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

Good afternoon, investors and analysts. Thank you very much for joining us for the fiscal 2021 Second Information Meeting of MS&AD Insurance Group Holdings. We really appreciate your participation. My name is Kaneko of Public Relations and IR Department and I'll be serving as an MC for this meeting.

Hello, everyone. I am Noriyuki Hara, the President and CEO of MS&AD Holdings. I'd like to thank you for taking part in our information meeting today. The state of emergency has been lifted as long lasting COVID-19 pandemic has been brought under control. This time, for the first time in 1.5 years, some analysts are visiting the venue as we decided to hold this event in a hybrid format in the venue and remotely. The number of participants was limited in order to prevent the spread of infection, but I'm very pleased to be able to meet and talk to analysts in person. Let's start today's presentation. First, I will explain the status of the interim financial results for this fiscal year, the full year forecast and the status of each business domain. Next, I'd like to discuss the progress of Vision 2021, the medium-term management plan, for which this fiscal year is the final year and challenges going forward. After that, I would like to explain our group's competitive advantages and discuss our growth strategies. Based on that, the realized the aspirations for 2030 disclosed in May. In the first half of the fiscal year, the group adjusted profit increased in the domestic nonlife insurance business, where losses from natural catastrophes were relatively small. And in the international business, where the impact of COVID-19 has been eliminated. The group adjusted profit increased by JPY 52.6 billion year-on-year to JPY 183.7 billion after factoring in the impact of JPY 31.5 billion natural catastrophe loss at overseas subsidiaries in the third quarter. The progress towards the full year forecast exceeded 68%, and we are on track to achieve the group adjusted profit of JPY 300 billion. The group adjusted ROE is expected to be 8.5%, also in line with the initial forecast. One of the key points of the income results is the impact of natural catastrophes. Although natural catastrophes in Japan were less frequent than in previous years, unprecedented flooding occurred in Europe in July and Hurricane Ida caused extensive damage in the United States at the end of August. Although July to September is the third quarter of the fiscal year for our overseas subsidiaries, we recorded an additional JPY 32.4 billion or JPY 31.5 billion after tax in our interim results. In the group as a whole, both in Japan and overseas, the natural catastrophe losses are still within the range of the initial forecast. The achievement structure of the group adjusted profit for the full year is shown on this slide. In the international business, the forecast for the group adjusted profit decreased from the initial forecast. But in the domestic business, the forecast increased and we expect to steadily achieve our target of JPY 300 billion of group adjusted profit. The status of each business domain is described on pages 10 to 12 of the materials. As for the current status of MS Amlin, unfortunately, this fiscal year's natural catastrophe losses are expected to exceed the initial forecast by approximately JPY 16 billion and the losses related to COVID-19, which were not factored in the initial forecast were approximately JPY 7 billion. As a result, the full year profit is expected to be JPY 21.8 billion lower than the initial forecast. However, the noncat risk loss ratio is improving particularly at AUL and profitability is steadily recovering. ESR as of the end of September was 254%, an increase of 19 percentage points from the end of March due to a rise in the stock market and the reduction in interest rate risk. The planned reduction -- redemption of subordinated bonds is expected to cause a decrease of around 8 percentage points. The planned dividend for fiscal 2021 is JPY 165 per share, an increase of JPY 10 from the previous fiscal year. The interim dividend is expected to be JPY 82.5 per share, an increase of JPY 7.5 year-on-year. At the same time, we decided to repurchase up to JPY 25 billion of our own shares in order to improve the stock price and capital efficiency. Going forward, we will steadily increase profits and returns to our shareholders. Next, I'd like to talk about the progress of Vision 2021, our medium-term management plan. We achieved our targets for scale, financial soundness and profitability among the targets to be the world-leading insurance and financial services group. On the other hand, the 3 targets of capital efficiency, portfolio diversification and the share of strategic equity holdings are expected to be difficult to achieve due to factors such as market conditions. We will strengthen our efforts on them as spending issues in the next medium-term plan. Next, I would like to talk about the 3 key strategies we are working on to build a resilient system to achieve sustainable growth going forward. First of all, in pursuing the group's comprehensive strength, we have been working to simultaneously achieve growth and efficiency through group collaboration. The additional cost reduction initiatives announced last year are making steady progress in the current fiscal year. The new claims service system jointly managed by the 2 core nonlife insurance companies has started operation, improving customer service in the event of damage and further improving operational efficiency. For the full year, we expect to achieve cost reductions of JPY 52 billion, which is JPY 3 billion higher than our initial plan. We have promoted digitalization in 3 areas: digital transformation, digital innovation and digital globalization. The CSV 5-year strategy, which aims to develop new businesses that solve social issues by utilizing digital technologies has steadily penetrated the group and is expected to be a driver of future profit growth. Diversification of the business portfolio was difficult to achieve because the domestic nonlife insurance business exceeded the plan and the international business fell short of the plan due to the impact of natural catastrophes. The target for this portfolio diversification is also difficult to achieve due to the impact of high stock prices. However, although we have already achieved our target of selling strategic equity holdings of JPY 500 billion over 5 years, we are making steady progress with additional sales of JPY 100 billion this fiscal year. Group is also making steady progress in initiatives that form the support foundation for sustainable growth. In this fiscal year, we set new targets for fiscal 2030 and beyond for the reductions of CO2 emissions and the ratio of women in managerial positions. Going forward, we will continue to build the foundation on which diverse human assets, 1 of our group's stream can fully demonstrate their abilities and pursue the highest quality that earns trust and meets expectations of society. I will now explain our medium- to long-term strategy based on our group's competitive advantages. The previous information meeting, we announced financial, D&I and environmental indicators as our aspirations in 2030. At present, with the aim of achieving these aspirations, each business is setting targets for the next medium-term plan and exploring growth strategies. Each division is considering ambitious action plans, and I believe that we will be able to achieve growth that exceeds these targets. Our growth vision for 2030 is to be a platform holder of risk solutions. In Vision 2021, we have positioned CSV as the foundation of our management to realize profit growth by providing solutions to social issues. In the next medium-term plan, we intend to further disseminate this concept throughout the group and develop our business as a risk solution platform to achieve growth. In a rapidly changing society, various social issues arise and new risks arise 1 after another. Our group aims to grow together with society by providing optimal solutions globally, including insurance products that enhance services before and after COVID with consulting and data services. Since its establishment in 2010, our group has built up various competitive advantages. One of them is a robust sales network. In Japan, we have a strong customer base of 44 million individuals, 2.5 million corporation and Japan's largest agent network of more than 80,000 agents. With entities in 49 countries and regions around the world, we are building partnerships with a variety of global insurance companies. The unwavering sales and deployment capabilities of these robust networks are a major strength of our group. The second is the #1 position in the domestic nonlife insurance market. Although Japan's population is on the decline, we expect the domestic nonlife insurance market to continue growing. Although the premiums in automobile insurance will decline in the future, casualty insurance and other areas will continue to grow with the products that address new risks and social issues. The third is the domestic life insurance business with a strong growth potential. The penetration rate of life insurance in Japan is high, and the population is also on the decline. However, with the aging of the population, the need for medical care, nursing care, intelligence and asset building are increasing. Our group is represented by 2 unique companies MSI Aioi Life, which specializes in medical insurance and MSI Primary Life, which sells asset-building products. By flexibly responding to market needs through the tier company setup, the amount of new policies ranked 6 among the domestic life insurance companies and groups. Our strength in the international business are our Asia business, which is Asian's #1 and our expertise in Lloyd's and reinsurance businesses. The Asian insurance market is set to be 2.1x larger in 2030 than in 2019. By capturing market growth in both the nonlife and life insurance sectors, we aim to become the #1 foreign nonlife insurance groups in Asia. We will also use our expertise in the Lloyd's and reinsurance businesses to capture opportunities around the world. The fifth is MSI Primary Life portfolio diversification and profit contribution through foreign currency asset management. MSI Primary Life is the only nonlife insurance business model that sells mainly foreign currency-denominated insurance through the bancassurance channels and manages assets mainly in foreign currencies. The company's foreign currency asset management contributes to diversification of the group's investment portfolio and to the group's profits. The sixth is our track record of investing in start-ups, collaborating with partners with leading-edge technologies and ideas is an effective way to advance the value of insurance through a new stage. According to data from CB Insight, our group has the world's largest number of investments in the insurance industry. MS&AD Ventures, which was established in Silicon Valley has invested in 61 companies over a period of 3 years in the areas of InsurTech, Fintech, mobility, life and health and cybersecurity. Looking to the future, we will continue to identify partners with cutting-edge technologies and develop innovations. The seventh is the penetration of the CSV concept. As a result of the current medium-term management plan, the idea that CSV is the basis of business activities has spread widely among over 90% of employees. Our group sustainability initiatives have also been highly evaluated by a number of organizations, including the Dow Jones Sustainability Index and CDP. Going forward, we will develop growth strategies that leverage these 7 competitive advantages. In the domestic nonlife insurance business, we will take advantage of our #1 position in Japan to secure profits from automobile insurance while achieving a return to profitability in higher insurance and expanding profits in growth categories such as casualty insurance. In the future, there are concerns about the impact of population decline, but we will continue to lead the group as a core business by expanding services before and after insurance coverage and by incorporating new risks. Fire insurance is expected to become profitable in 2024 due to the revision of insurance premium rates and efforts to improve losses for policies with a high loss ratio. Going forward, we will continue our efforts to enhance profitability by providing advice and risk measures using DX and setting rates according to risk. Casualty insurance is a line that has shown a big growth for the last 10 years. In particular, packaged products for SMEs are highly profitable and are expected to continue to grow at a high rate. In addition, as industrial structure changes and technology advances, new markets are expected to be created in various fields such as mobility, energy, health care and robotics leveraging our larger sales network and customer base in Japan, we aim to quickly seize new business opportunities and achieve a higher growth than ever before. The domestic life insurance business will leverage the unique characteristics of 2 companies to expand sales of highly profitable products and accelerate profit growth. The international business will drive the group's profit growth and by expanding profits in both life and nonlife insurance in Asia, where it has an advantage returning MS Amlin to a growth path and growing its business in the United States, including inorganic growth. In addition, we will further promote the utilization of the specialized know-how and underwriting systems of each group companies as platform. Specifically, we will enable other overseas entities to utilize MS Amlin's expertise in underwriting at Lloyd's. We will also share Singapore-based MS First Capital's underwriting expertise for corporate and infrastructure properties. In this way, we will leverage our accumulated know-how to achieve synergies. As part of our new asset management strategy, in January 2022, we will establish a joint venture in New York with LGT Capital Partners, our first asset management company. By transferring the outstanding balance of private equity investments of MSI and MSI Aioi Life and then transferring the management comps in the form bonds of the MSI. We aim to achieve the scale of JPY 500 billion or more in fiscal 2025. In addition, as a common platform for the group, we will strengthen profitability in asset management and promote impact investment in which the 4 life and nonlife insurance companies of the group participates. In the Financial Services business, we provide various risk solutions using financial instruments other than insurance, such as weather derivatives and insurance-linked securities. We will strengthen our unique solution development and aim for further growth by 2030. The risk-related services business is positioned as a best function for the risk solution platform, which is our growth vision for the next medium-term plan. We will work with group insurance companies to develop insurance products that provide coverage at all stages and create new business models. We plan to deepen and expand our services by combining traditional risk consulting with data and digital technologies. The CSV x DX global strategy that we have been working on since Stage 2 of the current plan will continue to be a pillar of our company's medium- to long-term strategy. A variety of new services have already been created mainly in risk consulting using data. We will continue to expand our lineup of services not only in Japan, but also globally. For example, in Vietnam, we started a project to develop a smart medical insurance that promotes for the use of an app in cooperation with InsurTech and medical DX companies. In addition to business expansion in Vietnam, where economic growth is expected, we also anticipate business expansion in other Asian countries over the medium to long term. At present, we are making efforts in pursuing the group's comprehensive strength, and we will continue to generate group synergies that take advantage of the strength of each group company. As a result, by 2025, we will achieve a synergistic effect of JPY 46 billion over 2018 levels in the 4 areas of group coordination, cost reduction, reinsurance and asset management. Going forward, we will continue to work on the 4 areas of sustainability, quality, human assets and ERM as a mechanism to support our growth strategy towards realizing our aspirations for 2030. We will work as a group to build a stronger foundation for steady growth. Finally, I will explain our initiatives to reduce capital costs. Our group has a capital cost ratio of 7%. To reduce this ratio, we will implement measures to reduce interest rate risk faced by MSI Aioi Life reduced strategic equity holdings and reduced natural catastrophe risk. In addition, we will achieve sustainable growth in our group by achieving ROE that excludes the cost of capital ratio. The global economy is undergoing a rapid recovery towards the post-COVID era. Since the spread of COVID-19, the business environment as well as the social situation and people's lifestyles have changed significantly. In the future, these efforts will not be reversed and it will be essential to keep up with the new era. The fiscal year marks the final year of Vision 2021 and we are firmly committed to formulating a new medium-term management plan that will serve as a challenge for the digital technology era to come. In order to realize a resilient and sustainable society in 2030, we will use our accumulated competitive advantage as a platform holder for risk solutions to support the resolution of social issues while achieving sustainable enhancement of our corporate value. We will continue to make every effort to meet the expectations of investors and other stakeholders. We look forward to your continued support.

Thank you, Mr. Hara. Now we would like to move on to the Q&A session. [Operator Instructions] Mr. Muraki of SMBC Nikko Securities.

Muraki of SMBC Nikko Securities. I'd like to ask few questions. The first question -- the profit level itself has not been indicated for the next medium-term management plan for 2025. But could you share with us the rough idea or level you have in mind? This time for different segments, different figures for the 2025 has been shared. And on the IR Day -- on the -- previously held in the life insurance using IFRS, the profit increases immediately by JPY 20 billion. And if the starting point is JPY 300 billion. And if the pretax positive profit of fire insurance, it is expected to generate JPY 36 billion. And also cost reduction after tax domestically could result in the positive reduction of JPY 22 billion. And referring to Page 36, overseas business including your explanation previously, the profit increase of around JPY 60 billion since to be projected. So adding all them together, the profit will exceed JPY 400 billion quite easily. So just adding those positive numbers would show the expected level for 2025. So that's my first question.

With respect to the profit level we have in mind for the next medium-term plan, I'd like to ask Mr. Higuchi to respond to that question, first of all.

Thank you. Thank you for your question. Well, we are still trying to figure out the final term figure for next medium-term plan. But in terms of the factors, as we transition to IFRS accounting, the life insurance profit will be increases. And as we pointed out, the fire insurance we will see improvement in profitability and also will reduce further costs and also the international business. Those are the important factors to be included. We have to consider pretax and after-tax relationship. So bearing that in mind and also the transition to IFRS basis for life insurance, other than -- other sectors would also be considered. But just roughly speaking, in terms of the level in the rough idea, as you pointed out in your question, the level you have just mentioned in your own question is something that we would like to keep in mind. Going forward, we will work on those numbers and figures. And on the basis of IFRS, a more precise figures need to be analyzed and added. So those are the activities that we will work out going forward. So in terms of very rough figure, the level mentioned in the question is the profit level that we would like to aim at.

The second question relates to the shareholder return. And I'm referring to Page 14, and it shows the years are, and it is on the very high level on the graph. And this medium-term plan aims at 180% and 220% in terms of ReAssure. And we exceeded 220% over 250%. And even after redemption of the subordinated debt. This is still very high. The stock price remains quite soft. And the life insurance, the Sompo is conducting the capital adjustment sort of shareholder returns. So without waiting for this, is there any chance that you might consider study and also announced the shareholder return for the capital adjustment or surplus adjustment, as you pointed out, ESR has reached the very high level.

And the current level, we reduced interest rate risks. And also, as was explained earlier, the stock market increased and soft prices increased. And a great deal depends upon the market levels. And our policy for shareholder return is, as has been explained over the years. We use a benchmark of 40% to 60% of our group adjusted profit. And we aim at steadily upward moving shareholder return. So we have decided to increase cash dividend per share by JPY 10 because we now have the clearer view of achieving JPY 300 billion. And also in terms of share buyback, depending upon the market of the stock price and also considering the business investment going forward, we intend to be quite flexible in share repurchase, and that resulted in our decision to buyback JPY 25 billion worth of our own shares, you said before waiting for May, but the business investment and the share repurchase, we intend to strike a good balance between the 2. And also in terms of the capital adjustment, since we cannot find a good opportunity for business investment and also from the viewpoint of liquidity, if there is no problem in terms of liquidity, we would consider capital adjustment. But we are still in the process of trying to identify and find good opportunities for business investment. If that is the case in May, at the time of May, if the situation remains the same. And if -- well, if the investment is announced, that's good. But if you're still in the process of trying to find a good investment opportunity, you would still be returning to shareholders within the range of 40% to 60% of the adjusted profit. Well, we would like to retain the current shareholder return profit. But as I mentioned earlier, we will be transitioning to IFRS. And in that case, is the profit, which will be the basis for shareholder return on a cash flow basis will be quite different from the current form. And therefore, the capital gain of the strategically held equities will not be included. And the policy acquisition cost for life insurance would be amortized over the duration of the policy, which is positive. And so how we should consider that in terms of the profit to be used for shareholder return. So taking into account that factor as well as the viewpoint of capital adjustment, we would like to arrive at the appropriate policy.

Going on to Daiwa Securities, Watanabe-san please.

Watanabe from Daiwa Securities. Two questions, please. First, has to do with the shareholder return just mentioned. So the policy, how is it evaluated right now? And from the next fiscal year, towards the new medium-term, long-term, are you going to consider the view of or like other ones like the capital level adjustment. Is that going to be studied. So if you could tell me what you are thinking there? That's first question. Second question is on Page 89 of the material that is the natural disasters overseas. And this time in the first half, this overseas natural disaster became a factor for the fluctuation. And so again, the appropriate risk control of the overseas natural catastrophes. If there's some kind of quantitative way where you're going to look at the risk volume? Those are my 2 questions.

So shareholder return is the same thinking as the answer to the previous question. So from before, we look at the flow, it's flow based and the return from the flow. And can we also think about stock? That's probably what you're trying to ask. And in the next medium-term plan, as was mentioned earlier, there will be the shift to IFRS. And that being the case, the base profit, in other words, the base profit for the shareholder returns, we need to think about that. And so that prospectives will be included also about what to do with capital adjustment that will be considered, and we will think about the method of return in the next medium term time. So it's the same pretty much as the answer to the previous question.

To confirm then, your uniqueness, you had the total return, which is on the rise. And so are you going to participate on this going forward?

Well, 1 thing the dividend with regards to dividend. And as I said before, a stable increase in dividend is what we are aiming for. And with regards to the share buyback, for example, there may be a large natural disaster, and that means that liquidity might be constrained, then naturally, it has to go down. So it depends on the liquidity situation at the time or the capital situation at the time. Does that answer your question?

Yes. And the second question had to do with the natural disasters overseas, and we'd like to ask Ohkawabata.

Yes, Ohkawabata speaking. With regards to how we manage for the nat cat overseas, first of all, overseas risk with regards to international risk in the past, the risk upper limit was used so that we looked at the peak risk in the U.S. to reduce risk or also to try to improve the structure and risk quantity will be suppressed in control. That way of thinking is going to continue going forward. And furthermore, especially the reinsurance overseas will be considered and more stricter underwriting or the evaluation of profitability will be set in more detail. And in the future, we looked at the peak risks in the past, that is the U.S. flood risk was filled. And so for the overseas -- natural catastrophes overseas, the upper limit control is going to be done more strictly. And also in line with that, the underwriting exposure from the perspective of reducing the exposure, the period of volatility will be suppressed, and we will also reinforce that. In particular, with regards to the stability of the period income and loss, leads to overseas exposure about more than -- or about 20% or so reduction will be considered, and we are continuing to study that right now to try to come up with a concrete view. That's the situation. At any rate volatility of earnings is very high. So is there a regional discrepancy? And what about the climate change impact, that kind of uncertainty will be incorporated, and we would like to have a strict underwriting and respond in this way.

The exposure of natural catastrophes overseas. In 2017, there was the HIM hurricane. If that's 100, what is the present level? And to what extent are you going to lower this?

Well, particularly, what we are controlling more strictly U.S. flood, that's considered to be the peak. And the U.S. flood peak risk volume is considered in 2017, there is the Hurricane underwriting level. So the -- well, I'd like to confirm the actual numbers later, but about -- well in Amlin, more than 30% reduction. And later, I would like to explain concrete numbers and AD for the ceded insurance, 60% decrease. And furthermore, from this situation, the risk-based exposure will be no -- the PL impact will be considered and the exposure will be further reduced 20%. And that is the perspective in which we are studying right now.

And Kawate would like to add the explanation here because Kawate is in charge of the international business. And in Amlin, in 2017, there was the HIM and as was just explained, it was once in 200-year risk level, 300% -- 30% was reduced. And so the -- once in 10 years, again, 30% -- a little bit less than 30% reduction is being promoted. And for the group as a whole, 20% reduction is going to be considered and we are reshuffling the portfolio right now.

Thank you very much, Mr. Watanabe. I would like to invite participants through Zoom from Mitsubishi UFJ Morgan Stanley Securities, Ms. Tsujino, please.

I'm referring to Page 91, return on risk figures, the table here, the capital level there, getting from that, the return on equity, especially our international business seems to be less than 1/2 of what is written here. And in terms of volatility of that, after your purchase of Amlin, it seems that it is close to 0, almost 0. However, through cost savings efforts that seems to be going on in the domestic sector, and it's very difficult and almost impossible to do that. That's what we have heard. And moving to 2025 you have various plans for cost savings or cost reduction. But keeping that time frame in mind, would the market be willing to wait for your efforts, to do those initiatives. And that's why your stock price is suffering declining. So in the general setting, the dividend and other factors in terms of the levels of those you seem to be trying to gradually increase those levels. But going forward, after the end of the current fiscal year, and looking solely at the dividend in terms of rate of increase per year, how much do you have to increase dividend, the increased rate of dividend annually? What is your view on that? You have very high ESR, so you do have a good headroom it may take time to actually reduce cost, and it has been taking long to achieve turnaround of Amlin. So because of those conditions, you will just focus on dividend and continue to increase dividend. What is your intention there? That's the first question. The second question relates to the cost reduction. And referring to Slide 18, in terms of cost reduction, you have specifics listed there. If that is the case, starting from the end of fiscal 2021, you are going to reduce JPY 48 billion by 2050. And moving to Page 53, you talk about the major IT project, you described the expected results, the benefits of a major IT investment. And is that all included in figures on Page 18 or relating to IT, although the investment has increased there, but there is countervailing reduction elsewhere? Or are you reducing cost elsewhere in terms of the net reduction, what is the actual net level of a reduction of costs that you aim at achieving in the next medium-term plan. Just rough figure would suffice, but could you just share with us your thoughts on that?

In terms of the first question, the rate of increase of dividend moving forward, as I answered in response to the previous question, basically speaking, we would like to aim at increasing trend of dividend payment and for the next medium-term plan, we are working on the next profit plan as well as the shareholder return policy. Those are now under consideration and examination. So for the forecast for the future, we would like to have another opportunity to give you explanation and probably is a good idea for us to give you more detailed explanation of cost reduction. So I'd like to ask Mr. Higuchi to respond to that as per the other question.

Higuchi speaking, the specifics of cost reduction efforts, you would like to know the breakdown of cost reduction efforts. I think that's your question. So starting from Page 18, and that shows the overall picture of cost reduction. Now the large-scale system development and benefits generated by that in terms of a cost reduction that is included in the figures on Page 18. And therefore, as you know Tsujino earlier gave us the analysis so 2021, JPY 52 billion cost was reduced. There was a cost savings in fiscal 2021. And for the next medium-term plan, it will be JPY 48 billion, if everything goes on according to the plan. On the front-loading manner, in the current fiscal year, we've been able to achieve cost reduction more than the plan, and so that the higher level of cost reduction would be the starting point. And our competitors -- probably I may have described that as challenging or aggressive combined ratio, but they came up with those aggressive or challenging combined ratio. So through cost reduction and also improvement on loss ratio. So working on both sides, we would like to achieve the combined ratio level, which compares on par with our competitors at least. And so in the next medium-term plan, we are now examining what sort of cost reduction efforts we can actually may come up with.

Now let's go on from the site Sato-san of Mizuho Securities please.

Sato from Mizuho Securities. And I'm sorry to persist on the shareholder return. Well, certain details, I want to confirm your will. So in the interim result, Tokyo Marine was quite aggressive in changing their policy. And Sompo too, as was mentioned, by that on stock. And also, you are going to try to raise your appeal looking at the situation. So head office shareholder return policy so that it's more appealing. Do you have that well is what I want to confirm first because, for example, PBR, if you look at PBR, 1 of the factors discounted, the payout on the stock is still low. So that is the reason why I'm asking you this question. Second question, and again, I don't want to keep on sounding negative. So overseas international business. Other groups reinsurance business Lloyd's and other business you might want to withdraw from some businesses, but Amlin is a unique business. And so you had natural catastrophe and COVID, which is rather unfortunately. And the fact that you have this Amlin, which is unique, is that could be a premium factor then what is the environment necessary for Amlin to be evaluated as a premium. So if you could answer these questions.

With regards to shareholder return, well, it will follow up with what I said before. So as we have been saying, for us. We want to have a strength of increasing stable dividends. And with regards to share buyback, too, stock price situation and business investment and liquidity situation should be kept in mind. So we could be as well that policy does not change. However, towards the next MPP, we need to have various discussions. And so what you have just said, what we would like to incorporate your view also in our study and we want to meet expectations. And so we could raise profit and ROE and also increase shareholder return. And so that we can meet your expectations, inclusive of Amlin, we want to go on the growth track. Now the Amlin becoming a premium factor or what about future growth strategy, let's hear the explanation. Well, as Tsujino-san mentioned earlier that the turnaround is taking time. And last year, there was COVID blast. This year, there have been 1 after another unprecedented type of natural disasters. And so these are unfortunate unlucky factors, which appear in succession. But beneath the surface, Amlin, Lloyd's AUL. In Lloyd's, the results -- the performance is improving. And for the first half results, the loss ratio of Lloyd's as a whole was seen, and we had a good performance, which was lower than that. So the new Chief Underwriting Officer is taking the lead to reshuffle the portfolio and nat cat. And also for the non-nat cat more profitable portfolio is aimed for and the reshuffling is being conducted on I think FX are beginning to be seen. So up until last year, reducing quite a bit the top line, with regards to AUL, it was about JPY 2.5 billion of top line. Now it's JPY 1.5 billion. And this is to be recovered to the previous levels, and that means good conditions, good portfolio has to be realized, so that profitability goes up and also expenses can be absorbed. So I think they are going back to the growth track, these past series voice as a whole has seen a reading trend. But this fiscal year, they have been able to fight back against the nat cat, and Lloyd's also is turning profitable as mentioned by the CEO. They have a network all over the world so that Lloyd's can have new information, new personnel and new transactions. The advantage or the superiority of Lloyd's may have felt like it's been taking, but I think it's recovering. And the leading position of Lloyd's while Amlin is to drive that move. And so right now, they are beginning to come back to the growth track, and they are going to increase the top line to contribute to the group. I think we're now in that stage. So you would probably have good expectations for that.

So my first point was just a comment, increased dividends and flexible buyback. I think not only that, we want something like a plus alpha portion.

Next, from Tokyo Tokai Center, Mr. Majima, please?

I'm referring to Page 39, which relates to risk-related services, and you talked about that. And that I think is a very promising market. If regional banks try to remain in the prime market, they are saying that. And if that is the case, the disclosure of climate change and in 2030, the consulting services and also the carbon neutrality requirement for regional banks lending and also specifically you need nonlife interest companies. Also big OEMs, they are requesting suppliers to become more carbon neutral. And therefore, there is a very strong demand for achieving carbon neutrality on this sector as well. And therefore, the market seems to be quite strong. But going back to a previous page, according to your medium-term plan, the growth rate is not that large in terms of financial consultancy service profit generation. And 1 is that -- does that mean the consultancy fee is not very high for this business? Or is your plan to be conservative? Which is the case? That's the first question. And secondly, I'd like to ask the following relating to the price increase overseas and the unit price of cars or service areas, wage has been increased, but B2B liability insurance offered by Amlin, how is it affected by price increase overseas. And moving to next year for automobiles because of the shortage of semiconductors, the unit price of parts and components may increase and also the construction materials have increased in prices as well. And therefore, from the medium and long term view point with the price increase inflation impact your business as well? Or because you're intending to increase pricing, you will not be affected so severely? Those are the 2 questions.

Thank you for your question. Relating to the risk-related services and the consultancy service, the profit level there, the -- between JPY 15 billion to JPY 20 billion, that is the profit level. And what is -- whether those profit levels are appropriate. And specifically, what sort of efforts are made, Mr. Ippongi will be responding to those aspects of the question.

Thank you very much. Ippongi is my name. Thank you for your questions. In relation to risk-related business, in this sector, inter-risk consultancy service company is conducting this service as their own business. And as you pointed out, the spread can be found in climate change in those areas or SDGs, which require consultancy and we have a business which has a particular strength and advantage in those areas. And therefore, we intend to strengthen those business continuing from the past track record. Going forward, in addition to what we have been doing, we intend to deploy DX business. That is to say various insurance companies and including MS&AD Holdings, are involved in this effort, we are trying to achieve the group unity there to generate synergies. So in that sense from that perspective, we are intending to make use of MS&AD inter-risk service. And in certain cases, we'll be using into risk company at the core of our business. And moving to the next medium-term plan, we keep that in mind. This applies to climate change, mobility and health care in relation to those business areas, we try to promote DX, and that core business could be conducted with inter-risk serving as a core and achieve the unity of the entire group is what we are aiming at. So we are now formalizing the plan. So the figures shown on this page -- is the figures in the process, and we are now adding or we are now working on those figures. So there is a good chance that the figure would be increased from what you see on this page.

Kawate speaking, what sort of activities or initiatives are underway. Could you include that as well in your response, including risks. In terms of risk-related initiatives or DX initiatives allow me to introduce some specific cases to a certain extent. The growth path in order to accelerate the growth further initiatives in before and after the insurance coverage and also protection and also it is trying to create new businesses. Those are the major initiatives that we are conducting, focusing on DX especially in the growth areas. And in that context, in terms of creating new businesses, biz tech is how we call it. That is the combination of risk and technology. And in reality, the new service business is now being generated and have become visible, which I'd like to share with you. First of all, it is a core AI driving diagnostic service that service has already been begun. That is to say installed on the vehicles for beta graph and by reading the data from that and analyzing that using AI and will conduct the losses on driving behavior. And this is offered as a paid service and paid service business, and we have already begun this business. And in terms of the second example, we call it dry recorder road manager or dashcam road recorder using the dashcam camera video recordings, we will identify the requirement for maintenance services for roads, and we are aiming at local government as a major user of this service. When a local government look for places for road repair and maintenance, that is really a costly activities requiring a lot of human manor. And therefore, our service could lead to the solution to these social issues. And by achieving further evolution or development of that, we installed on vehicles with the other devices. And by integrating the service with other devices on board, there is a good chance that we can come up with even better service. So that's something that we intend to explore further in the future. There's 1 other thing, which is related to climate change. On the real-time basis, the natural catastrophe status can be visualized. So that's the initiative that more than 1 company within the group is now engaged in. In the case of ordinary users, the consumers, will offer that service, the visualization service free of charge. But at the same time, targeting at local government or major user for their disaster prevention system, we will provide various information offered in the sort of a dashboard basis so that the local government can use that service for adding evacuation of local inhabitants at the time of the natural disasters. So we are not trying to come up with this service as a paid service. So while developing those services quite steadily on the part of our insurance companies within the group. And at the same time, by generating synergy at the -- on the part of MS&AD Insurance Holdings, it will get involved with that. And the second role will be played by MS&AD inter-risk service and consultancy. So we have begun exploring that as 1 element or 1 core factor of the next medium-term plan.

One other point in relation to Amlin, the inflation, how is Amlin going to respond to the potential inflation. Will be explained by Kawate.

Kawate speaking. Thank you for the question. With respect to inflation, roughly speaking, there are 2 types of that we have to consider. When it relates to the litigation-related expenses, what is called social inflation and actual price increase that is going on right now. In terms of social inflation because of the COVID-19, the litigation has being controlled and people said that it's been under control. But with the litigation being resumed, probably the social inflation will become more difficult going forward. And the social inflation would affect primarily the liability insurance. And on those lines, the industry overall is trying to reflect the social increase in the form of price increase, the premium increase. And Amlin also is resulting to a premium rate increase to address social inflation. In terms of general price increase, the repair cost and also the damage due to Hurricane Ida to what extent they will increase would be affected by this price increase in general. Overall materials increased in prices and also the ratios increased. And so including both of these, to what extent would be that increase the hurricane-related losses, that has not become visible yet. But at any rate, the damage has been very huge caused by those hurricanes. And therefore, here again, the industrial all is trying to increase pricing to address those. And therefore, Amlin also is trying to reflect those price increase steadily on the premium rate.

Next, there's a question from Sasaki-san, Bank of America. And if you could demute, and if possible if you could turn your camera on and then speak.

Two questions, please. In the next medium-term plan and thinking about the MPP. The 2 company system for noninsurance in Japan. Are you going to have a review is the possibility of a review. So if you could talk about the other things, anything to set? And second question, Toyota with regard to collaboration with Toyota, there's the connected car and autonomous driving, carbon neutral. So Toyota, Sun and other manufacturers in Japan are being impacted. So in the next 5 years, how is the business is top line going -- business is going to impact -- business with Toyota going to impact the top line?

Your first question had to do with the 2 nonlife insurance company structure, is there any change? And Higuchi-san will answer.

Higuchi speaking, and thank you for the question. And in the next medium term plan, the domestic 2 nonlife insurance structure, what is our view. Basically, in our group, we have 2 insurance companies, and there's also the middle office, back office which is now being run jointly or are we trying to commonize and right now, the present situation is -- well, instead of just keeping that present situation, we have a unique strategy that we're taking that is to evolve deeply. And in particular, for the middle office and back office, the claims service system a common system will start to operate. And so that's 1 thing. And with regards to the administration and products, again here, commonization is going to be further promoted. So for middle office and back office something close to a merger and accept cost to a merger is the system that we are studying. That's all.

If I may add a point, of course, there's the option to merge, but what -- with regards to the reorganization that we've been promoting, we look at top on growth or productivity improvement various aspects. And I think that we are seeing effect and as Higuchi mentioned just now, the strength of the 2 companies need to be capitalized on, for example, in the sales system. You have the relationship with Toyota and AD, that should be capitalized on in product development, and that is something that we should use. And then where we can have joint activities, we will promote that. For example, claims service joint system is being promoted. And inclusive of AD, if we could do this together, I believe it will make things highly efficient also even before we in the other, they had adjusted and a common site of you saw I think that to the extent possible that will be promoted to the extent possible, that's the basic view. And the other question of Toyota in the future, hydrogen vehicles and engines and the mass and so forth. So top line, bottom line of Toyota, what will be the impact on our group. And Kawate-san please.

Yes, Kawate speaking, and thank you for the question. So Toyota Motors and our collaboration with Toyota from that perspective right now, our group has a high share, yes. And as was mentioned, connected cars, autonomous driving, mass, you have added value expanding. And that being the case, we believe we are able to reinforce the collaborative ties. And that in itself, and the other parts of the automobile industry will probably add value. In other words, it will be a positive effect on our company's auto insurance. And if we think about the near future of auto insurance, there is the dissemination of ASP so that the accident frequency should go down and also unit price for maintenance and repair. Well, high functionality autos will increase so that the unit price will go up, but the near rate. Having added value to the functions of automobiles, we are to respond appropriately and firmly. And other than the auto insurance, there is telematics initiatives, another data business from telematics. And in the future, we will be able to sufficiently use that. So we will continue to reinforce the collaboration with the Toyota Group and go forward in that way.

Mr. Sakamaki from Nomura Securities.

I have 2 questions. Sakamaki from Nomura Securities. First question relates to investment. And earlier, you mentioned that you would like to spend money on the investment. But what would cause you to change your willingness to invest? When you have been able to achieve the diversification of profit, would that trigger that? Or if the profit level of JPY 300 billion to JPY 400 billion, profit can be achieved on the basis? Or because of the ESR, you still have enough money to invest. And in that case, you would consider change that? The second question relates to the positive profit of fire insurance, you talked about JPY 5 billion in 2025 in positive profit. But if natural business occurs frequently, you may not be able to achieve that. So in terms of risk reduction, you might have to change those and you might have to change the rates to revise the rates further.

Your first question, what would trigger our investment mind. Mr. Higuchi will respond to that question.

Higuchi speaking. Thank you for your question. In terms of your question was related to business investment, and in relation to that, basically speaking, the need that we have to make a business investment because we need to increase corporate value enterprise value. And what is behind that thinking is that since we -- our core business is domestic nonlife business, which means we still have substantial amount of risks more or less concentrated in domestic nonlife business and also the natural disaster risk is high and also compared with overseas market, the margin is very large. So it's a good market to serve here in Japan. But from the viewpoint of growth and growth potential, the markets overseas that is growing very rapidly is something that we would like to take advantage of in order to enhance our own corporate value. So that's 1 thinking. And also the risk diversification is another factor that we would like to make the business investments. And therefore, over a long period of time, we would like to achieve 50% of the overall profit contributed by overseas business. So once the risk diversification is achieved and once we are in a position to be able to capture the growth of overseas market, those would be the benchmark that we would look at for business investment. And at the same time, when the business is very profitable and if ROE increases further, that would also mean that the capital will be accumulated quite comfortably. And that will make it more difficult to increase further the ROE. So looking at such condition, not just using capital for business investment, but reshuffling or rebound in the portfolio will become very important. So in the overall business portfolio, onto enhance ROE is one perspective respected. And so from that perspective, we will continue to think of business investment going forward. So with regards to the second question and our efforts to improve profitability of our fire insurance, especially compared with the risk exposure, I'd like to ask Mr. Ohkawabata to respond to that question.

Ohkawabata speaking. Allow me to respond to your question. From the viewpoint of improving profitability of fire insurance, as you pointed out, compared with the risk and especially how can we control the natural catastrophe risk. And while controlling that we will address the pricing and also other measures to improve overall business balance. Those initiatives will be taken, especially in relation to our efforts to control natural catastrophes. Just addressing the premium level will not be enough to control natural catastrophe risk. In the past, we also use reinsurance for the control measures. And also 1 of the characteristics of our group is that we have been trying to -- we do have the accumulated coverage to control the overall group natural catastrophe exposure. So using those measures, we will try to control natural catastrophes, while working on the premium level as well. In terms of the corporate environment risk, we have to consider aging risk as well, aging of the building risk as well as the disaster prevention and disaster mitigation must be conducted and using DX as well we will try to incorporate both the areas before and after insurance coverage. So including those initiatives and measures, we would like to address the profitability of higher insurance. That response to this question. Thank you.

Citigroup Securities, Niwa-san. Please ask your question and if possible please turn your video on and demute yourself.

Niwa from Citi. Can you hear me?

Yes, we can.

I would like to ask 2 questions. First, with regards to investment and the other is with regards to the cost of capital. And if I look at 37, if we could just give a comment, that is the consignment of asset management overseas they didn't need to lay this to a JV level. And I think the target will be the MS&AD Group. And going forward, could you consignment for other financial groups. And as for the overseas platforms, you went there, but what about the asset classes domestically, that is the common use of the joint platform. In other words, asset management was done on an individual company basis in the past. So is that going to be done jointly. And next is on Page 43, that is with regards to the cost of capital. And so I think that this has been easy to understand the figures and we'd like to you have a reduction in menu and in your next medium-term plan, you're going to increase the reduction items or the volume will be accelerated? I think that's number one. And then number 2 is interested in the second bullet point. For corporate value enhancement, the reduction of cost of capital and ROE, which will be more effective? How do you view that? And I'm interested. You have cost of capital of 7% on an adjusted ROE basis higher than them. And in terms of the equity valuation, it doesn't seem so high. So market expectations, I think it could be either one, but what is your view, which is an easier or more effective message is my question.

So first question with regards to the management, Sato and then next 1 from Higuchi.

Sato speaking. So as you say, there is a method of consignment, but what is aimed for this time in order to have a distinguishing eye. If you're just depositing money with others, you know what is in the content, but how do they go and look for the projects? I think 1 objective would gain further know-how is a small company, asset management company, but it's sustainable and it's got a discerning I -- we've been having a relationship with them for 10 years, and they are a top runner in terms of ESG. So we want to directly absorb their know-how there. As for the platform, the other intention for the group as a whole, we want to have an investment front in New York because other companies have such front. So we want to send the employees there and gaining the know-how. So in that sense, well, in terms of the domestic platform, in our group, there's -- well, various talks and Amlin with regards to asset management is quite competent. And compared to other syndicates, I think that the result is very good. And for Amlin's market view, what is the prospect or in Japan or in Europe. I think that there should be asset management, taking into account all this information. And we are going to incorporate Lloyd and other kinds of methods. So that was our target, and that's why we are buying this route.

Higuchi speaking, and cost of capital ratio is to be explained from me. First point, reduction effort and the volume on those points. First of all, in terms of the items that we are making effort for, if we can expand volume, then we would like to do so. But on the other hand, Muraki has indicated here, well, MS Life interest rate risk reduction is, as mentioned, but there is the sensitivity of assets and liabilities used to be matched. And it is being matched more than 90%. So probably, if you come that far then the current asset and liability curve will match, and it is pretty much completed. So MSI Aioi Life in terms of the interest rate risk there, I think that is being achieved. And for other items, although it's not indicated here, generally speaking, not quantitative, but nonfinancial items are being evaluated by various people. So that will be included so that it can be reflected in the cost of capital ratio. And we do have such a perception. So with regards to efforts to lower the cost of capital, we are going to make various kinds of efforts. And the other is raising ROE and capital cost reduction, which is more effective. I think that is what you're asking. And first of all, reducing capital costs, the assumption here for us is that 7% was mentioned and the market what's implied by the market is a bit higher, much higher. So on that point, what we are thinking about and what is perceived in the market, we need to close the gap. And however, corporate value needs to be enhanced. So ROE enhancement is extremely important, and we said 8.5%. It's higher than 7%, was mentioned. And so a stable 10% level of ROE, we would like to have a profit structure like that. That's very important. And overseas the global nonlife insurance groups, if we take a look at them, they have a little bit higher ROE level realized. So I think what we should aim for is that direction to raise the ROE that is to have a business portfolio that will raise the ROE, and we were talking about rebalancing the portfolio earlier. So inclusive of such measures, we would -- we feel it's more important to raise the ROE.

I think I will use that information as reference.

Thank you, Niwa-san.

Well, I think we have approached the close schedule ending time. So this will be the very last question. Ms. Tsujino participating through Zoom, Mitsubishi UFJ Morgan Stanley Securities.

So with respect to Amlin, you are making various appeals about Amlin, but at the time of the teleconference that took place in '19, I guess. And I'm referring to the materials used, then the Page 39, and you mentioned the initial forecast for Amlin and also the current and both are denominated in GBP. And the net profit was pretty bad at the initial forecast. But on a pretax basis, I think it might be somewhat different. The natural catastrophe loss increased and also COVID-19 loss increased GBP 500 million and also GBP 46 million. And so those 2 factors seem to explain roughly the situation on the revenue, but on the pretax basis, it's not enough to explain the gap. And also with respect to the investment, most of that part is explained to the FD GPU. And I wasn't quite convinced about that. So this shows a deterioration from the initial forecast, it seems. And in addition to that, it relates to the exchange rate between U.S. dollar and GDP and the earning premium and GDP decreased the pound. So if that is the case on the net -- compared net basis, it seems to be better than initial forecast, especially for Lloyd's business. On the non-cat part -- non-cat business part, the combined ratio improved. And today, the chart shown there for today indicated improvement in loss ratio. So compared with the initial forecast, there has been some underlying improvement and there is anything that has resulted in upward revision, please let us know in terms of absolute amount? And I'm hoping that we can hear such good news with the factoring. But this time, the overseas natural catastrophe, especially well, in terms of natural catastrophe and I apologize for comparing you against your competitors. But what the information I have on hand right now, 3 -- JPY 31.3 billion. No, no. The figure is totally different, I'm sorry, it's my problem. It says JPY 52.4 billion, so JPY 31.3 billion increase actually, resulted in JPY 52.4 billion. And what happened this year, you added JPY 12 billion, which is not reflected here, JPY 12 billion, which is a bit later. So the overseas nat cat loss in the case of your company seems to be around JPY 63 billion to JPY 64 billion, and most of that has already been incurred. Now looking at Tokyo Marine, for instance, in the first half, JPY 22.4 billion was the figure and hurricanes and wildfire, JPY 20 billion was the figure they cited. And it is within the range of the budget, but it actually increased. So thus far, rather than JPY 64 billion that they forecasted, but what has actually incurred is less than JPY 45 billion. Despite such a difference in size, why sentence level? And are they referring to different types of natural catastrophe and various explanation has been given, but only here, including hurricanes, JPY 30 billion. And the other company booked only JPY 20 billion. There seems to be some serious problem with the way you take this. And looking at that, only 20% decrease is adequate to address this question.

Thank you very much. With respect to the profit forecast of Amlin. There is a certain improvement if there is some improvement, from the initial forecast, you would like to know the complete figure and also the efforts to improve or control of natural catastrophe, if the efforts are currently underway is adequate or not, was the second aspect of questions. So Kawate will explain that.

Thank you, Mr. Tsujino. Improvement from the initial forecast relates to AUL performance, but I would like to get back to you with confirming the actual figure. The initial forecast was to be -- expected to be exceeded by JPY 40 billion to JPY 45 billion. But as I said, I will confirm those numbers and get back to you later. And with respect to the overall size of the natural catastrophe losses, in our case, the inward reinsurance taken by Amlin, originally, at Amlin, that was 1 of the major business areas. However, in the case of Amlin overall, the inward reinsurance is around 40%. And furthermore, the 40% of that relates to the natural catastrophe. And therefore, those businesses have been reduced quite significantly. And for the current fiscal year, the COVID wave and freeze in North America in February and also the major flood in the Europe in July, both of those are quite unprecedented and very extreme anomalous situation even in the case of natural catastrophe and those who is then the increase in natural catastrophe losses. So this is the major characteristics. The next fiscal year, those will be eliminated. And also, thus far, the portfolio is segment by a store, North America and also the Amlin has been the lead underwriter of reinsurance. And therefore, the overall program was underwritten from the lower to higher layers that was how it underwrote the inward reinsurance. And therefore, the lower layer will be discontinued going forward. This is likely to be quite often by natural catastrophe and it is not trying to shift toward higher layers, which is not infrequently hit. And so the loss in natural catastrophe losses increased combining both Amlin and AD, but the loss exceeds the normal levels. And therefore, we will reduce overall risk exposure. And once those levels evens out and become more normalized, it will show more stable situation. And therefore, the current fiscal year, seems to be rather unique and anomalous and such anomalous situation continue up until the current fiscal year as well. But especially the unique and anomalous situation that we've seen last year as well. And therefore, in order to reduce the impact on profitability, we'll continue to reduce those underwriting.

You took working there in the reinsurance, but you are moving towards a shift to the upper layer, but there is further room for further shifting toward higher layers. Is that right?

Yes.

In order to control the volatility of our annual profit, we are trying to reduce the layer, which is likely to be completed by actual natural catastrophes. You now have a new Chief Underwriting Officer, right? How is the performance? Can we have high expectations of his own performance?

Right. The Chief Underwriting Officer of AUL joined us in September of last year. And in the case of AAG based in Zurich, the new Chief Underwriting Officer took office in February this year and both 2 Chief Underwriting Officers are showing initiatives and leadership and especially the Chief Underwriter Officer of Lloyd's business who took office in September is an expert in natural catastrophe risk. He's a very famous leader in the market itself. And so from this perspective, the portfolio of Amlin, he considered to be quite good. However, he says that there is good room for improving profitability further, not just limiting the natural catastrophe. And therefore, he is going to -- he is has become more selective in underwriting portfolio. And in a visible manner, the profitability of overall portfolio has improved in the past year. And the similar situation can be expected in AAG in Zurich. And so the profitability and earnings of Amlin growth has improved strategy.

Thank you, Tsujino-san. And I think our time is up. And so we will close the Q&A here. Questions that we could not take today later on IR will be receiving your questions. So if you could contact us. And we are showing a questionnaire and that's for the person's on site for the Zoom will then be questionnaires tomorrow. And we will use your feedback for future IR activities. So please answer the questionnaire. So MS&AD 2021, the second information meeting will come to a close here. Thank you for your participation today.