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

Good afternoon. As it is time. I'd like to start the session. Thank you for joining us for the Tokio Marine Holdings IR briefing for the second half of fiscal year 2023 in spite of your business schedules. I'll be serving as the moderator. I am Ishiguro, Head of Global Communications. Today's session is held in a hybrid format where participants are joining both in person and online, currently giving announcements for the Japanese audience. Let me introduce our participating officers from Tokio Marine Holdings, Group CEO; Mr. Satoru Komiya, senior Managing Director; Mr. Kenji Okada, senior Managing Director; Mr. Yoichi Moriwaki; senior Managing Director; Mr. Kichiichiro Yamamoto, senior Managing Executive Officer; Mr. Yoshinari Endo, senior Managing Executive Officer; Mr. Masashi Namatame, senior Managing Executive Officer; Mr. Kiyoshi Ajioka, Managing Director; Mr. Kiyoshi Wada, and Executive Officer; Ms. Mika Nabeshima. From TMNF, President and Chief Executive Officer; Mr. Shinichi Hirose, Managing Executive Officer; Mr. Eiichi Hosojima, Managing Director; Mr. Hiroshi Sakiyama. From Marine & Life, we have the President, Mr. Tetsufumi Kawamoto. We will first start with an opening presentation by our Group CEO, Mr. Komiya, using materials posted on our homepage after which we will open the floor for questions. We are scheduled to end at 4:30 p.m. Japan time. But depending on how the QA session goes, we may run 30 minutes over time. Your understanding is appreciated. Mr. Komiya, the floor is yours.

Hello, everyone. This is Satoru Komiya. Thank you for attending Tokio Marine Group's management strategy meeting today. We would also like to thank you for your continuous support to Tokio Marine. Thank you very much. We announced our financial results and held a conference call last week to explain our current projections for fiscal 2023 and our view of the current tone of the business. For those who attended, we would like to thank you again for your participation. As you can see from the picture on the cover of the presentation material, we are still in the middle of our journey towards profit growth and ROE enhancement. Today, we hope that by presenting a finer picture of our business strategy, you will be more attracted to our journey. We believe it's an attractive journey, and we hope to continue this journey with all of you. I would also like to explain how we plan to achieve profit growth and high level of governance in a balanced manner, which is an important management objective. This will be reflected in the direction of the next medium-term management plan to be kicked off next year. Please turn to Page 2 of the material. Today's topic is composed of 3 parts, as you can see along the table of contents. I will be speaking for about 45 minutes, followed by questions and comments from the audience. Thank you for your cooperation. Please turn to Page 3. On this page is the summary of 3 messages we would like to convey to you today. First is EPS growth. Our CAGR over the past 10 years has been positive 13%, which is world's top class. And we are now achieving this through strong organic growth. Driver behind this robust growth is globally diversified underwriting portfolio and strong investment income, leveraging its liability characteristics. In fact, we expect organic growth in fiscal '23 to be 9% year-on-year or 8% excluding FX. And we believe that we will continue to achieve solid world's top-class growth going forward. And in line with the strong EPS growth, we will maintain DPS growth at 21% as planned from the beginning of the year. We will continue to realize DPS growth with both angle and accuracy against the backdrop of expanding moving-average profit. Next, I would like to talk about ROE. We have said that we will raise our ROE to the level comparable to global peers. In fiscal '23, we expect it to be 16.1%. It has enhanced to a level where global peers so just within our reach. We will continue to raise ROE to be in line with peers. Main means to achieve this, is to have world's top-class EPS growth. On top of that, on the denominator side of ROE, effective use of capital will also be implemented. In fact, in May of this year, we announced that we would sell more than JPY 600 billion of business-related equities over the next 4 years. But so far, we are exceeding space. And we are also implementing our in and out strategy in business with discipline. As for shareholder, as for share repurchase, although we had assumed at the beginning of the year, JPY 100 billion of share repurchase, we have now increased the amount to JPY 120 billion. The final key message is to balance between profit, growth and governance at high levels. Based on our deep-rooted sustainability management since the company's founding, we have set a global risk diversification and integrated group management are our unique management strength. Based on that, in the next medium-term management plan, we will dramatically expand the areas where we provide value. In other words, we will expand our solutions business beyond realm of traditional insurance such as pre- and post-insurance and well-being. That should lead to further profit growth. I would like to take this opportunity to apologize for your concerns regarding the series of incidents that have occurred in Japan. We take this very seriously. As a Japanese nonlife insurer, we will respond to these issues dedicatedly. And until we can reassure everyone that this will never happen again, Tokio Marine Holdings will take the lead in providing guidance and supervision. In light of the series of incidents that have occurred over the past several years, we will also thoroughly strengthen governance at the group level. By doing so, we will surely realize high-quality management that are depicted here. So these are the key points, and I will now explain them in more detail. To begin, I will touch on world-class EPS growth. Please turn to Page 4. The slide shows our position of profit growth with our track record to date, current situation and future direction. The path we have worked to date has not been an easy one, and we have responded diligently and steadily to each and every challenge that arose. On the other hand, we never stopped doing what we had to do or stopped to taking steps to grow profit. In fact, our profit growth over the past 10 years has been world top-class with a CAGR of 12%, and we are currently projecting 9% for fiscal '23. And with the power of organic growth and disciplined M&A execution, we can continue to achieve solid world's top-class growth. We are truly amidst such journey of profit growth. I will continue to provide more granularity to the story. Please turn to Pages 6 and 7. Page 6 shows breakdown of EPS growth by components. As you can see, we have achieved EPS growth mostly through profit growth centered on organic growth. On Page 7, we are showing peer comparisons for your reference. As a result of global risk diversification. We have achieved world's top-class EPS growth. As you can see on the left side of the graph, while reducing volatility, as you can see on the right. Please turn to Page 8. On this page, we are breaking down the profit growth into insurance underwriting, investment and also to domestic versus international. As you can see here, the past 10 years adjusted net income CAGR of 12% is composed of underwriting by 5%, investment 5% and other by 2%, which includes domestic life insurance business, gains on sales of securities. Growth was achieved in a balanced manner. Growth has been driven by a strong underwriting profit that is globally risk diversified and strong investment returns led by Delphi, which leverages the characteristics of insurance liabilities. We will explore this further. Please turn to Pages 10 and 11 on domestic non-life underwriting profit. The underwriting profit can be broken down into top line and combined ratio. Contribution to the 10-year CAGR of 13%, is 3% from top line expansion, 10% from combined ratio improvement. Revision of premium rates and products for automobile and fire is a driver benefiting both expansion of top line and improvement of the combined ratio. These are initiatives with high visibility into the future. And for top line specific matters, specialty line of business expansion and for combined ratio, improved expense ratio are contributing drivers. In particular, combined ratio has been rising slightly recently due to the impact of inflation and other factors. With a thorough focus on bottom line, we will first improve the combined ratio to our target line, which is 92% to 93% level overall promptly. After that, with the assumption of ensuring profitability, we intend to grow our top line steadily and expand underwriting profit. Now we will explain specifically what kind of measures we will take in each line of business. Please turn to Page 12. First is auto insurance. Current loss cost is rising due to inflation, post-COVID surge in driving and other factors. As shown on the right side of the slide, combined ratio, which was expected to be in the high 94% range at the beginning of the year has now deteriorated to 96.2% which is the worst level in a decade. In response to this, we will first make constant efforts to reduce business expenses by improving operational efficiency. In addition, we plan to increase rates by 2.5%, and revised products in January next year. Beyond that, we will swiftly implement proactive rate revisions as necessary to improve and maintain the combined ratio at a stable below 95% level. Also for top line, we expect a gradual decline in the number of vehicles for the entire market. But we intend to counteract this decline with volume and unit price measures to achieve CAGR of about 1%. Next is Page 13. Page 13 is profit improvement in fire insurance, which is currently the largest driver of profit growth to date. In addition to rate and product revisions over the past 4 years, we have taken comprehensive measures such as reinsurance cycle management and enhancement to disciplined underwriting. As a result of these efforts, fire insurance profitability has improved significantly. And on a natural catastrophe normalized basis, the business is now finally, profitable this year on an actual basis. However, on ROR basis, which takes into account the risk burden of natural disasters, profitability is still below the cost of capital. In response to this, we will, of course, strengthen bottom-focused initiatives, but also steadily implement rate and product revisions planned in the next midterm plan. Depending on situation of natural disasters, inflation and reinsurance costs, we will additionally implement further rate and product revisions. By doing so, we hope to secure profitability equivalent to the cost of capital by fiscal '26 as we have been saying. In such effort, major issues are natural catastrophes and the reinsurance market situation. We will share our view on these on Page 14. Left of the slide shows track record of our domestic natural disaster-related losses versus our natural catastrophe budget. As you can see, we believe that the budget will need to be increased to some extent in the next medium-term management plan. On the right side of the slide, is the shared understanding from the Monte Carlo Reinsurance Conference held in September this year. It suggests that the 2024 renewal will be another challenging one. We intend to response to this trend by accelerating the development of our disaster prevention and mitigation solution business, in addition to the rate and product revisions, cycle management and disciplined underwriting measures. Please turn to Page 15 for more information on specialty insurance. We plan to increase written premium by more than JPY 100 billion during the current midterm plan period, which we believe is achievable with specialty insurance. In Japan, a country filled with issues -- societal issues are becoming increasingly diverse, complex and will continue to expand. On the other hand, penetration rate of specialty insurance is still low, including small- and medium-sized enterprises, and there is no doubt that there is much room for growth. In addition, as shown on the right of the slide, combined ratio specialty insurance is stable at a low level, making it a very attractive market. As a company that has been committed to solving societal issues, and to our employees, this is a very rewarding field for us. And we will further allocate our management resources in the next midterm business plan to achieve significant increase in premium and profit. We will move on to international business. Please turn to Pages 16 and 17. International underwriting profit is also broken down into the same way as domestic business. 10-year CAGR is 13%. Combined ratio has been generally maintained at a good level, a little over 90% level. So this is not the driver of growth. Therefore, main driver of growth can be explained mostly by top line expansion. This trend currently has not and into the future, will not change. That is through disciplined underwriting, we will continue to stabilize the combined ratio at a low level while working on rate hikes and business expansion to capture the ongoing hardening of the market and achieved stable top line growth. We believe that this multiplication will enable us to steadily increase underwriting profit. On Page 18, we are showing top line growth breakdown. As you can see, developed countries are driving the growth not only through additions of M&A, but rather by the acquired companies themselves achieving solid growth after joining Tokio Marine Group. We will dig a little deeper into top line. Please turn to Page 19. First is the major driver of top line growth, rate increases. On the left of the slide, we are showing the rate increase track record of TMHCC and PHLY. The most important thing in raising rates is to assess current and future loss costs and raise rates sufficiently to meet those costs. We have been raising rates to cover the loss cost and even higher to achieve above the market rate. And this is made possible by our unique strength, which are listed on the right of the slide. Tokio Marine HCC is a global leader in specialty insurance market and has developed a prominent position there. PHLY has a strong sales network called Team PHLY, which enables disciplined underwriting and has a firm grip on the hearts and minds of its customers as evidenced by its high net promoter score. These are not easily lost. And the market as a whole is expecting to continue to harden in the near term overall. Therefore, we expect them to continue to be growth drivers with a high level of confidence. Next, please turn to Page 20 for an explanation on expansion of business lines. Here is an example of how TMHCC with over 100 different lines of business, is still expanding its portfolio and how they're expanding their portfolio with examples. Bolt-on M&A is HCC's forte on the left of the slide. And HCC has executed 12 bolt-on M&A yields since 2017, including the acquisition of GGEBS, which handles medical gap cover announced in July of this year. Also, there are other means of expanding business lines besides bolt-on M&A. That is second from the left, launching new lines using existing management resources and also underwriting team acquisition. HCC has executed 11 of such cases since 2017. The effect of this business line expansion has now reached approximately $1.6 billion, as shown on the right, and has contributed significantly to TMHCC's overall top line growth, which we expect to continue. Please move on to Page 21. This is emerging markets business. Tokio Marine Group's emerging market business is represented by TMSR in Brazil. Our profit plan for fiscal '23 is approximately JPY 30 billion. In this growing market, TMSR uses its strength of products and systems to be chosen by customers and brokers and continues to realized growth exceeding the market and workplace has always been selected as best place to work. Their joint venture with Caixa Bank, which began in '21 is doing well. Together with Caixa Bank, who holds an overwhelming share of the Brazilian mortgage market, as you can see on the right, we believe that we are well positioned to take advantage of the market, which we will continue to see expansion significantly into the future. Next, I would like to explain our unique strength in the investment. Our strength is Delphi and its credit management. Please go to the upper left of Page 22. This is the income gain of Delphi Group's investment income for the past 10 years, which is 17%. To break this up, one is on the right, which is the AUM growth. which is backed by strong underwriting throughout the group, which is, in turn, driving investment income. If you go to the further right for investment yield, the long-term predictable insurance liabilities as a source of funds allow for liquidity risk, and confirms Delphi's strong investment capability, which consistently outperforms the index regardless of the market environment. In that context, I would like to explain a little about our CRE loan operations, which I believe are of great interest to you these days. Please turn to Page 23. Since the underlying asset of CRE loan is real estate, it has a highly individualistic nature. In Delphi Group's CRE loan, investments -- execute loans that focus on business models to enhance property value, such as renovation projects, creation or recreation and renovation projects. Therefore, it's necessary to have the experience and ability to identify good business models, not only in the quality of the property, but also in the competence and the financial soundness of the sponsor who implements the business model and Delphi Group has this ability. Delphi Group, therefore, has been making investments selectively and has been able to increase returns. However, amidst the difficult market conditions as a whole, we have recently recorded a certain amount of impairments and CECL allowance. Having said that, as you can see in the lower left-hand corner of the slide, net returns, including these capital losses have been consistently higher than those of other players, even in the recent past. With the market outlook still uncertain, we need to be prepared for severe stress. As you see at the top right in the column, stress tests have been conducted based on the 2008 financial crisis, and have confirmed that any losses incurred can be recovered in about 6 months through the investment income, income return of the CRE loan. In addition, as explained earlier, Delphi Group's investment resources are real insurance liabilities, which are long term and predictable. In other words, Delphi Group can wait and hold until the real estate market recovers without being affected by short-term market fluctuations. In addition, as you see bottom right, we are basically a single lender. One of our strengths is that we can flexibly work on refinancing and foreclosures at our own discussion without coordinating other lenders in the event of an emergency. And next, I would like to explain dividends as a means of returning profits to shareholders. Please turn to Page 24. Once again, the basis of our shareholder return is dividends. And we will continuously increase DPS in line with profit growth. In other words, we will achieve world-class DPS growth underpinned by our world-class EPS growth. In this context, actual base profit for fiscal year 2023, JPY 655 billion will be slightly lower than the plan at the beginning of the year due to the impact of natural catastrophes such as the wildfires in Hawaii and the CECL provision related to the CRE loan. Profit growth is up 48% compared to the previous year. And therefore, DPS will be JPY 121 as planned in the beginning of the year, and EPS growth will remain intact at plus 21%. And this is the 12th year in a row of dividend increase, and we will continue to achieve DPS growth trajectory with confidence backed by the expansion of the moving average of our profits. Moving on to Page 25. ROE. This is the trend of our adjusted ROE in its position against peers. Through strong profit growth and a disciplined capital policy, we expect our ROE to be 16.1%, 16.1% in fiscal year 2023. We as I mentioned at the beginning, it can be said that we have improved to a level that is within reach of peers but we want to continue to firmly raise ROE to the level comparable to global peers and further expand the equity spread. The main focus of this strategy is world-class EPS growth. And I will explain the denominator of ROE, effective use of capital in a little more detail. Please go to Page 26. Here is a track record of how we have utilized the flow capital generated over the past 5 and 10 years, 5 years on the left and 10 years on the right. The left bar in each of these graphs shows the adjusted net income generated and the right bars show use of capital. Although somewhat technical, our adjusted net income includes gain from sales of business-related equities. But since the unrealized gains from the sale are already included in capital, no new capital is created by the sale. Therefore, although this amount should be subtracted, you can see that the company has used almost all or even more of the capital it has generated for business investment and/or shareholder returns. And if I may add, business investment depends on timing. And you can see that we have increased shareholder returns in periods where we did not have good business opportunities. Please go to Page 27. In May of this year, we announced to accelerate sales of business-related equities that we will sell at least JPY 600 billion over the next 4 years through fiscal year 2026. And currently, it's at JPY 195 billion. In other words, it has exceeded our original target. Our current pace is higher than the original announcement. And we plan to transition to IFRS at the end of fiscal year 2025. And if the current pace continues, take-up of business-related equities against IFRS net assets will be about 30% by the end of FY '26. And since we will continue to sell business-related equities, we believe that 20% of net assets ratio is just a passing point for us. Please turn to Page 28. Here is a track record of the disciplined in/out strategy we have been implementing over the years. As we have said in the past, for us, M&A is a means to achieve risk diversification, profit growth and higher ROE, not an end. In fact, as you see on the left-hand side, we have acquired so-called good companies that meet the strict criteria. And combined with the smooth PMI realization and expansion of group synergies, ROI has reached 18.8% for the large M&As we have exceeded, far exceeding our cost of capital of 7%. In this context, we recognize that the current pipeline of large M&A project is still high in terms of valuations. And we believe that we must remain patient. We will continue to seize bolt-on M&A opportunities and execute them. Regarding divestments, in August of this year, we agreed to sell our Guam subsidiary. We will continue to assess the future potential of the business in a forward-looking manner and execute with discipline. Page 29. Shows the status of group synergies. It seems rare for a company to disclose the actual amount of group synergies, but this is something that matters a lot to us. Revenue, investment, capital and cost. In these 4 areas, we have generated $580 million in synergy in the past year, which is, of course, a record level. If a profit of $580 million were to be realized through the acquisition of a company, assuming an average P/E ratio of 12x for PC insurers in North America. This is worth an acquisition of a company of more than JPY 1 trillion by way of simple calculation. Such a large value has been realized at no additional cost. These synergies are being created strategically and consciously through voluntary discussions among the group companies, I feel very much encouraged by this. For an explanation of share buyback as a means of returning capital stock to shareholders, please turn to Page 30. Our current ESR is at 133%. It's a respectable level. Therefore, we are committed to a disciplined market-based governance. And with the generated capital, first priority will be business investments that will contribute to improving ROE. But as I have always said, if we are not blessed with good opportunities, we have no intention of needlessly accumulating capital, we will remain committed to flexibly implementing share buybacks. In addition, as announced last week, JPY 100 billion share buyback amount originally announced has been increased to JPY 120 billion for fiscal year 2023. The decision was based on a comprehensive review of the current solid ESR and the fact that the transfer of Pure shares will generate a onetime gain in addition to the current M&A pipeline and the business environment. Let me now turn to our vision and direction of the next midterm management plan, or MTP. Please turn to Page 31 and 32. We have always been committed to protect our customers and society in times of need. Since our founding, we have never wavered from this purpose and have consistently aspired to contribute to a sustainable society, and achieve sustainable growth by working to solve societal issues at the center of our core business. As societal issues continue to diversify, become more complex and expand, we need to further evolve our initiatives by sharing our experience, know-how and knowledge throughout the group and globally. On Page 32, you will find examples of our efforts around the world. Group company CEOs got together last month. And we will bring together the excellent efforts and know-how of each country and region, share them and expand them horizontally to make the good ones even better or to expand them. We will continue to make such efforts in a straightforward and speedy manner. Let me share some ideas on the next MTP. Please turn to Pages 33 and 34. In the next MTP, we will continue to pursue world's top-class EPS growth and ROE enhancement. This remains intact. Today, however, I wish to explain what kind of company we are trying to become amidst the accelerating changes in the business environment surrounding our company focusing on qualitative aspects and including ideas on the next MTP. We have recently established our long-term aspiration 2035. In other words, we will not only support our customers and society in times of need by providing optimal and best insurance products to meet their ever-expanding challenges and risks, but also we will provide solutions that go beyond insurance that contribute to prevention and recovery as well as their well-being. We aspire to be a company that always support our customers and society. No other insurance company in the world has such a portfolio of business, and I believe it will be unique to a company when this is realized. To achieve this, in the next midterm business plan, we will strengthen our sustainability management. And on this basis, we will continue to implement global risk diversification and global integrated group management, which are also the basic strategies of the group. Let me cover each one on Page 35. In the volatile business environment, we believe that global risk diversification is the most important factor in strengthening our business foundation and realizing stable profit growth. Of course, such a business portfolio cannot be built overnight. But we have a track record of controlling risks and replacing them as we go for more than 15 years. As a result, even in recent years, when we have experienced major losses and incidents such as natural catastrophes, COVID and/or we have so far been able to limit the profit impact within 20% or 30%. However, I believe that there is still room for risk diversification, and we will continue to make further efforts. Please turn to Page 36. Group integrated management. Globally integrated group management. This is one of our unique strengths. Now in its 8th year, the group is making steady progress in this area. We make and execute decisions on important management matters by combining our global knowledge and expertise. This is to increase the quality, accuracy and speed of management decisions. As we do business globally, if an issue arises in one region, other regions will cover for them by bringing together the wisdom, experience, know-how and expertise within the group. The group is steadily developing the ability to overcome issues or the ability to be responsive, I believe this is the case. Moving on to the group's major strategies in the next MTP, please turn to Page 37. First, I would like to discuss one of our growth strategies, expansion of value provision. We are working on the commercialization of solution business in several areas other than insurance. And the slide shows two of them; disaster prevention, mitigation and mobility. In each of these areas, the market size is large, and we will leverage our intellectual and human capital, including the wealth of real data risk management know-how and specialized human talent, we have accumulated through our insurance and related businesses and combine them with the capabilities of companies outside the group, such as the disaster prevention consortium core, which has already become a major force in the industry. We will create unprecedented added value and new solutions for society. In disaster prevention/mitigation, on the left, we have already begun to provide concrete solutions such as resilient information distribution service and real-time hazards. And in the area of mobility on the right, fleet management service, just to name a few. And we will further accelerate our efforts through the new companies already established. Finally, I will explain how we are strengthening the governance of the group, please turn to Pages 38, 39. First of all, I would like to apologize once again for the concern and inconvenience caused by the occurrence of several incidents at TMNF, a core company of the group. As I mentioned in last week's earnings call, we are earnestly working on various measures to deal with individual cases and to prevent recurrence. In addition to our own efforts, on individual cases, we will proactively contribute to the transformation of the industry as a whole by reexamining current industry rules and practices from the customers' perspective and updating the existing practice to be more transparent. We, therefore, intend to take ownership and leadership in contributing to the transformation of the industry as a whole. Holdings will guide and supervise these efforts and take all necessary measures to strengthen and improve the group's governance. As described on Page 39, as our business expands and diversifies globally, we recognize the need for holdings to be more directly involved with entities and to further demonstrate and leverage outside perspectives. In this context, holdings will first work to further strengthen its own functions by developing and reinforcing its structure, including the hiring and utilization of external talent resources in the area of governance. In addition, we will consider a tailor-made support on a group-wide basis in accordance with the situation of each entity as well as the leveraging of holdings functions. In this way, we will further, should I say, improve and upgrade the governance of the entire group by solely implementing these initiatives as one of the key strategies in the next midterm plan, we will bring the integrated group management to the next level and ensure sustainable profit growth. We believe that we will and must realize true high-quality management where growth and governance are well balanced. That is all for me. But before closing my opening remarks, let me share with you my thoughts. As we have expanded our business globally, issues have come up large and small for various reasons and with different backgrounds. We have taken these issues head on. and have taken measures to deal with them one by one, getting to the heart of the matter. We have also been enhancing our global risk diversification and integrated group management to ensure that regions complement each other, and this has led to the successful business performance. We will continue to enhance both growth and governance. And we'll manage our business in such a way that our business performance and strategy, the resulting profits and the contributions we make to our stakeholders are all in line with each other. Your continued support is greatly appreciated. Thank you for your kind attention.

Thank you very much. Now we would like to welcome questions from the floor. [Operator Instructions] Any questions from the floor? From SMBC, Mr. Muraki, please.

This is Muraki of SMBC Nikko. If I go to Page 8, the track record of your past profit growth. You are showing domestic versus international? I have some questions there. So TMNL, which is controversy. These days, Mr. Sakiyama explained about it at the telephone conference. I want to dwell deeper into that issue also in today's meeting. And so your profit is growing, but the source of the profit growth is mostly coming from auto premium growth. I know that there have been a lot of managerial efforts, but then the business expense is 32%. You still have JPY 3 trillion of business-related equities, looking at different channels. Retail, if it's renewed every year, the commission rate is 20%. Their agent/workshops, which you rely on and then you still have JPY 3 trillion of equities because you still need to be doing business with your corporate customers. So there is still this close relationship that you have based on the equities in Japan. And so based on such business practices, when you go into the next midterm, innovative solution, will you be able to provide such services through this channel? And even with your managerial efforts in place, your business expenses is not coming down. And on a market value basis, the value of the equities is still immense. And so after you have finished your next midterm plan, will anything look different? You talked about the industry practice and business practice. Are you willing to change any of these practices and industrial cultures in this country? And also on Page 8, for the investment management, your underwriting profit is growing for the international business, but what is prominent is the growth in the investment income. If you go to Page 12, you have explained that the credit asset management by Delphi had been earning you a lot of investment income for the past 10 years. I think you -- it is the case for the current midterm plan. But then the next source of growth is still going to be investment? Or will there be more focus on underwriting? And so how would you expected growth or profit to come from the international business in the next midterm plan, if you are taking any different directions from the past, then please let me know.

So we have just received two questions from you. The first question was -- will be answered by Mr. Sakiyama, and it will be followed by Mr. Hirose, if he needs to add anything. And so under various historic practices, our domestic business still operates to date. But what will be the growth strategy? Mr. Sakiyama, please answer the question first. And then the second question was about the driver of growth for the international business that will be answered by Mr. Yamamoto. And if anything has to be added, Mr. Endo in charge of Asset Management, we'll be adding some answers. So Mr. Sakiyama, please, you're the first.

This is Sakiyama speaking. Mr. Muraki, thank you for your question. So first, to customers and to shareholders and to the related stakeholders, I do apologize that we have caused a lot of concern and worries among you. Having said that, for the underwriting profit, as you can see on Page 8, I think your question was based on this page. TMNF, if you go to Page 10, because it refers to TMNF's profit, so just confirming the track record for the past 10 years, CAGR, excluding FX, was 13% because it went up from 31 to 105. And mainly, it was the repricing of the auto insurance. However, for the past 3 years, which is just the current midterm plan, although it's not written on this slide, immediately before midterm plan, and so in fiscal '20, underwriting profit was JPY 84.5 billion, and it went up to JPY 109 billion. And so CAGR for that -- for those years, it was also double-digit growth. And on top of that, if you just exclusively look at these 3 years, loss costs for auto had deteriorated. And so as a result, the combined ratio for auto must have worsened by 45 points. So more than JPY 30 billion of profit declining faster. But against that, we have achieved a double-digit CAGR is how we had performed in the past 3 years, and that is a factor to be accepted. Having said that, going forward, in one word, in the P&C insurance industry, there are some structural issues that we need to overcome. Can we continue doing the same? Can't we change the industry towards the next mid-term plan? Are the questions on your mind. As I have mentioned in the telephone conference the other day, the specific systems and frameworks and rules in the industry, we are continuing the investigation through the Special Investigation Committee. We are investigating into the cause of the current issues. I will not be able to disclose all of them in this meeting today. But as a general direction that we want to pursue, as presented by Mr. Komiya, as Tokio Marine, triggered by what had happened our thinking from the past practices in the industry, et cetera, we would like to verify them once again from the perspective of customers about the systems and frameworks, if necessary, we will be reviewing them and revisiting them. The entire senior management team had shared that view. And not only an effort by an individual company, but concurrently, the P&C industry as a whole is studying measures to be taken. And we will be proactively participating in the rule-making process for the entire industry so that we regain trust from the stakeholders as an industry. You have raised some specific issues, so I will respond to them as much as I can, business expense. For the past 10 years, or let's say, the 20 turns our business expense ratio was 35.1%. This year on an estimated basis, it's going to be 32.4%. And so for sure, it is coming down. Of course, maybe it's a matter of pace or speed, and that's what you're concerned about. I'm sure you recall that in 2020, we had booked software -- capitalized the expense of software. And therefore, we were going to see increase in the depreciation of the software, which means expense ratio was going to go up. And so during the current midterm plan, the business expense is being raised by 1-point because of software depreciation, but still business expense is 32.4%. And so with the heavier depreciation, it's going to continue into the next midterm plan. Nevertheless, we -- although we are drafting the quantitative plan right now, we want to achieve the business expense ratio of 31% level. As for business-related equities, originally, we held these equities to maintain the relationship with the customers. So the meeting was to continue to hold them. However, to better serve our purpose, we wanted to allocate capital for that purpose rather. And therefore, a lot of the risk has been allocated for holding of equities, and we wanted to equities. And so that was a paradigm shift, a decision that was made, and we're accelerating the pace of the sell down. And we are seeing a further acceleration of the equity sell down even within this fiscal year, and we will continue with the sell-down in this manner. Took much time, but that is what I had to say to you as an answer to your question. Thank you.

We would like to continue on with further information from Mr. Yamamoto.

My name is Yamamoto, in charge of International Business. Muraki-san, thank you for your question. In the next midterm plan, the basic thinking there is, as you said, we had specialty area underwriting. We had underwriting capability and also Delphi's investment capability, which were the two wheels in supporting the profit coming from the international business, and we will still continue with that framework for the international business in the next midterm plan. About the investment, Mr. Endo will be adding more words to that area. And so I will be mentioning more about the underwriting side of the international business. For the targeted market, it will still continue to be United States. That will be the central focus. In the U.S. market, depending on lines of business, I know it varies, but still natural catastrophe. Frequency will go up and also exacerbating scale, social inflation will continue, et cetera, and therefore, reinsurance cost is going up and reinsurance market is still hardening. And so hardening of the market is expected to continue for some time. Over the medium term, I'm sure it's going to soften at some point. However, in the U.S. market, the population itself is growing and U.S. economy is robust by far among the developed nations and therefore, we are expecting the market to continue to expand. As Mr. Komiya explained earlier, our group companies each and every one of them have got their areas of the specialty and they have -- they're providing good services and have a tight relationship with the sales channels. So versus the peers, our companies are able to achieve higher than the market rate increase and achieving growth. So bolt-on M&A expansion of business lines, as you can see on Page 20, we are seeing growth in the international business. And in soft market, in hard market regardless of the market, we have been able to do this steadily, this is what we expect to continue to see going forward. Therefore, in the North America market, hardening of the rate -- hardening of the market is one. But on top of that, each company has got their own forte and advantages versus the peers, and there will be more bolt-on M&As, expansion of business lines, and these are the growth strategies to be executed by the international business. So far, I have talked about North America. For other emerging markets, the pillar of profit has to increase. We need to have more pillars of profit. In Brazil, there is a major profit contribution from Brazil. From Thailand, it's within the top 5 and it has a profitability to be in top 5. And so we need to be developing more pillars of profit. As lines of business, it will be Auto Insurance for a while. But while it's a retail market centric, Digital and Technology must be utilized in order to expand sales. And also in Brazil, which is a good leading case using technology and improving quality and also operational efficiency in order to gain competitive advantage. And so these will be the major measures to be taken. For M&A, large-scale M&A, we need to persevere for now, but when it comes to bolt-on type of M&A and also in the emerging markets, some M&A in the emerging markets, we're always seeking for more opportunities. That will be the underwriting side of the strategy for the international business going forward.

For asset management, please?

My name is Endo, in charge of Investment for the Overseas Investment Strategy. Especially for the next midterm plan, tightening of the monetary market is expected, and I'm sure we will see the effect coming from this going forward. And so recession or perhaps slowdown of the economy is within the foreseeable scenario now. And while we see that the credit spread is going to widen, interest rate might come down and we need to prepare for those phases, too. And so while the interest rate is high interest rate, we're leveraging from that, but then we want to reduce credit risk, have dry powder and lengthen duration. That's what we have been doing so far and we will be realizing that, and we'll continue to do so in a nimble manner. It will be the strategy for the next midterm plan. If you go to Page 22, as Mr. Komiya had explained, Delphi has their strength, which is managing insurance liability. It's long-term and predictable insurance liability. We can hold on to asset until the end of its maturity. And so we can -- we're more insulated from the short-term market, the moves and this characteristic will still remain. And so that will be the color of the investment strategy for the next midterm plan.

Mr. Hirose would like to add some information. At the very end.

This is Hirose speaking. As the President of TMNF, I would also like to extend my apologies for causing concerns and anxieties to customers and stakeholders. As Muraki-san's question, included Mr. Sakiyama indeed answered your questions to some extent. For our next midterm plan, which we're polishing up now, including all the incidents that had occurred recently, we're working on this next midterm plan, even if it takes to refresh the entire company. So we have 2 major pillars to support the plan. One is to become a company that is customer oriented. The second is not only insurance, but there should be plus alpha and so solutions, value provision, et cetera. Risk solution, we want to support this era by providing risk solution. The first part, which is to become customer-oriented, 2 things we need to do for that. One is NPS their voices of customers, customer feedback data that we have. We need to have a full grasp of those voices and use them for business planning, product planning, claim services, et cetera. And so using customers' voice to various parts of the company is one. The other is as mentioned, of course, we will do everything we can to never do this again, but then for business practices, customs, culture, a very particular way of thinking, we need to revisit them from the customer's point of view. And if we need to change any of them, we will. We're committed to change them. I cannot mention the specifics of what we will do, but that will be the direction of what we want to pursue in the next midterm plan.

Let me see if you have any further questions. Then, Watanabe from Daiwa Securities.

I'm Watanabe from Daiwa Securities. I have 2 questions. My first question is on Page 33 about the midterm plan. You're thinking growth and discipline. To realize both, what are the KPIs that you have in mind? And in Circle 2 of growth, you talked about diversifying the distribution channel. Will your relationship with the distribution or with agents change over time in the next midterm plan? And Page 26, this is my second question about capital policy, capital level adjustment could be expected and profit is growing. Will capital level adjustment also change over time in the next midterm plan? JPY 120 billion in share buyback, you mentioned taking into account the contribution from Pure, but can we expect this JPY 120 billion in share buyback level in the next fiscal year? Those are my 2 questions.

Thank you for your questions. Your -- so your question was on midterm plan. And first point was about the growth and discipline. What are the new indices or KPIs that we have in mind? And the second question was about the distribution channel, TMNF, maybe as a Komiya-san, I might need to ask you to complement on that. So if you could start with that.

Yes. Thank you for your question. Page 33, on the next midterm plan, we have the 2 pillars of growth and also for discipline, 2 pillars of discipline. In the next business plan, details will be reflected. But it's not that all of these will have KPI. With regards to drastic expansion of domains where we can deliver our value, for example, new products that will cover new risk areas and whether we can offer that to the market that I think will be a key point. And the other point, which is also included in the document is the Solution business. If it's being accepted by the customers and the society and whether it will contribute to our profitability, that will be the key. And the second point with regards to diversification of distribution model, this is something that we want to present in the next midterm plan, which is to cover new risk areas, new products to be delivered to customers such as before and after insurance coverage. And so conventional insurance products, team would need to be enhanced with more -- a larger team with more expertise. And therefore, we intend to further expand the team size. And also, the second point with regards to diversification of distribution model is that customers behavioral change, direct business or embedded business, distribution model are expected to grow. In EDSP, we have the direct business subsidiary and Anshin Life, TMNF could also be prepared for such new distribution model. That's the second point. And the third point about extensive improvement of productivity. This was already mentioned at the outset about the expense ratio. We have the usual KPI that we have always been monitoring and those will be maintained in order to keep monitoring on the improvement of productivity. About the 2 pillars of discipline. The second point, enhancement of business portfolio and capital management in and out strategy will be maintained as usual. And at the end of the day, this is about ROE, which is a KPI, which will be valued by the capital market.

The second part of the question before we go into a capital policy, about the distribution policy development within the group plan referring to the question, relationship with our traditional agents and omnichannel, is that going to be rolled out? Actually, that's the plan at TMNF and also Anshin Life, there could be some friction with the agents. What is the idea of this distribution model diversification. Could you briefly cover those 2 points?

Yes, definitely. As was mentioned by Okada-san, very briefly, our capital with our major users are going to be digital natives. And therefore, a direct business model will need to be built in as a capability. And as Komiya-san mentioned, omnichannel on our home page, gathering and attracting customers on our homepage and customers are able to complete their -- signing to -- of their policies on our home page. This has been completed. And this is currently available, not just from our homepage. For example, agents' home page, same scheme will be made available. So there will be direct through our homepage and there will also be direct sales from our agent home page, this is to attract additional native generation. So people in digital, having a best mix that will be rolled out on a full scale from the next midterm plan. That's one thing. And the second point is about the embedded insurance that Okada-san just briefly mentioned. E-design. E-DSP was also briefly mentioned. And if I may supplement, TMX short-term or SAS, SAST settlement, online finance, there will be a unique ecosystem and signing up, collaborating with platformers in order to offer products and services online and creating an embedded insurance in that. And that's what is being pursued by ex SAST. And that's the kind of channel distribution that we're planning to conduct.

Kawamoto-san, could you also briefly mention about Anshin Life?

Regarding Anshin Life, if I could say a few words. And Anshin Life, we call it 4 major channels. And we have the exclusive independent agents, and we also have LPs, life partners and financial institutions. And therefore, we have 4 major channels. And this will be our foundation, which will remain intact. But achieving significant growth through the 4 channels is getting -- becoming very difficult because the customer behavior is changing and their purchasing behavior are changing. But Life Insurance, in terms of closing, receiving consultation, being explained by people, that kind of need is expected to continue at least for some time. And therefore, consulting is, I think, something that we need to connect to. If I may elaborate a little bit, utilizing digital and market holders or platformers, collaborating with those players so that we can have direct contact to the customers, generating needs and demand and creating prospective customers to lead to more specialized channels to connect to more specialized agents, for example. So that's the kind of approach that we're currently thinking of. And this has already started from the current midterm plan, but we will then plan to further leverage this channel so that could be a big growth driver.

And the next question on the capital level adjustment?

As we have always said, our policy is to pay through -- pay back through dividend and 50% is the payout ratio, and we want to grow dividend payout in line with profit growth. And with regards to share buyback, total return -- the shareholder return is not the policy that we conduct. A share buyback is basically means to make capital level adjustments. So ESR level and the business environment and also M&A pipeline for investment into growth are taking into account. Last year, full year share buyback amount was raised from JPY 100 billion to JPY 120 billion. And as we mentioned last week, this is partially due to a one-time profit that was generated from Pure share transfer. The adjusted net income doesn't count this. And -- but in the meantime, increase in net income is reflected into the ESR, and that's why we increased the share buyback amount for the full year from JPY 100 billion to JPY 120 billion. Going forward, we want to further achieve profit growth. And if profit level increases, and of course, it would have an impact on increasing capital. But in the meantime, in order to grow profit, we need investment into growth and also increase risks as well. As a result, the ESR level as a result of that will need to be taken into account. And we will take a look at the ESR level and also look at the business environment and the M&A pipeline and so forth and decide on share buyback amount going forward.

That might not have been a direct answer to your question, but that is our thinking that we have no intention to hold capital -- hold on to our capital.

This is Sato from JPMorgan. I have 2 questions. The first question is one of the key messages at the very beginning, which is that the profit growth and governance, you will be balancing out the two. In order to do so, I will ask you this question intentionally. Don't you have any risks in trying to do that because you use the word, balance, but then if you do it wrong or if anything unexpected happens, you could be losing balance? It looks like there's a risk of you losing balance between the two. Specifically, the nonpayment of insurance claims when that occurred indirectly, the loss ratio worsened in Auto, and that impaired your profit price adjustment issue that had come up. As a result, the pace of the expected price hike might get slowed down regarding big motor, although -- well, you're involved in the case. But this month for CALI, the appropriateness of the level of premium was discussed in the diet today. And so these various issues are brought to attention from the public. And as a result, there is a risk of you losing profit or not executing your plan as expected. The second point is a simple story. This time, the sell down of business-related equities, it was originally JPY 150 billion. Now you're raising the amount. If I go to Page 95, I'm seeing your track record. I think this is a quite rare because it's stable and per the plan, you have been reducing your equities, but then this time, you have amplified the amount of the sell down. And so what's the background to that? And also going forward, what will be the pace of your reduction, would you accelerate it even more? Is there a possibility of selling down even at a higher price TMNF, the share, the largest shareholding by Nichido. The share issuer said that they are also changing their stance in cross-shareholding, and so that might affect your behavior as well. What do you think about that?

Thank you for your questions. So first point is about governance. Let me answer the question. And so we're saying to strike the right balance at high levels. If we lose balance, that could be an issue. And so whether it's growth or governance, we constantly need to be upgrading both sides. And as we have a larger area of business and the business environment also changes, the level of governance has to be enhanced. That is what I meant to say. That is the aim. And so I will give you some -- you said that some -- you can think of it as some examples where balance could be lost. I don't really know if those examples you mentioned could lead to us losing such balance. However, what I believe will become a focus point is to strengthen stricter eyes from outside the companies and also the situation within which each group companies sit. They need to be looked at more carefully. As we enter into new areas such as new value providing areas, of course, we have always worked very hard on enhancing governance, but then from the third parties point of view or as Tokio Marine and Nichido Fire, as said from the customer's point of view, perhaps it's still complicated or difficult to understand, et cetera. And there could be some worries there. And so we want to bring that to attention on the group level in order to further enhance governance. For each group company, what we're doing since a few years back, is that each group company, they have their strengths and weaknesses. For example, underwriting, reinsurance, IT, various functions. Each and every one of them from our expected level, where they sit must be measured, Tokio and group company both need to be looking at the same thing. And if they lack something, what do they do about it? Do they need additional resources, et cetera? And so there will be a separate PDCA cycle that has to be applied to every group company, which we're already doing, but we're going to be doing it more meticulously. And if there are issues, we will be focusing on those issues with more focus. That's what we're thinking of doing. Up until now, we had systems, rules, frameworks, customs, cultures, of course, each and every one of them had a name. They were all rational and there was a cause on why we have to have that, but then time is changing, and so we need to be revisiting them. We have to have a stance to revisit them. At the same time, we need to have an outsider's point of view, and we want those eyes to scrutinize our behavior so that we can proactively approach those issues. On the point about the business-related equities. As Mr. Sakiyama mentioned what -- where we need to be deploying our capital, it's related to that. And so in order to realize purpose in order to resolve societal issues and achieve growth is where we want to be deploying our capital that's the single area where we want to be deploying capital. That is why we've been selling down equities for the past 20 years. Looking at customers as senior management, as we continue to discuss the share issuers thinking is also changing. In that sense, in '26 or maybe perhaps around 2030, what will be the foreseeable percentage? I think I mentioned those earlier. These all will be milestones in this process. So we will be working on reducing equities. And although we have been doing that, we talked to the share issuers thoroughly and it's only based on mutual agreement through discussion that we will be selling equities and that we will continue doing. We will continue going through the process before selling equities. That concludes my answer.

Based on what you said, so for the past -- next 4 years, JPY 600 billion or more, so it could be much higher. But then for this plus alpha portion, you don't really have a plan on raising this to some specific amount. That is not under consideration, right now?

And so JPY 150 billion times 4, so that's JPY 600 billion, but then beyond that, it depends on the environment. I said that there has to be mutual agreement for business-related equities, we will continue selling down. And so if the environment allows, then the number could be higher. But we have said 4 years JPY 600 billion, we have just announced that. And so the rest -- it's not a rigid plan, but we have to read the environment. And we want to be flexible in adjusting numbers.

Sakamaki from Mizuho Securities. I have 2 questions. First question, one of the key topics this time about improvement of governance, external perspectives, can you really leverage external perspectives? I cannot be entirely confident about that. Do you have outside independent directors? And there are also other companies that are -- have external independent directors, but have had issues and scandals. And therefore, I think this is partly due to the difficulties of the industry. And therefore, you're -- it sounds like you're emphasizing that you're leveraging outside perspectives, but I would like you to please give some color on that. My second point, which is more simple is about Auto Insurance profitability improvement. According to May data, by 2026, improvement was, I think, reflected, but this time, in the medium term, you say. And so has -- it's more ambiguous. Improvement in profitability, what is the time line if you could please give some more information on that? That's very much appreciated.

Thank you for your questions. The first question on governance. I'm wondering to what extent I can give some color to that. We have had outside independent directors and the TMNF, there's the business quality committees, and we've had various themes and governance. We have been implementing initiatives in order to improve governance. And also for Tokio Marine Group, we have had CLCOs and so forth, various measures have been taken over the years. So there are, I think, ideas that we can implement for example, setting agenda for meetings. That's also one area we can be more creative when we set up an agenda and getting inputs for a particular agenda, I think that's more commonplace. But setting an agenda from an external perspective, external experts perspective, I think, will be -- will change things and also monitoring or audit could also be done through external expertise. With those who have long experience outside the company could realize things, but also external experts could have a different perspective and realize things that people inside the company will not be able to catch. And when we're faced with various challenges in the society and if that is going to happen in Tokio Marine Group, how will the group address those issues? Of course, we have done such a validation or verification over the years, but maybe we could shed a new light to that. It's not that I can share some concrete ideas on this because there are so many different ideas. But in order for us to bring our governance level to the next level, I think there's still room for improvement. We can be more creative. And the second part of your question was with regards to improvement and profitability of Auto. So I want to ask Hosojima-san to please answer this question.

I'm Hosojima, responsible for Insurance Underwriting. And your question was on Auto, correct? You said fiscal year '26 for Auto, 95% or less to be achieved. That has been what we have been calling for over the years and over the medium-term plan, we have been quite successful in steadily heading for that direction, but it has been slightly higher recently because of inflation and revenge driving after COVID. So we're -- as Page 47 gives you some details of frequency of accidents from around June of last year, revenge driving after COVID was expected to slow down in about a year, but this drop was smaller than what we expected. And another factor is the extremely hot summer that we had, extremely hot summer accident rates tend to go up. So that's sort of onetime factor and also inflation for unit price of insurance, there's impact of the BOJ's policy and unit price has gone up. So we have been off our projections and we need to proactively revise the price in order to maintain 95% level in a stable manner. And we want to achieve that as soon as possible. And in January '24, Auto Insurance rates will be revised by 2.5% and coverage will be enhanced in order to improve our profitability. So inflation and revenge driving, I think we have hit sort of a peak recently, and it's now on a declining trend, but the earlier years of the next midterm plan, we want to recover 90% level and be able to maintain that. I hope I answered your question.

With regards to governance, I look forward to you and count on you so that you'll be the model for the industry.

My name is Okada from UBS. I have 2 questions. My first question, I was looking at Page 35. This is a risk diversification. On that point, as you said, towards the next midterm plan, you'll be accelerating your international expansion. Additional risk diversification, is that still possible? Isn't going to -- isn't risk diversification going to attenuate because past 10 years you had large M&As and you made a great leap in risk diversification. But then going forward, when you just do bolt-on M&A or expansion of underlying -- expansion of emerging markets, what will be the pace of the progress of risk diversification and releasing of the risk? Is that going to slow down or attenuate compared to what you could achieve in the past 10 years? My second question is on Page 29, expansion of group synergy. I think 6 months ago, I asked you a similar question. Compared to the past 1 ear, group synergy, it's about JPY 200 million just in 1 year. It was an expansion. And it's probably because Delphi's asset management was a prominent factor. But then in revenue, capital and cost, what are the specific areas where you have a feeling that the group synergy was achieved?

Thank you for your 2 questions. One is about the risk diversification from CFO. I like Mr. Okada to answer the question. So as we acquire new lines of business, emerging markets, further geographical expansion, what will be the pace of risk diversification? Our CFO, Mr. Okada will be answering that. And then on Page 29, for group synergy, for domestic and international, we can do group synergy in all parts of the group from Mr. Yamamoto, in charge of International business, will be answering your question on group synergy. So first will be from Mr. Okada.

Thank you for your questions. On Page 35, for 2013 for the past years, we have achieved a diversification effect on 30% to 47%. Major factor was the acquisition of the overseas entities and expansion of the international business. For geographical and lines of business diversification, going forward, we will still be doing more room for diversification, including bolt-on type of M&A. As Yamamoto-san mentioned, it will be -- specialty will be to develop the market so we can still do risk diversification by acquiring core lines of business with less core relations. Diversification effect, if you simply look at the numbers, within these numbers, we have some asset management or financial related factors here. And so that is why the diversification effect has been around 47%, but there's further diversification with underwriting such as geography and lines of business to achieve further risk diversification, especially on the right, the impact to the net -- adjusted net income is going to get reduced even more by doing so. In the midterm plan, the Risk Solutions business, that will contribute to some risk diversification, right? Yes, the Solutions Business, which we're suggesting now. Ultimately, it's going to enhance ROE. It will be capital-light business so that there's less burden on the capital. Within risk diversification, in terms of not using risk, it's not going to come here. But then by having Solutions business, we will be able to obtain profit without using risk. And so it will contribute to a further efficient use of capital, and that is why it is to become a major pillar of our business in the next midterm plan.

On the second question about the synergy, my name is Yamamoto, in charge of International business. So thank you for your question, Mr. Okada. So expansion of synergy, as you mentioned, in the area of investment, we had a large contribution coming from investment, interest rate hike is happening. And so the synergy amount was expanding due to that, as you mentioned, yes. On the other hand, for other types of synergy, do we have any good results that we're seeing in synergy? One thing I really like is revenue synergy. On the same page, on the lower right, it says that we're expanding revenue synergy, especially for Japanese customers. So to Japanese corporations, Delphi, for example, sales employee benefit products such as group life insurance, inability to work insurance. These products are being cross-sold to Japanese corporations, and we have seen some good results. So Japanese customers that we have had, we have deep relationship. And then Delphi has some unique products, and they have service capability. Especially for inability to work insurance, Delphi has a company called Matrix. And in the United States, there is a strict request for the absence management by the employers, and they provide services for such services. So it's insurance product plus absentee management services. We have been selling this to existing customers, and we're seeing good results. And so this is an example of where I'm seeing a good result. Revenue synergy is where we're seeing a lot of successful cases recently. That concludes my answer to your question.

We're receiving a lot of questions from telephone. I'd like to offer Mr. Tsujino from MUFJ to ask your question.

First question, about corporate deals, what's going on about corporate insurance? A lot of things are going on. Price negotiations, I think are ongoing. Reinsurance costs are increasing, but are the renewal negotiations taking place smoothly or it's impossible to conduct those negotiations, and therefore, you're put on hold. If you could give me an update on that? That's my first question. And for corporate insurance, corporate business related policies, I do understand that there are things that you cannot share with us. For example, industry practice will be revisited. And what are your ideas on brokers and agents, how to utilize brokers? How do you plan to change the way you utilize the agents and brokers, is there a discussion ongoing?

Thank you for your questions. So this was for the Japanese market about conducting sales to corporate clients. What is the situation? Give us an update for the corporate clients, and our sales team, the relationship and renewals and underwriting. Has there been any changes that is being observed and also fire insurance profitability improvement, there is a direction that we want to head? Are there any changes that the company is expecting or any challenges the company is expecting? So those were the questions. Maybe I can ask Sakiyama-san to please cover and followed up by Hosojima-san. And if there's anything to add, maybe from Hirose-san. So starting with Sakiyama-san, please.

Tsujino-san, thank you very much for your questions. I must apologize, but there's an ongoing investigation by the Special Committee. And once the investigation is completed and once we get to the bottom of the cause, and once we have the preventive measures in place, we will execute that measure, those initiatives in order to regain trust that we have lost and the entire company or the group will be united in that. So based on that, having said that, if I may share with you what is going on currently with regards to fire insurance, as has been explained already, profitability improvement is making progress. And as we have explained in the past, profitability commensurate with capital cost. This has been our goal. And our basic thinking is that what we want. Our purpose is to realize and contribute to realizing a sustainable society by being there in times of need for our customers and society. And so for profit -- for insurance, we need to run the insurance business in a sustainable model. And therefore, lines of business that have not covered for capital cost is not healthy, it's not profitable. And therefore, naturally, we need to make our effort in order to improve profitability. And if there is anything that is missing, we will flexibly revisit our prices in order to ensure profitability. So the things that I have just outlined will need to be explained. It's early to our customers so that we can gain understanding, and that's what we're working on renewal and that I think is reflected in the profitability improvement that we have seen.

So from a product perspective, Hosojima-san.

Yes, this is Hosojima speaking. I'll briefly respond to your questions. The points that you raised were particularly with regards to renewal of large corporate clients, I believe. And as was mentioned by Sakiyama-san, the fire insurance is still in the process of improving profitability. In large corporate, competition is extremely fierce, and therefore, there is still room for profitability improvement. From equality perspective, fairness perspective, I believe that there is still room for improvement. Large corporate clients have large risk measures in place and so forth, but what matters to us is that we have the right pricing. I think that is at the heart of insurance business and therefore, having good, careful and thorough discussions with our customers to reach an agreement on the appropriate pricing that is what we have done in the past, and we will continue that. The reinsurance market is hardening. This is still an ongoing trend, and we're expecting it to further harden this year. So that's also something that we need to take into account in order to present an appropriate pricing. That's all for me.

Hirose-san, do you have anything to add in terms of our relationship with customers?

This is Hirose speaking. As was already mentioned, profitability improvement measures are being taken at the corporate level without being largely affected by various issues and various systems and frameworks are being revisited and this is going to be one of the pillars in the next midterm plan. We have already embarked on that, but we will have a full-scale deliberation on that. And as an organization, we have an office in place or a team in place that will lead the company-wide initiative.

Komiya-san speaking. So as we have repeatedly said, we want to take into account the needs of our customers and needs of our business to offer the right business at the right price. That's really the core of an insurance company like ourselves. And in the meantime, the investigation is still underway. We need to get to the bottom of this, and we will take countermeasures. And we have already implemented various initiatives as well to prevent incidents from recurring. And we, at holdings, we'll make sure that the right initiatives will be put in place. We need to think what we're doing this business for in implementing necessary measures.

Tsujin-san, I hope we answered your questions.

Yes, but I also have some follow-up questions. One question about Auto Insurance. The price increased 2.5% in January. It might not be enough. So as -- at an earlier -- at early timing, next price increase could be possible?

Hosojima-san, would you like to take that question?

This is Hosojima speaking. With regards to Auto Insurance, as I mentioned earlier, stably maintaining combined ratio below 95%. This is our goal. So 2.5%, we do not think at this point in time that this is not enough. But if we think that it is not enough, we will be forward looking and considering price increase.

We have Otsuka-san from SBI. Would you like to ask your question now?

Can you hear me? I have 2 questions, and I want to ask them one by one. So my first question is on Page 11. What I see very clearly here -- I have some further questions. So top line and combined ratio, combined ratio, according to your expectation, it's going to get lower by 1% to 2%, top line, it's difficult to read. But JPY 2.2 trillion based on that, then the underwriting profit improvement is going to be maybe JPY 20 billion, JPY 30 billion, JPY 40 billion in improvement, at least mathematically, do I have the right math according to your slide?

On that point, this is about the underwriting profit for the domestic P&C business. And so Mr. Sakiyama or is it going to be Hosojima-san? So okay, Mr. Sakiyama, please?

Thank you for your question. So on Page 11, over the medium term, we have an outlook, and we have not really mentioned the number of years, but then while we draft our next midterm plan, we have the quantitative plan, which are in the drafting process now. So I will not be able to give you any specific figures as of today. As for top line, we continue to expand top line centering around specialty insurance, that policy still remains to be the same in the current midterm plan. Societal issues, there were 4 major areas where we had ground specialty insurance. In the next midterm plan, the societal issues will get expanded from 4 areas to even more areas. That is under consideration. And so when we have more areas, that means we will have a larger area to cover as our market, and we still want to be expanding specialty insurance for profitability. Auto profitability has to get stabilized once again to sit below 95% level. As Hosojima-san mentioned, the cost of the capital level or profitability for fire must also be achieved. And so combining these factors we're also expecting lowering of the combined ratio, too. In terms of the magnitude, again, I cannot disclose any quantitative information to you as of today. So I will refrain from touching upon any figures in this meeting today.

My second question is on Page 33 and perhaps 34. And so I know you mentioned this -- the Solution business many times already. In this Solution business area, what is your level of confidence? Or what is the rationale you have in succeeding in this? Because if you go to Page 37, it talks about disaster prevention and mitigation and mobility. These are the areas outside of the insurance area. And so these are new areas of competition globally and even domestically, insurance companies doing these areas. So when you enter these areas, there will be competition, for example, on the right-hand side of Page 37, in mobility from the customer's point of view, if an auto manufacturer provides these services, then it might be better for the sake of customers, that could be a view. So my point is, these new areas, why do you think you can be getting into these areas and contributing them? Perhaps you're active in TCFD, therefore, you want to do disaster prevention and mitigation in the group management, in terms of cultural fit, anything that convinces you that you can also expand your business by providing solutions and that gives you a good level of confidence. I just want to know why you're willing to expand your business centering around these new areas?

So for mobility or for disaster prevention and mitigation, Namatame-san is in charge of these businesses. And so please let me know why we have chosen those areas? And what are the strengths that we have if we were to go into these areas? These are new businesses and so we're doing business development. So we're hypothesizing what we can do. We adjust as we go. And so I don't know how accurate we can be as of today, might be difficult. But still, I would like to ask Mr. Namatame to answer your question. And then other than those, we have some new areas and new businesses that have been discovered. So Moriwaki-san should add more after Namatame-san.

This is Namatame speaking. Mr. Otsuka, thank you for your question. We're an insurance company, and we have been working on societal issues from the very front and supporting customers in case of need, and we're constantly there for the sake of customers that has been the center pillar of managing this company. As Mr. Komiya mentioned, in thinking about the needs of the customers, insurance company going forward over the medium to longer term must play roles over and beyond insurance. Its areas of providing value must get expanded, and that is a mandate that we need to be working on. I believe that became equally important as pursuing insurance business. And so pre and post insurance will be the approach. And in terms of the specific areas, on top of the natural disasters and cyber and health care and mobility, which are closely related to societal issues, these are the factors that make up changes in the society. We believe this continues to be important topics in the evolving society. In the next midterm plan, there are various areas where we want to be working on even more a solution business, and we have just begun doing business development to do so. So as examples, we're showing disaster prevention and mitigation. As Mr. Komiya said in the very beginning, natural disaster, of course, starting from Japan, but then even globally, we're seeing exacerbation of natural disasters. And then the expected loss and damage expected to see from natural disasters is going to expand. But then the customers need is not only to cover such damages through the means of buying insurance, but then equally important is that they prevent such disasters or they mitigate the level of damage from the customer's point of view. And therefore, this is one area where we want to be investing our managerial capital. Two years ago, we have started the Disaster Provincial Consortium core, and we have companies from different industries getting together and developing businesses together. We have a member company of 106 companies, and every company has got their own capabilities. We have insurance know-how and we have data, which we have gained through insurance and we have analytical capability. And so we're now creating more and more specific solutions. These are the solutions that we want to keep on adding so that we can establish businesses that will contribute to society to help customers. And in case customer need gets bigger, I believe that will create the framework that is necessary for establishing and stabilizing the solution business. And that is why we want to continue to work on this area and exert effort into this area over the medium to longer term, as written here in the material, we estimate the target market to be large. This reflects large needs and requirements coming from the customers. And therefore, over the medium to longer term, we hope this becomes a third pillar of Tokio Marine's business, and that's what we aspire to achieve. That concludes my answer to your question. What about mobility? On mobility, we have a similar view in the future, considering the future society, I believe this is going to be one major theme to become part of the society, and we're developing businesses in the area of mobility. Specifically, in 2024, there's a 24 issue. There are issues with logistics with the strengthening of the regulation over managing drivers, there will be a tighter regulation and law for employers to do so. And so for domestic logistics businesses, they need to become even more efficient in managing their business and also more executable in continuing their logistical businesses and helping them do so will be of great help. For -- on global level, maybe this overlaps to what the auto manufacturers might be thinking of doing. For mobility, adding value to mobility itself is one area. And then to logistics, there is an area to provide value in managing logistics. And also to companies that are in logistics businesses and also drivers who work for the logistics industry, there are various values that we can provide for these different aspects of the larger mobility area. And so when you think of this as a larger market as an insurance company to more logistical companies, drivers and auto vehicles, there are various capabilities and know-how, which we have accumulated as an insurance company to help these particular aspects of mobility.

Moriwaki-san, can you just quickly add something to that?

This is Moriwaki, in charge of Strategy. To Otsuka-san's question, various senior members have already provided some answers. But then on to why we want to do the Solution business to begin with. Perhaps I can say this to help your understanding. So let me just add that. So while the society becomes more complex, insurance is to pay for claims in case if some misfortune happens. However, for -- around 2035, forecasting what would happen in 2035, in case a disaster or misfortune happens and we pay for claims, is that enough for us to be serving our purpose? We had that big question in creating this Solution business. And so misfortune happens, we pay for claims. Of course, we do that. But then before such a misfortune hits or after misfortune hits, what can we do? We still want to be providing safety and security, and that should be part of what we provide as purpose. In 2035, that is the way in which we want to be resolving or helping resolve societal issues. And so in order for us to realize our purpose, this is something we must do. And so that was our understanding and recognition. So where do we start in providing solutions? As Namatame-san mentioned earlier, societal issues, we pick those with higher priority or those areas where our capability can be leveraged almost immediately. And your question said, what happens when there's a competitor? Well, as I said, this is not something that we compete against competitors, and we want to dominate that particular area and make profit. No. 2035, centering around insurance we want to be providing safety and security even in areas pre and post insurance. And perhaps sometimes we need to be collaborating with such competitors, so there could be capital alliance. And so other than paying for claims, there are peripheral areas where we want to be expanding into, and that will be the strategy that's serving us the basis in starting Solutions business other than what we mentioned here as examples, there is health care, there is decarbonization, regenerative energy, renewable energy, et cetera, where simply paying for claims would not be enough, but then we still need to be protecting our customers in the pre and post area. And so that was the starting point and the first step that we need to take in the next midterm plan. That concludes my answer to your question.

Thank you for your thorough answers, and I would like to listen more of such stories through IR meetings.

Majima-san, please?

This is Majima of Tokyo -- Tokai Tokyo Research Center. And my question is with regards to the TV commercials where Johnny's talent is being utilized. And I think that you included that when you refer to various incidents. And when incidents occur, what is the procedure that you take, for example, September 7, that was when Johnny's had press conference and you made an announcement on the 8. When an incident occurs, what were the procedures taken in addressing the matter if you could share with us some information on that? That's my first question. And my second question is with regards to the issues that are embedded in the industry and industry practices, people who are -- have been working in the industry for many years, might be accustomed to it, but those who have entered the company maybe in the last 5 years or so might have been disappointed to hear about those fraudulent news. So has there been any drops in motivation of young workers, any rise in turnover, for example?

Yes. Thank you for your questions. For the first question, Sakiyama-san responsible for public relations and D&I, Nabeshima-san -- maybe I should ask Nabeshima-san to first of all, respond to the first question. And then Sakiyama-san.

Nabeshima-san, over to you.

I am Nabeshima, responsible for D&I. At Tokio Marine Group, human rights is to be respected. And therefore, no form of harassment should be tolerated. And to our business partners, we have been asking for their understanding and support. And therefore, in that sense, we did have agreement or a contract with this particular agent that you referred to, but we have decided not to renew the contract, and we have suspended airing the TV commercial.

Sakiyama-san, please.

Majima-san, thank you very much for your questions. Nabeshima-san has already explained the background. And in terms of time line, there was some media coverage that went ahead, but we waited for the report of the investigation that was set up by Johnny's and the press conference, and we made a decision after the press conference. And that's why our announcement to cancel the contract was decided immediately after the press conference.

Thank you. And therefore, now I would like to move to the second part of your question. Has there been any negative impact on the employees of TMNF, any changes, any disappointments that are spreading? I want to ask Sakiyama-san and followed by Hirose-san. Sakiyama-san over to you.

This is again Sakiyama speaking. To be very honest with you, with regards to price fixing issue, we have received a lot of questions and inquiries and the investigation by the Special Committee is still ongoing. And therefore, I'm not able to give you a clear cut answer. And within the company, there's very little that we can share, but listening to the people in the field, I do very -- to be very honest with you, do hear some anxieties and concerns and Hirose-san has been repeatedly disseminating top message to the employees working in the front level and also all the employees that the company is together with you and we're therefore conducting various care to the employees from a mental perspective.

Hirose-san?

Yes. In a sense, we have not been able to share details with even our own employees. I think employees are feeling frustration as a result of that. But taking that into account, I have been trying to send out message. And with regards to the engagement or motivation of the employees, I have been concerned about that. But according to the engagement survey of our employees, we're not seeing a downturn in the numbers, and we're not seeing an increase in turnover. So I will continue to support our employees in terms of their motivation in order to regain their trust.

Komiya-san speaking. This is something that I've been telling to everyone in the group, which is about communication, communication, you can never overdo communication. There is never an excessive communication, and I understand that Hirose-san has good understanding of that, and the communication is well done in TMNF. Thank you.

Thank you very much. We have completely used up the time we had today. So I would like to finish the Q&A. And we would like to finish the IR meeting for today, and I thank you for your participation. This is the end of the Tokio Marine Group's business strategy meeting. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]