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

Since it's time, we would like to start the meeting. Thank you for coming to Tokio Marine Holdings Fiscal '23 First Half IR Business Strategy Meeting. We thank you for your attendance. I will be serving as the MC for this meeting from Global Communications of Tokio Marine Holdings. My name is Ishiguro very nice meeting all of you. Before starting this meeting, on top of the venue we have here today, there are some people attending via online. So this is a hybrid method that we are taking. Next, we would like to introduce our senior management members on stage from Tokio Marine Holdings, Group CEO, Satoru Komiya; Senior Managing Director and Group CFO, Kenji Okada; Senior Managing Director and Senior Managing Executive Officer, Yoichi Moriwaki; Senior Managing Executive Officer, Kichiichiro Yamamoto; Managing Executive Officer, Yoshinari Endo; managing Executive Officer, Masashi Namatame; Managing Executive Officer, Kiyoshi Ajioka; Managing Executive Officer, Kiyoshi Wada; and Executive Officer, Mika Nabeshima. An independent director on board, Mr. Shinya Katanozaka. From Tokio Marine & Nichido Fire, Representative Director and CEO Shinichi Hirose; Managing Executive Officer, Eiichi Hosojima; Managing Executive Officer, Hiroshi Sakiyama; from Tokio Marine & Nichido Life Insurance Company, CEO, [Hideyuki Kawamoto]. As for how we proceed with the meeting today. Group CEO, Mr. Komiya, will be giving you a representation using the material that is displayed on our website. And we would like to have a Q&A session afterwards. We plan to finish by 4:30 but depending on how the Q&A will proceed, we might extend the meeting a maximum 30 minutes. Without further ado, Mr. Komiya, can you please start your presentation.

Hello, everyone. My name is Komiya. Thank you very much for attending our business strategy meeting today. I would also like to thank you for your continuous support to Tokio Marine. Last week, we announced our financial results and held an earnings call. For those who are in that call, I would like to thank you for your attendance. During the earnings call, I explained the current business environment, the financial earnings summary, which reflect the environment and about shareholder return consistent with financial performance. Today, I would like to explain our business a little more in depth, including topics about our current position and actions to improve EPS growth and ROE. Our strategies against the current issues and the strategy of our domestic P&C business, a topic which we have been receiving an increasing number of questions from market participants recently. We hope this forum today will help to deepen your confidence in our ability to expand our corporate value. First, can you please turn to Page 2. We have once again stipulated Tokio Marine Group's purpose. We are committed to protecting our customers and society in times of need. Since our founding, we have worked to solve societal issues at the center of our core business, and I have continued to grow and increase our corporate value by providing security and safety to society. No matter how the world may change in the future, we will not deviate from the central access. I would like to take this opportunity to express my determination on this point. Please look at Page 3 of the presentation. As you can see, there are 4 parts to today's presentation. First, I will be speaking for a little over 40 minutes, after which I would like to invite your questions and comments as much as time permits. I do look forward to today's forum. Please turn to Page 4. Here are 3 key messages that I would like to share with you as an overall message from the group. First, on the point of EPS growth, in '23, we plan to achieve organic growth of 9% or 8%, excluding foreign exchange factor. We believe that the angle of EPS growth or growth trajectory will continue to be world's top class. On the other hand, looking at the turmoil in the financial markets since the collapse of Silicon Valley Bank, the current business environment is volatile and not an easy ride. In this environment, as we have always done in the past by taking appropriate measures to address each issue, we will be able to realize our plans with a high level of confidence. And as for DPS growth, which is backed by strong EPS growth, is scheduled to grow by 21% in fiscal '23. Beyond that, we will continue to realize DPS growth with high level of both angle and confidence. Next, I would like to talk about ROE enhancement. The adjusted ROE for fiscal '22 was 15.1%, a level that aims global peers within reach. However, we recognize that this ROE of Tokio Marine as well as that of the peers should be considered as tailwind reference record, meaning tailwind being decrease in net asset due to rising interest rate. Therefore, we are not convinced with the current ROE level, and we intend to raise ROE substantially. While our main driver will be world's top class EPS growth, we will also accelerate the sales of business-related equities. Specifically, we will be selling more than JPY 600 billion of equities over the next 4 years starting from fiscal '23, and we will redeploy the capital we generate through equity sales with discipline. As for share repurchase, our current ESR is 124%, which we think is ample. And as we announced last week, while our current plan is to spend JPY 100 billion to be spent for the full year, we have already approved for the repurchase of JPY 50 billion as the first step. The last part of the message is to execute high-quality management. As I mentioned at the beginning of this message, as a purpose in addition to the sustainability management, which we have been pursuing since our founding, our unique globally integrated group management style now in its eighth year serve as the foundation of our enterprise management. We are also working hard to develop the next generation of management talent and succession planning so that these efforts will be carried on. One of the components of our management quality is the ability to overcome difficult challenges or ability to be responsive. We have overcome many challenges in the past, such as with Tokio Marine Kiln and TMSR in Brazil. And we are now further enhancing our ERM, including small, medium and minority investment entities. We hope to exercise management capability to balance growth and risk management on a higher level and to avoid any surprise. I will explain these in more details. First, please turn to Page 6 for the explanation of world-class EPS growth. Here, I will show you the track record of adjusted net income on a normalized basis, which reflect our underlying capability. In fiscal '22, we are looking at 22% profit growth. And over the past 10 years, a CAGR of 12% growth, reflecting the steady profit enhancement. In fiscal '23, we plan to achieve organic growth of 9% or 8%, excluding foreign exchange, which is another strong profit growth plan. And as for the JPY 670 billion of forecasting profit for '23, our management view is that this is only a passing point similar to the ongoing continuous equity sales. It is a mere milestone as we continue to realize world-class profit growth. We are committed to keep on implementing measures to achieve further growth. Please turn to Page 7. This slide shows a peer comparison of EPS growth. Since this is a comparison against the peers, the figures are on an actual basis, including one-off factors. But as a result of global risk diversification, we have been implementing. You can see that on the left, we have achieved high EPS growth compared to peers and on the right that we have achieved this while containing volatility. Next, please look at Pages 8 and 9. The current business environment is indeed very volatile. This section summarizes the issues we are facing, the measures we are taking and the impact on business performance. Page 8 is regarding underwriting. Natural disasters are becoming more severe. Inflation is prominent in Japan and overseas and as a result, the insurance cost on the rise are all impacting loss cost. In this environment, based on our globally diversified robust business model and by through implementing strategies such as proactive rate hikes, we believe that we can further and sustainably increase underwriting profit, which is the backbone of an insurance company. For example, we have continued to implement cycle management which is our forte in the reinsurance renewal in April for the domestic net cat risk. By doing so, we have been able to procure the necessary cover while maintaining cost increases to a reasonable level. On Page 9, it summarizes asset management side of the business. Indeed, the financial market is moving rapidly, and there is an increasing level of uncertainty. Of course, we have been and will continue to be impacted by these moves. So there is no change to our stance in monitoring the situation carefully and cautiously. However, because we have strength in credit management, backed by actual insurance liabilities as we speak with [ Dan ] and other investment members and because we have our strength in credit management, the situation is fully manageable and expanding stable stream of investment income, is even possible despite the market condition. Specifically, What are the concerns that the market has? What is our situation? And how do we respond to those concerts? Let me give you some explanation on those points. Specifically, regarding interest rate hikes. We are implementing risk control through ALM. Regarding FX hedge cost, for example, we expect the foreign exchange hedge cost to increase by JPY 45 billion year-on-year in fiscal '23. But this will be offset by an increase of JPY 110 billion in income return from credit and variable interest-bearing assets. Also on recent concerns about bank defaults, we have limited direct exposure to U.S. regional banks. Regarding other concerns, such as changes in banks lending attitude or the economy slipping into recession can impose stress on real estate and securitized products. We conduct careful stress testing and make investment decisions based on test results. For example, On the right in the middle, this is a situation concerning our CRE loans. We will discuss this in more details later. We have even confirmed that under the stress equivalent to 2008 global financial crisis, the impairment loss with the CRE loans can be recovered within 6 months from the income brought by CRE loans. Regarding ClOs, we have even confirmed that CLOs will not suffer any loss even if the same stress level continues for 3 years. Rather if the market is further disrupted, resulting in a dump sales of assets below their intrinsic value then this is rather an opportunity for us because we have some level of dry powder and we can invest in quality asset at a discount. Next, we would like to explain our unique business model. Please turn to Page 10. The essence of Tokio Marine's ability to manage volatile business environment is global risk diversification. For more than 15 years, we have been allocating proceeds generated from business-related equity sales to overseas M&A, so that by shifting to international insurance risks that have little correlation with domestic P&C insurance. It mitigates risk while achieving profit growth. In fact, in fiscal '22, we were impacted by COVID and large-scale natural catastrophes, but we were able to reduce the profit impact to be less than 30%. However, as I always say, we are not satisfied with the 30% figure. We are currently at 47% diversification effect, and we would like to continue our efforts to further amplify diversification effect. So that we can further enhance ROE and we want to pursue more opportunities for more business investments. Please turn to Page 11. The source of strength of our business model is strong local presence, which enables us to achieve profitable growth over and above the market growth rate in those attractive markets. these strong local businesses come together to diversify risks. This is the essence of a global company, and this is what underpins our EPS growth. In fact, the 10-year CAGR of international business profit is positive 12%. And in Japan, we have realized without any shrinkage have been achieving 6% growth due to differences in base growth rates and M&A opportunities. More than half of our current profit is generated from overseas, but we would like to aspire to grow both domestic and international businesses. Now I would like to supplement more content to these businesses. First, please refer to Page 12, so that I can explain more about domestic P&C insurance business. We have achieved #1 growth in the domestic P&C insurance market with superior profitability relative to the market as we will explain in more details later compared to Europe and the United States, the fact that we have established a strong position in the domestic P&C insurance market where we can generate stable earnings in a sustained way is our unique strength among global insurance companies. Please turn to Page 13. Our North American business is more than 80% of international profit. And it's a growth driver that possesses both growth potential profitability. While we have heightened the geopolitical risk, it is an attractive market. And as Mr. Buffett says, even when the economy may slow down, the U.S. economy is likely to continue to grow, especially because we are a top player in the specialty market, and we have a specialty portfolio with less correlations between the two, and it's relatively insulated from loss cost increase due to inflation. Our policy continues to be bottom focused. And this feature is well illustrated in the lower half of the slide. We will continue to achieve profit growth well above the market level. Next, I would like to explain about Delphi's credit investment, which is our unique strength in asset management. Please turn to Page 14. Page 14 shows the track record of [indiscernible] income return by different factors, both by means of expansion of AUM backed by strong underwriting and Delphi's ability to consistently outperform the index regardless of market conditions are synergistically leading to favorable results achieved. We will also take a closer look at CRE loans, which have been the focus of much attention these days. Please turn to Page 15. To begin with, what is the nature of market concern over CRE loans? Rising vacancy rates and rising interest rates are increasing the risk of declining property value and default on interest payments. And stricter bank lending at the time of maturity is also increasing the risk of default. I believe these are broadly the main concerns held by the market. In contrast to such concerns, the main focus of Delphi CRE loans is not so much the property itself, but rather the business plan or business model that will improve the value of the property through renovation to increase the property value. In other words, it becomes a property favored by tenants making it easier for refinancing in such loan is for a period of a few years. Therefore, the quality of the property and tenants are important, but also the experience and qualification of a sponsor as well as financial soundness of the property sponsor must be strictly evaluated. To do so it requires a dedicated and seasoned team of experienced professionals who have lived through several market cycles and still manage to generate stable returns. As a result, 99% of the portfolio is now paying interest on time and without problems. Second, majority of Delphi's portfolio is held as single lender, which means that in case some unusual event occurs, Delphi can flexibly respond to it at its own discretion without coordinating with other lenders, to take measures ranging from refinancing to foreclosures. In addition, as explained earlier, Delphi's source of investment money is insurance liabilities, which are long-term money and predictable, allowing them to wait and hold position until the real estate market recovers. This puts Delphi in a unique and different standing from other financial institutions. As for stress testing, as explained earlier, as shown in the lower part of the slide, even if another financial crisis were to occur again, the impact on the Tokio Marine's P&L will be limited. We are also planning to hold a presentation focusing on Delphi Group unique with these features next month in late June, so we hope you will be able to attend that meeting as well. Please look at Page 16. We do this usually, but it is rare to see a company disclose the actual synergy amount. But this is something very important to Tokio Marine Group. Revenue, investment, capital and costs are the four areas of investment -- of synergy, and we are currently generating $470 million annually. This is the highest level of synergy in our history. If we were to realize $470 million of profit through acquisition, a simple calculation, using the average P/E ratio among the P&C companies in North America to be 14 times and would require a company worth JPY 900 billion. Looking at synergy in this manner, we can say that the group companies have realized significant value at no additional cost by voluntarily holding discussions to the CEO meeting, there's a global top management meeting. So they are very voluntary in doing this and creating synergy. I am truly encouraged by such self-board effort among group companies. Next, I'd like to explain about dividend as a way to return [ flow ] profit. Please turn to Page 17. Once again, the basis of our shareholder return is dividend payment and we will continuously increase DPS in line with profit growth. In other words, in tandem with the world's top class EPS growth, we will raise both trajectory and confidence of DPS growth to a higher level. Against this backdrop, in fiscal '23, supported by strong profit growth, we are expanding source of dividend payment, and we are raising the dividend payout ratio to 50% as planned. This would make DPS to be JPY 121, an increase of JPY 21 versus last year and growth By 21%. This will be the 12th consecutive year of dividend increase, and we will continue to increase source of dividend by moving average rolling forward to achieve high DPS growth. Next on Page 18, we are showing the trend of adjusted ROE and how it looks vis-a-vis global peers. Through strong profit growth and disciplined capital management, our ROE is now at 15.1% level that has global peers within reach. However, both Tokio Marine and peers recognize that these ROE figures are more or less due to a decrease in net assets from rising interest rates, resulting in technically inflated ROE. Therefore, we will continue to raise ROE more fundamentally, and we believe that the peers will do the same. In that sense, although peers will be moving targets, we would like to be in line with them. And as for the path to ROE enhancement, we are not aiming for a so-called shrinking equilibrium. So expansion of numerator or world-class EPS growth will be the main focus of our effort. On the other hand, as measures for denominator side of the equation, we will work to reduce business-related equities with sense of urgency. Please turn to Page 19. We have over 20 years, been reducing business-related equities. And last year, we announced to accelerate the sales. This time, we have decided a further acceleration of sales by selling more than JPY 600 billion in 4 years, until fiscal year 2026. The company will transition to IFRS at the end of fiscal year 2025 through accelerated sales, business-related equities held on an IFRS based net assets as of end of fiscal year 2026 is expected to be around 30%, although subject to fluctuations in share prices. We will continue to sell. Therefore, business-related equities accounting for 20% of net asset is just a passing point. This effort will enable us to replace capital with more capital efficient ones and be able to enhance ROE and this is the substance. ,the crust of our management. Please turn to Page 20. This slide shows our track record of acquisitions and divestments. For us, M&A is a means to an end to diversify risk and achieve profit growth. M&A is not our objective. M&A has been executed by carefully selecting and identifying what we call good companies that we can demonstrate synergy with and achieve high ROI. Having said that, current valuations of large M&A deals are still high. Patience is, therefore, still needed. Our plan in the meantime will be to make sure we seize bolt-on opportunities while taking a disciplined approach in executing our divestment strategies. Page 21 illustrates our capital policy. Recent ESR is 124%, which is within our range and solid. First priority of use of the generated capital is to invest in business to further enhance ROE. If, however, there is no opportunity to invest internationally or in Japan, we will execute share buyback as the company has no intention to accumulate unnecessary surface capital. For fiscal year 2023, I've referred to this very briefly already, But JPY 100 billion in share buyback is planned for the year. And at this moment and as a first step, execution of JPY 50 billion share buybacks were approved. So we will be using a capital into new business investments. And if there are no such opportunities, we will do execute share buybacks. This is a disciplined approach that we are taking, and we would like to pursue the relevance of being a global company. Let me throw a light on the high-quality management of the business, which is a foundation to realize profit growth and ROE improvement. Please jump to Page 23. As I mentioned at the outset, the company has been practicing sustainability management since its founding. I intend to make sure this permeates globally and pursue further evolution. The slide illustrates numerous initiatives from around the world and at the center of our business. Initiatives are accelerating and working on it with simple honesty will serve as a driving force to grow sustainably for 100 years and beyond. I truly believe in this. Please turn to Page 24. High level of expertise and knowledge acquired through M&A, among others, will be leveraged across the group strategy. Such global integrated group management unique to the company has entered its eighth year and still evolving. I believe so. Decisions on important management issues are now made and implemented by combining our global knowledge and expertise. This structure will not end with the so-called first generation, nurturing next-generation management talents and passing the baton to them are extremely crucial. Various measures are also being taken. For example, the left side of Page 25 covers TLI, Tokio Marine Group Leadership Institute launched in April that will offer leadership programs to talent across the group globally. TLI will be used as a gateway to success for next-generation management talent is similar to GE's Crotonville, widely known globally. We will work on talent development and succession by linking TLI with our global talent management initiatives since 2019. Next on the capabilities of high-quality management. Please turn to Page 26. At Tokio Marine, we have a track record of overcoming challenging times. We have the ability to be responsive. TMSR in Brazil has grown to reach more than JPY 10 billion in bottom line experienced severe rate competition in the market. Tokio Marine Kiln suffered sluggish profit until 5 to 6 years ago. Management leadership was persistent throughout and executed the right strategy by working together with the field to overcome the challenges. This ability to be responsive is particularly relevant at a time when the business environment is even more volatile and uncertain. Strengthening intelligence, accumulating intelligence, I intend to bring our ability to the next level. Please turn to Page 27. As our business domain grow and expand globally, we need to strengthen ERM, including small, medium and minority investments on a global scale. It is necessary to balance growth and risk management at a high level. Loss from COVID in Taiwan last year was a market event, but I don't want to see another loss like that. Immediately after, emergency review was implemented on minority investments. And as you see on the right-hand side, in terms of enhancing individual entities, in Taiwan, we decided to take a majority stake, Chairman of the Board and CRO was dispatched to enhance the level of ERM. And this time around, a competent President has been newly appointed from outside the company. In the meantime, if you turn to the left-hand side at the group level, a new Chief Audit Officer was appointed in April and an officer responsible for the governance of International business was appointed. Efforts are made to strengthen the framework. So that is all I have for the management strategy for the entire group. And let me now focus on the domestic non-life business. Please turn to Page 28. In fiscal year 2022, I had the pleasure of engaging in dialogue with many institutional investors and analysts in Japan and abroad. Corporate value of the business is often discussed the engagement. And questions on the value of our domestic business are often raised. So I want to take a moment to elaborate on the domestic non-life insurance business. And there are basically two key messages from me. One is stable growth of our core insurance business. I sense that in general investors take a hard look at the overall growth of the Japan market. The company, however, has a different view. The non-life insurance business is a profit growth driver and much more bottom focused than ever. Second point, the company has been taking on the challenge of transforming into a new business model in Japan, where we have numerous societal challenges. Actual business operation is about to start. There is room to grow in the area of capital light business in Japan. Let me give some color. Please go to Page 29. The slide shows the change in combined ratio over the past 10 years to compare profitability of the P&C market in Japan and the United States. 2018 was an exception with multiple large non-cats, but combined ratio in Japan has always been lower than North America by 2 to 3 points. And at TMNF, it is even lower by another 3 or -- 2 to 3 points. This is because of quit rate and product revision against deteriorating profitability. We will continue to achieve stable combined ratio. Next, on Page 30. Please find the growth rate of underwriting profit of Tokio Marine. It is shown on a normalized basis to eliminate transient noise such as natural catastrophes. CAGR is plus 13% for the past 10 years. For fiscal year 2023, we will achieve plus 7% growth by focusing on bottom line and there are numerous profit growth drivers. Let me talk about these drivers on Page 31. First of all, Auto insurance, which accounts for about half of our premiums at TMNF, loss cost is on a growing trend, primarily from revanche driving and inflation. For fiscal year 2023, combined ratio is expected to be in the high 94 percentage range. We will offset the increase in loss cost by improving loss prevention and by executing rates and product revisions next January. Going forward, the number of vehicles in the market is expected to decrease over time. We will further enhance our policy volume measures and unit price measures as shown on the right to maintain stable profit. Page 32. This is an illustration of profit improvement in Fire, which is the largest profit growth driver. In addition to the rate increase and product revisions implemented over 4 years, comprehensive measures have been put in place such as disciplined underwriting, reinsurance cycle management, to name a few. With these measures, underwriting profit on a normalized basis for fiscal year 2022, as you see in the middle, turned around to plus JPY 3.6 billion and combined ratio finally dropped to below 100%. For fiscal year 2023, while following below expectations from 6 months ago due to rise in reassures cost, among others, underwriting profit is expected to be up JPY 27.1 billion and combined ratio to reach 92.8%. However, trends in natural catastrophes and reinsurance costs in the future do not allow optimism. They are unpredictable. While continuing with bottom-focused initiatives, needless to say, second and third arrow, such as additional rate and product revisions in the next midterm plan and taking loss prevention measures are taken into account. We will be implementing additional revisions, all in an effort to ensure profitability that is commensurate to capital cost. Please turn to Page 33 on specialty insurance. Our current midterm plan envisions increase in income from specialty insurance by more than JPY 100 billion. We are producing good results in the four priority areas of health care, SMEs and GX and the cyber and the target is achievable. As shown on the right, penetration of specialty insurance in the Japanese market is still low. Therefore, there is plenty of room to grow. For us, working on addressing societal issues over the years, it is a very challenging field to work on to create a market and to open up the future. We will make sure to deliver results. Next is on the foundation of profitability of domestic P&C. Please turn to Page 34 for lean structure and reallocation of resource. On the very far left, by making full use of digital, administrative work will be reduced by 20% to 30% by the end of fiscal year 2026. I've been saying this, and our progress to date is a minus of 9% or 9% reduction. In the middle, diminishing the equilibrium is not contemplated. Workforce will be reallocated to achieve top line growth in specialty insurance and improving loss ratio in Fire. In fiscal year 2023, each will make about JPY 20 billion in profit contribution. And as a result, combined ratio in fiscal year '23 is expected to be 92.5% at the bottom. And in fiscal year 2026, real or tangible reduction impact of administrative cost is expected to lead to further results. During this time, generative AI and other disruptive technologies will be put in place and leveraged. And lastly, on the second key message on the domestic P&C business, transformation to a new business model. Let me elaborate on Page 35. Currently, we are expanding the conventional insurance business of insurance payout shown in the center vertically and horizontally. In other words, expanding into preparation and recovery, which is a horizontal expansion of the business and expanding the function of the insurance business by underwriting new risks and adding new services, which is a vertical expansion. Our role is growing quite significantly. And let me give you some examples. Please open both Pages 36 and 37. Let me start on Page 36. The slide describes our initiatives on disaster risk reduction in Japan as an example of vertical expansion or horizontal expansion into pre and post incident of the insurance business. Japan is a country prone to natural catastrophes. The base of this business domain or the value chain is broad. For example, the market size of the disaster risk reduction solution business is said to be JPY 1.2 trillion. This is how much room we have to grow. In 2021, we launched CORE, consortium for disaster prevention and have been working with member companies that have now grown to approximately 100 companies. We are finally entering the monetization phase. The two cases shown on the right, real-time hazard and disaster loss simulation, both contribute to improved disaster resilience. They will be rolled out to mainly local municipalities from summer this year. These services do not take up much capital. It's capital light. Scaling the business will lead to improved ROE. Our plan is to create such cases, one after the other. Turning to Page 37. These are examples of the vertical expansion or functional expansion of insurance. Key is the group's core data company Tokio Marine dR or TdR for short. Enormous data gathered at TdR and the sophisticated digital capabilities of the group will be leveraged to underwrite using advanced data analysis methods or to offer new data solutions. Data-driven products are developed and released in succession. Our capabilities, including TdR will be enhanced through collaboration with outside partners to come up with unprecedented value-added solutions that address societal issues. Lastly, please turn to Page 38. New business expansion, leveraging our claims service capability. On the left is the fee business through collaboration with Kyosai. And on the right is Fee Business using a satellite data. These businesses have a broad base. We will improve such capabilities, upgrade our capability so that it will lead to much bigger outcome. So as explained today, our domestic P&C business offers us a foundation for the insurance business by ensuring stable growth and an opportunity to create new business models as a new income source by addressing societal issues in Japan. We -- And as we are ahead of the curve such businesses could be rolled down to other parts of the world. It is a promising market and business domain. We have the capability to deliver and we must deliver. Building new pillars of the business is something that I will continue to work on and continue to communicate with you. And that is all I have to share with you. Once again, Tokio Marine will achieve world's top-class growth in Japan and abroad as well as ROE in line with global peers by realizing high-quality management globally. And also realize high shareholder return. We will do our utmost to do an even better job, and we will work together as a global group. Your continued support is very much appreciated. Thank you very much for your kind attention.

Thank you. Now we would like to take questions. [Operator Instructions] Now due to interest in time, please understand that we may not be able to respond to all of your questions. And in such a case, the IRSR Group will take your questions, and we'll get back to you at a later date. Your understanding is very much appreciated. Let me see if there are any questions. Muraki-san from SMBC Nikko fees.

My name is Muraki from SMBC. I have two questions. The first is that one of the major themes as you presented is the top line growth of your domestic P&C business. If you go to Page 33, there are some specialty insurance that you plan to grow and you want to grow the top line by JPY 100 billion by selling specialty insurance. That's how I read it. And so it's JPY 100 billion for top line. There's about JPY 17 billion expected for profit. And also the four areas in the first half of the midterm plan versus the plan, I believe you were lagging behind the plan. But as you focus more on specialty insurance in the next mid-term plan and you plan to grow this by JPY 100 billion, how do you specifically plan to grow the specialty for different lines of business? That is my first question. My second question, since we have an independent director, Mr. Katanozaka with us this -- in this meeting today, the Board level, I want to know what was discussed in your Board meetings last year. Just as a case study, regarding Taiwan, I know that there was a loss by JPY 100 billion, and you have added additional capital to your entity, which I imagine must have been a difficult decision. And so when you execute your purpose-oriented management, you have done so accordingly. But then the way you have invested in that company, there were a lot of discussions over there in the market. According to the law of capital, the Yulon Group, perhaps they should bear the unlimited liability. And Tokio Marine was a minority shareholder. So to what extent it did -- should Tokio Marine support the business is the gist of discussion. And also the function of the Board on the local entity level, what did they discuss? And what were the opinions that they have reached.

So on the first point about the profit growth expectation, especially for specialty insurance for domestic P&C business, I'd like to answer that first. So from Tokio Marine & Nichido Mr. Sakiyama, incharge of Strategy Planning. Please answer the question.

Muraki-san, thank you for the question. About the specialty insurance growth, I believe you are looking at Slide #33. So in this current midterm plan, we have announced JPY 100 billion. But as you can see on the left, it is now within our reach during the current midterm plan. And as a result of that, the bottom line contribution is actually on Page 34. In the middle, it says JPY 100 billion of growth and JPY 17 billion of profit contribution. So these are pretty much in line with what you mentioned earlier. So this is the profit level that we expect to see. And so what would happen in the next midterm plan, weren't we lagging behind was your question. So let's go back to Page 33, once again. Last year, actually 2 years ago, in fiscal '21, we started the midterm plan. The first year was JPY 15.6 billion of growth. And second year, it was JPY 64.5 million. And so in the second year, we have achieved JPY 48.9 billion of profit growth. Those four areas, health care, SME, GX and Cyber, the four areas of priority, So if you were a frontline salesperson, these were not necessarily the areas that they were focusing on. But we wanted to support them in focusing more on these areas and these were the societal areas. And so we have established new divisions take care of these topics. And of course, it requires some time for these topics to sit in with them. And so that is why probably the first year looked low key. However, gradually, it's now more penetrated. And now there is more collaboration within the headquarters. And so as you can see with the second year number, we have seen the growth. At this point in time, the market penetration of these lines of business is still low. So there's much more room to grow. And in the next midterm plan, we continue to focus on specialty line of insurance. Of course, we need to consider details, but that topic is still within consideration. And so by the end of '26 as profit contribution, we're thinking over JPY 17 billion for the current plan. And towards '26 -- fiscal '26, so we have stipulated here JPY 30 billion, but specifically how we plan to achieve that number, the details will be considered from this point onwards.

So then on the second point, to a question to katanozaka san, regarding Taiwan COVID, what were the discussions that took place on the Board of Directors meeting as much as you can disclose.

Muraki-san, thank you for your question. First of all, overall, the Board of Directors meeting, I have been serving this for about 3 years, and we have outside board members, and we have auditors who are very proactive in speaking out. And they gave some strict serious comments in the meeting. And the Chairman also puts effort in trying to draw out voices from various members. And as you mentioned, regarding the Taiwan [indiscernible] issue, the level of the loss that we have been hit is large. And there was an impact by JPY 100 billion to the fiscal earnings of '22. And I believe the gist of your question is as an outside board member, what kind of discussions took place on the Board level. As you mentioned, we were a minority shareholder So one option was for us not to pay for the claims. So there was an option. There might have been an option for us to simply withdraw. However, as we had a discussion not to do any capital -- additional capital investment and withdraw from the business, you mentioned purpose management as an insurance group, it was going to impair our brand. And also, it was going to create the reputation risk driving away customers on a global level. And as Komiya san mentioned, we thought it was better to take a majority share and do the capital increase and to fully take care of the losses. So that was discussed on the Board level, and that was the conclusion that was reached on the Board level. And also, you said that there were some comments made about how we additionally invest the capital. In the capital investment, it was done over several quarters. And when we were doing that, there was a loss that we had to fulfill for liability over asset and also the growth potential in Taiwan, and we made a decision to reignite the growth in Taiwan. And so in order to secure continuity, we have to meet the solvency requirement. And so we did the capital injection over the course of 3x. And once again, the Taiwan market, the combined ratio is around 95% or below. It was a stable market. And due to COVID, and sudden surge in the number of COVID patients, the entire insurance industry suffered. But in -- on the Board level, some detailed facts, numbers and data, we looked at them, and we're convinced that the new market could continue to grow. Based on our past M&A that we have done, this decision had an economic rationale tantamount to and no less than other M&A deals. I said that in Southeast Asia, it's Mosaic, and it's a complicated situation. And Mr. Komiya used the word intelligence, but the intelligence gathering information from very wider areas beyond the insurance was necessary. And to do this, we had to strengthen the structure of the Taiwan entity, which I will not get into details here. But this time, what we discussed on the Board is that we have to leverage on the lessons learned. And especially in the international market, where we are focused on, including the minority stakeholding entities, we need to be exercising our global efforts. We will make the final decision over the course of the next 3 years. But as the Board of Directors, we will continue to receive status report, and we'll continue to fulfill its supervisory role. That is my intent thank you for your question.

Let me proceed to the next question. Tsujino-san from Mitsubishi Morgan Stanley Securities.

My first question -- it's kind of a follow-up question to the specialty insurance question. Low penetration was mentioned. Now for the priority areas, those companies that are buying insurance products in these priority areas, there could be potential companies that could be buying more. Is there maybe 10x in the market, 20x more in the market? Could you give a sense of the size of the market, potential customers in the priority areas. If you have a sense of that, please share it with me. And my second question is on Page 34, reducing work administration cost, as also referred to. And at Tokio Marine, within this industry, you've been ahead of the curve and -- under Mr. Sumi's time. You have introduced new systems, introduced efficiency and you have reallocated people. Are you've been working on it over the years. I understand and appreciate that you're still working on it. In other words, people who were more involved in simple tasks, should I say, should be -- needs to be reallocated to new tasks. Will they be able to adapt to those new tasks? That's one area of question. And the age of retirement is being postponed. But yet at the same time, we need people to work. So I'm assuming that there are many other companies out there that are facing more challenging situations. I understand that. But my question is for you, how does Tokio Marine, in light of the labor conditions in Japan, how do you intend to work forward?

Thank you very much, for your questions. With regards to your first question on the slide on specialty insurance, penetration rate is still very low. And so we will be focusing on the 4 priority areas. But how much room do we have for growth in this market, I think that was your question, first question. Let me ask [indiscernible] to first respond this question and ask [indiscernible] to respond to supplement or it could be the other way around.

[indiscernible] thank you very much for your question. It's kind of difficult statistics that you think is limited. And you might be referring to Page 33. On the right-hand side, in terms of room for growth, you can see, and there is a lesion at the bottom. Health care, I think, there is still a lot of room for growth, whereas SMEs, the current penetration rate is like 20% to 30% is still very low. The SME market, there could be very [diverse sized], but 3.6 million companies -- SMEs are in Japan. With our capabilities, with our manpower, we have not been able to cover all. And therefore, there is plenty of room to grow in SME. And Cyber Insurance compared to Europe and the United States, the penetration reach in Japan is less than 10%, and therefore, I believe that there is plenty of room for growth. Bottom right, if you look at the comparison with the U.S. and Europe in GDP. Europe and the United States is 6x or 8x [down] of Japan. And therefore, I believe that there is plenty of room for growth. José anything to add from the product side?

Yes, this is [ José-san ] speaking. Let me supplement slightly. Specialty Insurance is different from auto, fire, those traditional products, and therefore, it would include a diverse area. There are medical insurance and engineering insurance that have been in place for quite some time, but penetration rate could be high already, but the medical capabilities, the technologies will expand going forward. And therefore, there is still room for growth in that area by having different new products. And in SME, as was already mentioned, the penetration rate is still at 20% to 30%. There is plenty of room for us to grow. And even for large enterprises, specialty insurance, new products that will be introduced will all be included as a specialty insurance. So Cyber from an old data, 10% for large enterprises and only 5% among SMBs have Cyber Insurance coverage. So these are completely new areas in specialty insurance where there's big room for growth. So although within the same specialty insurance, I think there are levels of possibilities for growth. The more resources that we put into this area, we have stronger confidence in this market. So the second part of your question, let me ask [indiscernible] and [indiscernible] to please respond. The second part of the question was about more efficiency and administration. We've been focusing on Mirai project in IT and technology has been upgrading over the years. So even after implementing drastic reform, there is still room for seeking further efficiency. And it's not that we're going to think about restructuring of our staff, we want to shift these existing staff into areas where we want to focus on. What is the level of liquidity and what kind of educational opportunities that we have like recurrent training and so forth. And of course, we have such opportunities. What are our ideas on the resource shift within the company. I think that was the second part of the question. Let me ask [indiscernible] to fill this one and followed up by [indiscernible].

This is [indiscernible] speaking. So this is also another very difficult question. And I think you briefly mentioned in your question, from the latter half of the year 2000s, we called full drastic reform and made big system investments in order to improve or renovate our administration. About 30% of workload, administrative work have been reduced. And in 2010, the business ratio was [ 5.1% ], but now it's 32.1% from 35.1% to 31.1%. And insurance income has increased by 1.1x. So it is growing. And as you see on Page 34, on the left-hand side, additional investment in order to enhance the business efficiency. We have stepped up our effort in order to explore the capabilities of digital investment. And Mr. Komiya alluded to this very simply that we are not going to do restructuring of our staff. We're going to reallocate the freed up workforce into new areas like specialty insurance or to improve profitability of fire line of the business. And you can see the fruit of our initiatives on the right-hand side. Now going forward, when we explore these opportunities, what happens, for example, in terms of expense, administration cost or expense ratio, 31%. We want to achieve that level in the next midterm plan. And we want to reach below 30% sometime in the near term. We want to take steady steps in that direction. So what would be the role of our employees. Of course, that will change over time. Simple tasks that [indiscernible] mentioned in your question, over time, we will shift to digital or AI. And therefore, the role that will be taken over by employees will become more difficult, more challenging areas or will be areas that can only human beings can deliver. In order to shift into those areas, reskilling will be a must. And so the freed-up capabilities will be combined with reskilling so that employees will be trained to be able to support the company in heading towards the direction that we want to achieve, which is embedded in our purpose of addressing societal issues. And therefore, being able to assume a different role in addressing the societal challenges. It's not to say that there is a particular program that we have in place to make that possible, but that will be for the next generation.

Komiya speaking. So we have 4 freeze, and we want to reallocate the capabilities into new areas. So I want to ask [indiscernible] to make some supplementary comments on that point.

[indiscernible] Thank you very much for your questions. So the [ Mirai ] project that we're working on has been started with the effort that we have been putting in place over the years and administrative cost has been reduced quite significantly. So as a result, the people who have been allocated to administrative work has been reduced quite significantly over time. And the people who have been only involved in simple tasks has been reduced, and therefore, shifted to sales activities, for example. The 2 main pillars of the initiative consists of paperless and a lot of the work has paper work -- related work has been reduced, or evidence materials or documents that will be issued or published by hospitals have been simplified. It's not entirely paperless, but has largely become paperless. So we want to move ahead in that regard. That's one thing. And the second area is in insurance, there are many lines, and it's very complicated. And therefore, the customers will speak to the agents and the customers will ask questions to the sales. And when the salespeople are not sure about it, we'll have to refer to the headquarters. So that referral work was sort of a leftover of our initiatives, and we had to work hard on that. We use [ IVR ], [indiscernible] given numbers to some typical questions that will be addressed in the back office at the center or telephone referrals will be replaced by e-mails and chatbots, and AI will be utilized so that more AI could be used in this area. And with those efforts, I believe that we can further reduce the administrative cost and work. And as was mentioned by [indiscernible] earlier, we will be addressing more diversified risks and pre-imposed incidents, disaster risk reduction and health care and also reducing the impact of disasters and so forth, with that we want to offer more value to our customers. And this is how we want to grow our business and to grow our fee business. So our human capital will be shifting into those new areas. It will be our manpower, our talent, our people who will be executing that. And therefore, we will make sure to invest in our people. 2 years ago, my challenge incentive, which is a part of a benefit that has been introduced, and we are promoting our employees to educate themselves. We call it 4 freeze gender and make [ career hires ] and age free, the seniors, the juniors, taking away those walls so that people will be able to grow themselves in order to contribute to the success of the company. That is all for me. So we're bringing all these efforts in order to work on this. I hope we have answered your question.

Watanabe from Daiwa Securities, it's your turn.

My name is Watanabe from Daiwa. I have 2 questions. So first question is on Page 15 of your material. The CRE loan that you hold in the U.S. market due to renovation, you want to be improving the property value is what you said. However, what is the investment period -- average investment period? And also, I believe there is an office sector which you are cautious of and how do you treat those cautious sectors? And also how much provision do you have against those cautious sectors? What is the level or adequacy of provisions? And my second question is to outside Director, Mr. Katanozaka. I have a question about the business related [indiscernible] Tokio Marine has ANA shares. As Tokio Marine accelerated sales of equities as an outside director of Tokio Marine, how do you evaluate their effort? And what kind of proposals are you making in them accelerating their sell-down of shares?

So on the first point about CRE loans, Endo-san will answer the question. And it CRE loans, but we have the properties, the purpose of investment, some uniqueness of the loans we hold, and so Endo-san will give you the details.

Thank you for your question. So first of all, on the first part about the average investment period as Komiya-san mentioned, regarding CRE loans, we have some meticulous underwriting. We look at each investment case, case by case. We discern them, we differentiate them in making decisions because CRE loans or real estate sector has uniqueness attached to each property. So it's not a simple classification difference or area difference or structural difference. So we cannot really make any overarching general comment because each is unique. So regarding the investment period, for the commercial real estate, we want to be investing in a stably operated loan, and we want to do a long-term fixed interest loan over those properties, but we do something a little different than that because for the transitional properties, renovation and also restoring work being done, the properties we like, and so we do a lot of variable interest rate and the investment period is a few years. So it's relatively shorter than the market average. For each property, how do we discern them, differentiate them. Since 2020, since we got into COVID, hotel sector, we were rather cautious in hotels, and work from home has become common these days. So office sector, we are slightly cautious. We have these stances towards different sectors. On the other hand, as I said, each property is very unique. They have strong uniqueness. So even after COVID, if you move by airline and require lodging or if you move by car and require lodging or if you go to a resort hotel or if you go on a business trip and you need lodging. Depending on the use in purpose, the vacancy, the average transaction value varies from type to type. And therefore, for the hotel sector, we look at how it's used, and we make investment decisions case-by-case, one by one. And for provisioning, for fiscal '23, the accounting changed across United States. So CECL, current expected credit loss, CECL is now mandatory for non-listed companies as well. And Delphi, from January 23, Delphi has been provisioning according to CECL. At the end of '22, the balance for the group was $180 million on a pretax basis. For CRE loans, it's within this number. As the provision percentage, it's about 1%. That concludes my answer to your question. Now going on to the second point about the business-related equities. Katanozaka-san, can you provide your comment?

Watanabe-san, thank you for your question. As you said, there is a contradictory position that I hold as ANA. Actually, I am the Representative Director and Chairman of ANA Holdings and its subsidiary is ANA. And TMNF and ANA have some business relationship with aviation insurance, I think that's what you are referring to. But as for me, I am not on the Board of ANA, and it is a subsidiary. And so I do have some responsibility over the business of ANA. And as for Tokio Marine sell-down of equity shares, it was explained well in the presentation. Originally, from 2002 for over the course of 20 years, it has been reducing business-related equities. And last year, there was a revision to the policy, there was strengthening of the policy to continue to sell shares. And then in May this year, as it was announced, we have announced that from '23, the pace of sell-down is going to get accelerated. So specifically, the plan is to JPY 600 billion of sales in 4 years. And so on the Board level, we support their decision on this. And you said that there is some contradictory stances I hold. Of course, aviation insurance is purchased from Tokio Marine as well as from other insurance companies, there is a competitive relationship among insurance companies in this area. My stance is that I'm an independent Board member. And as for the policy of equity sell down, I have no objections whatsoever. I am all supportive of their decision to do so. Looking at ANA Holdings, from financial institutions, the corporate governance code had been introduced, but even before that, unwinding of [indiscernible] shareholding had become a general trend in Japan. And going forward in managing the company, I believe this is one major theme, which all Japanese companies will be aiming to do the same. And so I have no objections whatsoever. And therefore, reducing the shares, as you mentioned, whether if we can accelerate the pace of sell-down and also what thorough discussions and explanations we can have with the share issuers from the execution side of the business, they had committed to talk to those share issuers thoroughly. As I was monitoring their internal meeting to the sales offices and what they do, the headquarter senior management was thanking them for talking to the share issuers thoroughly, which made me feel that they are having really a good discussion with the share issuers and doing this meticulously. TMNF and also with ANA and the aviation insurance as well as the topic on the share sell down, they are talking on various aspects, and I am content with that.

JPMorgan, Sato-san.

I'm Sato from JPMorgan Securities. Separate from the theme that you emphasized today, which is about the international business. For example, on Page 61 of the slide, you have the profit growth diagram. And the first question that I want to ask is very simple. In the current cycle, where do you position yourself? Where are you in the current cycle? And what kind of growth trajectory could we anticipate? My view is that at the time of the midterm plan, 9% CAGR was a target. And this time, 5% growth, excluding foreign exchange and JPY [ 40 ] billion is from expansion of investment income. So looking at the numbers only, underwriting profit did not contribute to the growth, at least looking from -- looking at the numbers. The interest rate environment is a little bit in favor. But going forward, underwriting profit should contribute -- will underwriting profit stably contribute to the growth. So this is something that I am watching very closely. So if you could please elaborate on how much growth potential and room for growth you have for the international business going forward? And my second question is also on international business. Sorry, this is on Page 10. Every year, this is something the risk volume and diversification effect that you show every year. And I have been watching this every year, thankfully. The risk amount of international has grown by about JPY 500 billion and diversification effect is not working as much as it did. And so in relation to the first question, if the growth of the international business is going to enter into a more difficult cycle for growth, then the setting aside of risk volume for the international business will that change over time? Those are my 2 questions.

Thank you very much for those questions. You -- thank you very much for your 2 questions. The first question was about the international business. I want to ask Yamamoto-san overseeing the international business to respond to that question. There's a market cycle, the rate environment, where are we in the growth trajectory, and going forward, what is the room for growth of the international business. So what are our ideas and the extent of possible growth. Underwriting profit and investment profit, what will be the balance between the 2. So that was the first question. I want to ask Yamamoto-san to please respond to that question. And then on the risk diversification, the effect of diversification, maybe we are slowing down on that diversification effect. What are the risk diversification strategy we have internationally and our thinking on risk volume. I want to ask Yamamoto-san first and then Okada-san, CFO, to respond. So Yamamoto-san, if you could please respond to the first question.

Yes. I am Yamamoto, overseeing the international business, and I want to thank Sato-san for your question. So about the cycle, where are we in the cycle? And this is actually crucial because it's the basis of our plan. And the basis of our plan, and the basis of the plan in terms of the cycle is the hardening of the market will slow down broadly speaking. This is our outlook. And the slowdown, the extent of the slowdown will differ by line. For example, the reinsurance business that will cover nat cat and properties that will be related to that. There is still an ongoing hardening of the market. It's quite an unprecedented hardening of the market. But in the meantime, for certain lines, for example, D&O for large corporates, end of March, in the earnings call of insurers in the United States, there is a rate free fall we could refer to it. But overall, the situation is quite patchy. But broadly speaking, we will say that there is a slowdown in the hardening of the market, and therefore, that needs to be factored in. In the meantime, for underwriting profit, reinsurance cost is soaring. This has put a dent on the profit growth. So that is factored into our plan. And for underwriting profit, it's actually the way in which we've factored into the plan. For example, when we came up with the plan for '23, '22, there was a reserve release, in '23 is not factored in, except for certain entities. And that's why the underwriting profit in '23 looks smaller than in '22. In addition, can't fund for natural catastrophes. From '22 to '23, we have increased provisions for nat cats because of the increase in natural catastrophes. So all those factors in '23, underwriting profit seems to show a sluggish growth compared to '22. And taking all those factors into consideration and looking at '22 to '23, underwriting profit, very roughly speaking, about 7%, still growing year-over-year. And in light of the current market environment, underwriting profit is growing in a disciplined manner. Now going forward, how will we be able to enjoy the growth trajectory. Underwriting profit and investment profit. On both sides for underwriting profit, the specialty group companies in the United States, their underwriting capabilities is quite robust. And for investment profit, Delphi's capability, they are our strengths. We will be growing on both sides of the wheel. There are, of course, favorable times and not so favorable times. So maybe there are times in which they will complement one another. And for '23, overall, the slowdown of the hardening of the market is expected. And for the finance market, interest rate is rising, and therefore, we can expect a rise in income from just investment income. So investment income is expected to go. But over the long term, this cycle will change over time, and bolt-ons that we've been working on over the years will continue. We will seek opportunities for any bolt-on acquisitions. So over the long term, I believe that we can grow both sides. So I hope I answered your first question.

Komiya-san speaking. So if we are to do an apple-to-apple comparison, there are some technical aspects that was just shared by Yamamoto-san. And for investment income, investment income is underpinned by underwriting profit. And I want to have some supplementary comments on investment income. There is a credit risk and underwriting profit and investment profit. Can I ask our CFO, Okada-san, to make the supplementary comments on that?

Yes, this is Okada speaking. As was explained by credit risk, our allocation vis-a-vis credit risk in '22 or in '23 plan, investment profit is the driver of the profit growth for the entire group. That is true. And as a matter of fact, the expansion of underwriting profit has worked quite successfully, especially in North America. And as a result, the balance for investment profit growth is growing. That's the first factor. And the second point is with the rise in interest rate at Delphi, they have more than 40% of variable interest rates, and therefore, return is growing. That's the kind of economic environment that we have been investing in. The slide, Page 10 that you just referred to, in the international business, the risk volume is 27% before diversification and that includes hurricanes in United States and other risks in North America and credit risk will be included as part of that. But ERM framework, if I could make some supplementary comments on that. Natural catastrophes in and outside of Japan and therefore, credit risk, we have a midterm plan where we come up with a risk strategy, which is renewed every 3 years. It is not disclosed, but the growth of net assets, the diversification effect and stress test is taken into account. And we have said -- we set numerical targets. This year is the final year, and we are able to take and control credit risk within that limit. And therefore, at the end of the day, underwriting profit and our investment profit is growing, but this is -- thanks to the expansion of underwriting profit. And if I could go back to the question of diversification effect, 50% or so has been achieved in the past few years. But if you look at 10 years, international business has been growing, and that has contributed quite significantly to the growth of the diversification effect. And I strongly believe that we feel have that diversification effect. And this is not something that we've achieved through diversification because investment risk diversification will have a role to play. And therefore, as for now, International insurance business, with the balance in the insurance business growing, this is where we are. And 50% -this level of diversification effect is still maintained. I hope that answered your first question and also part of your second question.

It's 4:30 now, but we would like to extend this meeting a little more. Okada-san from UBS.

My name is Okada from UBS. I have 2 questions. My first question is on Page 16. The group synergy and expansion of the group synergy. On annual basis, 6 months ago, I believe you said JPY 400 million. And within 6 months, you have increased it by JPY 70 million. And so what brings this expansion? What are the factors? And also for the profit synergy, can we expect more synergy to be created going forward? Especially because interest rate is hiking. So within the group using Delphi and what more upside do you expect to come from the use of Delphi? That's my first question. My second question is on Page 27, Chief Audit Officer and the people in charge of governance for the international business. And when you appoint them, it hasn't been long, but what specific roles will these people play? Because looking at Greensill, Taiwan incident, et cetera, in order to prevent such events from occurring again, what are the additional things that you are doing in order to prevent these accidents to occur again?

Thank you. So first on the expansion of synergy, what are the areas, where the synergy is being additionally brought, I guess that can come from Yamamoto-san. Or for investment synergy, I guess, will there be more consignment to Delphi within the group. So I guess that can be answered from Yamamoto-san. Yes. And then on the second point. So Chief Audit Officer was appointed and also in the international businesses, there are some people to be in charge of governance. So perhaps CFO should answer that. So starting with Yamamoto-san, please.

Okada-san, thank you for your question. So your first question about group synergy. So it grew from JPY 400 billion to JPY 470 million. So 1 year ago, it was something like JPY 370 million. And so now it's JPY 470 million. We issued it back in November. So indeed, this number is increasing. And so looking into what brings synergies, several factors. The biggest one is the use of Delphi. You mentioned that, but it's deleveraging of Delphi and leveraging their investment capability. Within this financial market, we see more assets managed by Delphi, and they made the biggest contribution to synergy. And going forward the investment synergy further leveraging of Delphi will continue to take place. But another area that we're focusing on now is other areas of synergy. So for example, in revenue synergy, we are working on this, and I expect more to come from revenue synergy specifically. In the -- among U.S. companies, there's a CEO meeting that they hold, and they talk about how they can further create synergy among the CEOs. And this is happening more voluntarily now. So CEOs are stepping forward and collaborating and creating more and more synergy. To each broker, there is a consorted approach to the same brokers and as Tokio Marine Group, this is the type of a product or services we have. So if you need this, please approach the group and utilize any of these products or services. So this is a broker approach that they're taking on a consorted manner. Cross-selling of products held by different GCs, et cetera, it's happening. And so this kind of effort should continue. By doing so, group synergy to come from Delphi in the area of investment but elsewhere as well. We are expecting the expansion of group synergy going forward. And so I hope that concludes an answer to your question. So synergy investment synergy is large, but then there's revenue synergy, and there's IT-related synergy, joint procurement and cost synergy is also significant. And also with digital effort, this digital roundtable is being held and also with GX, there's GX roundtable being held. And so there's an expansion of synergy taking place at these venues as well. So we are expecting strengthening of group synergy going forward. And also among the group companies, Hosojima-san can add more if you need to. But for U.S. and Europe synergies, it's large. Japan versus Western nations or Asia and Western nations, of course, it's there, but then there's more room to create synergy across different parts of the globe. And so being led by international business division and collaborating with the Japan side of the business, we are trying to expand synergy even more. Hosojima-san, do you have more to add?

This is Hosojima speaking. So Japan versus overseas and collaboration between the 2. Tokio Marine Group, we have a lot of specialty companies that we have acquired. And in Japan, specialty insurance is not really penetrated here in Japan. And so we should seek for more effort in this area. For example, D&L insurance, Cyber insurance among Japanese corporations, when they do business globally, they want to also be purchasing insurance globally. So they get support from Japan as well as in the global front. So in those global programs, we have a strong position in providing global insurance to corporations. And also purchasing of reinsurance arrangement because we have GCs who are doing business on a global scale. And so for example, event cancellation insurance and also gathering the [ panel reinsurance ] group collaboration is contributing at in this effort. As Komiya-san mentioned, GX, GX is very much a forward-looking topic. There are various risks and how do we underwrite those different types of risks and kind of know-how can we gather on global scale, we are sharing information and trying to collaborate more for those new frontiers. On the second point about the CAO as well as within the International division, those people in charge of governance of the overseas entities, what is happening in these areas.

This is Okada speaking. If you go to Slide 27, and so enhancement of ERM as it was presented by Komiya-san in the past few years based on what we have experienced in the past few years, we want to get rid of surprise. And so we want to be enhancing ERM. And that means that we need to be enhancing governance overall. From April, on the hard side and soft side, there are approaches from both ends. On the hard side, there's Chief Audit Officer. And so this is a person who oversees the internal auditors overall for the entire group that was appointed in April. And then as you can see here, the -- there is senior management in charge of governance of the overseas entities. And so this should be first line. And so from -- as a business division, they will be appointed to do governance of the overseas entities. And so those are the hard side. And then on the soft side, we need to be enriching the risk culture. So the message from the top, message from each CEO is important. So group CEO and Group CRO will be communicating more about risk culture to overseas entities. And also, there has to be more dialogue among the top management of the overseas entities, so that there is sharing of information and sharing of case studies. It may take time, but we will to be persistent in developing a better risk culture, including smaller entities. And so that's what we are doing on the soft side. As it was explained, when we appointed a CAO, there are audit offices for each group company and to secure neutrality of those auditors, they are now independent and CAO is now overseeing each region and also each group company and is talking to the internal auditors of each entity, and he has a very neutral position in doing this. And also with the CEOs of each entity, he's also talking to them in pursuing this effort. For the overseas entities, the executive in charge of governance for the overseas businesses, as it was explained, for each group company, when we look at different functions, they have strength and weaknesses. And so we create a dashboard of those strengths and weaknesses. And each group company or maybe [ TMHD ] as an interim holding company and also Tokio must all be looking at the same set of facts so that we enhance governance in the frontline in the first line, and there's a PDCA that's been rotated according to this framework. I hope that answered your question.

Let me pause here and see if there are any other questions. Is it Majima-san.

Yes. This is Tokai Tokyo Research Center, Majima is my name. With regards to TMNF link and motivation, motivation car -- it's cloud, it's a measurement of index to measure motivation. And TMNF ranks #2 in terms of a company that has employees with high motivation where non-life insurance companies is such a big company, and I'm sure there are people who are dispatched to various locations against their will. But how do you maintain that high motivation? And looking at past trend, is there a correlation between performance and motivation? And are you prepared to publish this outside? And my second question is also very simple. From April, the repair cost guiding it has been increased by JPY 2.5. And can I understand that the shares cost will be increased by JPY 2.5 from April this year? And what will be the impact of that increase, but it will not have an impact on the bottom line, I assume. So those are my 2 questions.

So engagement within TMNF, Motivation Cloud is being utilized. It's being monitored and it's sort of used as a medical checkup of the organization. And so what do we sense about that, and is there any correlation with the business performance. Who should I ask. Hirose-san, could you please respond to that question?

Yes. Thank you very much for your question. In terms of engagement score of our employees, it's truly the source of our growth. And it's something that we treasure very much. It's very relevant for the company. And motivation cloud engage -- conducts an engagement survey. And amongst other companies, we score very high, but I believe that there is much more that we can do. I want to further improve the engagement. In the HR planning department, there is an engagement design office that was newly put in place in order to work on further improvement of engagement. So again, I believe that there is more that we can do, but one will -- there could be several factors that will lead to high engagement. We have that a very open culture of exchanging views in a candid manner that I think is the foundation of a corporate culture, free environment. And we have a project request system, which is like having a side business inside the company. People will volunteer to -- for example, people in the rural part of Japan to participate in a project at the headquarters where we will have very vibrant exchanges and views to improve the businesses. So I think those are some initiatives that will lead to improved engagement. And another thing is about the sustainability strategy. The company is willing to grow by contributing to addressing societal issues. So that's the perspective in which we will seek challenges in the community, in our customers and in the society. The fact that we are working in that way might be creating the joy of working for the company, although there are instances where it doesn't work very well. So through specialty insurance and various other products that we have, we strive to become a company that can contribute to the society.

So Komiya-san speaking. So that, I think, was a comprehensive view of replying to the first question. We are planning to do a comprehensive change of the HR system. And within Tokio Marine Group, what do each and every employee want to realize by working for the group. And we're -- after April, we're using it. The word aspiration in dealing with that. And in order to be as productive as possible and what will be the way in which people will feel fulfilling and rewarding at work and that is reflected in the 4-3 that I -- what we have been referring to today, those are the areas that we want to be working on. And I assume that in June, and this is something that was discussed at the Board meeting earlier, human capital report will be compiled. So within Tokio Marine Group, what are our initiatives towards human capital or talent? What are our plans going forward? It will be published as a report. And I'm hoping to engage in further discussions with you in the market so that we can bring our policies for HR to the next level. And the second part of your question was with regard to the repair cost revision, how is it related with loss ratio. Hosojima-san, please?

This is Hosojima speaking. Allow me to respond to your question. This was about unit cost of repair. And this repair cost, repair price is actually determined by the arrangement that is put in place. And therefore, if the repair cost, 2.5% rise in CPI, what kind of impact would that have on our performance would translate to JPY 2.5 billion. So JPY 2.5 rise in repair cost will, I think, have an impact of JPY 2.5 billion. It might appear small from the premium income. But Majima-san, as you said, it's the auto insurance for vehicles. And not everything will be repaired as a result and actually half is repair cost and the remainder will be parts cost. But -- it's not just repair cost, but the parts cost component is also on the rise because of the inflation. And of course, it's already factored into our plan, but 95% or less is the sustainable target for auto insurance, and we are approaching that target range. We need to proactively reflect the -- our outlook of inflation into our prices, creating a scheme where there is less accidents and anything that cannot be covered by that will be addressed through a rate increase. I hope we answered your question.

Do we have any more questions? Niwa-san from Citi.

My name is Niwa from Citigroup. I'm looking at Page 90, and I have one big question, but it should be separated into 2 sub questions. And so on the left-hand side, I am -- or on the right-hand side, I'm interested in knowing further growth investment. And so in the past 3 years, just by looking at the result, you did not do any major M&A. And you said because it was too expensive. But can we get more color to that? So can you summarize what you have done in the past? And also it depends on lines of business and also in terms of areas of business. Have you been able to expand your coverage adequately in the past? And the second question. In the life insurance business outside of Japan, what is your view, especially Asia? And also in U.S. blocks, I am interested in those areas. What is your business appetite over that business? Whether to do it or not do it? What merits or demerits do you see in doing this or not doing this? And my interest in asking this is that I don't think you will be overtaking risks. But then for the longer-term growth, I don't know if you have gathered enough momentum to achieve longer-term growth? And do you think you have enough momentum now?

Thank you for your question. So 2 questions. First about -- so Yamamoto-san will answer the first part of the question. And then CFO will add anything to it. The first part was about M&A, the [indiscernible] of M&A, large M&A or sustainable profit growth, et cetera. What is the situation now? How do we see it? And then the second is about overseas life insurance business within our portfolio, what is our position or what philosophy do you have for overseas life business, if there's anything to add, CFO should be adding later.

Niwa-san, thank you for your question. So on the first part of your question, about the M&A in the past 3 years, but summarizing what we have done in the past 3 years. First, from -- as Komiya-san mentioned, for M&A, it's only a means to achieve sustainable profit growth and making the capital use more efficiency and also to achieve further diversification of the portfolio. So it's only the means and not the target per se, and we still stick to that point. The past 3 years, we did not do any large M&A. As you mentioned, price was too high. Looking at PBR, among U.S. insurance companies, in the past 40 years, we are probably at the most expensive point. The -- against our purpose of doing so, there are 3 rules in M&A. And also, there are certain areas where we do hold the capability. And if we encounter any prime assets, we will look at it. And so we have some selective -- selection criteria. And against our criteria, we could not find any lucrative targets. So those are the reasons why we were lacking large-scale M&A in the past few years. Going forward, obviously, it depends on the market. The market will change. We continue to pursue after growth, both in terms of organic growth and also additional risk taking. So we will continue doing both of that. For M&A, we want to look at what assets become available. And also for different regions and also different lines of business, we will see whether if we can expand into those new areas. And so we continue to consider them. And if there is an opportunity, we are ready to react. But then it depends on the market, it depends on the counterpart, et cetera. And so it's really difficult for me to say when we will do what -- so that concludes my answer to your first question. So up to this point, the CFO have anything to add.

This is Okada speaking. About the overseas M&A opportunities, as Yamamoto-san just explained, on your point about medium- to longer-term growth potential for domestic P&C, there's pre- and post insurance areas and also the loss services that we can expand. And so these are also medium to longer term. But then for Tokio Marine Group's business portfolio, we want to be doing more of this fee business where it's highly capital efficient. So we want to be seeking for more of this fee business. And so that's part of the medium- to longer-term aspiration that we have. So in order to create the new pillars of business, I have just shared with you some of the initiatives we are undergoing now. It may take some time, but then for domestic as well as for overseas, we want to be creating a new pillar of business. And of course, we want to be able to monetize it. And so that is what we are convinced to be the new room for growth within international business. We did not do M&A. But then over the medium to longer term, we have taken a step into Canada. We started a new local entity because we know that market is going to grow. But as I always say, the 3 principles we have for M&A are still there, and then we have to discern the risk versus return. We should not deviate from these basic policies. And therefore, we look at the short list, we look at the long list. And if there are good opportunities, we will take a look at any of them as long as they meet the criteria, but then we have these policies to keep always. And then on the second point about the International Life business, can you answer that question? Yes, to your second point about the International Life business, as Niwa-san mentioned about Asia. But other than Asia, within the international business, we have life business in a wider definition. So Delphi, Delphi has employee benefit business. And also in Brazil and Mexico, and of course, the size is not that large, but we have some group life insurance businesses. So within the International Life businesses, we have such businesses already existing. Our strategy going forward for a while is that, as I mentioned, as part of the M&A strategy, we hold capability or strength in certain areas, and we want to stick to those areas. And therefore, the current business arena will be remained. And profitability as well as enhancement of capital efficiency should be considered in seeing in what way it can contribute to group profit. On the primary underwriting side, we want to be talking to our customers, and we will be providing products and providing services. That's the typical life business that we are thinking of. So as an example, the block trading that you mentioned, that's a little bit different from what we are interested in doing. That concludes my answer to your question.

Let me see if there are any other questions. No further questions? In which case, I would like to ask Mr. Komiya to say a few words in closing.

Once again, thank you very much for coming today. These briefing sessions are very important for me, and I would like to treasure these opportunities. I am looking forward to receiving your inputs, which we will receive through these meetings and your feedback will be reflected in our policies. Thank you once again for coming today.

So with this, I would like to conclude the IR briefing for the first half fiscal year 2023. Thank you very much for your interest in spite of your busy schedules. [Statements in English on this transcript were spoken by an interpreter present on the live call.]