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

As the time has come, I would like now to get started. Thank you for coming to Tokio Marine Holdings Fiscal 2022 First Half IR Meeting. I'll be your emcee today. I'm from the IR Group, my name is Ishiguro. First of all, the way we're going to have this meeting is due to COVID-19 and its impact, on top of having people here in the venue, we also have people participating online, so this will be a hybrid meeting. Within the venue, we have a minimal amount of staff so that we could prevent the spread of COVID. But for the presenters, so that the audio can be easy to hear, they won't be wearing masks. For those who are participating online, due to the communications environment, there might be a time lag between the actual live streaming and the audio you hear. Therefore, if you would like to ask a question, please connect to the phone -- video -- phone conference so that -- and mute the live streaming video. All of the audio can be listened through the teleconference, including the presentation. Now, let me introduce who's here with us from our side. From Tokio Marine Holdings, Group CEO, Satoru Komiya; Co-head of International Business, Akira Harashima; Group CFO, Kenji Okada; Group CSO, Yoichi Moriwaki; Yoshinari Endo, Group CIO; Masashi Namatame, Group CDO; Kiyoshi Ajioka, Group CRO; Outside Director, Takashi Mitachi; and from Tokio Marine and Nichido Fire, President and CEO, Shinichi Hirose; Managing Director, Kiyoshi Wada; Managing Executive Officer, Eiichi Hosojima; and from Tokio Marine and Nichido Life, we have Tetsufumi Kawamoto, President and CEO. The way we're going to proceed today is, first, Mr. Komiya, our Group CEO, will be presenting based off the material that has been updated on our website today. Then after, we would like to take any questions that you may have. We plan to end at 5:30 p.m. Japan time, but according to -- depending on the Q&A session, we might extend by, at most, 30 minutes. Now over to you, Mr. Komiya.

Hello, everyone. My name is Komiya, and thank you very much for participating in the business strategy meeting of Tokio Marine Holdings today. And I also wanted to appreciate your continuous understanding and support to Tokio Marine Group. It was last Friday when we announced our financial earnings for fiscal '21 and also held a telephone conference on that occasion. Thank you for those of you who participated in the conference call last week as well. Last Friday's conference call, we talked about the recent business conditions, outline of our financial performance, reflecting such business environment and shareholder return consistent with our financial performance. Today, we are going to be talking about some specific measures that we will execute in order to achieve global top-tier profit growth, management strategy to underpin such measures and direction that we want to pursue over the mid to long term. We will be giving some in-depth explanation on those topics and hope that will help you deepen your understanding of Tokio Marine. By the way, because the Tokio Marine Holdings building is under construction for a rebuilding project, we are using this venue, Shibusawa Hall, to welcome you and to talk to you. It so happens that we are doing this just as -- at the timing of returning to our business purpose to aim for a new stage. I cannot help but feel serendipitous about holding this event in a hall named after Mr. Shibusawa. So without further ado, we would like to get started, so please turn to Page 2. My presentation will be 3 parts, and I will be talking for about 30 to 40 minutes. After that, as usual, we would like to do Q&A and receive comments from the floor as much as time allows, so that's how we will be proceeding with the meeting today. Please turn to Page 3. Here, I am listing 3 points that I wanted to convey to the equity market participants today. First is about accelerated profit growth and confidence. In fiscal 2021, we recorded record high profit. EPS growth in '21 was 47%. And even after excluding one-off factors from -- for a normalized basis, it was 15% growth, reflecting the fact that we are surely leveraging on the enhanced competencies. In '22, by pushing forward necessary measures, we want to achieve organic growth in profit of 9%. Excluding FX factors, we are planning to achieve 5% profit growth. So just by looking at these numbers, these are top-of-class profit growth even from a global perspective. We will top that with inorganic growth opportunity. We are often asked with the question about the recent M&A environment for high-quality and large-scale M&As. We are still in a situation that requires much patience. On the other hand, we still see some bolt-on M&A opportunities or small-scale M&A opportunities which, in a way, is an organic growth opportunity. But this is our strength, so we will be grabbing opportunities over those to facilitate profit growth even more. Next is the angle and the confidence of dividend growth with disciplined capital policy. I have been saying that profit growth, through business expansion and return to shareholders, should be compatible. With a strong profit growth in the backdrop, actual DPS growth in fiscal '21 was 28%. In '22, we are planning for 18% DPS growth. Beyond that, because source of dividend payment will get bigger because it is the moving average profit, both angle and confidence of profit growth will be high, and that means that should allow us to continue achieving DPS growth. As for capital level adjustment, there is no change to our policy of disciplined capital management. If we identify M&A opportunities or risk-taking opportunities which would lead to enhancing corporate value and ROE, we will be reviewing such opportunities without hesitation. In case we do not see much opportunities available, then we believe share buyback is also a viable option as ESR is at a fulfilling level of 128%. In that sense, in fiscal '22, the plan is to spend -- as we have announced last Friday, spend JPY 100 billion throughout the fiscal year in a flexible manner. And in fact, last week, as the first step, we have already made a decision to spend JPY 50 billion of share buyback. My final key message is to realize high-quality management that will serve as the foundation of achieving what I have said so far, which is achieving angle and confidence of profit growth. This year will be the seventh year since we started our unique way of integrated group management on global scale towards the mid to long-term target of adjusted net income of JPY 500 billion or more or adjusted ROE of around 12% and also beyond that. We will continuously improve and evolve integrated group management. Through global risk diversification and portfolio management, including entry and exit of businesses, we will be achieving global top-tier level organic growth and expansion of synergy. By capturing inorganic growth opportunities such as M&A, we want to further expand our corporate value. What we will become beyond JPY 500 billion and 12%, is still under consideration right now. We are thinking of what we want to become with humility. However, what we can say as of today is that some of -- the center for this -- that new stage will be to achieve global top level EPS growth and improving ROE and expand equity spread through disciplined capital management and further reduction of business-related equities. In thinking about the future state of Tokio Marine, how we respond to social issues such as climate change is an important point. At Tokio Marine, as we have always been, we have to be purpose-driven, proactively addressing social issues, being of help to multi-stakeholders and serving our responsibility so that through those initiatives, we have a chance to enhance our corporate value. So on each of these 3 key points I have mentioned, I'm going to dive into more details. So let us move on to Chapter 1, accelerated profit growth with confidence. Please turn to Page 5. On this slide, we are showing the EPS growth with comparison to the peers. On the left is comparison to fiscal 2020, and on the right is a comparison to fiscal 2019 in order to exclude the noise of COVID impact in 2020. They were as high as 47% growth and 37% growth, respectively. However, fiscal 2021 profit does include one-off factors such as benign natural catastrophes and lower loss ratio for auto insurance due to COVID-19 as well as capital gain in North America. Therefore, we think it's only fair to evaluate these by looking at the normalized numbers. If we do that, then, as you can see on the upper side of the slide, an equivalent EPS growth would be year-on-year 15% growth. Compared to pre-COVID times, it will be 18% growth. These levels of growth in EPS were achieved as a result of profit growth and disciplined capital management. Nevertheless, we will continue to do our best to achieve the global top class EPS growth. Next, I'd like to talk about growth drivers for fiscal 2021 and what the ROE situation was like. Please turn to Page 6 and 7. On the left side of Page 6, we are showing the breakdown of adjusted net income by different business segments. It is obvious that domestic non-life and international businesses were the growth drivers for the chart. Mid to long-term target of over JPY 500 billion of profit was already achieved even on a normalized basis. On the right, we are showing the trend of adjusted ROE. By improving the ROE year-by-year, we have achieved the mid to long-term target even on the normalized basis already in '21. So for Domestic Non-life and International businesses, both of which experienced significant profit growth in '21, we would like to share with you the sustainability of the profit on Page 7. We have a waterfall chart on Page 7 to show you the movement of factors from '20 to '21. So if you look inside, the profit growth drivers, it was thanks to the domestic fire line and rate increases and disciplined underwriting in international businesses. It was also helped to, by the revival of PHLY and TMK who were struggling a little, but they have turned around. Such expansion of insurance underwriting profit and bigger earnings -- earnings-generating competence from underwriting activities is exactly what we were planning to do within the current midterm plan. In that sense, our underlying competency has been enhanced and is also sustainable. We will share with you some more details on growth drivers in the international business. Please turn to Page 8. We are taking advantage of the current hard market and are expanding and strengthening our business lines that meet our profit objectives, mainly in Europe and the U.S., and taking on additional risk. The left side of the slide shows an example of TMHCC. But you can see that we are expanding and strengthening our business in various ways in marine and energy, including renewable energy and professional line. In addition to expanding our business lines, we are also implementing rate increases on our existing lines. What is important in rate increases is to determine the loss cost in a forward-looking manner and increasing the rates sufficiently to meet it and not to drop the sales volume. On the right side of the slide are the rate increases results of TMHCC and PHLY. Although the business lines involved are different, I think you can see that both companies have achieved rate increases that have exceeded the market. This is because each group company is working together with a strong bottom-focused mindset, and each group company is also collaborating with the other group companies to address its own market. In light of the current situation, we expect the firm rate increase environment to continue at least through fiscal year 2022. Next, please turn to Page 9. Although U.S. is currently experiencing economic inflation, social inflation may accelerate again as the economy picks up from COVID-19. As you may recall, PHLY has been proactive in addressing social inflation over the course of the past 3 years. Specifically, in 2019, we were one of the first to significantly increase reserves, and we feel that reserves have really strengthened at this moment. In addition to the rate increases I just described, by pushing forward with strengthening underwriting discipline and promoting settlements, our resistance to social inflation has grown stronger. On top of that, PHLY achieved record profits in fiscal '21. And under a new management structure in place, it may have returned to a sustainable profit growth trajectory. Please now turn to Page 10. As for TMK, since fiscal 2017, like the other Lloyd's market players, it has suffered from market softening, severe natural catastrophes or the subsequent COVID-19. TMK has been working to transform its portfolio by significantly reducing catastrophe risk and focusing on the lines of business where it has strength and rigorously managing unprofitable lines, including exiting them and strengthening its reinsurance program to reduce volatility, and furthermore, transforming its culture to create sustainable fundamental value. It took us indeed 3 years to achieve this, and it was not easy, but under Chris' as well -- or Brad's leadership, we persevered and made sure we took the right steps. It wasn't easy, but as a result, we finally achieved a turnaround in fiscal '21. I was actually seconded to NHK in the past and was in charge of TMK or Kiln in 2017 and '18, and I was saying internally in our company that the TMK reform would be project next, and I believe that this has been the case. I'm very happy and proud to be able to share with you today the revival of TMK. So what I wanted to say is that through the courage of each individual company and the collective strength of the group, we were able to overcome one major challenge after another and acquired the ability to generate sustainable profits. Next, please turn to Page 12, regarding our plans for fiscal '22. Here, from the left, we show EPS growth, adjusted net income and adjusted ROE and the plans for fiscal year 2022. Organic growth alone, we expect growth of plus 9% and plus 5%, excluding the impact of foreign exchange rates, achieving world-class growth. Furthermore, for adjusted ROE, it will also be slightly lower at 12.5% mainly due to the impact of the weaker yen on net assets, but will continue to be above 12%. Next on Page 13, we have included a waterfall of profit increases or decreases to confirm the certainty of this profit growth. The growth drivers remain largely unchanged from fiscal '21. Rate increases and disciplined underwriting expansion in domestic fire and international markets, in addition to growth in a number of these new business opportunities, such as the JV with Caixa in Brazil as well as Pure in the U.S., and we are also expecting income growth driven by the resulting increase in assets under management. Now, let me explain a little bit more about some of the domestic and international growth drivers. Please turn to Pages 14 and 15. First, we will turn around our domestic fire insurance business, which is in a constant loss position. Following October 2019 and January 2021, we will increase rates and revise our products in October of this year. At the same time, in addition to working on disciplined underwriting, we will also upgrade our reinsurance strategy specifically. There is a cycle in reinsurance rates, therefore, we would like to ensure that we have good cover, but we will manage earnings coverage based on more economic rationality to further improve profitability. For our customers, it is better to have no accidents whatsoever, and if there are, they should be minimized. We will focus on this area, and as a new innovation, we would like to provide solid value, both directly and indirectly in the fields of disaster prevention and mitigation. Through these highly-assured efforts, we hope to achieve a steady return to profitability, although natural catastrophes are variable. I have been saying that we would achieve positive underwriting profit by the middle of the medium-term plan and ROR in 2 or 3 years from now. However, when we look at the ROR base, we cannot meet the cost of capital by this alone due to the large net cat risk that fire insurance faces. Therefore, we also recognize that at least one more rate increase is necessary beyond this October. In any case, as I've been saying since I took office, we will work hard to make fire insurance sustainable, which is very important for Japan, a country with great natural catastrophe risk, by providing thorough explanations to our customers so they can be persuaded. Turning to Page 15, we present the initiatives that will form the foundation for strengthening the profitability of the domestic P&C insurance business and the progress of these initiatives. By thoroughly utilizing digital technology, we will reduce internal administrative work by 20% to 30% by the end of 2026. This will amount to an annual reduction of JPY 30 billion to JPY 50 billion, and we are making steady progress in our current efforts. We will also use the time saved here to improve the loss ratio in fire and insurance, expand the top line in specialty insurance and in new areas where we are taking on challenges. We will also try to re-skill and allocate our resources to new areas that we face a challenge in. We will never let our domestic business fall into a contractionary equilibrium and keep our combined ratio stable at a low level. We intend to build a lean and vibrant business. Next, please turn to Page 16, where we talk about our International business. Looking at the North American high net worth market and the South American mortgage market. In order to capture this high growth, we acquired Pure in 2020, and in 2021, we started the JV with Caixa Bank. As you can see, PMI is making steady progress, and so far, the growth has been as high as we had planned. So now, please turn to Page 17 for the last part of our growth drivers for fiscal 2022, which is the expansion of Delphi and investment income. Since the acquisition of Delphi in 2012, we have excelled in capturing investment opportunities. By leveraging this, we have been able to grow our income earnings in a stable and sustainable manner. The slide shows a breakdown of the earnings, but I hope you can see that the synergistic effect of the expansion of assets under management of the entire group, backed by strong underwriting and Delphi's investment capability, which has consistently outperformed the index in a countercyclical manner regardless of the cycle, has resulted in a performance that is distinct from the market and difficult to imitate. We hope you will -- and also for the first quarter of the fiscal year, we have been able to confirm that performance currently is doing well, although the closing of the fiscal years differ. So now on Page 18, we show the sources of Delphi's investment strength, which has 2 main points. The first is that the investment source is long-term insurance liabilities with predictable cash flows. Therefore, liquidity risk and short-term market fluctuations are acceptable. On the other hand, when the investment environment changes as it has done in recent years, we were able to make flexible investment decisions. Secondly, we have a solid investment structure with highly-reputable returns led by Don Sherman, the new Vice President of Holdings and co-CIO since April. They are a team with extensive market networking, information gathering, analytical skills and discernment, so to speak, and have experienced several market cycles and have produced stable returns. On the other hand, as shown in the upper right corner of the slide, we have determined the appetite and boundary of credit risk, and we control them both appropriately, including daily monitoring. For your reference, on Page 19, we are showing the ratio of risk assets and also that of the peers. Please take a look at them. Next, I'd like to talk about the inorganic growth. Please turn to Page 20. For M&A, assuming that we can identify the intrinsic value of the target company, we select and execute only those deals with high prospective ROI, contributing to enhancement of corporate value that come with synergy effect and risk diversification. Going forward, we will consider including ESG-related criteria for companies when we try to identify potential targets. Some update on the in-and-out situation of the business portfolio. We have newly established a local entity in Canada called Tokio Marine Canada, which will start its operation from next month. As for how we view the recent large-scale M&A market environment, as I said in the very beginning, we do need patients. Of course, any time in history, a good company will also have a tantamount valuation attached. But even so, looking at valuation recently, they are overinflated. We need to do thorough market intelligence, always keep our eyes on the long list and short list, have a meaningful dialogue and build good relationships. After that, we have to patiently wait for the right opportunity to come across, and I believe that is the discipline we need now. On the other hand, there is some room to devote on type of M&A over companies who we know well already. On Page 21, we are showing the track record of bolt-ons. Know-how is held by TMHCC, who has done over 60 cases of bolt-on M&As in the past, and we are horizontally spreading that capability across the group. In '21, Delphi acquired a company called SSI, Standard Security Life doing paid family leave insurance business, and they are already seeing some results that they originally expected. We have expectations for SSL to stably earn JPY 2 billion, JPY 3 billion, the profit each year. Bolt-on M&A is Tokio Marine Group's Forte. We want to make it our forte, and we are willing to contribute to continue to capture prime opportunities proactively going forward. Moving on to Part 2 of dividend growth and capital policy, please turn to Page 22. Once again, our shareholder return policy is basically through dividend payment and sustainably enhance EPS in line with profit growth. On top of that, recently, we are achieving DPS growth. With the addition of 2 drivers. They are strong profit growth, multiplied by a higher payout ratio. Specifically, for fiscal 2021, DPS was JPY 255 or year-on-year, dividend increased by JPY 55 or DPS growth by 28%. For fiscal 2022, DPS was JPY 300, year-on-year increase by JPY 45 or DPS growth by 18%. This makes it 11 consecutive years of dividend hike. For DPS on '23, we have not decided on that yet, but at least, payout will be raised 50% and source of dividend payment uses 5-year average profit. That means we will -- as we roll forward, the impact of relatively low level profit years from 2018 to 2020, impacted by natural catastrophes and COVID-19, will become less prominent and exit from the 5-year average profit calculation. Needless to say, we can never relax about frequent occurrence of natural catastrophes and intensification of catastrophes, but because moving average profit is expected to become bigger, I believe we will achieve both higher angle and higher confidence in dividend growth. Regarding the adjustment of the capital level, as we show on Page 23, there is no change to our policy of capital adjustment done with discipline. In other words, if you meet some M&A or growth investment/risk taking opportunities that are likely to contribute to enhancement of ROE, we will execute on those opportunities. However, in case we are not fortunate with those lucrative opportunities, then it only sounds natural that we use the capital to do share buyback as our recent ESR is ample, 128%. With that in mind, for fiscal '22, at this point in time, we -- to cover the full year, we have allocated JPY 100 billion of budget to do share buyback to be used with flexibility. In a Board meeting held last Friday, share repurchase approval for the initial JPY 50 billion was giving us the first step in spending that budget. And so I believe we need to be allocating some budget for this, and we need to be spending it with flexibility as things are uncertain. On Page 24, we are sharing with you the track record of how we have been spending and utilizing capital so far. On the left of the slide is for the past 5 years, and the right is the past 10 years. With discipline in place, we have utilized capital for business investment and shareholder return. And to say a little more, business investment is the part that requires right timing. Under a period where we were not fortunately meeting the right opportunities, we can see that we have increased shareholder return, and as a result, we have seen a steady enhancement of ROE. Last section will be on the topic of high-quality management, which serve as the foundation in enhancing the angle and confidence of profit and dividend growth. There are 6 points which we think are especially important as a global insurer, let me explain about each of these 6 points. Please turn to Page 28 and 29. First point I wanted to convey to you is about our sustainability management. Since Tokio Marine's founding, our purpose has been to protect our customers and society in times of need. With our purpose as our starting point, by contributing and solving social issues, and to the progress and evolution of society, we have also grown continuously together. Because we live in such fast-changing and uncertain times, this purpose still serves as the starting point of our business and will guide us as a compass. But by moving ahead with this purpose in mind, we will not constrain the growth potential in an effort to push the envelope with ourselves by an imaginary limit or glass ceiling. By solving social issues, as we execute our business, we want to be chosen and requested by customers and by local communities. Tokio Marine and society will keep on evolving even into the next century. That is the upward value creation spiral that we want to attain. Please look at Page 30 and 31. Insurance business is a risk-taking business in nature. Therefore, managing its own risk portfolio through ERM is important. Now at Tokio Marine, since over 10 years ago, we have been spending the capital and funding created through sell-off of business-related equities to overseas M&As. For example, in the past 20 years, we have created JPY 2.4 trillion, and for the past 14 years, we have created JPY 1.7 trillion. By doing so, we have been able to rebalance the risk portfolio with more international insurance risk, which have less correlations with the domestic non-life business risk while containing risk expansion and achieving profit growth at the same time. This is indeed the diversification of geographical lines of business and insurance product-based risk diversification. In other words, we underwrite various risks from different parts of the world under appropriate management. When something happens anywhere in the world, they all become our own matter. But we are doing this under appropriate management. For each case of business, we assume some accidents to occur when setting the underwriting conditions and arranging reinsurance in order to manage the entire portfolio. Therefore, on the Russian-Ukrainian event, it may be too early to clearly talk about the outcome of today's situation. But at least, as far as its impact to our financial results are concerned, it will be limited. Please turn to Page 32. EPS growth is achieved as a result of global risk diversification we have been executing so far. We are showing it in comparison to the peers, we are represented in blue. Here, you can read that while we have contained volatility of EPS, as shown on the right, we have been growing EPS, as shown on the left. And then for ROE, if you look at Page 33, you can see the track record of the tangible ROE in its comparison relative to the positioning of the peers. Horizontal access represents level of ROE, and the vertical access represents volatility of ROE. Tokio Marine has been enhancing on its capabilities in management and business so that, gradually, we have moved towards the upper right quadrant on this chart. However, I am still not satisfied. Through high-quality management, we are committed to further enhance our ROE, and there is room that we still have to achieve further growth. Here again, I would like to take a bird's eye view of our business. Please turn to Page 34. Since the core of our business is now insurance, still, we may ask, are we a conglomerate in the first place? However, we are an insurance group with strong stand-alone value in each of the regions we are in, and our regional insurance companies create more than stand-alone value through global synergies. In addition to the above, we will leverage our M&A execution capabilities, which we have cultivated to seize growth opportunities for inorganic growth and incorporate them into the group's integrated management. We believe that we have room for growth to expand our business into pre and post incident areas, not limited to claim payments, backed by a wealth of data and analytical capabilities. Thus, we believe that we can continue to realize a conglomerate premium based on our ability to build our business portfolio. Let me dig a little deeper on Page 35. The slide shows our major locations on a map of the world. You can see that in each region, we have increased our bottom line more than the market, and we have a large presence in markets that are profitable or expected to grow strongly in the future. In each region, we will continue to achieve top class growth by serving our customers well and winning out. Turning to Page 36, we present a status of synergies. We have generated $369 million in synergies in the past year, mainly in the 4 areas of revenue, investment, capital and cost. Of course, this is a record high. In the lower right-hand corner of the slide, you can see how revenue synergies are expanding year after year. The group companies are proactively discussing synergies with each other with the support of holdings these days, and it is very encouraging to see this. Turning to Page 37, we show the track record of the 5 overseas companies that have joined our group through large-scale M&As. All of them have achieved growth that has outpaced their market since joining our group. Their ROI is currently 12.1%. This is significantly higher than our cost of capital of 7%. And then on Page 38, I mentioned this on the conglomerate premium slide. But as an example of this expansion into pre- and post-incident areas, we introduced here the domestic initiatives for disaster prevention and mitigation. This is a field closely related to our company as a non-life insurance company. Last November, we launched CORE, a disaster prevention consortium, and 44 companies from a wide variety of industries have participated in it. This has started operations in a full-fledged manner since last month. With CORE as the engine, we plan to build a comprehensive solution business for disaster prevention and mitigation that will be a pillar of our earnings in 10 years by utilizing the technology we have refined through our CORE insurance business, the data we have accumulated and the context we have made with each of our customers. Other than disaster prevention and mitigation, we are also steadily working on concepts and preparations for new businesses in health care, renewable energy, cyber and other areas. When the time comes, I would like to give you an explanation about them going forward. And global integrated group management is something that is a prerequisite to realize a conglomerate premium. Please turn to Page 40. Since insurance business is about underwriting risk, it's important to diversify risks globally. And if this is the case, management also needs to be global. It took us 7 years to establish our unique global integrated group management. And now, although we are still in the middle of the process, important management matters are decided and executed by combining global knowledge. In other words, there are no decisions or processes that are made solely by the Japanese. In this context, we have decided to point Don Sherman and Chris Williams a new vice presidents this year, seeking their participation and activities beyond overseas underwriting and asset management. This is in part to nurture the next generation of global human resources with them and to relay the baton of integrated group management. Also, Brad from TMK, who successfully completed the turnaround, was appointed as Executive Officer. And at the same time, 4 non-Japanese nationals were appointed as Deputy CXOs. We are now further evolving the integrated management of our group. As shown on the left side of Page 41, the successions of acquired companies are also on track. As shown on the right side of the page, we are also strengthening talent management and the next level of top management and the next level of middle management, both in Japan and international, to enhance the pool of talent who will be responsible for the future management of the group. In this way, I believe that strengthening and exercising the inner muscles of business is becoming very important, especially in this age of VUCA. And now, talking about our goals with a further evolved integrated group -- global group management structure, please turn to Page 42. We have achieved our mid- to long-term target of adjusted net income of over JPY 500 billion and adjusted ROE of around 12% ahead of schedule. We are currently considering what we want to achieve beyond this goal, but there are 2 things that we have decided. The first is to achieve world-class EPS growth, and the second is to improve ROE and increase the equity spread through a disciplined capital policy and strengthen efforts to reduce strategic shareholdings. The second is to improve ROE and increase the equity spread through -- regarding ROE and equity spread, as shown on Page 43, through profitable growth with cash flow and disciplined capital policy, we will continue to further increase ROE, which we have been saying is at least 12%, as we recognize that our cost of capital is still 7%, which is not easy to reduce. Nevertheless, we believe that we can and must improve the quality of our capital by, for example, strengthening our efforts to reduce business-related equities. Through these efforts, we would like to firmly achieve improvement of ROE and expansion of the equity spread. Finally, please turn to Page 44. Solving social issues, especially climate change, is an important issue for insurance companies. Some may view climate change as having a negative impact on insurance companies. However, we want to take this global issue head on and play a firm role. Rather, we would like to respond proactively. As a company in the midst of risk, we believe that we must play a certain role in the situation. We would like to be proactive in our response, and we would like to translate this into an increase in corporate value. To this end, we will mitigate risks, such as the intensification of national catastrophes, while seizing opportunities, such as increased awareness of natural catastrophes and movement toward carbon neutrality, and respond firmly to them. In January of this year, we became the first Japanese insurance company to join the Net-Zero Insurance Alliance, an international initiative. As the only Japanese company to be a founding member of the TCFD, we are committed to participating in the discussions and making active contributions to international rule-making in the insurance industry toward the realization of a decarbonized society while leveraging our knowledge and network and playing an advocate role in the discussion on the reality of Japan and the unique role that we should play. We'll actively participate in this process. That is all I have to say. I would like to reiterate that we will realize high-quality management and achieve high EPS growth from 2 angles. And with this as a background, we would like to return high dividend growth and high total shareholder return to the equities market. We would like to ask you for your ongoing support. Thank you for your kind attention.

Thank you, Mr. Komiya. So now we would like to receive questions from the floor. [Operator Instructions] Due to the time constraints, we may not be able to answer all of the questions. In which case, IR Group will be responding and we'll be getting back to you with your question at a later date. So now, we would like to receive questions from the floor. From SMBC Nikko, Mr. Muraki, please.

My name is Muraki from SMBC. You are very conscious of the global peers, and you presented with the consciousness. I have 2 questions. The first question is about Project [ X ]. If I look at Page 9 and Page 10, you introduced Philadelphia and Kiln, how they have turned around from 2019 to 2020, how they have decelerated and then they have turned around. So what have you learned from this turnaround experience? Right now, we are going through inflation. There is war going on, which is another risk in the world. But once again, when PHLY or Kiln, for them to avoid -- once again, the deterioration of the earnings, what have you learned from this turnaround? And other than those 2 companies, among the P&C subsidiaries you have, I'm sure you have some lines of business or maybe groups of customers who are less profitable. And any learnings that you have learned that you can spread horizontally across the group to be applicable to those group companies? The second question is that if you go to Page 92, there is a skill matrix of the outside board members. And we do have Mitachi-san with us today at the venue, who is an outside director. You have had consultants, and you have looked at how companies are managed at different companies. And looking at Tokio Marine, how they make decisions, looking at the faces who sit among the executive management team, how do you evaluate them? And also, when they take in the acquired company's management and do integrate the group management, in order to become a global top player for managing the company and also in your organization, any issues that you can identify at this point in time for you to become a true global player?

So on your first question, I'm going to answer you very briefly, and then I'm going to turn to Harashima-san to provide you with a -- more answer. PHLY and Kiln, I was in charge of those companies. And looking back, they were successful companies in the past. And because they were successful, they always go back to how successful they are, and sometimes, they are overconfident. In that sense, when the environment changes rapidly, sometimes they cannot really catch up with the changing environment. What I have learned from the experience is that as we do group integrated management, and depending on the business environment, we have to be sharing and we have to be communicating. So for example, there is a committee like IEC, where we talk about each group company. And also GRSC, where we talk about underwriting. And so this is the group integrated management where we need to be looking at GCs with different perspective and with different intelligence, and then we learn more by doing so. And I have learned that such exercise is very important for us. Harashima-san, do you have anything you can add to this?

Muraki-san, thank you for your question. What I have learned, the first is that the early detection, I thought, was very important. Because as long as we identify the problems at early stage, we can start responding quickly. And then after that, we need to be proactive in applying measures to remedy the situation. The third thing is that we need to be bold in doing some -- applying some changes. The fourth point is that not just looking at the results, but we also need to look at the process and do the regular monitoring of what we are doing. So I will give you some specific examples. If you go to Page 9, this is a page for PHLY. And if you look at the left, the measures that we have taken for PHLY. As Komiya-san explained earlier, on the very bottom, in 2019, we have than the additional provisioning of the reserve for the past years, and this was quite shocking. However, because we did this, and also if you go above, we have done 3 additional measures ,one after another. And because of these measures were taken in 2021, it led to their record high profit. And then if you go to Page 10, this is for TMK. TMK was done in a similar manner. If you look at the left, these are the measures we have taken for TMK. And when the profitability started to decline for TMK, we have taken these measures one after another. Within that, there is, like, a great change that was added to their portfolio, so portfolio changed, strengthening of management team. So these are some of the bold measures that we have taken to turn around TMK, which led to the fruit of our labor. As I mentioned earlier, we had to be monitoring the process along the way. But something like this could happen anytime, anywhere, and so we need to have -- we need to be highly sensible to the risk situation as we monitor all the group companies. We have a similar story for the domestic companies because we have an integrated management and we have different functional teams and we have chief officers for different areas of business. As we do that, from each Chief Officers, their support, this monitoring being extended, and that's how we identify problems at early stage if there are any problems, and then we pick and choose the best measures to be taken. So I'd like to move on to the second question.

This is Mitachi speaking. About the outside board member, how I view Tokio Marine. To be very frank, Tokio Marine, compared to when I was outside of Tokio Marine, including Board member meeting discussions and also decision-making, it's very bold and it's very liberal, and people are very candid and outspoken, and I was quite surprised. On top of that, based on my experience in the past few years, some of the things that we have done, they have been done. One of the biggest things that was done is that the perspective is now with the global peers. And so including the Board of Management, as we discuss the business among the management, they always have a global view and a global peer view, and that really changes how they look at their business in the world. M&A, they have achieved growth outside of Japan. If you look into it, divestiture, and so exiting something from the portfolio, they have become more proactive or aggressive in doing that, and that's a positive change. I believe among the Japanese companies, they have the best practice in this area. Personally, I come from a consultation firm, and I have been a member of the global management team and I have made a decision mix. In doing that, it was about JPY 1 trillion company, so we were a lot smaller. But based on that experience, the elements that they want to be adding and it's doing well. However, the issues or concerns I have for Tokio Marine, including myself, next generation to do integrated group management. To become a global company, that means that they all need to become global senior management. Many Japanese companies, in terms of sales and capital and locations, they have globalized, but I have not really seen a model where they have successfully become global in terms of the makeup of the senior management team. So how do we do that? Well, it was presented earlier by Komiya-san that, initially, they buy companies with a good management team. But then how do we do that thing in the next generation? And also at the holdings level decision-making, how do they come in -- how do the global people coming that stage? And so it's experimental. But we are adding the Vice President, as mentioned. And also in the Board meeting, we have spoken to the international members directly, and we have done a Q&A in that. And the succession planning is not just on paper, but it's really about how do we utilize these people. And then lastly, the management who were nurtured and developed in Japan, and how do they become the next generation of global. And if we see more talent from Japan in that arena, I would be delighted. And so this is one area I'm sure that they will continue to try.

If you may add something to this. With the integrated global management, when you make decisions, doesn't it take longer? Isn't there a side effect that it takes longer? Because it involves so many companies? Of course, if you just try to make a decision among the Japanese people just in Tokyo, that's still time consuming, but then even more. You're involving more companies, so don't you see some negative side effect because you have become so global?

Since I become CEO, well, in a little while, it's become -- it will be my third year. On a global level, Chris, Don and other senior members of the global GCs, we've taken their comment. And then, among the top management, we thrash out on the direction that we want to pursue. And I think that's a quicker way to do it because sometimes we try to make decisions from the bottom up, but then in identifying problems, introducing hypothesis, suggesting a direction, that's pretty much done in the phases that you see on the screen now or even in a smaller group, and we execute the process among those members. And I think it's a quick way to be doing the decision-making. Thank you.

Any other questions? Watanabe-san from Daiwa Securities. I will bring a mic to you.

I'm Watanabe. I have 2 questions. First is on Page 17, about Delphi and the source of its competitive advantage as well as its sustainability. You talked about the 2 angles, and you are saying that the investment capabilities of Delphi is key, and they have discerning skills. What's different from other companies? And you were talking about always outperforming the index. As AM continues to expand, will they be able to sustain their capabilities? Secondly, I also have a question towards Mr. Mitachi, the outside Director. At the Board meeting and the discussions you have, how are the feedback from the Capital Markets being reflected? Those are my 2 questions.

In the presentation, we were talking about the source of profits in Delphi. I gave an explanation already. So our CIO, Mr. Endo, in charge of investment management, will talk about the discerning skills and capabilities that Delphi has. Because the size of the AUM is rising, will we be able to sustainably grow. That will be the focal area that he will add some comments on. Mr. Endo, over to you.

Thank you very much for your comment. As we show on the slide, there are 2 strengths of Delphi. So it manages long-term money, which is a positive. Liquidity risk can be taken on to a certain extent, so it can be held into maturity from that point of view, which is intrinsically a strength. And also, they are able to -- they have -- they are discerning, and they are able to repeat the performance that they have realized in the past. Whether it be COVID or the Lehman crisis, the Delphi team has experienced a variety of cycles, and they have been able to still generate steady performance. So they have a good track record and experience. We also have a vast network so they're able to collect good information and run good analysis. And depending on the environment they're in, they're able to flexibly build a portfolio. Another thing, one focus area is CLOs, for example, or CRE loans and private loans, so loan assets are an area of focus. And it's an investment that can be repeatable, which is also contributing to good earnings. So that's one thing. Another thing is -- another feature of their investment capabilities is they have in-house and out-of-house or outsourced investments. So they have both. Internally, they test some things and sometimes they may outsource a portion of the assets. And also, sometimes, they may have been successful with outsourcing, which they may decide to internalize. So it goes both ways. So in the financial market, whether it's sustainable or not is key. Inside the team, we have been seeing good nurturing of PMs. And ever since we made the acquisition of Delphi, we have been seeing that the expertise in the team has been well succeeded. And we also have been dispatching some expats, and there's about 8 Japanese expats at Delphi as well. And we would like to ensure that we could succeed expertise through the local team as well as the expat team. So that's what we've been working on. That's all for me.

So the organization itself is being expanded. And it's about word of mouth as well. High repetition leads to another deal.

Yes. Locally, it's called smart money. So I said that they do some outsourcing and they outsource to about 30 managers, and they talk to one another on a daily basis. And I think that's one of the sources that makes Delphi discerning. And if there is an opportunity, people from the outside will call upon Delphi because they know their reputation. So their reputation is being amplified from that point of view.

Okay. Mr. Mitachi, what about the Capital Markets feedback?

Yes. That's one of the important roles that outside directors like ourselves play on the board. From the execution side, in April as well as in October, twice a year, they give an update of what the capital markets are saying. Not only that, we read analyst reports. We try to get them as much as possible. And what's most important is when it comes to capital levels or when we're talking about plans, it's a matter of how it's communicated. And we have a deep discussion around this, because last year, I don't know if this is good to say or not, there may have been some communication that didn't go through that well. So we were discussing how it should be communicated this year. So we were able to have clear-cut discussions at the Board level. Regardless of the skill matrix, whether it be the directors or the auditors, there are some people who are deeply involved in the capital markets or some people just look at it from an analytical point of view. But in any case, communication is important, and we really need to have a discussion to see whether the communication is conveyed in a good manner. Thank you.

Sato-san from Mizuho, please.

My name is Sato from Mizuho Securities. I have 2 questions for you. The first question is that if you go to Page 80, I think you're showing the topic here. This is the trend of ESR. This time around, as you indicate here, the spread is widening, and that's because of the macro economy. But then due to the expansion of the business, you are seeing increase in risk. So in 6 months, I think there was some increase in risk due to the expansion of our business. And what I wanted to know is that going forward, as you continue to grow your business, would you be tolerant with the risk amount to increase? Or, at some point in time, would you be controlling your pace of growth? Do you need to be doing that? Because you have increased JPY 400 billion of risk in 6 months, and so what is your plan for expanding the risk amount further as you grow the business? The second question is about your international business, your target for the international business. In a sound manner, I wonder if you are setting a challenging enough of a target for your overseas business? If you go to Page 72, you are showing your plan for this term, especially for the 3 companies in North America. I know that there are many incidental factors, but on a local currency basis, this time, 3 companies, they are flattish in terms of their business unit profit. And last year, at the beginning of the fiscal year, your forecast was low to begin with, and then there was upside. So what would be the appropriate incentives to be given to the company management? I know that there are many incidental factors. But on a local currency basis, this time, three companies, they are flattish in terms of their business unit profit. And last year, at the beginning of the fiscal year, your forecast was low to begin with, and then there was upside. So what would be the appropriate incentives to be given to the company management? And I wonder if the targets are set in a way that justifies the incentives given to the management, especially what you are projecting for this fiscal year. What were the thinking in setting these targets for the overseas entities for this year?

Thank you for your question. On the first point, I'd like to talk and then I will switch over to our CFO. And then on the second point, I would like to ask Mr. Harashima, the Vice President, to give you the answer. So on the first point, first, as an overview, Tokio Marine Group, the ROE expansion will be the room that we have still to grow ROE improvement, so achieving capital efficiency is what we are doing. There is a nominator and denominator. And qualitatively, I know that there are more roles to be played by Tokio Marine, including resolving social issues. We have many more things that we need to be doing in order to resolve those social problems, in order to contribute to the world. And so with that assumption in place, we still need to be enhancing ROE. And for the profit growth, which is a denominator part of the equation, we have talked about 2+1 Growth Strategy in the Mid-Term Plan. And so for domestic P&C, improving profit, efficient operation, expanding underwriting, we can still do that for the international business because there is a hardening of the market taking place. We will continue to increase rates. And there has to be an expansion of risk-taking for the international business. Or in the new business areas, we need to be exploring for new areas. And for sustainability, we always need to be exploring and expanding into new businesses and starting up new businesses. For the denominator part of the formula, risk diversification is one. Reducing risk is another and also doing stringent risk control is also another. And so through expansion of international business, there is further risk diversification to take place. At the same time, we will be reducing risk itself, including business-related equities. And for credit risk, we will be doing risk control. And so these all need to be done in order to give more room for ROE to get even higher. So now I'd like to move on to the CFO. The CFO will answer your question.

Thank you for your question. From myself, I'd like to add a few points. So as you say, this time, looking at the ESR, changes in the ESR due to the widening of the credit spread, et cetera, those market changes as well as the underwriting exposure as well as the investment assets increased. And these are the reasons for the increase in risk amount. And for the underwriting exposure and investment asset expansion, these were all within the target range. And these are the additional risk-taking that we have intentionally done. And so as long as it generates profit, and as long as it generates the increase in net asset value, it should be fine. And so we start with the risk-taking and then it becomes profit and then it leads to net asset value growth. And that's how we balance the ESR. Within the target range, we are still in the higher end of the target range. And so of course, one-by-one, we set the boundary and then we do the risk control. But we want to be maintaining ESR and also enhancement of corporate value. That concludes my answer to your question.

Volatility has to be contained and then raising ROE. That's what we are doing, both on the nominator and denominator side. And there's more we can do with that effort. On the second point about the international business and how we are setting the target for the international business and also how we are remunerating the management, Harashima-san, can you please answer that question?

This is Harashima speaking. Sato-san, thank you very much for your question. So if you go to Page 62, I just want to start with the overall view. And as written here, in 2021, excluding one-off factors, we saw 24% growth. And then from '22 projections versus '21, CAGR of 15% -- versus 2020. And in the Mid-Term Plan, the overall target that we're giving in the Mid-Term Plan is 9% growth. And so against the 9% target, we are planning to achieve 15% growth in '22 versus '20. In the final year of the Mid-Term Plan, which is '23, the target is that in -- we have already -- we are aiming to achieve the Mid-Term Plan target already in 2022. And so as the pace of progress against the Mid-Term Plan, we are outpacing the original plan. If you go on to Page 63, in the current Mid-Term Plan, the biggest issue we have is that we want to be expanding on the underwriting profit. In '21, the actual was about positive JPY 14 billion. '22 versus '20, we are expecting JPY 35 billion. And so we are seeing a steady increase of the underwriting profit. So we are very conscious of achieving growth in setting the targets. So this is the overall view. And then going on to the North American three group companies, the first point is that for the three companies in '21, they have all recorded the highest profit in history. And then we only need to be looking at '22 relative to what they have already achieved in '21. And if you go to Page 72, the numbers you see here, for '21 for one-off factors, we have not adjusted for the one-off factors. And so one-off factors are included. And we need to be mindful of those one-off factors as we evaluate on how much is stretched the '22 projections are. For example, for Philly, '21, because of the reversal of reserve, a lot of that took place. But then '22, we have not included the reserve factor for cat fund in '21. In Texas, there was a cold storm. And there was a lot of loss being booked due to natural catastrophes. So in '22, there's going to be additional provisioning or there was a provisioning to the cat fund in '22. And so if you adjust for that, our target is still to achieve 9% growth. For Delphi, for realized gain and loss, Delphi does include it for '21. But then we have set the projections with that included in TMHCC. With a similar manner, we have adjusted for the one-off factors for '21 and then set the target for '22. And so from our point of view, these are already stretched the targets that we have given to those three companies. And appropriate incentives and are these targets enough to justify the incentives? We are very mindful of the balance. When we create a business plan, we have a strategic dialogue or a planning dialogue, which we have with the overseas members. Chris and I, the co-head, talk to the presidents of each entity and set the target for the following year. And we make sure that we give them a reasonable amount of stretch to their plans.

And how we regard growth, we have a basic rule, which is that we do -- we are a bottom line-oriented company. Second is that we want to be reducing volatility. The third is stable and sustainable profit growth must be achieved. And so according to the three rules, we make sure that we give them appropriate target each fiscal year. For international business, we want to be raising ROE, low volatility and also profit growth while we reduce volatility. That's still the policy. So in terms of the level of goals or targets, that was as Harashima-san explained. And also every time before we set a goal, we have a very thorough discussion, make sure we factor in the changes in the environment. And then there is a strong commitment to achieving whatever the numbers that they are giving. Insurance is a cyclical business. In the past few years, we have much experience. And within the group, we have been enhancing the synergy. And we now have bigger competency. We now have a better underwriting capability, et cetera. But because we live in such an uncertain times, being bottom-oriented is something we want to keep. And to do that, we need to be disciplined with underwriting, risk selection, pricing, setting the right value, insurance value, having the right judgment over these elements that make up insurance business becomes ever more important.

I could feel that you are responding to these issues very seriously. And I believe that you are giving them a sound and stretched target. So thank you.

Anyone else? Nagasaka-san from Morgan Stanley.

I'm Nagasaka from Morgan Stanley MUFG Securities. In the presentation today, you were talking about ESG and climate change. In this part, you talked about the affinity with your business. And as you will be focusing on this area as a top runner, I understood that well. So my question is, up until now, when it comes to insurance companies, institutional investors and you will be engaging in this, so what are the progresses are you making? When you look at insurance company, institutional investors or the global community, the three angles, and you were also talking about top line growth of more than JPY 100 billion, is there any upside potential to this? And also not only provisioning insurance products but data provision through consulting, what are the business opportunities that you are considering?

From the three perspectives that you mentioned, what do you mean by that?

For an IR Day related to climate change, you were saying as an institutional investor, as an insurance company as well as a global company, you would like to be the top runner in the space. I think you'd said that before. So from that perspective, how do you assess yourself?

Well, for climate change, a large way of thinking is our group, of course, when you look at CO2 emissions and divestment, 8 years in a row that we haven been carbon-neutral. And of course, there's a lot of debate around that as to how you measure it. But we have been engaging in such efforts. But we are trying to reinforce sustainable management of the company. And last year in April, we have created a sustainable committee. And we have created a CSUO. And we are trying to make our efforts global in scale. That's what we've been doing in the past year. And in September 2020, we talked about our thoughts around climate change. And in December, we refined it and did an update on it and made an announcement. When you look back at the past year, what I thought was really important was divesting is important, but transitioning to a sustainable society, as we are in this trend, as an insurer, and in light of this trend, this global trend, it's a matter of how we contribute, meaning that will be through insurance products provision as well as the promotion of renewable energy. We need to think about what kind of role we can fulfill. So that's what we put emphasis on. Regarding climate change measures in the past 12 months, when it comes to the PDCA cycle as our target and a framework and making disclosures around it, we've been communicating with various stakeholders, including investors. And I think in the past 12 months, we have been able to create a good framework for this. And for insurance underwriting as well as well as investment management, too, for renewable energy funds, we have been planning to establish a fund. And for impact investments, we have been setting targets around it and sharing it. So looking back at the past year, we have set forth our vision and created a PDCA framework set of targets. We will spin the cycle and we'll communicate our progress. And we have been able to establish this cycle, although we are still in the middle of this process. So secondly, for specialty insurance of JPY 100 billion rise in revenue as well as other fee businesses and so forth and the opportunity there in consulting, first of all, talking about the opportunities in Japan domestically, I think Mr. Wada should refer to that. Then after, Mr. Hirose will follow up from Tokio Marine and Nichido Fire.

Thank you very much, Ms. Nagasaka. So let me talk about specialty insurance. First of all, as you know, at Tokio Marine, we would like to protect our customers in time of need. So that is our purpose. So from our point of view, what we want to do is to support customers in times of need. And what we need to do is in the insurance business, we need to expand into the risk area and also pre and post incident, we need to offer more assurance. That is the area we would like to expand more of business-wise. So we believe it's critical to expand into these spaces, so central to that, with the specialty insurance, we believe. And last year, I think that we talked about this. There are four focal core themes that we have specified, which we are currently working on, which are health care and supporting SMEs, green transformation and cyber. These are the four core themes we have specified so that we can offer new values to our customers. And during the course of the Mid-Term Plan, we would like to grow our top line by JPY 100 billion through specialty insurance. For the first year, as you can see in the presentation, we were able to record JPY 15 billion higher top line, but we will be adding a further JPY 45 billion. So it will be plus JPY 60 billion versus 2020. That's what we are striving to reach. And if possible, in 3 years' time, we should be able to achieve JPY 100 billion target. And we hope that we can exceed JPY 100 billion.

Does that answer your question for specialty insurance? Okay. Then Mr. Hirose, would you like to follow up?

Yes. This is Hirose. Thank you for your questions. Like Wada has explained, for the JPY 100 billion for specialty insurance, we are currently making progress in line with our expectations. And we believe that we can also upgrade this. We're in year 1, but for the four core themes mainly, we have been able to build a good foundation, foundation meaning that there are two things to this. One is internally how we are organized, we have set up a project team and for each of the social challenges, we have set up dedicated departments. And now we are better organized on a company-wide basis. And for SME support measures and providing value to them, we are creating a platform, which we call BUDDY+, borrowing the power of digitalization, having contact points with SMEs, we are trying to offer value in various ways. We have been able to accumulate a lot of contacts now, including e-mail addresses. We would like to start offering proposals. And we believe that we can also take a data-driven approach due to the foundation we've been building. So that's one aspect. Secondly, risks are diversifying considerably. And we are fueling higher needs from customers, especially in the area of cyber. There are a lot of cyber-related deals right now. And for the first time in the industry, we have a 24/7, 365-day contact center who can support our customers when an incident occurs. And there are a lot of inquiries around this. And we have been able to be of help. Of course, we'll need to make some reinforcements going forward. But the expansion of the market has been greater than we've expected. So we'll be aiming for JPY 100 billion growth. But hopefully, we'll be able to increase it higher than that. Also for consulting and fee business opportunities that you refer to, we have Tokio dR, an affiliated company that leverages digital technology and offering various services. And TCFD consulting can be offered and scope 3 emission tracking advice can be offered through this entity. Once again, we've been getting a lot of inquiries. And sometimes we'll have to decline because the needs are so strong. But in any case, we would like to make efforts even more so that we can respond to customer needs so that we can generate a good fee business and solve social issues and be of help at the same time. That's all for me.

So from the CDO, do you have anything about the insurance area, in the non-specialty insurance area or in the peripheral areas regarding key opportunities or something beyond that, about disaster prevention or mitigation?

Well, this is Namatame speaking. Thank you for your question, Nagasaka-san. Regarding your question about the fee business, now on top of our core insurance business, in various ways, we are trying to expand the insurance segment we are in. We would like to be proactive on that front and exploring. And we would like to -- for digital capabilities, it is most needed in the area of disaster prevention and mitigation. So that is the area we would like to expand in. 14 companies started to have discussions in detail since November last year. And many corporations ever since has been signing up. And now we are working together with 44 companies. And there was a press release on April 20, and we talked about 5 specific business areas and projects, for example, remote sensing, detecting risks, all hazard maps to assess risk or real-time hazard maps, which on-site will enable the detection of risk. Without question, this will be a benefit to customers. And we believe this will be able to reinforce the reason why we exist. As Mr. Hirose explained about TdR, TdR also plays an important role. Risk consulting is what they've been engaged in. And we believe what we're trying to do will generate synergies. And we'll be able to, therefore, enhance our capabilities. Thank you.

So we're engaging in various measures. Does that answer your question?

Yes.

It's 5:30 now. We still have more questions from the floor. So Mr. Niwa from Citi, please.

My name is Niwa from Citi. Please let me know, if you go to Page 34, the conglomerate premium -- exercise of the conglomerate premium. Because for -- this is more based on my long-term interest. And on the right-hand side, the breakthroughs, what are the breakthrough that you're expecting to see? So based on my understanding, global strategy for the U.S. strategy worked well. And then as you have explained in full details, it looks like that success is going to continue. And then the global peers versus the peers, it looks like you are going to be catching up with them. And then beyond that, what would you do? That is my interest. So in terms of market cap, within the insurance sector, there is a Chinese company at the very top. And then there are brokers who are also in the top tier. And as you always say, in the developed markets and also technology, they are a threat to you. And I'm sure they have some value in the market, too. So traditional and authentic insurance companies, I know that you belong to that group. But then if there is a breakthrough for what Tokio Marine will be in the future, what would that be for you? What is your breakthrough?

So broadly speaking, our future vision, maybe our blueprint for the future, I hope what I'm going to say answers your question. So which way do we go? We need to be realizing on the purpose. We always need to go back to the purpose, always understanding the purpose. So we have to do group integrated management. That is our strength. And we need to be polishing the integrated group management. For what purpose? It's in order to diversify the business portfolio in terms of lines of business, in terms of different areas of business and also geography and maybe in terms of time allocation. We need to be accelerating the process for diversification. So first and foremost, improving the profitability of the insurance, underwriting business is the first so that we will not be much behind the global peers. And then we want to seek further opportunities to capture any change. And then if there is a chance, if it's disciplined and if there is a risk return profile, that's what we want, then we will also consider M&A. At each group company level, we need to be strengthening their existing businesses and do bolt-on type of M&A that is being done under the plan that each of them have. Beyond that, we want to be providing safety and security and become a solution partner and solution provider for the entire society. That's what we want to become. As you see on Page 34, new market, new approach and areas of insurance has to get expanded so that we realize our purpose. And also we are there for the sake of our customers. Because in case some incidents happen, of course, we need to be there. But then they don't want to see any accidents or misfortunes hitting them. And so we need to help them mitigate such risk. And so the area covered by insurance business can get expanded. And also disaster prevention, cyber, data, et cetera, maybe the pillars of the future business and also something to augment the current business can be developed. And that will be done centering around Tokio Marine Holdings. Because it's so uncertain, we need to be changing together with the environment, and we need to be strengthening certain areas. At the same time, we also need to be exploring and seeking for new areas, improve the hypothesis as we move into new areas and expand the business portfolio. So that's what we need to be doing first. And then on top of that, what will be the scale of the company on global scale, et cetera? That would only follow afterwards. What we have to do all the time is the efficiencies of the capital so that we reduce volatility and enhance ROE. This is a point that we have to always maintain as we move forward. I hope that answered your question. Thank you.

Okada-san from UBS?

I'm from UBS Securities. My name is Okada. I have two questions. First of all, business-related equities. The second is about fire insurance. For business-related equities and accelerating -- the chance of accelerating your divestments, MUFG, they have raised their mid-term target, although it's a different company. So regarding the possibility of yourself, what is your view? That's the first question. Secondly, how do you assess the current situation of fire insurance relative to what you were planning for in the Mid-Term Plan? Net premiums written for the new year, it seems that growth rates are stronger than your peers, expectation-wise. Also, you're going to do your product revision in October this year, what kind of product revision is going to lead to better profitability? The waivers, there is a minimum -- there is a minimum area size in restoration. But what are your thoughts around this?

So around the acceleration of the sales of business-related equities, our CFO will explain. And for fire insurance and profitability improvement and how it compares against Mid-Term Plan as well as how we assess it, Mr. Hosojima will explain.

Thank you for your question. More than JPY 300 billion of sales is our plan in the Mid-Term Plan. And for last fiscal year, we were able to achieve JPY 117 billion. And for fiscal '22, we are going to steadily make progress. That's our plan. Also, for solving social issues, to fulfill this purpose, we'll also need to be able to face new risks as well as natural catastrophes. And also from a risk appetite point of view, we will need to reduce business-related equities even further so that we can allocate the capital we gain into other areas. That is why the corporate governance basic policy has been revised so that we could reduce -- we would like to reinforce our efforts to reduce business-related equities. Therefore, there is a possibility of accelerating it. And we would like to pursue what kind of options we have. So we have revised our corporate governance policy. So that really reflects our determination. And based on the new policy and accelerating the sales of business-related equities, it's basically the talks we have with the counterparties. It means that we're accelerating the pace of the negotiations we have. So it's a matter of how far we can go with that and reducing business-related equities. So we are basically having a dialogue right now. So in the next 6 months or in the next 12 months, we will be engaging in these efforts. And based off that, we may be able to communicate our policies accordingly in the future. And when the time comes, we would like to share it with you.

So Mr. Hosojima?

For fire insurance, in October 2019 and '21 January and this year in October, for better profitability, we did do rate increases and we will do rate increases. So this will be on Page 14 of the presentation. So for profitability improvement, it's not just through rate increases, but we have been taking comprehensive measures so that we can do disciplined underwriting and prevention of incidents and for those customers who have faced incidents, the responses we take as well as the retention policy. So the measures we have been implementing is comprehensive in improving the profitability. So for the Mid-Term Plan, we have been able to make improvements that exceed our expectations in the Mid-Term Plan. Originally, when we created the Mid-Term Plan, in the latter half of the Mid-Term Plan, we were expecting profitability to be in line with capital cost. So that was our initial expectation. But now we believe we could reach this level earlier than expected. But for fire insurance profitability improvement, it's still midway. And like Mr. Komiya explained in the presentation, in October '22 this year, we are going to make a revision, but we may need another round beyond that. But in any case, we would like to implement comprehensive measures so that the business can be profitable compared to capital cost. For the revisions in October '22, on top of rate increases, setting up the minimal immunity level as well as the period of the insurance covered 10 years in the past, but by reducing that to 5, for example, we would like to also benefit from profitability improvements. So those are the things we are considering. But in any case, we will be taking comprehensive measures in order to improve the profitability. So for rate revisions or the product details or revisions around underwriting, we will be making progress on that. We'll be working on it. And when there is an incident, we would like to ensure that we can make swift claims payments by implementing technology. So we will be accelerating efforts on that front as well. Also, as Mr. Namatame mentioned earlier, evacuation information or natural catastrophe information from the local government are being provisioned. But we would like to also play a role in that. So it's going to be basically comprehensive efforts that will be made. Compared to the Mid-Term Plan, we believe that, like we've been communicating from several years ago, we have been making good progress on improving the fire insurance business.

Now we would like to move on to a question from Mitsubishi UFJ Morgan Stanley, Ms. Tsujino, through the telephone -- she's here.

ESR and shareholder return. So your profit is expanding and your net asset is not going up as much. But against that backdrop, your ESR has come down and credit spread is likely to expand. And so I think there's going to be a downward pressure. But then if you look into the content of ESR, the operational risk has increased by JPY 100 billion. And so you are taking more exposure and there's natural catastrophe, which has increased a little bit. Other than that, you have a conservative stance. So you have adequate buffer. However, in order to grow, the image of the bolt-on acquisition that we have had will change. Probably you need bigger bolt-on and you need to be doing it more frequently because your profit level is going to go up and EPS growth rate will not be able to maintain. You might not be thinking about it now, but to do large M&A, what we term as large might become bigger than what you used to think. And so then that requires you to think about funding. You said that the EPS growth rate, you are going to be outperforming the peers, so -- and you have also talked about the capital efficiency. And so if you do more buyback, that can be enhanced. And I agree with that. But then buyback is around JPY 100 billion. It's continued for 3 consecutive years with about JPY 100 billion per year. And so you need to be just amplifying all the numbers. And what is your thinking amidst this environment?

So that was the end of your question? May we answer what you just asked?

Yes, please.

Okay. Thank you for your questions through the telephone. So from various perspectives, we are trying to reduce volatility, enhance ROE and EPS. Versus peers, we don't want to be so behind, so we want to continue to grow EPS. And that's what we need to be conveying to the market participants and to investors and to meet their expectation towards Tokio Marine. And so it's a comprehensive exercise that we constantly need to be doing. There will be the ultimate answer from Okada-san, our CFO. He will be adding more to it. But in relationship to the buyback, you -- that was part of your question. And so shareholder return from that perspective, shareholder return is going to be done through a dividend payment in line with profit. The growth in dividend should also grow together with profit growth. And then on top of that, for capital-level adjustment, it will be a decision to be made from time to time. We refer to the level of ESR. ESR will not be the only factor. But then we look at the pipeline for potential M&A, we look at the market situation, the financial market situation, et cetera. And these are the different factors, so we need to be looking at it comprehensively. The level of profit that we can forecast as of today and also the accumulation of capital and also any changes happening with the risk factors, make sure that there is no major change to those and make the ultimate decision. Right now, we have allocated JPY 100 billion. We will be using up that amount in a flexible manner. But then if the future becomes really uncertain, we have just allocated JPY 100 billion for now. And then as we move forward, we look at the various factors, and we'll be making decisions from time to time. Due to maybe a great financial crisis or natural catastrophes, that's a different story because that's a devastating scenario. But in the middle of the year, we look at the ESR situation when we have a better visibility to the future course, so then we might be adding more to this JPY 100 billion if everything goes well and if there is no chance for major business investment or do we have any. If not, then looking at the market situation, if we have any cushion to the capital, then we will once again come back to it and consider how we can use it. Maybe from the CFO, if you have anything to add to this, please.

There isn't much to be added from my side. As Mr. Komiya said, our adjustment of the capital level is just an adjustment. And so we are constantly looking for new bolt-on M&A opportunities or new risk-taking. So growth strategy is the priority. Last year, the bolt-on -- the money that would -- the bolt-on acquisition budget was to be paid out of the same budget as the share buyback. But we decided not to do from this year. So we will continue looking for bolt-on acquisitions. As for share buyback, we will be looking at the decision from time to time, looking at the M&A pipeline, business environment, et cetera, and also ROE target comprehensively to make that decision. And so right now, the ESR is 128%, which is almost the same level as last year. So that is why we could allocate JPY 100 billion of budget to this year. But as the year goes by, by looking at different parts changing, we will always make a comprehensive decision from time to line by looking at the environment. Thank you.

Because I speak to investors every day, so your shareholder return level is higher than the peers, but then your share price is hiking. So maybe the JPY 100 billion is now low. Those are the voices coming from the investors, so I have just conveyed those to you. My final question is that for bolt-on M&A pipeline right now, do you have an ample pipeline for bolt-on? Or because we are still under COVID, people are still staying at home. So do you think there is a slowdown in looking at the M&A cases because basically people are staying at home and not active? How does your pipeline look like?

That will be answered from Mr. Harashima in charge of international business.

Tsujino-san, thank you for your question. As for the bolt-on M&A situation, as Mr. Komiya explained earlier, for large M&A, it's quite difficult to do. So we are looking for bolt-on M&A opportunities proactively. As for pipeline, I cannot really disclose the pipeline specifically. But we do always have something in the pipeline. And because we are proactive with bolt-on, we need to be doing the sourcing of potential deals. And we want to be expanding the universe for doing the sourcing so that from a multifaceted manner, we can gather the lineup of potential deals in the bolt-on M&A universe. But the valuation is important. We will not go ahead unless valuation is appropriate. And we need to make sure that we get appropriate return from any of these companies. And so for the potential deals, with discipline, we continue to manage the pipeline.

This is Komiya speaking, for bolt-on M&As, we have an HSE model. And we want to standardize that model, and we want to be implanting that know-how to other GCs in the group. And more so than ever, as holdings, we want to be involved in the process. That's how we will move forward with the handling of bolt-on acquisitions, it's going to be strengthened. The methodology is going to be strengthened. What deals we have in the pipeline? It's a trade secret, I cannot disclose that to you.

As a number of potential deals, pre corona, how many did you have and post COVID? I'm just looking at those numbers. And I think you're fine with the number of deals in the pipeline.

There are two more questions from the phone, which we would like to respond to. Sasaki-san from Bank of America, you can go first. Then Majima-san from Tokyo Research.

This is Sasaki speaking. I have one large question and one small question. Starting off with the small question, for Russia and the Ukrainian crisis and the risks associated with that, what is your view? If you can give us some detail on it, that would be great. The aim of the question is I don't think that you're going to generate losses that leads to a capital event. But as a global player, there are some views that you will be affected by a certain degree. So how do you analyze this risk right now? If you can share the details with us as much as possible, that is great. And if possible, for Greensill, too, can we get an update on it? Lately, in the IAG investor report, they have increased their provision. And they are saying net exposure is not going to emerge because they are insured with reinsurance. So it seems that there are no legal liabilities. That's what you were saying before, that there is no risk. So can you give us your analysis of the Greensill exposure or risk you face right now? So those are the two questions. So my second question is a simple question. President Komiya, the question is for you. The world is becoming increasingly complicated. So in the next 12 months, for example, what would be a great event for you that will be an upside to your business? And what will be a negative to your business? So can you raise one each, one positive and negative? That's it for me.

So I will take the entire question. So first of all, for Russia and Ukraine, it's very devastating when you look at what's happening. And for the people who are affected, my heart and soul goes out to them. Talking about our business, we underwrite risk around the world. So for Russia and Ukraine as well, we are exposed by a certain extent. But the exposure is small for Russia and Ukraine. And currently, it has been suspended right now, when it comes to the exposure of assumed reinsurance. And there's disclaimers around wars. The amount of underwriting in this area is small. And through reinsurance as well, the portfolio is being appropriately managed. So for Russia and Ukraine, right now, the impact on our performance is limited. That is our view. But for fiscal '22 performance, when you look at our group companies internationally and the results for the March quarter which is already out, they are trending at a pace that is at a pace that's exceeding our plan. But for Russia and Ukraine, we don't expect the situation to turn into a substantial or material earnings issue. Secondly, about Greensill. Last year in March and in June, we made a press release. And like we've communicated, through the distributor, BCC, and the transaction with Greensill, the validity of the transaction has been looked into in detail. And on April 4, we made a release and statement. Investigations are still underway. But so far, the results tell us that material information that's necessary at the time of underwriting was falsified. And intentionally, reporting was not being made. That was made clear. So we believe that the insurance itself is not valid. Therefore, we have sent an avoidance letter to Greensill saying that the insurance itself was nullified. So to revitalize the economics of Australia, this was a credit insurance product. We wanted to play an important role in contributing to the Australian economy as well as expanding our business. This is a general type of insurance globally, which is well known and it's based off of goodwill economic transactions. However, for what happened, for claims payments as well as signing up to the insurance, this was fraud. Therefore, we believe that the insurance itself is not valid. We were aware that it will be subject to litigation. And we have been taking action accordingly. Therefore -- but we are being sincere in our response, and we will make clear our position. Since it has become clear, we were aware that it might develop into this kind of situation. So it is not beyond our expectations. We were aware and we have been prepared as well. And we are well prepared. Since more than a year ago, we have been engaging the help of experts to run an investigation. And we have been making comments where necessary. And we do believe that the validity of this insurance policy is questionable. And we have an excellent team that is responding to this incident. And what's important that we have been communicating this in the past year. But just to reiterate, the impact on our future performance as well as the impact on fiscal '22 expectations is zero or limited, if any. And talking about the 12 months going forward, I think we are standing at a very important position or place. A company, whether they're global or not, they really need to question themselves about what their social responsibility is and they need to set forth and demonstrate their determination and will. What kind of value can we generate? And how can we capture that as a growth opportunity? We need to be bold and continue to engage in the resolution of social issues. And by doing so, we believe to customers, investors and for the global business, we hope that our efforts can lead to better reputation of the company and that will make us happy. The downside -- that's the positive. The downside for the next 12 months, if any, would be there are so many things happening across the world simultaneously. One would be natural catastrophes, I guess. Because I did mention that it's a variable. So I really hope that there are no intense natural catastrophes that occur. And I also referred to the mitigation and prevention of disasters. We would like to ensure we engage in activity so that we could protect people from being affected from natural catastrophes when they occur. That's all for me. Thank you very much.

Thank you very much. So lastly, we have a question from Mr. Majima from Tokai Tokyo Securities.

This is Majima speaking. I have two questions for you. First is that relative to the global peers, well, you are equivalent level with the global peers. Of the four global peers, three of them report according to IFRS. So you are using JGAAP and also U.S. GAAP. And I don't know if you will move on to also issuing IFRS. I know it's a time-consuming process. But from the outside point of view, when you want to compare yourself to the global peers on a financial reporting basis, people expect you to also issue IFRS-based reporting. But is it due to cost and time? Is it difficult for you to move on to IFRS? That is my first question. The second question is autonomous driving. Level 4 or Level 5 is in sight. And the issue is that the policyholder will be the auto companies, and so building that relationship. And also there will be no advisory rate. And so how do you price your products without advisory rate? And the personal auto insurance is going to shrink, so that means the source of income for your agencies will decline. I know this is further down the road. But what do you think about this changing landscape in auto insurance as we move to auto driving technology?

On the first point about IFRS, from CFO, Mr. Okada, I'd like him to answer the question. And then on your second point about autonomous driving for 2025, we will move on to Level 4, using data, building relationship with auto manufacturers and also what will happen to the lives of the agencies who mainly sell auto insurance. That will be offered by Mr. Hosojima. And then Mr. Hirose, the President of TMNF, will also add to that afterwards. And so first, from Mr. Okada on IFRS.

Thank you for your question. Regarding IFRS, we are already working the ERM based on economic value and there's good affinity with IFRS. And then it will be comparable with the European peers. And so we are proceeding with the preparation to introduce IFRS. However, we need to do the analysis of the items included in IFRS and also what other companies introduce IFRS and how it's evaluated in the market. And so adopting IFRS as an official financial reporting basis, it's being considered. And so we do not have a date for introducing IFRS officially yet. After, we need to -- well, we still need to be analyzing our own numbers and also looking at its affinity with how we manage the company and also how other companies who report under IFRS are evaluated, EPS growth, ROE comparison, source of dividend payment. These are all very, very important issues. And so these need to be judged before we simply move on to IFRS.

And then about autonomous driving, can you -- can TMNF, please, speak?

This is Hosojima speaking. As Majima-san said, it's going to take some time because the -- it will take more than 15 years of all the fleet to be replaced. And so the impact in the immediate future is limited. Regarding Level 4, it will be limited to be used on the highways. And so 97% of the accidents take place in the city roads. So even if we move on to Level 4, it will be the driver who will be the liable person for the accident. And because of that backdrop, according to the report from the MLIT, even if you reach Level 4, the responsibility for the accident will not change from how it is set up now. And for a while, the compulsory auto as well as private auto insurance schemes will be maintained even up to Level 4. And so after we move to Level 4, the auto manufacturers will not suddenly be taking all the responsibilities and will not become the policyholder in the auto insurance just because we moved to Level 4. Once we see the auto driving technology penetrate, the liability relationship becomes very complicated because where the driver used to be the liable body, now it will become the automakers or the software manufacturers to become liable for the accidents. And so these complicated responsibility relationships need to be coordinated by somebody. And that somebody can be the insurance company. And so that is a role that we could potentially play. And so that is why in April 2017, we have provided a rider for providing assistance to the victims. And while the number of cars on the road will reduce, I think that's what you mentioned, obviously we are going to be seeing a reduction in population. And due to the spread of safety measures, the Japanese auto market itself is going to shrink gradually. However, it will take some time before it reduces significantly. So accident frequency will drop, but then the price of our car, especially for EVs, the unit repair cost is going to rise and those are bigger factors. And as we see decline in frequency, unit claim cost is also going to go up. And so we do not expect that any time soon, any impact to the agency will occur in scale.

This is Hirose speaking. As Mr. Hosojima mentioned, I agree with everything he said, except I need to add a few points. Going down the road, maybe further down the road, technologically Level 5 of autonomous driving will become technically possible. Automakers are saying that technically it may become possible. But then the pleasure of driving, and so people will still want to be driving cars not on the autonomous mode but on the manual mode. And when that happens, of course, accidents might occur. And so a car that is compatible for automated driving as well as nonautomated driving, sonars, semiconductor components and other advanced components are all equipped. And therefore, repair cost is going to get higher. And there could be like a cyber attack, which is an emerging risk once we have these types of high-tech cars. So including these risks, I think there will still be a need for insurance. And these are the areas where we can play an essential role. That concludes my answer.

So to summarize, it will take a long time, and we will gradually move on to Level 4 and Level 5. But even if we move to that level, there will be an essential role to be played by insurance companies. And that means the roles of the agencies will still be in need. And so it will take much longer. And maybe gradually, the rules will shrink. But then while we are still in this market, we need to be making new propositions. In order to protect the client, we need to be making new advices for accident prevention, et cetera. And these are the capabilities that we need to equip ourselves and also for the insurance agents. Majima-san, thank you very much for your question.

We're a little bit past our scheduled time. But Mr. Komiya, would you like to close?

Thank you very much, everyone, for joining this meeting today, whether it be online or through phone. The Tokio Marine Group, I believe, is in a very important position right now. Compared to 10 years ago, we are basically completely different in where we stand. And towards the next 100 years, we want to be indispensable presence. In order to be that, we need to take on new challenges, which we already are. And I think it's a time when we're going to establish a bridge that connects us to the future. And we would like to be able to respond to our stakeholders. And the management will make efforts in order to do so. So we would like to ask you for your ongoing support. Thank you very much today, and thank you in advance for your future support.

With this, we would like to end our first half fiscal '22 Investor Meeting. Thank you very much for your participation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]