Tokio Marine Holdings, Inc. (8766) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for sparing your time from your busy schedules today. This is Ishiguro from IR Group, Tokio Marine Holdings. We have been holding theme-based sessions titled Tokio Marine Insights on a regular basis since this fiscal year. And previously, we covered digital strategies. This time, we'd like to present the theme of climate change strategy and TCFD, a topic which is gaining attention around the world as the UNEP/Fi's PSI-TCFD insurer pilot working group released a report just 2 days ago. Our company has been the leader in the field of TCFD for many years. And in June last year, Mr. Nagamura, who has been taking the lead in this effort, was selected by InsuranceERM as the sole Japanese leader with the greatest impact on climate chains in our industry. Mr. Nagamura is here with us to speak today. So hopefully, we can share not only our strategy, but also the global TCFD trends. Without further ado, let us introduce today's speakers. First of all, Mr. Masaaki Nagamura, Fellow of Tokio Marine & Nichido Fire Insurance; also, Mr. Takuya Igarashi, Head of Risk Management, Tokio Marine Holdings; and Takamasa Taji, Manager of Corporate Planning, Tokio Marine Holdings. We would like to begin with a presentation from Mr. Nagamura and Mr. Igarashi using the slides posted on our website today. Then we would like to engage in a Q&A session. [Operator Instructions] This session will end at around 5 p.m. depending on the amount of questions. Please note that this venue is being operated by a minimum number of staff members and prevention measures against infection are thoroughly implemented. But the speakers will take their masks off to make themselves heard clearly. Without further ado, Mr. Nagamura, please.

Hello. As was introduced, I am Nagamura in charge of liaison with international initiatives on disaster risks, climate challenge and sustainability issues at Tokio Marine & Nichido. I've been deeply involved in TCFD disclosure as well as a member of the team that developed the TCFD recommendations. After 3.5 years, with the request from the Financial Services Agency, I'm returning to TCFD as a member. Based on my experience, I'd like to share Tokio Marine Group's climate change strategy and our approach to TCFD disclosure today. Please turn to Page 3 of the deck. First, our approach to sustainability, which underlines our climate change strategy and TCFD disclosures. Since our establishment, our mission has always been to protect our customers and society in times of need by delivering safety and security. This will never change in the future, no matter what the times are like. With this purpose, we have solved various social issues with our knowledge and experience as an insurance group. Going forward, we will continue to grow together with our customers and with the society by contributing to building a sustainable society through our business. Please move on to Page 4. Now climate change is one of the most important social issues because it poses global threats to the safety and security of our customers and society and also because of its direct impact to the insurance industry. If you can please look at the left-hand side of the slide, the global average temperature has already risen by about 1.2 degrees Celsius compared to pre-industrial times. Under conditions of business as usual, it is predicted to rise as much as by 4.8 degrees by the end of the century. Climate change will bring about negative effects such as loss of land and intensified natural disasters. This is why the whole world is moving faster towards strengthening national resilience and decarbonization. We have been addressing this challenge from early on. And as an insurance company, an institutional investor and a global leader, we aspire to change the world through our business so that people can continue to live with peace of mind and also so that we can play a role in supporting the decarbonization transition. As a sign of our determination and to further demonstrate our leadership as a global company, we announced the group's policy and initiatives on climate change in September last year. Please refer later at your leisurely time to our website for details. Today, I would like to introduce some of our ideas and approaches related to this. Please turn to Page 5. Now first, our approach as an insurance company. The IPCC has proposed a mitigation and adaptation approach to climate change. So in order to help companies and people's responses to these issues, we must support disaster victims through insurance and also contribute to building a disaster-resistant society and a sustainable global environment. Now if you can please look at the left side of this slide, we're working to speed up the claims payment by digitalizing the entire insurance payment process, not to mention our response to disasters, but also to deliver peace of mind to our customers as quickly as possible. Next, the center of the slide. Tokio Marine & Nichido Risk Consulting and TRC, the group's consulting company, provides disaster education and support for BCP measures, provision of information and alert on disaster prevention and collaboration with BELFOR, a disaster recovery specialist. This is how we have been utilizing our knowledge and network to accelerate assurance before and after disasters occur with disaster prevention, mitigation, early recovery and recurrence prevention. And on the right-hand side of the slide, Tokio Marine & Nichido has been providing a number of dedicated products to support the spread of renewable energy. For example, in anticipation of offshore wind power in Japan, we entered into projects in Europe in 2013 and later entered into projects in Taiwan. This is how we became one of the first in Japan to enter this field. As a result, we launched our first dedicated packaged product in Japan April last year. Furthermore, we acquired GCube a leading player in this field May last year. So we hope to lead the transition to a decarbonized society by utilizing the knowledge of GCube on a global scale. I would also like to add that going forward, our policy and principle is not to provide new underwriting capacities for coal-fired power projects. Please look at Page 6. As seen on the left-hand side of the slide, our group has been proactive as an institutional investor, signing the PRI and et cetera. We'll continue to support that -- we will continue to support this transition to a decarbonized society with investment and financing activities by promoting ESG investment, and in principle, suspending new financing for coal-fired power plants. Finally, on the right-hand side of the slide, our own efforts as a global company. Later, I will explain our participation in international initiatives as well. As you can see below, our group has also been focusing on mangrove planting as insurance for the future of the earth since 1999. We've made significant contribution to achieving carbon neutrality at the group level for 7 consecutive years. And the economic benefits generated over the past 20 years have amounted to a cumulative total of JPY 118.5 billion. Last year, in October, we announced the Mangrove-based Value Co-creation 100-Year Declaration. Will continue to contribute to building a sustainable society by engaging all of our employees in global environmental protection activities. Please turn to Page 7 regarding our efforts to promote TCFD disclosure. In order to solve climate-related issues, achieving The Paris Agreement target is a high priority for insurance companies. The Paris Agreement was adopted at COP 21 in 2015, and it sets an effort target of 1.5 degrees Celsius in addition to the so-called 2-degree as goal -- as a globally shared long-term goal. The 1.5 degrees goal means that the greenhouse gas emissions must be virtually 0 by the middle of the century. Especially in the financial sector, this is gaining more attention in the recent few years, starting with the TCFD. This is not the occasion to give a lecture on TCFD. But just to give a short history, TCFD is an expert panel established by the Financial Stability Board in response to a request made by the G20 Finance Ministers meeting held in April 2015. The TCFD was established in December of that same year and its final report was released in June 2017. The TCFD recommendations are unique in that they recognize the risks and opportunities of climate change and demonstrate the resilience of strategies through scenario analysis. So please look at Page 8. Although the TCFD recommendations were designed for voluntary disclosure, companies are expected to recognize transition risks and opportunities associated with decarbonization in addition to physical risks and opportunities. And also, they are expected to show how these will affect balance sheets, P&L and cash flows. Please turn to Page 9. Insurance companies are required to improve risk management disclosures, especially. Climate change may lead to more cases and intensity of weather-related disasters. And we recognize that investors may be highly interested in this area since we provide coverage for natural disaster risks and its physical risks. So please turn to Page 10. Developments after the release of the TCFD recommendations in 2017, you can see this on the slide. It is worth noting that specific actions have been taken in key European countries, as you may know, and also that the Federal Reserve Bank has also expressed its commitment to climate change measures. With focus on climate change as a potential cause of financial risk, the network of financial supervisors on climate change risk or NGSF (sic) [ NGFS ] was established in December 2017. In June 2020, the NGFS released climate scenarios to central banks and regulators. So going forward, financial institutions may actually start to conduct scenario analysis based on NGFS' climate scenarios. In the investment circle, institutional investors as Mr. Larry Fink, CEO of BlackRock, did in January last year, are encouraging companies to disclose information in line with the TCFD recommendations. To promote TCFD disclosure in Japan, the TCFD Consortium has released the Green Investment Guidance and TCFD Guidance 2.0 as a voluntary activity of the private sector. Currently, TCFD-related members are focusing on the fact that Japan is the top, even over U.K. and U.S. when it comes to the number of organizations in support of this. Please look at Page 11. Our efforts to promote TCFD disclosure are shown on this slide. We not only support the TCFD recommendations, but also have made efforts to reflect the Japanese perspective in the recommendations. On the above right-hand side, we have been participating in the United Nations Environment Programme Finance Initiative since 1999. Also, as a founding signatory to the Principles for Sustainable Insurance, PSI, published at Rio+20 in 2012, we are promoting industry-wide efforts to address ESG issues, including climate change. Along this line, we've participated in the PSI TCFD insurer pilot working group since 2018. On the bottom left-hand side, I've been co-chairing the climate change working group of the Geneva Association, a group of the world's top insurance companies, since its inception in 2008. This is where we lead the industry in developing and publishing climate risk statements. And more recently, we've been discussing a response to the TCFD recommendations. As shown on the bottom right-hand side, we've been disclosing TCFD ourselves since fiscal 2017 and have enriched our disclosure since then through dialogues with international organizations, governments, regulators and investors. Last year, in September, we released a statement titled, Tokio Marine: Our Climate Strategy, to promote measures in line with SDG's principle of leaving no one behind. Please turn to Page 12. We believe that the significance of participating in these national and international initiatives is to promote the development of TCFD disclosure methodologies. At the global level, we are participating in PSI TCFD insurer pilot working group, as mentioned earlier. And just 2 days ago, on January 19, this group released a report titled, Insuring the climate transition, which describes the process of identifying hazards and sensitive lines of insurance for each country, understanding financial impact and key points to be considered. For example, using IPCC RCP4.5 and RCP8.5 scenarios for physical risks and typhoons in Japan. This will help promote TCFD disclosure across the insurance industry since this is the first time we discussed TCFD disclosure methodologies. In Japan, we are deeply involved in the TCFD Consortium as an initiator and planning committee member. Last year, after discussions within the industry, we presented our recommendations regarding disclosure items for nonlife insurance. Also, our efforts as a company were published in the case studies. So as you can see, we are committed to the transition of a transition to a decarbonized society by promoting TCFD disclosure in the industrial and insurance sectors globally and also by enriching our own disclosures. That's all for myself. And now Mr. Igarashi, Head of Risk Management, will explain chapter 3. Thank you for your attention.

This is Igarashi. We have made risk-based management in ERM the cornerstone of our group management. And we are currently managing a wide range of climate-related risks, including climate change in risk management. Today, I'd like to explain how we integrate climate-related risks into our ERM process and also how we identify, assess and manage these risks. So if you could please turn to Page 13. This diagram shows our ERM cycle. First, we set up a risk appetite framework to determine what risks and how much of those risks our group could take. And then based on this framework, we are formulating our business plan. And based on that business plan, we determine and execute capital allocation and verify the sufficiency of our group's capital and funds. This verification process is shown on the right-hand side of the slide. This is how we comprehensively identify and assess risks both qualitatively and quantitatively. Moving on to the next slide. I would like to explain how we include climate-related risks in this process. Page 14, please. First, our approach to qualitative risk management. We try to gain a comprehensive understanding of all risks and this includes emerging risks due to environmental changes, which, obviously, includes climate change. So of these risks identified, we look into this further and those with significant impact on financial soundness and business continuity are identified as material risks. Natural disaster risks including climate change risks is one of them. So for these material risks, we not only conduct qualitative risk management such as formulation of control measures before and after the occurrence of risks, but also we quantify risk management such as measuring risk amounts and upgrading stress tests with climate change in mind. I would like to explain the details on the next slide. So please turn to Page 15. So the first step is to measure the risk amount, which we use a risk model to measure. To ensure that the model properly reflects the recent and current natural disasters, we work on collecting the latest knowledge, verify and evaluate the model itself and make it more sophisticated. For example, in order to gain knowledge from overseas, we have an R&D team in Atlanta with expertise in natural disasters. This team is leading the group's risk management functions related to natural disaster risks; various assessments of natural disaster risk models, including the impact of climate change; management of natural disaster exposures of overseas offices and immediate predictions of disaster impacts, such as hurricanes in North America. Furthermore, we have other initiatives such as training the natural disaster risk officers at group company levels, supporting natural disaster risk analysis and risk quantification activities and providing information on natural disaster risks. So next, we have the stress testing. For example, we simulate cases of typhoons and floods at a much larger scale than 2018 or 2019 when we saw major damages in the Tokyo metropolitan area. These large-scale disasters might happen at a lower frequency, but the damage is material. So we are continuously updating our scenarios, taking into account these stress tests published by regulators in various countries, the latest findings, including climate change and recent cases. Next, I would like to explain how we are upgrading our knowledge to support these efforts. Please turn to Page 16. In order to gain knowledge of these risks, we are deepening ties with experts, both inside and outside the company, and sharing the learnings with our management team. We try to better understand climate change risks. For example, with regard to physical risks, actually the Tokio Marine Research Institute conducts impact analysis based on scenarios, taking into account the possibility of an increase in insured losses due to more severe natural disasters. With respect to transition risks, we aggregate our exposure to coal-related industries in order to understand the changes in asset values associated with the transition to a decarbonized economy. In addition, we established a system that allows us to monitor our entire group's AUM. And we plan to use this to monitor our exposure and analyze the impact of specific scenarios. On a final note, I'd like to mention that Tokio Marine is taking global measures. Looking at the entire planet. For example, in the U.K., we are strengthening our capabilities for climate change preparedness and scenario analysis. In the U.S. efforts to deal with climate change are accelerating under the leadership of President Biden. So we are gathering information as we take actions to determine our own initiatives for the future. In 2021, we will further solidify this trend and expand this to other countries through close cooperation with each of our offices. Through ERM, we hope to build a management system that is resilient to climate-related risks, and at the same time, contribute to solving the very important social issue of climate change. Thank you very much for your attention.

Thank you very much. And now we would like to take questions from our fellow audiences. [Operator Instructions] According to time limitations, we may not be able to answer all of the questions. But in that case, the IR group will respond on a later date. Now we know that the ESG-related field is attracting a great deal of attention today, and the angle and breadth of the scope to be considered are changing every day. We are also considering various measures to be taken in preparation for the next midterm management plan that we're putting together, which will be announced in May. So we understand that there may be some questions that we will say it is under consideration at this point. So let's see what questions we have. First of all, from Bank of America, we have analyst, Mr. Sasaki. Based on the IPCC-IEA climate change scenario and evaluated the domestic wind- and flood-related risks, the peak risks, how much do you think it would be higher compared to today's evaluation? Mr. Igarashi?

Yes. Thank you for your question. So the details regarding your question, we have the research institute that has been working on the analysis. But actually, the contents of the analysis is not to be disclosed, and therefore, we cannot answer your question. But having said that, for each of the scenario that we're working on, we are looking at the parameters and determining which level is appropriate because your question is precisely the point that needs to be verified. How much do we need to change the peak risks, that is exactly what we are working on.

Thank you. Next question from SMBC Nikko analyst, Mr. Muraki. We have a question regarding the risks of the financial asset price changing very quickly. This is discussed in NGFS. In Japan, we have the wind, flood and earthquake risks that are being underwritten, but we actually also have the Japanese equity and the super long-term JGBs as well. So if we have ESR risk evaluation, how can we diversify the asset investment management risks, how to calculate ESR? And also if there is a possibility that the asset portfolio might change.

Yes. Thank you for the question. To this question, again, we are assessing the level of impact as we speak. Exactly, as I mentioned earlier, when it comes to asset management, total exposure, this is something that we are controlling centrally in our system. And going forward, we will improve and strengthen our analysis results. And also, the question as to what is the effect of diversified risks, that really is something that we're working on today.

All right. From Daiwa Securities, we have Mr. Watanabe with his question. His question is regarding Slide 14 regarding the qualitative risk management. Currently, due to the environmental changes, what is the biggest risks that is emerging? Also regarding Page 15, which is about the quantitative risk management when you calculate the ESR risk amounts, do you reflect the recent increase in the climate change risks? Hypothetically, if you think that the natural disaster risk is more than before, do you think there will be a change in your reinsurance strategy?

Yes. To your first question regarding emerging risks due to changes in the environment. Obviously, one of the biggest risks is the wind and flood risks in Japan and outside of Japan. These are the biggest risks that we have picked up so far. As for the calculation of ESR, have you reflected the increase in the climate change risks in your latest calculation? So to this point, the model that we use to calculate the risks has reflected the wind and flood risks that we have as information so far, but we are continuing to work with experts to assess the accuracy and the validity of the model. What we do is that we enter data into the model and run the back test to verify it, so the observation time period is 12 months. So if we try to -- so that does not mean -- so that means that we are not reflecting the future risks. We have reflected the latest 12 months' risks that have happened in the past, but it is not that we have reflected future possibilities. Having said that, with the stress test, we are collecting knowledge about climate change and we are updating our scenario as we speak. Taking that typhoon damage that we experienced in 2019, our estimation is that a disaster much larger than that 2019 case will happen. So the scenario analysis as to what kind of impact will be incurred is analyzed in the stress test and the scenario analysis. With these 2 methodologies, we are focusing on the changes due to climate change.

All right. We have various questions coming in. Let's see, let us -- yes, from Mr. Muraki from SMBC Nikko Securities. Let us know about the latest trends regarding regulations and monitoring for insurance companies. At the Basel bank monitoring committee, the TFCR has been launched. So for the insurance authorities, international group, IAIS, what kind of discussions are you hearing? And in terms of international solvency regulation, ICS, what kind of discussions will there be? And how will that be reflected onto your stress test?

Yes. Thank you very much for your question. In terms of the regulatory bodies, what are their actions? So as you know, there are various regulations and monitoring organizations are discussing -- are deepening their discussions regarding climate change. As you have mentioned, yes, there is IAIS, and yes, they are talking about climate change. And also, they have also launched a paper regarding TCFD as well. Also, they have something that they have drafted, application paper regarding TCFD, that was the last -- end of last year. And now they are deliberating on the comments regarding that. So will this be reflected immediately on something like capital restrictions? No, maybe not. But this is definitely something that is being discussed in various organizational bodies. Maybe the TCFD reporting disclosure should be a mandatory thing. This is the kind of discussion that is happening right now. There is PRA, Prudential Regulatory Authority, in U.K. that is leading this. And already in their communication, you can tell that the nuances, that it will become mandatory in the future. And maybe the goal to that in terms of time line is 2023. This is how I interpret it. And also in France, they are not even waiting for TCFD. They're going ahead to constitution [ clause 130 ] to make disclosures mandatory. We see these actions as we speak. And also, when it comes to the FSB, which is taking the lead for TCFD, they have been working on various studies since last year, supporting the technical aspect of this. They have issued some papers related to that topic, too. So anyway, in these organizations, there's all these activities and debates going on. But what stands out most of all is something that I already talked about, and that is the NGSF. So this, as I mentioned earlier, as of June, spring last year, they displayed a scenario. And now there is more concrete actions to make it more actionable. So then will TCFD disclosure become mandatory? And is that a good thing or not? This is the debate that I must shed light on. Now actually, in Japan, when it comes to TCFD disclosure, there is TCFD Consortium, which is a voluntary initiative by the industrial players. So this body is leading that initiative. It's voluntary disclosure. Now voluntary disclosure, when you think about the framework of TCFD, it was voluntary. That was the concept. So the aim of that was that the investors can obtain more useful information for their decision-making. So that's why the companies need to think on their own, be creative and provide forward-looking disclosures. But now if -- or when the regulatory bodies make this mandatory, there is another dynamic that is creating a twist to this movement. Now if the regulatory bodies are aiming for a long-term goal that is aligned with the investors' goals that would be fine. But maybe there is a different interest. At this point, is it really aligned, the regulatory's goals and the investors' goals? What is the current situation? Maybe we can assume that the regulatory's goal is to look and observe at the current situation, then that is not aligned with the investors' goals, possibly. So this is a part where we have a bit of a concern as we monitor the situation. Thank you.

All right. Thank you. Next, we'd like to move on to some questions from overseas. So let's take some English questions. This is from [ Mr. Robert Weidenbach ]. How are you working with third-parties and governments on client issues -- climate issues. There's another question. For what perils does the company believe future trends may deviate substantially from historical trends due to changes in the hazard. And also similar for what perils, if any, does the company believe that a catastrophe model extrapolating observed trends will be insufficient to plan for maximum possible loss or early annual loss -- yearly annual loss. So regarding third parties, Mr. Nagamura. And then for the second question...

Yes, I would like to take the first question and then Mr. Igarashi will answer the second question. Regarding working together with third parties. Well, third parties. First of all, as Tokio Marine Group, the first time we started to work on climate change was 2005, 2006. And ever since we've been working together with Tokyo University, [ Professor Kimoto ], as a group and working together closely on looking at the future climate, for example, typhoon, natural disasters and how that would impact us. This is the study that we have started at the very early stage. Every year, that study has been refined. These findings that we get from the project have become the foundation of our countermeasures for a climate change in the future. So I also talked about the research institute. That research institute has been involved with the Tokyo University's projects. Even now, we are very active here and this really is the foundation of our work regarding climate changes. Also, collaboration with the government. When it comes to penetrating TCFD and working together with agencies and bureaus from the government, we are very active in that as well. It was often said that this TCFD disclosure is something that everybody has to work on, otherwise, it is meaningless. In other words, no matter how advanced the system is, if nobody is adopting it, then it is meaningless. That is what it means. So in Japan, this TCFD disclosure, how will it be developed? How should it be developed? This is something that we're having a serious discussion with the related agencies of the government bodies. Now of course, we have the Financial Services Agencies, which is the group that is working for the TCFD disclosure. I've been working in liaison with them and that is creating the flow for the Tokio Marine Group as a whole right now. And also, the related stakeholders have been focusing on this very closely. And ever since the TCFD declaration has been made, the stakeholders have been working on disclosing -- promoting the TSFD disclosure measures. So one of the major stakeholders in the government was the METI, the Ministry of Economy, Trade and Industry, because without -- needless to explain, they are the main function of the economy and the business right now. And by creating a nudge to the industry players by the METI, this TCFD disclosure would be promoted. So TCFD actually started with a small study group in the beginning in 2018. That's when it really started. And that is when the METI was already involved to focus not only the financial investor, but also the industrial sector, especially when it comes to companies that will be pressured due to decarbonization like energy-consuming companies, large-scale energy consumption companies. This has also been the target of our discussions. Now obviously, in the beginning, there were some difficulties. But fortunately, with various support from the industry players, we've been able to move forward. Yes, going forward, we'd like to continue to deepen these discussions with the government agency bodies closely so that we can promote TCFD disclosure in Japan.

Yes, I'd like to take the second question. So what perils does the company believe that may deviate from historical trends? And also, can we really plan it out by extrapolating the past?

Igarashi will answer this one.

First of all, now climate change does impact a lot of weather-related risks, but our exposure, when we look at our exposure, there is Japan, America wind disasters. In other words, typhoon, hurricane in Japan and America as well as floods. These are the perils that we focus on. Now how do we believe that this will become more intensified? We're looking at some of the U.S. marine bodies and some other organizations that say that the intensive -- the level of intensification is different by what peril you are talking about. So sometimes the grounds is to believe that a natural disaster will become more intensified. There are some perils that have said to be intensified with no grounds. But for those that people say that it will be intensified if you look at the current evaluation, when you look at our model, by extrapolating, adjusting or supplementing data is not enough. Just in other words, extrapolating the past and supplementing with data is not enough to plan out how intense the future perils will be. But having said that, there is no static answer because the situation continues to change as we speak. That's why we believe it is important to continue to work with expert panels to collect the latest information. Specifically, I mentioned in my presentation that we have the R&D team that resides in Atlanta and there are members who have PhD -- members who have PhD, very high level experts, and also Tokio Marine & Nichido Consulting and also the research institute. We also work together with third-party institutions to evaluate climate risks -- climate change risks. We also work with Tokyo University, KYOTO University, Nagoya University to engage in joint researches regarding natural disasters, various academic institutions in that way. And with all of these studies and researches, we are deepening our knowledge to see how we can improve our model. Yes, thank you.

Now we'd like to take a question from Ms. Tsujino from Mitsubishi UFJ Morgan Stanley, question to Mr. Nagamura. So do you think in the insurance industry, your efforts regarding TCFD is progressing at all? It can be about the regulation or it can be about -- it can be about the regulatory side or about the insurance industry side. Also from JP -- we have Mr. [ Hanaoka ] from JPMorgan Asset Management. So this is not about Japan. But when you compare it to your global peers, how do you self-evaluate your level of TCFD disclosure? If you can answer both of them, please?

Yes. Thank you. So first of all, to take your first -- take the first question regarding the TCFD measures in the insurance industry, is it progressing in the financial industry? Is it quick or is it slow? I think that's what -- the gist of the question is. So precisely, the UNEP/Fi has announced this 2 days ago, as I mentioned. That is something that has been released in the insurance industry for the very first time, and that is the TCFD insurer pilot working group report that I talked about at the beginning. And also, this -- there's reports from the asset management sector as well. It was about 2 years ago that these reports have been published one after another. But in terms of sequence, it just sounds like the insurance industry was later a follower in these launches of these publications. But I would assume that if you just look at the sequence of the report publications, it might seem like the insurance industry is the latest and the financial industry. But if you actually look at the disclosures of each company, it doesn't necessarily demonstrate that the insurance industry is delayed. Now in an insurance company, the difficulty of TCFD disclosure is the risk. Anyway, to deal with the risk is our core business and I think that is why it feels so difficult. We have to talk about our core business. We have to talk about disclosing our own -- proprietary drawings. If you would take the analogy of a manufacturing company, you are going to show the core center of your business model and it's about how you disclose the information, but also gain profit from that. And that's the bread and butter of the insurance industry. And with TCFD disclosure, we're supposed to disclose that. So we cannot help but be prudent. Please understand that we do need to be prudent because all of the insurance companies don't want to just tell the whole world about what their strategy is. So that is why there's a restraint or a hesitation to disclose freely. Having said that, through various debates, we have become aware of some specific points of difficulty in disclosing information as an insurer. Disclosing sensitive information that is relevant to the core strategies of the company, there is, yes, a reservation to that. But I should also mention that the situation of each insurance company is different. The jurisdiction that they're active in and the type of products that they have and the business models are totally different. And depending on that, the impact of climate change will be totally different. I think that can be said. So therefore, some company might take methodology A to disclose the information, but another company will disclose it in style B or C, and then it doesn't make sense with no consistency. Now my impression is many insurance companies -- well, maybe not just insurance companies, but also financial companies, are looking at the transition risks of the asset side. And this is the discussion that is 80% of the whole TCFD discussion, I feel. Transition risk. It is indeed a delicate topic. And the reason is because, depending on how you interpret it, it will mean divestment about the assets that are dormant or that has -- needs to be divested. And what we need to be careful here is that disclosures are something that has -- carries messages. We need to carefully assess what kind of message we are communicating to the society by disclosing that piece of information. Numbers, you disclose them and they tell a story on their own. And also, yes, there are ways to be -- easier ways to disclose information, easy for the readers, but is that really the best way? That also needs to be discussed. For example, creating indices that are forward-looking for finance industries. When TCFD published the final proposal, one of the recommendations that was included was the carbon intensity -- weighted average carbon intensity of the portfolio. But after 3.5 years, the reality is that not many companies actually disclose that information. This is not limited to insurance companies. So now there are some other options, for example, implied -- direction, so showing a direction, for example, what is the direction that the portfolio is going forward -- going for. And so these are the other methodologies that are being discussed about its appropriateness level. GPIF has also taken that methodologies 2 years ago to disclose their number, if some people remember that. But that was very easy to understand because you look at your current equity and credit and you make efforts to disclose the information related to that. But the reality is the grounds of what that information is coming from, it comes from the companies' and the industry's carbon -- CO2 emissions. That is the base of the calculation. See, but the amount of CO2 emission is not scientifically proven at all in its relation to the rise in temperature. So actually, there is no grounds, but they're just giving out information in that style. So that's why there is a question as to how meaningful that would be. I'm not saying that this is a negative way. I'm not being negative about the way they disclose that, but it's just one example as to -- one example that tells us that we need to be very level-headed in the information and the way it is communicated. My answer has become very long-winded. But in our efforts in the insurance industry, the above can be said. Now our positioning amongst global peers to the second question. The TCFD pilot working -- insurer pilot working group, there are some members that includes the -- some of the key players in Europe. They are here as well. And so with these members, I -- we always exchange information. And naturally, the European companies that I just mentioned become a benchmark. In terms of the reality of disclosure, yes, it is true that European companies are more proactive in giving out information. Having said that, I also mentioned earlier that the methodologies of putting those data together need to be supported widely by the greater investor community. And is it the case today? I think we need to be very prudent. So that's why we think that if we are going to disclose the information, it needs to be decision useful. That is really the point. So the worst thing is to provide information that is misleading and to miscommunicate ourselves to the market. With these cautions, we would like to work on moving forward. That is the stance. Yes, thank you.

All right. We may go over time a little bit. We have mentioned that we may go beyond 5 p.m. and extend until 5:15. So please let us continue to answer some more questions. We have one from Mr. Otsuka from JPMorgan Securities. So for you, is natural disaster risk good risk for you? When you look at simply, in the single year P&L, it looks like a bad risk. But in terms of ERM, how do you position natural disasters risk? In other words, it is a risk that you're supposed to take. It's a question regarding risk appetite. Mr. Igarashi?

Yes, thank you. Whether it is good or bad is the question. Precisely, as Nagamura mentioned, the risks of natural disaster is our bread and butter, so -- especially when it comes to the country of Japan that faces various natural disasters. This is something that we cannot avoid and it is actually the source of our income. Therefore, we need to have an appropriate price -- appropriate pricing strategy. Don't just go with a rough calculation. Of course, we need to be meticulous. And also we need to protect our customers' safety and assurance, working in liaison with the government as well. That is exactly our purpose, and that is to protect our customers in case of emergencies. So yes, we do look at this as a chance, an opportunity. So that's why we have GCube and also renewable energy and all these other topics that we must seize as opportunities. Enterprise risk management actually is not just about risk aversion. It is about looking at these various risks that might impact our customers and protect our customers from that in that emergency case. That really is our corporate purpose, and this is a chance for us in that sense. Okay. Thank you.

All right now, we have, from Mr. Hyogo, Mitsubishi UFJ Trust Bank. So regarding the climate change strategy and your efforts, do you think this will become a strategic differentiation amongst your peers in the nonlife insurance industry? Second question is regarding the generic TCFD trends. We understand that the financial impacts will be disclosed to some extent going forward. But then what is the next kind of debate should we foresee after that? I think both of these questions are addressed by Mr. Nagamura.

Yes. Thank you very much, Mr. Hyugo. To your first question about the differentiation, leveraging the climate change strategies. Yes, it will become a differentiation. Actually, it has to become a differentiation. As you would assume, since last year, especially under the leadership of Prime Minister so that we have the carbon neutral declaration, that has become a very big trigger. And this year, we have COP26, November in 2021. So that is why already, we have various factors working extremely actively for decarbonization discussions. So it may see -- look like, at one site, a very big pressure to the corporate community. But it's a change. And when we are in phases of change, it always provides opportunities. This is something that we're convinced about. So in other words, decarbonization seems to be a negative factor or at least the negative sides of decarbonization stands out more when one perceives it. But it's really about becoming the leader, going ahead of the curve to work on decarbonization. Therefore, it definitely is the trend and we need to catch the trend early, earlier than our peers to lead it to our business. This is very important. So fortunately, at Tokio Marine Group, we have been working on climate change and its challenges from a very early stage and also working in global frameworks like TCFD and have been deeply involved in this. So from our experience and the network that we have, we would like to utilize those and -- as drivers for this movement. Now the TCFD itself is -- well, it's just a framework for disclosure, right, one must say, and that is true. But you also may know that 2 years ago, as Japan, we launched, based on the Paris Agreement, the long-term strategy, growth strategy. And in this growth strategy, it has positioned that TCFD is a national strategy. So it is not just a disclosure framework. So that is why decarbonization technology, for example, is something that Japanese companies will be very good at developing. This can be a way to contribute to decarbonizing the society. In other words, what I'm saying is that working on decarbonization just in the limited geography of Japan is not the way to go. We need to work on this theme with the foreign countries in mind. For example, deploying some of our decarbonization technology to other countries outside of Japan. This is the major flow that is becoming the stream for us. And in this major stream, TCFD disclosure is one of the frameworks that is strategic. Yes, so the possibilities of the TCFD disclosure is expanding. Now to the second question regarding the next discussions after disclosure to financial impact. Yes, what is the path going forward? Currently, ESG disclosure is being revised and we are reviewing the way to do this. For example, the IFRS Foundation, which is by ISB (sic) [ IASB ], this was actually the body that gave birth to IFRS and there's a Sustainability Standard Board, SSB, that has been established here. And that is where various ESG disclosure practices are being built into international standards. This is what they're working on right now. So this TCFD is something that has been discussed primarily with this impact to the finance when it comes to ESG. But yes, that is one step. And then going beyond there, we can horizontally expand this to other financial challenges and that will ultimately create a depth and breadth to the entire ESG topic. This is something that happened at the end of last year. This IFRS Foundation work has finished. And I would suppose in the first half of this year, the next steps will be demonstrated and that is about the SSB and how we really position the SSB going forward. So that is coming up. And when we see that, we have all these social issues, including climate change. And I think we'll have a -- we'd be able to have a bigger decision -- discussion about how much impact it will have on our finance. So yes, the IFRS Foundation and all of these communities related to ESG is currently very excited with all of these topics that are being discussed as I speak. So this is something that we should focus on this year, I believe.

Next, we have analyst, Mr. Niwa, from Citigroup securities. So I want to ask about physical risks, 2-point, please -- 2 points, please, one. So you said that the observation period is the next 12 months. Is this the same as the other global peers? If you can just self-evaluate, how you are doing against the European peers. Second point is that speed of advancement of risk models and the risks that are intensifying as we speak in reality. Do you think we're catching up enough? Maybe the risk models are not being improved as fast as the risks that are becoming more intensified. How much have you worked on the advancement of your models? For example, in the past 10 years, how much advancement have you accomplished? Mr. Igarashi?

Yes, thank you. To the first point about the observation period. Yes. So in that sense, I should talk about the overall framework, first of all. In terms of measurement of risk volume, yes, we do look at 12 months. And this is the same with the peers. Now having said that, when it comes to the stress test and the scenario analysis, it is when there is a shock that is bigger than what we've observed in 12 months, do we really have enough capital and funds? This is what we verify. As I mentioned earlier, the European and American regulatories -- authorities have launched various stress tests and so we are aligning ourselves to the level of those in our own stress test. Now the observation period is still 12 months, but we supplement the sufficiency of the calculation with the stress tests. Next, regarding the advancement speed of the risk models. Yes, our risk models, obviously, is about the risk volume and we have verified the sufficiency of this. It is a very -- since we are verifying the sufficiency of it, it's very important. If you -- so you're asking about the past 10 years, but at least every year, we check, do an inspection on our model and see what is missing, what we need to strengthen, what we need to update. So we work on this on a regular basis. In the recent years, we have the intensified typhoon. And with that in mind, well, it's not just the typhoon, but also the claim payment made when there's actually a disaster. Maybe that price goes up to various macroeconomics indices. So that actually happens. So when the risk is intensified, which we update every year, we always reflect these things appropriately. But then again, if you ask about the future, since we still need to work on these parameters based on knowledge, not just internally but from outside, we still need to figure out where new opportunity is and how much we need to improve, how we need to manage what kind of risks. All these things need to be considered as we device our strategy. Yes, thank you.

All right. So we'd like to take one last question. We are aware of the time. Mitsubishi UFJ Morgan Stanley. Ms. Tsujino has given us this question. So when we put together the climate change strategy or the TCFD strategy, this is our core. And so Mr. Tsujino's question is, well, I understand that, that is your core strategy. But doesn't that mean that your knowledge is more significant? How confident are you with the question basically. Yes, to this point, relatively speaking, when it comes to the ERM perspective, maybe we should have Mr. Igarashi answer the quantitative science; and the overall answer from Mr. Nagamura, please.

Yes. All right. Thank you. So in terms of the knowledge and experience that we have accumulated so far, yes, it is significant. It is superior. Since we have been, for example, working with Tokyo University at the very beginning and also with Nagoya University and also KYOTO University on this topic due to precipitation and floods and flooding of rivers, these are the studies that we have worked on with these universities. So I would assume that on an international level, I can say that there are not many companies around the world that invest so much in our own projects regarding climate change. This is something that we are proud of. And at the same time, we are working together with that Geneva institution initiative that we've been involved in for a very long time. And we have been involved in putting together recommendations and opinions. So we have the Annual General Meeting of this Geneva body in Japan, and we submitted a statement at the time. At the time, the member of the Geneva institution was more than 50 people, more than 50 CEOs from Japan supported this. And so since we are insurance companies, we really need to look at climate change and put it in the center and really work on it on a full-fledged -- in a full-fledged manner. It was kind of like our declaration of this commitment to do so. So it was revised once in 2014, but it's still fresh, I think. So in this way, as an insurance player, we have all these initiatives that we've been working on ourselves. If you compare this to the international community, I think we are one of the leaders and we're proud of that. So we would like to leverage on this experience to actually help strengthen our own strategy as well. I'll stop here.

Yes, I would like to talk about the ERM side of your question. It just tends to be that the second-line risk management division like us cannot say that we are the top because as risk managers, the moment we say that we are at the top, that's the end of our growth. So I just must need to say that we will continue to improve and grow going forward. Now at least across all of the peers, as Mr. Nagamura mentioned, we believe that we are sufficiently a member of the top-tier group. And so I must say that we are not complacent and we must continue to improve this, together with the Atlanta team and also Tokio Marine & Nichido Consulting Group. And we do work together with them as we speak. With these social issues, networking capabilities become key as well. So as Mr. Nagamura mentioned, we -- that's why we work together with the universities, Tokyo KYOTO, Nagoya, and engage in these joint researches as well. These are the knowledges that we can use. And also, we have our fellow group companies around the world, which are also groups of very elite experts in this area as well. So that is why we believe that we can work on this climate change efforts as a company, as an entire group with all participants within our organization to solve this very important social challenge. Thank you very much.

Yes. So with this, we would like to close the Q&A sessions. And we would like to close the session, Our Climate Strategy & TCFD. For the questions that we could not address today, we're very sorry that we could not fit it in the allotted time, but the IR group will answer them on a later date. So last housekeeping announcement is that if you have any comments or suggestions about this event or if you have a certain topic you'd like to request, Tokio Marine insights to cover in the future, please feel free to leave them in the chat box at the bottom of the screen. Thank you, everybody, so much for your participation today.