring in specialized areas, such as accounting, compliance, IT and internal auditing, for highly effective group governance. Next, I would like to discuss our business investment policies. Growth investments made by the MS&AD Group can be broadly classified into 3 categories: investments to enhance the competitiveness of existing business, such as investments in systems; investments to diversify and expand our business portfolio such as overseas M&A; and investments to create new fields of business, such as investments in start-ups. Of these, we've seen many questions regarding our investment policy for expansion. First, we set up the investment targets consistent with our group-wide international business strategy. After that, we consider from the prospectus of shared values, sustainable growth models and risk diversification. At the same time, considering a hurdle rates that based on 7% cost of capital, policy is to verify whether sufficient effects from the investment can be gained and whether such investments will enhance synergy. In terms of the major areas we target, we have prioritized specialty MGA and InsurTech in the United States and the retail insurance business in Asia. In addition, in April of this year, we established a dedicated team for business investment promotion within the holding company to strengthen the support functions for reviewing group M&A actions. The team with extensive experience and business investments will strengthen the selection and analysis of candidates for acquisition, due diligence when considering deals, and monitoring of the overall market and trends in insurance company stock prices. Next, I'd like to talk about our efforts to reduce the interest rate risks in the life insurance business. In the MS&AD Group, there has existed a large interest rate risk due to the considerable gap in interest rate sensitivity between MSA Life Insurance liabilities and assets held, but we are strongly promoting efforts to narrow the gap. We have significantly increased investments in ultra-long-term bonds, and at the end of FY 2020, had increased our hedge ratio to around 80%, up 20 points compared with the preceding fiscal year. We continue to promote these efforts in FY 2021 and onwards to raise the hedge ratio to 90% or higher. Next, I'd like to speak about our response to climate change. We have revised our CO2 reduction targets to achieve carbon neutrality by 2050. The new targets not only aim to cut emissions generated by the MS&AD Group itself, but also to achieve net-zero emissions across the entire supply chain to include Scope 3 emissions by 2050. We will continue to work with stakeholders to help realize a decarbonized society. Regarding disclosures, consistent with the TCFD recommendations, we are currently conducting scenario analysis to make the disclosures coincide with the release of our integrated report for the current fiscal year. Lastly, I would like to talk about shareholder return. In terms of shareholder return, for the fiscal year 2020 financial results, we plan an annual dividend of JPY 155 per share, a JPY 5 increase. To coincide with this, we have decided to repurchase up to JPY 15 billion of the company's shares in order to improve the stock price situation and capital efficiency. Regarding dividends for fiscal 2021, we are forecasting a further JPY 5 dividend increase for an annual dividend of JPY 160 per share. Total shareholder return per share derived by calculating the shareholder return for fiscal year 2020. Based on the share price as of March 31, 2021, was 6.7%, with a dividend yield of 4.8%. The world is currently making major strides toward achieving carbon neutrality by the year 2050. Against this backdrop, there are calls for action, not only in terms of governmental policy, but from the capital markets, and the efforts of private sector companies also have a significant role to play. However, when we look ahead to achieving a sustainable society in 2030 and 2050, these are not the only issues we need to address. There are several issues that will change the future of the world, if not addressed now, including preservation of natural capital, respect for human rights and food issues. Insurance companies such as ourselves have no small part to play in the creation of a resilient and sustainable society by 2030. By engaging in CSV x DX x Global, we hope to realize better future and enhance corporate value sustainably. Going forward, we will continue to make every effort to fulfill the expectations of our investors and various other stakeholders. And we appreciate your continued unchanging support. Thank you very much.

My name is Watanabe of Daiwa Securities. I have two questions. Question #1 relates to Page 84, the expected total return. And for fiscal '21, you're -- once you attain JPY 300 billion in the target adjusted gross profit, can we expect the 50% return of the total aggregate amount? Please share with us your thinking. The second question relates to Page 82, the reform of the business portfolio. Could you share with you -- with us the candidates for in -- so if you can share with us the information on the candidate for incorporation?

Thank you for your question. Let me answer your question regarding the return on shareholders. We are working for the JPY 300 billion in adjusted gross profit. And in terms of the return policy, as we have been explained to you, about -- between 40% and 60% of the adjusted profit is the range that we aim at or trying to pay to the shareholders. And of course, that 60% is within that range. So please understand as such. And moving on to your second question, that is to say our thinking on the business portfolio. I'd like to ask Mr. Higuchi to respond to that question.

Thank you very much. My name is Higuchi, CFO. Thank you very much for your question. In terms of the rebalancing and reform of the portfolio, in the next medium-term plan, we would like to implement some of the measures to reform the portfolio, restructure the portfolio. For each business area, we will try to generate profit, exceeding cost of capital. And whether we have been able to achieve corporate value from -- focusing on those perspectives, we will consider strategic importance and also the growth potential for the future. And from those perspectives, we make a comprehensive examination. And we will decide on in and out, so to speak. Currently, various businesses are deployed, and we are expanding those. And for each of those businesses, we will conduct evaluation and assessment from many different perspectives and come up with the list of candidates for in and out. And just because the business is underperforming, that doesn't mean it's going to be depended for exit. We will implement various measures to increase the corporate value of those businesses and the potential for expanding those. So that's the perspective on it. We will consider the change of the business portfolio. Did we answer your question?

Now we would like to go on, SMBC Nikko, Muraki-sa.

I have two questions to ask. About the domestic non-life is the first question. And on Page 32, the combined ratio is indicated. And the medium-term management plan period is probably different from other companies, but still, for 2023, 92% combined ratio is the target. I think you've probably seen that. And frankly speaking, what do you think of that level? And the head of -- compared to the head office plan, is -- do you think it's high or low? And also, for your side, for your efforts, the combined ratio over this period of time, what are you emphasizing to bring it to your desired levels? And the second question is the international M&A, overseas M&A, that is on Page 79. You have an explanation of the target. And I think you spoke about this half a year ago. So I think that it's pretty much the same. But In the interview article in April, the management talked about fund for overseas management, which is JPY 500 billion for North America. So have you made a change to this fund approach? If you could share your views. And also, on Page 80, Amlin, compared to the time of the acquisition in the group, the M&A structure, how has it been reinforced? Is what I would like to know.

Thank you for the questions. That is -- first, about the domestic non-life insurance business compared to other groups, 92% number, what is our view? And also, towards the combined ratio that we're aiming for, what is it that we emphasize is, I think, what you're asking. And I would like to ask Mr. Higuchi, CFO, to answer.

Yes, Muraki-san. Thank you for the question. I would like to give the answer. And so other groups are talking about 2023. So it's a bit difficult to explain, but 92% and less than 92% level is shown. And the impression is that it is quite proactive or. aggressive. That's the impression. And probably in Japan, the Japanese insurance market, well, auto insurance, if we think about the accidents, up until about 2023 or even a little longer, the rate trend is to come down. So if we think about that, the good auto combined ratio right now should be maintained. So it would be a challenging target to aim for. And to lower the combined ratio, what is it that we are going to do on our side? Well, As Mr. Hara explained earlier, in Japan non-life insurance business, we are trying to lower the expense ratio and we are proactively reducing it. And in terms of the materials, [ 28 ] that is. So for up to 2023, JPY 62 billion reduction of expenses. And so we are going to engage in the activities, and the combined ratio as a whole will be lower. So that's all for my explanation.

If I may add one point. Higher insurance, we need to improve the profitability. And as so -- it's as we have explained. And last year for the fire insurance, we had large scale losses. And there has been lifestyle changes, more telecommuting, work from home. So that, you drop things, you break things. These are smaller losses. And because of that, the loss ratio went up. And so -- well, I'm wondering on the reference rate provision. But keeping that in mind, the rate hikes, we believe, will be required. And also, we need to -- from various perspectives improve profitability. For where there is a loss, we need to review rates and conditions. And so where there isn't a loss, well, the reinsurance rates are also going up now, so perhaps we also need to raise on that side, too. So the operating expense ratio and the loss ratio, we are proceeding from both aspects right now. Also, second question has to do with overseas M&A. And there was a report in April. And fund -- we're not going to make a fund. And we confirm with the individual. And in pursuing growth going forward, you want to raise the profitability that is on the level of JPY 10 billion. And so JPY 500 billion was the investment that I mentioned and you -- that led to that article. So along with the group's strategy, there will be the allocations made, and that has not basically changed. So I'd like you to understand that basic aspect. And the other question had to do with Amlin and how the M&A structure has changed. And with regards to the holding company as a whole, the CFO can reply. And for the individual company, international business, Kawate can answer.

So for the holding company systems, that is group as a whole structure, in April this year, for the group as a whole, with regards to business investment, we had -- we set up an organization to look at this. And in this organization, well, our group, we have been implementing various kinds of business investment projects. And we have highly experienced employees who have been gathered in this organization, and that is to reinforce the deals as a whole. And there are long list and short lists that are managed. And also, the business company is there. We're going to collaborate with those sections, with the operating companies too. And also, with regards to due diligence, those with past experience will provide good support so that the quality of due diligence can also be enhanced. And right now, we are -- we have only internal people, but we can also consider reinforcing the structure by hiring outside staff, too.

In terms of international business, this is Kawate. In MS, I would like to add some comments. So in MS too, MSI, we have Amlin, First Capital and M&A lessons learned. In other words, we have experience and know-how being accumulated. So leveraging on that, in-house, the -- we are going to have active discussions, and corporate planning will be taking the lead. And there can be an exchange of views and information sharing among the relative divisions. And in the information meeting last time, Johan Slabbert Amlin -- from Amlin made an explanation. And with regards to MDA, Johan, based on past experience, could advice. So we are reinforcing both internally and externally. Thank you.

Tetsuji explained earlier, that is, based on our international business strategy, what is it that we should target? That candidates have to be searched, and we could have long list and then shortlisting and approach in that way. That is how we are going forward. And we want to capitalize on our past experience to have disciplined M&A. And so we hope to have your understanding on that point. Did that answer your question?

Mitsubishi UFJ Morgan Stanley Securities, Ms. Tsujino, please.

I have 2 major questions, both international and domestic. With respect to international business, first, with respect to Amlin, there are things that you have not yet achieved probably. And therefore, you will continue to work on profit remediation without relying on external factors, that is to say rate increase among others. So is there any room to improve profitability of Amlin further without relying on the external factors? How much room do you have? And in relation to First Capital, in this case, since the acquisition of this company, you have been ceding reinsurance to that company. I think that was the arrangement you had. And even after the acquisition to Fairfax, you continued to cede reinsurance. I think that was how you were working on. Considering your own capacity, by increasing your retention, you will be able to increase your own profit, in my view. So going forward, is this arrangement going to be changed going on? Is that in prospect? So those are the questions in relation to international business. In terms of domestic business, last year, in the fire insurance, the nonnatural catastrophe claims increased in retail sector, because of the increase in work from home, and you mentioned that in your presentation as well. Looking at your own plan, it seems that those are going to be improved in the near future. So what is the actual situation there? And it's been a year since the introduction of those measures. What are the sort of claims that increased? I'm sure you have reviewed that. And what is the current situation regarding those risks or claims relating to the work from home? Those are the questions.

Thank you very much. With respect to international business, specifically about Amlin, without relying on rate increase, to what extent can we actually improve and remediate the profit? And with respect to First Capital, and reference has been made to Fairfax, and we have been ceding reinsurance to Fairfax. By increasing retention instead of ceding reinsurance to Fairfax, probably we can increase profitability. So I'd like to ask Mr. Kawate to respond to those questions.

Thank you for your question. With respect of Amlin, first of all, other than rate increase, what can we do to improve its profit? Actually, since last year, the Lloyd's syndicate of Amlin, which is called AUL, and the reinsurance company located in Zurich, in both of these companies, we recruited a new CEO. And we reexamined re -- existing portfolio -- conducted reunderwriting. That is to say reexamining the existing portfolio. Once again, we have been increasing the quality of portfolio with a higher profitability. So those are the initiatives currently being implemented. So with those, the profitability of existing portfolio will be enhanced. And furthermore, the underwriting governance will have more tighter disciplines so to speak. So those are the actual initiatives underway. Especially in relation to natural disasters, including medium sized ones, the profit volatility has been too large. So those are the issues that we have been working on. So we reduced the lower layer underwriting and moving on to the higher layer. And at the same time, Amlin's own reinsurance scheme was modified and changed to minimize the profit volatility. So those are the initiatives that were implemented on the existing portfolio. So through those measures, we have been enhancing profitability of existing portfolio. In addition to that, we reduced underwriting activities of the door. And in order to actually achieve growth, we need to grow the top line further. So as we grow the top line going forward, both loss ratio and expense ratio will be reduced, both of which will be improving bottom line. So that's what we're expecting. About the second question, which was related to Fairfax. To start with this, First Capital, not just the Fairfax, but it's been reducing or minimizing the retention. And by receding reinsurance, it have -- the company has been minimizing the volatility of the profit. And since the portfolio written did have a high quality, and therefore, the reinsurer have received profit as well. And those reinsurer have paid a profit commission to First Capital. So when the performance was good, the profit commission was paid to First Capital. And as a result of that, the ceding of reinsurance contributed to the enhancement of profit of the company. So as far as this area is concerned, of course, increasing retention will deserve further consideration. But in the past, we have been consolidating and also improving profit by receiving the reinsurance commission. So that's the direction in which we have been considering this case.

Moving on to the fire insurance in domestic sector, Mr. Ohkawabata will respond to that question.

Thank you. My name is Ohkawabata. Thank you very much for your question. With respect to fire insurance and current situation of profitability as well as the situation relating to fire insurance were the content of your question. First of all, the characteristics for fiscal 2020 was, as you already know, the natural catastrophe was fewer compared with fiscal 2019, so a substantial reduction there achieved. However, as has been mentioned, the commercial policies did have substantial large losses. And at the same time, for retail sector, in the household sector, there has been increase in claims and losses. So we have captured those situations. In that context, the outlook of profitability for fiscal 2021, for the commercial sector, the policies, I think the large losses will be mitigated to a certain extent. And at the same time, for the household residential area, the claims relating to breakage or droppage are -- we likely to see the tendency of reduction. I think we expect to see some claims in this area continuing. And furthermore, we have been making efforts addressing the improvement of profitability relating to condominium management association. And in this area, because of the outdated or large vintage of condominium among others, the loss ratio remains high. So including the segmentation of risks, we would like to achieve improvement in this area to stabilize the fire insurance overall. So those are the measures we have in mind. At any rate, we will improve large policies. And also, we will give advice for preventing recurrence. And for household sector, we will try to charge the appropriate rate as well as further integrating risk categories or risk segmentation to improve the profitability. So those efforts will be continued.

Did we answer your question?

With respect to Amlin, as a result of those efforts of -- as of this current situation for fiscal '21, can we expect a further improvement for fiscal '22?

We do expect a further improvement achieved in fiscal 2022, because compared with the time of the acquisition, it still is less than satisfactory. So you are quite right. We'll continue to make our efforts to further improve the profitability of Amlin moving towards 2022 and beyond.

Otsuka-san of JPMorgan.

Otsuka from JPMorgan Securities. I would like to ask one big question. What -- the materials you used today, the Page 6, where it says, that is JPY 500 billion and in '30. So well, the future is so uncertain, but you're saying JPY 500 billion in 10 years. So why at this timing did you dare to disclose this? And the global tiers at the left is JPY 1 trillion or JPY 500 billion in profit. So in terms of comparison of the size, you came up with this number. Is that the right understanding? Or in the materials this time, bottom right where it says Page 81, that is in terms of the image for the future, this future image, it's emitting at one decade in the future? Or are you thinking about more like 5 years? So if you could also talk about that. If it's 10 years later, then autonomous driving should be increasing or you yourself might have some transformational acquisitions or maybe the insurance industry might be disrupted. So those scenarios are also possible. So keeping that in mind, this JPY 500 billion, could you explain that number?

Yes. Thank you for the question. JPY 500 billion in 10 years' time, and what is the meaning of this number? And also, on Page 81, the portfolio. What time horizon are we thinking about for this page? And Higuchi-san would like to answer.

Yes. Higuchi speaking, and thank you for the question. So the aspiration for 2030, 10 years into the future, from next fiscal year, the next medium-term management plan will start. And in the next plan, it will be 4 years. And in thinking about that, in the next medium-term plan, what should we do? In order to think about this strategically, we need to take a rather broader time span, a longer time span. That is why we thought about the aspiration in 10 years' time, where we wanted to head. And we thought it's important to take that kind of a view. And to get there, there are various strategies that are possible. And also, the final year of the next medium-term plan could be one point in between. So we thought about that and indicated this 10-year ahead aspiration. Now as for the right side figure, Page 81, what is the timing here? With regards to that, around 2030 is our image here. And we conducted various simulations and we added up various numbers and came up with this chart. Of course, there will be all kinds of environmental changes. And as you say, there could be something disruptive. Maybe some competitor appears on the scene making things disrupted. But this is the best estimate that we could assume right now. And you could say we also came up with strategies based on that and came up with our aspiration. That's all for my explanation.

Did that answer your question? 2030, that is SDGs have the final goal in 2030. And our CSV too. That's the access of our strategy, so that in -- by 2030, we want to be a corporate group that support the resilient and sustainable society. So what should be the quantitative process to make that happen? So if you could view it in that way. Did that answer your question?

If I may ask another additional simple question. In 2030, when you have an eye towards 2030, the environment might change quite dramatically. And your company has to be resilient, objectively speaking. So from your view, Mr. Hara, or from the view of the CFO, what is the resilience that you feel exists?

It's kind of an abstract answer. Of course, there's financial soundness. And a sustainable society is what we aim for and also with climate change. I think this is the consensus in the world right now. It's becoming the consensus in the world right now. And as we spoke about in the business presentation today, with regards to CSV, it has become quite pervasive in our company. That is more than 90% of our employees feel their job is linked to CSV. And I think this is a wonderful result. And along with that, we are going to multiply that with DX. And as we explained today, not just automobiles, but there's also the health management, and we are coming up with various new ideas. And also, there was a sustainability price last year. And a certain salesperson talked about a sensor on a dairy cow, so that you predict the behavior of the cow. And you look at it over the period of 24 hours. So that, that person can be relieved from excessive labor. And we could add on the medical insurance and so forth. So I think this is becoming more disseminated. And it can also be rolled out globally. And I think that is what we have as an aspiration, to grow and get profit and increase capital, to become a resilient company. That is our thinking. And I hope that you can understand it in that way.

Now moving on to the next question, Mr. Niwa from Citigroup Securities.

I have 2 questions. Question number one relates to data business and second one relates to the cost of capital. And I would like to keep the next medium-term plan in mind. And first of all, with respect to data business, and I'm looking at Page 45. I think you're talking about the potential profit generated by data business. And have you already reached that phase? Or on Page 19, which shows the summarize -- the summary, could you elaborate on that? And compared with the other companies, in the software business, some companies do generate several hundreds of billions of yen or scores of billions yen. And also, in the insurance sector, I mean there are various types of software that could be used in insurance business. And therefore, how should we understand your own strategy here, including your own assessment of your business? I would like to appreciate your answer. The second one relates to the cost of capital. And in the life insurance business, it is very difficult to control the volatility of capital. And they have been trying to minimize or stabilize the volatility of capital. And I'd like you to share with us the initiatives that you are implementing with respect to the life insurance business, both in Japan and outside of Japan. But those activities is -- what sort of impact would be? Or would it be reflected in the overall growth bulletin of cost of capital controlling that? Not just setting those securities, but are you going to use derivatives for natural catastrophes? I think you can use cat bond among others, and therefore, different technology can be used. So how are you going to control the cost of capital? Do you have any specific ideas or philosophy that you can share with us in this area?

With respect to the data business, your question, Ippongi will respond to the question.

Thank you very much. My name is Ippongi, and thank you very much for your question. First of all, with respect to the data business, earlier, you referred to Page 9. And in relation to that particular page, that's covering the area both before and after the coverage and protection, we referred to risk. That is to say using data, and we are trying to offer solutions to customers. And we work with the customers to use data to find solutions to that. We work with those customers quite frequently. And those initiatives began back in 2018. And on the cumulative terms, we have worked with 260 companies on cumulative terms. And in terms of profit increase led to the increase of JPY 17.5 billion. And in addition to those insurance profit, we've been able to avoid a reduction in profit or we have been able to recover the claims pain. And also, we do have embedded in financial services maybe the right word to explain this. In each of these operating companies, we refer to that as build and connect or digital-based soliciting foundation, the customers or policyholders. For example, the company's operating in e-commerce, we embed insurance products to the platform that they have, and we create such solicit foundation so that the insurance products can be embedded in the e-commerce platform. Thus far, as far as those initiative are concerned, to date, we are offering those products. But going forward, how can we create or do that as a business? And to monetize in those as a business to a certain extent, it must be made in the general product form. So we are promoting our efforts to generalize those products, creating general purpose products, embedded those -- embedding those insurance products to the platform. Furthermore, in terms of the software business, which was mentioned in your question, in this area as well, including sensors, the software, including software already, including areas outside of Japan, we do have concrete examples of doing business. And here again, in the future, in the form of software, we would like to translate those software-related initiatives into profit-making business. So those are what we are working on. And this completes my response.

Next, Mr. Higuchi will respond to other aspects of your question.

Thank you. My name is Higuchi. And let me explain our situation relating to the cost of capital. To reduce cost of capital will lead to increase in the stock price or valuation of the company. And therefore, that I think is a very important perspective and viewpoint that we need to keep in mind. Basically speaking, in order to reduce the cost of capital, we need to stabilize or minimize, control the volatility of business itself. And the typical example can be found on Page 55, that refers to MSA Life and the initiatives underway in the company to minimize or reduce the interest rate risk. And within our group, the sensitivity vis-a-vis interest rate risk is quite significant in this company. And therefore, at the MSA Life, it is trying to match the sensitivity to interest rates in both assets and liabilities. And by doing so, the company is trying to control the volatility of overall business. And at the same time, in the similar manner, in the non-life insurance business area, relative terms, we have been purchasing rather substantial reinsurance schemes. And vis-a-vis large-scale natural disasters, we have been trying to minimize the profit volatility. And from a different perspective, with respect to strategically held equities, that was one important factor accounting for a large weight or percentage of overall risk. And by selling those strategically held equities, we are trying to control the risk exposure. So by combining those various initiatives, we have been trying to control the business volatility to reduce the cost of capital as much as possible. And I think it's very important to continue those efforts. That's all. Thank you.

Did we answer your question?

If I may, I would like to ask additional question relating to data business or data itself. You talked about the embedded financial services. In the Japanese nonlife insurance market, could it become a game changer in that market? Or rather than reaching that level, will it be kept in the area of e-commerce among others? Could you also talk about the general tendency in the society you mentioned to the data business?

At least as of this stage, it's not likely to be a game changer among others. That is to say the product is embedded or integrated. And so by having such structure and considering the convenience enjoyed by customers, we are going to sell. And we are already selling those products integrated with those new assets. So this alone may not be the game changer. That's how we think about this business.

Going on. Nomura Securities, Takuma-san (sic) [ Sakamaki ].

Sakamaki from Nomura Securities. I think our time is getting shorter. But with regards to the strategic held shares on Page 20, there was a 1-year acceleration. The growth at the bottom right is related to the market. And against the target of 30%, you have not been able to attain that, and your performance seems to be flat. So the sales, how good? If it's other industries, they may be raising the percentage. Or with the more governance, there's a review of strategically held shares, I think. But your target, that is annual sales or the target within the risk quantity to raise the percentage aggressively, are you thinking about that? If you could answer that.

Thank you very much. So Higuchi will answer the strategically held shares.

Yes. Thank you for the explanation. It's as you say, with regards to the strategically held shares, the graph on Page 20. And fiscal '19, yes, there was the market situation -- the market factors. We attained the value, and then we went back. And so keeping that in mind, the risk of -- well, we have to think about the risk of strategically held shares. Now in selling those shares, on the same page, as we explained, for 5 years, the target of JPY 500 billion was attained in 4 years. And this fiscal year, in addition to that, JPY 100 billion of sales will be promoted. That is our plan. And in other industries, with regards to the strategic holdings, to eliminate all of that, sell all those strategic shares. For us, with regards to those strategic shares, with regard to what to do, in the next medium-term management plan, we are going to deepen the discussions and see what should be our position. So we're going to study further and make the decision. But in the world right now, there are the proxy advisers and also more -- people more attuned to the governance. And so we have to be aware of the times and decide our policy.

Did that answer your question?

Yes.

Next from Mizuho Securities, I would like to invite Mr. Sato from Mizuho Securities.

Sato of Mizuho Securities. I have 2 questions. The second question is a very simple one. So the first question relates to Page 78, 78 ESR -- situation relating to ESR. And my question is the method of calculating ESR today and the target range that we have currently. Do you think that is to be quite proper and appropriate? Is there any room for reviewing that once again? As you already know, other non-life insurance companies that announced a medium-term plan, 2 of those companies, both of them changed the target range. And as a result of that, since their ESR is within the target range, and therefore, they announced that they are going to continue the same shareholder return framework. That was what we meant. What about your company? Currently, the ESR exceeding 220%. If that continues persistently, if that is the case, as mentioned in this particular page, you may be able to augment the return to shareholders or you may be able to take additional risk. Can we expect you to do that? That's the first question. Confirmation on that. As I said, the second question is very simple. Relating to Page 8, the profit of JPY 500 billion, and it says IFRS. Why did you mention IFRS in the parenthesis?

Thank you for your question. With respect to target range of ESR, Mr. Higuchi will respond to your question, and at the same time, the -- he will respond to the IFRS-related question.

Thank you very much. Higuchi. And let me explain the situation. With respect to the ESR and the method of calculating that as well as target range for ESR, the calculation method that we use currently, we think, is quite appropriate. And I think the method is appropriate as well. But in the next medium-term plan, as we consider various things for formulating the next medium-term plan, we will consider if there is any method that can enhance the precision or accuracy of the calculation of the ESR. So we will constantly consider the method available to improve the level overall. And as we conduct those discussions and deliberations, we -- if it is considered necessary to reexamine the target range, there is a possibility of us doing that as well. And currently, our ESR is about 220%. If that is the case consistently, as mentioned here, are we going to reflect that in the shareholder return? And that is exactly our thinking. That is to say, as shown on Page 78, as mentioned there, additional risk taking, the investment in businesses may be considered. Or if we cannot find appropriate opportunity for doing that, we may consider augmenting our shareholder debt. Having said that, I must add, whether it continues to be above this target range consistently, that will rely on market conditions of equities or interest rates. So those would be the factor changing the situation. So we would look at those factors in making decisions and determinations. The second question relating to the IFRS discretion, relating to JPY 500 billion of profit. On our side, starting with the financial results announcement, for fiscal 2023, we are going to transition to our IFRS-based accounting. As I mentioned earlier briefly, in the next medium-term plan, which covers the 4-year period between 2022 and 2024, in that 4-year period, the final year of the plan would adopt IFRS-based financial accounting for the final year. And in the 4 years covered by the next medium-term plan, for 3 years, we would be also including IFRS-based financial accounting. And if we look beyond that in 2030, globally, IFRS-based financial accounting will be used in general. And so considering those conditions, we just made reference to IFRS in those cases. That's all.

Thank you very much. Did we answer your question?

Just a very brief confirmation. When you transition to IFRS, the difference which -- would be -- most significant would be related to life insurance business. Am I right in considering that?

Yes. If there is any difference, in relation to life insurance business, the cost of new policies and DAS, the deferred acquisition cost, that is currently recognized in the first year. But under IFRS, it is going to be incurred over the policy period. And when we transition to IFRS, the capital gains, it's not included as a part of the profit, but rather in -- will be in the other comprehensive profit. And therefore, in terms of the bottom line, capital gain will not be directly reflected in the bottom line. So these 2 are the major differences.

Oh, is that the policy for capital gains? Okay. Got it.

Did we answer your question?

Thank you, Sato-san.

Just one question, additionally. I think this is very important. When you transition to IFRS, since you have discussed, and the JPY 500 billion is mentioned in the presentation material. And the difference relates to capital gain, which is included in the other comprehensive profit. And I do understand the definition. But together with the group adjusted profit, it is mentioned together with that. So when you transition to IFRS, when it comes to the return to shareholders, are you going to exclude the realized part of the capital gain? So it is in the future. But could you also -- it's further into the future. So I know that you had -- have not yet decided as to your own policy with respect to the shareholder returns. But you have not yet decided on excluding capital gains even if you transition to IFRS. So could you share with us your thinking?

Thank you very much for your question. Your question relates to our thinking with respect to the shareholder returns once we transition to IFRS, and especially the capital gain, how it is handled.

Thank you, Ms. Tsujino for your question. As you firstly pointed out, what you had mentioned applies. But as indicated here indicate that the profit level on the IFRS is what it means. How are we going to do with the shareholder returns? And what would be the profit, which will be the basis for shareholder return? Currently, we use group adjusted profit. That is the basis for shareholder returns. But how -- what is our thinking on that? How we are going to have the policy on that? And this is totally different from the JPY 500 billion based upon IFRS. So once we transition to IFRS and if the capital value is not included in the profit, and therefore, automatically, that is excluded from the shareholder return. That is not the thinking that we have currently. At any rate, in our work to formulate next medium-term plan, we will consider what our policy for shareholder return should be once we transition to IFRS. And based upon our discussions, we'll also share with you our thinking once we have more determined, I guess, on that.

We have Nagai-san from Primary Life. So with regards to last year's situation and future outlook, if you could say a few words.

So I am Nagai from Primary Life. And 2020, strong dollar, weak yen. And it was about JPY 20. And in the past contracts, there was a lot of past policies. And with regards to the gain on sales, we had reserves based on policy in terms of the price fluctuation. And still, we could recognize the large profit over the plan. And it was a record high for us, and this fiscal year, too.

Well, it's a difficult environment with low interest rates overseas. But the profit on sales, taking risk and coming up with a unique model with good products, we would like to realize further growth. And we have the Vision 2021. And the final year of this Vision 2021 will be capitalized on, so that we can contribute to the group. Thank you very much.

So we'd like to close the Q&A. So for FY 2021, first information meeting of the MS&AD Insurance Group Holdings will come to a close. Thank you very much for your participation today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]