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

As of this time, I would like to start the meeting. Thank you for joining us for the Tokio Marine Holdings IR conference for the first half fiscal year 2024. I will be serving as a moderator. My name is Ishiguro from the Global Communications Department. Today's conference is held in a hybrid format with participants joining both online and offline. Let me explain the officers representing the company from Tokio Marine Holdings. Group CEO, Mr. Satoru Komiya; Senior Managing Director and Group CFO, Mr. Kenji Okada; Senior Managing Director and Group CSO, Mr. Yoichi Moriwaki; Co-Head of International Business, Mr. Kichiichiro Yamamoto; Senior Managing Executive Officer and Group CDO, Mr. Masashi Namatame; Managing Executive Officer and Group CRO, Mr. Kiyoshi Ajioka; Managing Director and Group COO, Mr. Kiyoshi Wada; Managing Executive Officer and Group CAO, Mr. Shumpei Takizawa; Managing Executive Officer and Group CIO, Mr. Yoshiaki Nakahara; Executive Officer and Group Sustainability Officer, Ms. Mika Nabeshima. From TMNF, President and CEO, Mr. Hiroaki Shirota; Vice President and Executive Officer, Mr. Kenichi Kitazawa; Senior Managing Executive Officer, Mr. Eiichi Hosojima; Managing Executive Officer, Mr. Hiroshi Sakiyama. And from [indiscernible] Life, we have President and CEO, Mr. [indiscernible], joining this conference. Now today, we will start with the presentation from Mr. Komiya, Group CEO; President and CEO, Mr. Shirota of TMNF and Mr. Yamamoto, Co-Head of International Business, using the materials available from our homepage. After which, we will open up for questions. We scheduled to end at 4:30 Japan time, but due to questions, we may run 30 minutes over time. Your understanding is very much appreciated.

Hello, everyone. My name is Komiya. Thank you very much for attending our management strategy meeting today. I would also like to thank you for your continued support to Tokio Marine. On Monday this week, we announced our financial results and held a conference call. I would like to once again thank you, everyone, who participated in the conference call. As mentioned in the conference call, our profit plan for fiscal '24 is JPY 1 trillion, and we are standing in a clearly different place than we have in the past. In addition, we are still on a journey to achieve world top-tier EPS growth and raise ROE to the level of global peers. We are still continuing this journey. We hope you can take a look at the picture on the cover page of the material. This is an image of where we stand and our commitment to where we want to be. We will be thankful, if you from the capital market, could see the same view next to us. And if you could have a greater confidence and trust in Tokio Marine. With this in mind, today, I would like to explain our strategy for achieving this goal by deep diving into the details of each of our businesses. Please turn to Page 2 of the material. As for today's agenda, I will first explain about the group business strategy. Then after that, since this year is the initial year of the medium-term management plan, I will take a little more time in explaining first of all, ask Mr. Shirota, the newly appointed President and CEO of TMNF to explain about Japan P&C business, followed by international business by Mr. Yamamoto, our Co-Head of International Business and Senior Managing Director. They will be speaking with the determination and passion. And after that, I will once again come up to explain our solutions business strategy and capital policy. Our presentation will take about 50 minutes in total. After that, we have allocated some time to take your precious questions and comments. Now please turn to Page 3. Here, I have summarized 3 points that I must share with you today. The first one is EPS growth. EPS growth under the new medium-term management plan is expected to be 8% or more on a CAGR basis and 16% or more, including gains on sales of business-related equities, both of which will continue to be top tier in the world. The source of this growth will be our world-class profit growth that we will achieve through a strong underwriting portfolio with globally diversified risks as well as strong asset management income by leveraging the nature of liability. In other words, this growth will be achieved through strong organic growth. As for DPS growth, this will also be consistent with strong EPS growth. In fact, we plan to achieve a delta of positive 29% in fiscal '24. And beyond that, we believe that we will be able to sustain DPS growth as moving average of profit as a source of dividend income will increase. Next, regarding ROE, it is expected to be 14% or higher in fiscal '26. And 20% or higher, including gains from the sales of strategic shares. Even in ROE, it is undisputable that world-class profit growth or numerator measures will be the main driver here as well. On top of that, there is a progress towards 0 stock holding policy. And we are all aware that all of you are interested in how we use the surplus capital we will create. In fact, we currently hold JPY 3.5 trillion of business-related equity on market value and JPY 0.4 trillion at book value. which we will reduce to zero over the next 6 years. And the milestone over the next 3 years will be to half the amount. Regardless of the milestone, we intend to sell as much as possible ahead of the schedule. We will then, as in the past, used the capital we generate for M&A and risk-taking that will contribute to improving our ROE and if we are not blessed with good opportunity to do so, then we will execute share buyback, thereby implementing a disciplined capital policy so that we raise our ROE to the level of global peers. As our current ESR is at a sufficient level of 140%, we have decided to repurchase JPY 200 billion of our own shares in fiscal '24, as announced recently. The last of our key messages is to strike the right balance between profit growth and governance at a high level. As we have expanded our businesses globally, issues have rose, large and small in different backgrounds and for various reasons. And we have faced these issues right on and implemented core countermeasures one by one. Based on this, we have steadily enhanced our capabilities of global risk diversification and integrated group management where each region has produced results with their business performance while complementing each other and understanding each other. We believe that this ability to be responsive is one of the elements of our management quality at Tokio Marine. At present, all management and employees at Tokio Marine and Nichido Fire share the same vision of renewing the company, and we are already making steady progress in our efforts towards such a reform. The new President and CEO of TMNF. Mr. Shirota will explain about this later. In the new medium-term management plan, we will expand the business coverage areas in which we provide value, focusing on the pre and post insurance arenas and fully develop insurance plus solutions. We will have a full launch start of these solutions, especially in Japan, a country bound with issues. We believe that these pre and post insurance solutions will be a key success factor in the future. And as we have been saying before, it will continue to be our key success factor and also a new pillar of profit growth. It may take some time, but we are determined to make steady progress. So those are the key messages I wanted to convey to you. Now I will talk about group management strategy. Please refer to Pages 4 and 5. Page 4, shows our EPS growth target in the new medium-term management plan, and Page 5 shows a peer comparison of EPS as a track record. We have achieved world-class EPS growth while controlling volatility and this will not change in the new medium-term management plan. The EPS growth target in the new medium-term plan is positive 8% or more, of which 7% or more will be achieved through profit growth and 1% to 2% through share buybacks. Strong base profit from organic growth will be supplemented by gains from sales of business-related equities by additional 8%, resulting in the target as you can see on the blue box, adding that the target will be 16% or more. The most important driver there will be the profit growth without relying on the equity sales, which will be 7% or more. Please look at Page 6 on this. The pie chart on the left side of the slide shows the contribution to profit growth from each business segment. Since well, more than half of our profit is now generated by our international business, the international business will naturally make the largest contribution to our profit growth. On the right side of the slide shows the profit growth rate of each business. Japan P&C is 5% or more. International is also 5% or more. But on the basis of excluding prior year reserves that are not included in the initial annual plan, it becomes 7% or more. You can see that we have achieved a profit portfolio with a well-diversified risk portfolio in each region. Also, as you can see from the long track record, organic growth is achievable in a continuous and repeatable manner. Now in order to enhance the visibility of each business. I will ask the top executives of Japan P&C and international business introduced their own scope of business. First, I'd like to hand over the microphone to Mr. Shirota, the President and CEO of Tokio Marine and Nichido Fire Insurance Company.

Hello. My name is Shirota. It is my pleasure to meet all of you today. I was appointed to be the President and CEO of Tokio Marine & Nichido Fire in April this year, 6 months ago. At this very IR meeting, we said we will rebuild Tokio Marine & Nichido to become a new company. . Leading the way in carrying out this transformation. And as a result, achieving growth is what I believe to be my mission as the CEO, having assumed the position at this critical timing. Not bound by the conventional common sense of the nonlife insurance industry, or TMNF to place customers at the starting point of our thinking and to take customer-driven actions so that we become a company that is truly trusted and needed, TMNF is united in our efforts to make Tokio Marine & Nichido a renewed company. I also hope that everyone in the capital market will stay tuned to our progress of transformation and the resulting profit growth. I look forward to your continued advice and support. Now I would like to dive into the content. First of all, I will present the vision the M&F aspires achieved through renewal initiatives on Page 7. The vision is to, first, accurately analyze customers' risks professionally and two, provide optimum insurance and solutions that go beyond the insurance to hedge those risks. We also aim to, number three, by providing solutions pre and post incident occurrence to avoid or mitigate damage itself in order to enhance client resilience. Furthermore, number four, if we can reduce the loss cost itself, we can lower insurance premium while maintaining an appropriate margin, which means that for customers, they will be able to purchase insurance with affordable price in a stable manner without high cost burden. In this way, if customers purchase Tokio Marine & Nichido's insurance plus alpha solutions, they will have ways to avoid accidents and damages or mitigate damage even if they do occur. And the cost burden is not too heavy. The number of customers should naturally expand. Distribution with high-quality expertise and a sense of mission will drive this expansion. The more we sweat, the more resilient our customers in Japan will become and the lower the cost to society. Such is the world filled with a sense of safety and security that we want to create. We believe that this world we want to create is unprecedented. And through the realization of such a world, we intend to sustainably increase our own profit and corporate value. Now I will talk about what needs to be done and what has to change in order to realize this world. Please turn to Page 8. The first point is to realize a world in which customers choose an insurance company based on the inherent value it provides. In the past, the amount of business-related stock and cooperation to customers' business has influenced the selection of insurance companies by customers to a certain extent. And we believe that this industry practice has also been a burden on capital and workload for us. However, now that equity holding will be reduced to zero and excessive cooperation to customers' business will be eliminated, an appropriate and efficient competitive environment will be formed. In this environment, competition will take place over intrinsic value of insurance, and that will be viewed as the true competitive edge of an insurance company. This is the world we originally wanted to be in, and I believe it is one in which we excel. On the right side of the slide are the key success factors for winning in this new environment and explaining whether we have them or not. We have advanced underwriting capabilities that we have developed since our founding. We have product development and coverage provision capabilities where we take advantage of our collaboration with [ HCC ] and solution provisioning capability through an outside partner through core disaster prevention and mitigation consortium. We continue to expand our customer base by leveraging such strength. Please turn to Page 9. Once again, it is our duty as an insurance company to sustainably provide appropriate coverages at appropriate rates in a stable manner, corresponding our customers' risks and needs. Second, in order to sustainably fulfill this duty, we will continue to ensure a more disciplined underwriting. While we have always emphasized bottom line growth and executed disciplined underwriting, we may have perhaps been overly conscious over top line and market share. To change this, we have already reviewed our award system and performance evaluation system, which would lead to an emphasis on the top line. We have also introduced a mechanism to eliminate from our targets. Any revenue loss resulting from profit improvement efforts, sales of business-related equities and cooperation to customers' business. Please turn to Page 10. The third point is about distribution. In order to deliver the value of insurance plus solutions correctly and efficiently to a large number of customers, we need to establish a strong distribution channel with high level of quality and expertise trusted and chosen by customers. This is what we will build. As for specific measures, the left side of the slide mainly shows measures for existing channels. We also plan on using more digital technology to improve the sophistication and efficiency of our support extended to agents. At the same time, we will eliminate the excessive support for agents with poor quality that has existed in the past, the so-called 2-tier structure. In addition, we will make a major shift to an agency commission system in accordance with their quality and level of independence or in other words, the value they provide. On the right side of the slide, you can see our plan for diversification of distribution channel. One is to build our unique new direct model through D2C, direct-to-consumer. We will create unprecedented customer contact points while building a direct platform that allows customers to complete the entire contact procedures from premium estimation calculation to policy application on the web. And we will also create a business process where customers can feel most comfortable by receiving detailed consulting service from agents, including free consultations if they wish. This will be an effort with the aim to increase the number of customers. In terms of point of contact with customers, we will also continue to expand embedded insurance, which is a type of insurance that is fully digitized. Please turn to Page 11, we submitted our business improvement plan to the Financial Services Agency at the end of February. And since then, we have been implementing specific measures in accordance with the plan. This slide summarizes some of the major initiatives included in this plan. These efforts are aimed at preventing inappropriate behavior from ever occurring again as well as launching reforms to create a new business model. As you can see, we are making steady progress, and we are not only doing this through our initiatives as an individual company, but we are also determined to contribute to the transformation of this industry as a whole by taking the lead and breaking the ice and improving business operations. Please turn to Page 12. Now that I have explained the renew efforts at TMNF. From here, I would like to explain the KPI targets of the new medium-term management plan and the measures we will take. First, on business unit profit. We plan to achieve a CAGR of 5% or more in the Japan P&C business. As shown in the waterfall because sales of equities will get accelerated. And in fact, its balance will be cut half during the course of the midterm plan. This means that the dividend income, which currently have by about JPY 75 billion will also shrink accordingly. In addition, nat cat budget will be raised to a new medium-term plan. Despite these negative factors, we plan to offset them with rate hikes, expansion of the customer base and strong growth in underwriting profit as a result. We will achieve a CAGR of 10% or more in underwriting profit, which we believe is highly possible with rate hikes and product revisions. As a result, combined ratio at the end is expected to improve to around 92%. Now let's take a look at each line of business. Please turn to Page 13. First, in automobile insurance. Currently, loss cost is rising due to inflation and impact of events driving and other factors. Combined ratio has deteriorated to 95.7%, the worst level in the past 10 years as shown on the lower left of the slide. In response, in addition to the assumption of executing constant management efforts such as reducing business expenses by improving operational efficiency, we will implement rate increase and product revisions in January next year for 2 years in a row. As we have seen a major hail damage in Hyogo prefecture, we will continue to monitor loss cost trends, including natural disasters, and implement proactive rate revisions as necessary in order to achieve auto combined ratio target of stably below 95%. Please turn to Page 14. Improvement of fire insurance profitability will continue to be a driver of profit growth. We have taken comprehensive measures so far, such as rate and product revisions over the past 4 years and reinsurance cycle management. As a result of these measures, profitability has improved significantly. And as I have mentioned, we have achieved a profit-making on normalized natural catastrophe basis in fiscal '22. And on actual basis, in fiscal '23. However, fire insurance, there is the risk amount of natural disasters. And from ROR perspective, the current level of profit is still lower than the cost of capital. In light of the situation, we will revise our premium rates and products in October '24, and by implementing bottom-focused initiatives as part of Re-New namely disciplined underwriting for unprofitable policies and improving underwriting terms and conditions. By doing so, we hope to achieve profitability equivalent to the cost of capital by fiscal '26 as we have been saying. Please refer to Page 15 for more information on specialty insurance. In the 3 years under the new medium-term plan, we will continue to increase sales of specialty insurance by JPY 100 billion. And underwriting profit by JPY 7 billion as we did in the previous midterm plan. In Japan, a country boundary various societal issues, such issues are becoming more diversified, complex and they are expanding. On the other hand, penetration rate of specialty insurance is still low and the growth potential is undoubtedly large. Its combined ratio is stable at a low level, making it a very attractive market. In the new midterm plan, we will focus on the 5 priority areas such as SME, GX, health care, cyber and newly added resilience. While leveraging our unique strength as shown in the lower right corner of this line to achieve results. Please refer to Page 16 for details on improvement of expense ratio. Our current expense ratio is 31.8%. The model we initially depicted 3 years ago to reduce administrative work through the thorough use of digital technology and using the related labor for expansion of specialty insurance, new businesses, loss control and loss prevention in order to bring down the overall combined ratio and expense ratio is beginning to take effect. Going forward, in the new midterm plan, we will first solidify expense ratio in the 31% range by realizing administrative work reduction projects, utilizing generated AI (sic) [ generative AI ] and realizing a flexible agency commission scheme relative to the value they provide as part of the renewal initiative. By doing so, we would like to see the path towards the expense ratio of 30% or below in the next stage. This concludes my explanation of Japan P&C business. I would like to reiterate that we will definitely realize the transformation of Tokio Marine & Nichido, which is the origin of the group and the renew project. We will also highlight our presence as an important driver in the group's profit growth. I would like to conclude my part of the presentation by conveying the commitment by Tokio Marine & Nichido's management. Thank you for your patience. Now we will continue with international business by Mr. Yamamoto, please.

My name is Yamamoto. I am the Co-head of International business. As Mr. Komiya mentioned, the international business currently accounts for more than half of the group's total profit, and it comes with much pride and responsibility for driving group's profit growth. I will now explain the growth strategy of the international business in the new midterm plan, which calls for the strategy to achieve top class growth in each country and region. I will also explain the reasons why we can achieve this. Please turn to Page 17. In the international business, we will achieve a high growth rate of more than 7% or more in CAGR in profit under the new midterm plan. If you look at the right side of the slide, you can see the well-balanced profit growth between underwriting and investment. We are also providing on the bottom of the slide, the breakdown of underwriting profit. Our combined ratio is already low at 92.3%. So our strategy in the new midterm plan is to maintain this level while steadily raise the top line through rate increases and business line expansion. In this plan, we have incorporated some softening of the market in the future. But still, we plan to grow mainly in North America's specialty business. Please turn to Page 18. We expect underwriting profit of our North American business to grow at a CAGR of about 10%. Unfortunately, we do not have comparable data to compare this level with the top players in North America, and there are some differences in the term covered. But that said, vis-a-vis the top North American players with a CAGR of around 8%, I think you can see that the growth of our North American business can be set to be among the best in the region. Let me elaborate on how such strong growth trajectory can be achieved in the future. First is the profit growth driver, rate increase. Please turn to Page 19. On the left side of the slide, you will find a track record of rate increase by TMHCC and Philly. Crucial point about rate increase is to assess our current and future loss costs and increase rates now to fully meet them. If we can do this, we can continue to maintain adequate margins and steadily grow underwriting profit while controlling the impact of market cycles. In fact, we've been able to achieve rate increases that significantly outperformed the market. And as a result, steadily increase our underwriting profit. This is possible through the unique strategies or winning formula, if you will, that our group companies have refined over the years. Let me focus on the 4 group companies in North America today. Please turn to Page 20. First is TMHCC. TMHCC for 50 years since its founding, has established a solid position as a global leader by underwriting various lines of specialty insurance, rigorously refined the highly specialized underwriting and claim service expertise. They have executed more than 60 bolt-on M&As and acquired underwriting teams to build a profitable and well-diversified portfolio as represented in the stable combined ratio with low volatility, highly reproducible regardless of the market environment. This is their strength. Turning to Philly. Philly focuses on niche customer segments with high profitability where it can leverage its strength. This has consistently been their strategy. A strong sales network, team Philly has been built that enables disciplined underwriting. As evidenced by the high Net Promoter Score, they have won the hearts and minds of customers. These are not things that can easily be lost, and we are confident that they will continue to support strong growth in the future as a distinct competitive advantage over our peers. Please go to Page 21. Top of the slide is RSL, Reliance Standard Life, Life Insurer under Delphi. And Delphi has been contributing to the profit growth of the group with its investment capabilities. More recently, they are focusing to improve insurance underwriting income. Combined ratio in FY '23 was in the lower 90s. RSL mainly underwrites LTD, long-term disability. Selling as a package with a market-leading absence management product offered by its group company Matrix has generated added value and high competitive advantage. Bottom of the slide is on Pure. Since our acquisition in 2020, the company has grown steadily. The company continues to provide products focused on the high net worth segment and quality services has earned high customer loyalty and has raised its position in the U.S. higher worth market from third place, the time of acquisition to second. If you could jump on page and go to Page 23. This is just for your reference. The Financial Times recently conducted a survey of risk managers at large corporations, and we recently received the #1 customer favorability rating among North American commercial insurers. If this means that the strength I explained earlier were appreciated by our customers. It is a great honor. We will continue to refine our strengths and provide value to our customers. Next to our unique strength in investment. Let me take you through Delphi Group, DFG's Group investment. Please turn to Page 24. Income gains from Delphi Group credit investment is expecting a CAGR of 8%. The driver is long-term and predictable insurance cash flows or AUM, backed by strong insurance underwriting across the group. Regarding income yield, DFG has achieved a return of about 300 basis points over the benchmark by selecting investments in credit assets with high return relative to risk while appropriately controlling interest rate risks and we believe that even if market interest rates decline in the future, we will be able to secure a stable high yield. In addition, we have secured a certain level of investment capacity to enable us to invest on favorable terms in the event of market turmoil. Please turn to Page 25. The right side of the slide shows the total return of Delphi Group credit investment for the past 20 years or less. Although we had a significant capital loss at the time of global financial crisis, positive returns were maintained and have consistently outperformed the market average. This is possible by the investment team shown on the left side of the slide, which has gone through numerous market fluctuations and achieved stable returns throughout the cycle as well as the strong collaboration with external managers, enabling formulating and executing investment strategies in an agile manner in response to changes in the environment. Highly reproducible returns is the strength of Delphi Group credit management and will continue to deliver stable returns. That is all for me. Strong underwriting and strong investment are the drivers of our international business. It may not be flashy, but we want to achieve further growth through strong organic growth and to drive the profit growth of the entire group. That is all from me. Now let me pass the microphone back to Komiya.

Mr. Shirota, President and CEO, and Co-Head of International, Mr. Yamamoto made a very powerful statement of commitment and has taken us through the strategy. From here, I will begin by explaining our solutions business, which is also an important growth strategy from a medium to long-term perspective. Please turn to Page 26. At the IR briefing last November, I talked about the new company established in the area of disaster prevention, mitigation and mobility. Since then, both companies have launched solutions. Let me give an example in disaster prevention and mitigation. When the Noto Peninsula earthquake hit in January of this year, damage mitigation solutions for customers affected by liquefaction were offered. Product lineup is expanding. By leveraging the wealth of real data accumulated in insurance and peripheral businesses and combining with capabilities outside the group, we will continue to create new and unique added values and solutions. Please turn to Page 27. Earlier, Mr. Shirota, President and CEO of TMNF, explained the world TMNF intends to realize through Re-New. This slide illustrates value creation focusing on disaster resilience. The green area on the left. In addition to enhancing the function of insurance itself, we will expand our solution offering in business and post incident. In other words, by enhancing the value chain, loss and damage of our customers are avoided or mitigated as shown in the orange section in the middle. Resilience across Japan will be elevated and social cost reduced. Large social value can be created. If such socially meaningful value can be created. Now moving to the right in blue, we should be able to enjoy appropriate margin from the business. Lower loss ratio in insurance business will enable increase in economic value of the company directly and indirectly. This cycle of value creation, which I might refer to as the Tokio Marine value is what I envision across different fields such as disaster prevention mitigation, mobility, health care, GX, among others. Now that I have explained strategies focused on each business. Let me return to the group-wide business strategy. I will start with capital policy. Please turn to Page 28. The company has been taking a disciplined approach of allocating generated capital to business investment and risk taking that contribute to improving ROE. But in the absence of no good opportunities, share buybacks are executed. This is the disciplined capital management. As a result, we have been seeing increase both in profit and ROE. Regarding reducing business-related equities to 0, certainly with the acceleration of sell-down, profit will increase for the next 6 years. However, as you all understand, unrealized gains on the shares are originally included in capital. So no new capital is generated by the sell-down of shares. In other words, sale of business-related equities alone will not lead to an increase in corporate value. The ability to use the amount of risk released by the sell-down to make quality business investments and risk-taking, and the scale with which this is done will affect the value of the company. In this context, we will continue to execute our capital policy with discipline and enhance our corporate value as we have done in the past. In the analogy of a mixture of wheat and chat or good and bad, we want to be wheat. Page 29 demonstrates our ROE track record. The result of capital policy and target in the new midterm plan. The company has been successful in raising ROE through strong profit growth, disciplined capital policy and executing market-based governance. ROE for fiscal '23 will be 15.0%. This is due to the fact that the denominator adjusted net asset has increased due to the stock market appreciation and yen depreciation, while profits have grown, which in itself is not a bad thing. We have always said that we would raise ROE to the level of global peers. ROE target for FY '26 is 20% or higher, including gains from equity sell down using the same definition as before. Excluding gains from sales of business-related equities only from the numerator, while the denominator includes -- still includes after-tax unrealized gains, therefore, numerator and the denominator are not necessarily apple-to-apple in this case, target is 14% or higher. This brings us within the ROE target range of our global peers. We will continue to steadily increase ROE. Please go to Page 30. This slide demonstrates how the group's risk portfolio and profit portfolio has changed over time. We have achieved profitable growth by allocating capital to businesses with high ROR and diversified risks through ERM management. Specifically, over the past 10 years, we have expanded our international business, which allows us to achieve high risk diversification, while reducing business-related equities and interest rate risks. This is the reason why we have been able to increase profit without increasing capital, needlessly. Going forward, business-related equities will be gone 0 in 6 years. The risk amount for business-related equities is about JPY 1.2 trillion today, will be released. Meanwhile, the profit of the company with business-related equities will also be reduced to zero. ROR of companies with business-related equities is like this. Take JPY 1.2 trillion of risk and make JPY 449 billion in return, the return will be about 37%, but as I mentioned earlier, gains from sale of equities is only a cash conversion of the unrealized profit already included in net assets. So no new value is being created. Therefore, it is reasonable to recognize only dividend income, which currently accounts for about JPY 60 billion after tax as return, and in that case, ROR will be about 5%. Our ROE is about 15% currently, therefore, business-related equities is clearly a drag factor. Reducing business-related equities with low ROR to 0, and investing in business with high ROR as in the case of businesses with our business-related equities. This will be the decisive factor for us to win. Please go to Page 31. Earlier, I refer to the decisive factor to win. Let me share with you how we're thinking on where and how to win and our view of the environment. As illustrated on Page 31, the company has executed a disciplined in-out strategy. Our track record is, as you find the right side of the slide, ROI of large M&As we have executed over the years stand at 21.5%, well above our cost of capital of 7%. Incremental wins have attracted the next M&A opportunity. In other words, it was often the case where entities wanted to join the Tokio Marine Group if they are to be acquired by any party. I hope to continue to see this virtuous cycle. In terms of our perception of the M&A environment, the current valuation is still high, and we believe that patience will continue to be necessary for large M&As. However, when it comes to bolt-ons, we will seize opportunities and execute them with discipline. Pages 32 and 33 are there for your reference. But for now, please jump to Page 34. For your reference, the slide shows market data on the rate cycle in the North American commercial market and M&A activity. A certain correlation can be observed between the 2. Attractive M&A opportunities are expanding during the softening phase. I'm sure that there are different views on the timing of market softening. But in any case, we intend to continue to work tirelessly as we have in the past, make sure that sourcing is thorough, leaving no stones unturned and that the short list and long list are updated. Tracking must be done right because Fortune favors the prepared mind. Please look at Page 35. This is a repost of the conference call held the other day. I have already covered business-related equities sell-down. So here, I want to mention just one point, which is that we will not merely reclassify business-related equities to pure investments. We will, of course, make necessary investments, including investments related to capital and business alliance, and we do not believe that pure equity investment should be 0. However, as a way of investing in stocks, which is always a way of hedging against inflation, it is necessary to make the most appropriate decisions amongst individual stocks, indices or should be Japanese equities in the first place for that matter, after careful consideration of the objectives. Next is on dividend returns from flow profit. Please go to Page 36. Our basic policy to shareholder return is dividends, and we will sustainably increase EPS corresponding with profit growth. Profit plan for FY '24 is JPY 1 trillion source of dividend or 5-year average adjusted net income is up significantly. Based on that, DPS for fiscal year '24 will be JPY 159 increase of JPY 36 in dividend, a DPS growth of 29%. Going forward, as you know, we will introduce IFRS by the end of FY '25 and so will ICS. We need to, therefore, review a number of KPIs and definitions. Allow us some time to have thorough discussions internally and with our stakeholders before we give you our guidance in the fall of 2025. Again, we will seek to achieve both world top-class EPS growth and DPS growth in line with EPS growth. Now let me turn to share buyback, returns from capital stock. Please turn to Page 37. Our capital policy remains unchanged. This I have already explained. Latest ESR is 140% at a solid level. Taking into consideration our M&A pipeline, business environment and other factors, we have decided to set our share buyback target for FY '24 at JPY 200 billion for now. Board resolution was passed for JPY 100 billion in share buyback as a first step, this week. It is common for global peers to execute share buybacks of about 2% of market cap each year. And they disclose the effect of share buybacks as part of their EPS growth targets. We took this perspective into account in making our decision in the share buyback amount for this fiscal year. Please turn to Page 38. Earlier, I briefly mentioned the need to revise a number of KPIs and definitions in introducing IFRS and ICS. In fact, peers in Europe that introduced IFRS ahead of us, also revised various KPI indicators at the time of introducing IFRS. Having said that, the introduction of IFRS and ICS is a change in appearance and does not change our underlying capabilities such as our capability to generate profits. What do we mean by profit based on economic value and capital generating capacity, how do we distribute the economic value we produce, et cetera? We will consider these points so that we can more clearly demonstrate our capabilities and approach, while ensuring comparability with our peers. Please go to Page 39. Robust profit growth, increase in ROE, aligned with shareholder return that I have covered so far is only possible with quality management. Integrated group management, which is a forte of the company will be in its ninth year this year. While having more directors and associated directors from overseas, we are further enhancing the quality, confidence and speed of management decisions as a holding company by gathering the wisdom of the entire group through the enhancement of global committees, among others. Quantitative outcome of this is group synergy. And this is on Page 40. $618 million of synergy is generated annually. This will grow further year-by-year. It was $580 million 6 months ago. Hypothetically, if $680 million in profit is to be realized through acquisition and assuming average PER of North American P&C to be, a simple calculation says it is equal to buying a company worth more than JPY 1 trillion. Without additional cost, we are able to realize such a huge value. This is a strength, one of the strengths for the company that we will seek to sustainably expand. Lastly, let me talk about strengthening group governance. Please turn to Page 41. In light of a series of incidents, we have set the strengthening of governance as one of the pillars of the new MTP. Measures have already been implemented as explained at the IR briefing in November of last year. With regards to the issues, I would like to take this opportunity to extend our apologies for extending your concerns. Holdings is taking this gravely and we would like to look into the root calls together with TMNF and monitor the progress. And we are fully engaged in improving the situation. This slide shows progress to date and future direction. Among these, with regard to the utilization of external perspectives, deliberations at the Group Audit Committee, which was newly established this past April has begun. And progress is made in bringing in outside experts and their utilization across the group. By implementing these initiatives thoroughly, integrated group management will be brought to the next level to ensure sustainable profit growth. High-quality management in the true sense, where growth and governance are balanced to a high degree, will be achieved. That will conclude our presentation. I will be repeating myself, but the growth and governance, we will seek to enhance both and the purpose of our business in strategy, policy of our company and profit and contribution to stakeholders, as a result, these 3 should be aligned. Your continued cooperation and support is greatly appreciated. Thank you very much for your kind attention.

Thank you very much. We are now going to open the floor for questions. [Operator Instructions] I will call on the person in the room, and we will bring the microphone to you. For those participating online, please send us your question from the chat box at the bottom of the screen. To cancel your question, please send us a message using the chatbox. Due to interest in time, we may not be able to respond to all the questions. In which case, Global Communications Department will get back to you at a later date. Your understanding is greatly appreciated. From SMBC Nikko, Mr. Muraki, please.

My name is Muraki from SMBC. I have 2 questions. My First question is about Japan P&C business regarding distribution on Page 10, you are showing the scheme of how you're planning to change it. I want to know to what extent are you willing to change this? Because, unfortunately, right now, the distribution network you have versus the ideal state that you are describing here, there is a big discrepancy. So by taking 3 years, where would you start? How far can you go? And as a result, looking at your sales channel, what will be the composition? What will be the level, the level of agency commission? Do you think you can apply some changes to see some significant changes to these? Or is it going to become just a negligible change? Because you are going to be reducing your stocks, how you plan to do that like it's very different from 1-year ago. However, the expense ratio expectation is still around the same level, which makes me wonder how serious you are in touching on this. And also, what KPIs should I use in measuring your progress against the changes you're applying to the distribution channel? My second question is on Page 37. After you sell down your equities, risk-wise, you're going to be releasing 1.2%. ESR is 140%. And so if you multiply that by 1.4, it becomes about JPY 1.7 trillion that you'll be releasing from equity sales, depending how do you plan on using these proceeds? The easy way is that the TMNF, it's a risk taken by TMNF. So I don't know how much you want to hold on to the risk versus how much more you want to be spending for asset management. And then the rest will be probably the investment for international. If there is no use, then it will be returned to shareholders. But the risk-based 1.2 capital base, it will be JPY 1.7 trillion. I want to know the use of the release -- risk release the capital. Just any concept that you have at this point in time.

So first, on the first point, from TMNF, Mr. Katanozaka, the Vice President of the TMNF as well as CEO. Mr. Shirota will answer your question. So we understand the image up for changes in distribution channel, but how far would you go in changing this? And what changes will that bring? And the second point is about the use of the release the risk or capital? Any specific images you have that will be answered by our CFO, Mr. Okada, for your second question. So first, I'd like to ask Mr. Kitazawa to answer the first question.

My name is Kitazawa. Thank you very much for your question. Regarding the distribution channel, I would like to answer your question. TMNF, there are 2 keys to change in the distribution channel. The first is that with the existing agencies, we need to see the value provisioning, quality and expertise improvement. The second aspect is digitization. So with the agency's quality, in terms of their quality and also expertise, they need to be enhanced, and then they need to become more independent, so that they will be able to provide better value. And we need to get rid of the 2-tier structure so that to the clients, we know what level of quality they will be able to provide to clients and also depending on their autonomy, we would only pay them relative to what they provide. And so we are going to be doing some major changes to the agency fee structure. In the current midterm plan, we are going to be having some dialogue with the agencies. And whether if they are really meeting the standards and qualities expected from the community, if they are lagging behind that, then for example, the scope of work and also scope of products they can handle will be eliminated. And also, they might have to cooperate with other agencies and form a tie up. And so understanding where they are with through dialogues. From the customer's perspective, we hope to see more agencies moving to an elevated stage, which, as a result, will be a better way to meet expectations from the community, but they will also scale down the size of the agency network. And second, I'd like to talk about the digitization. With diversified needs and also with the different purchasing behavior. So we need to be responding more swiftly. And so from this fiscal year, we will be introducing a more direct model. This direct model is going to be targeting the online purchases and all of the procedures can be done online. And it will be better than the comparison site in terms of search function, and it will be more centralized on the website. So that to customers, it will become easier to use a more fulfilling in terms of content. On top of that, depending on what they wish, we will be providing more consultation service by the high-quality agencies. And so this will be a hybrid model, which will also be our strength. Depending on what they wish, we might do the direct soliciting and contract signage procedures. So from the customer's point of view, we want to make this more convenient and hope it leads to sales expansion. On top of the existing agency network, we will be building the direct model on the side, so that we will be redesigning the distribution channel and depending on the environment and also for diverse needs, we still want to be delivering the intrinsic value of insurance policies. And in your question, you said, to what extent do we do this? And also what are the KPIs? The agency commission rate is 20.5%, this is minus 0.2% year-on-year. We want you to look at this number because during the course of the current midterm plan, as soon as we can. We want to bring this down to a 10% level. And also, we want to be bold in taking some measures. That concludes my answer to your question.

Shirota-san, if you have anything to add, can you please add. We have talked about the expense ratio. And then after that, from corporate planning of the M&F, I would like to ask Mr. Sakiyama to also add some words. So Shirota-san, can you first add some information to that.

To what extent do we plan doing this? On this, there has been some misconduct that's been reported. There are practices and there are some fundamental issues such as the 2-tier structure with agents, those will all get eliminated in the process. During the midterm plan, we will be executing these already internally, the 2-tier structure, we have already reached a consensus to get rid of the 2-tier structure, and we have just begun dialogues with the agencies. So basically, in 3 years, we will be completing the effort. But in the initial year, for the targeted agents, we will be having all the dialogues needed. And therefore, most agents, I believe they will understand what we're trying to do. On the other hand, there could be some agents that might take more time, most of them, I'm sure, would understand and agree by the end of this year. But then -- well it's time consuming, after we have a dialogue and then get rid of the 2-tier structure, there will be a review to the split of work and getting rid of the industry practice. After that, whether the agents in order for them to become more independent, we still need to support them. And so for the rest of the 3 years we have, we will be doing that so that we can provide better services, higher quality services to the customers. That's just the point that I wanted to add. Now Sakiyama-san, can you talk about the business expense. Thank you.

In the midterm plan, the expense ratio target, as we have announced is 31%. And this number, you're saying that this number hasn't changed. As an environment, one thing we need to remind ourselves is that you might recall this TMNF in 2020, we have booked software cost as part of the asset, there was a change in the accounting treatment of the software cost. And so the expense ratio went down. But then after that, because of depreciation of the software cost, the depreciation burden got bigger and bigger, there is one element. In the previous midterm plan, we were planning to launch a software, they open architecture, which did not happen. It's only going to be launched in the current midterm plan. Due to those 2 elements, the specific numbers that I can share with you is that the IT costs alone during the 3 years from '24 -- '23 versus '26, will increase by JPY 40 billion, including the nonpersonnel expenses, it will increase by about JPY 50 billion. And if you divide that, then this will push up the expense ratio by about 2 points. However, we are still going to be achieving 31%, and that is the target we have for the current midterm plan. To do so, we are going to be reviewing the agencies, labor costs, nonpersonnel costs, et cetera. And so those are the efforts to reduce the numerator part of the equation. And of course, that will be on top of doing the growth strategy, so that the denominator side of the division also grows. And so although there is an upward pressure to elevate business expenses, we are not going to let it elevate. It's going to stay around 31% level, and that is our target. As Tokio Marine Group, with the existing agency network, educating them and rationalizing them and also improving it, is something we will do, but we will also create a new channel, so that the part of the customers where our value could not really reach with the existing network. Of course, there's e-design. There is life insurance company. But on top of those, we will also be adding a new channel, a digital channel on top of those. Up until now and over 90% of the business was done through agents. And so we will still be leveraging on the strength of the agencies, and that's important, of course. On the other hand, technology is evolving quickly. Customer preference is also changing. And so against those, we needed to create a new channel and approach them. And that is what Kitazawa-san was saying regarding the digital platform. On the second point, Okada-san, can you please answer your question?

Thank you very much for your question. With regards to the risk released, and capital released as a result of sell-down of equities with regards to risk. As Muraki-san, you correctly pointed out, 40% or so, so JPY 3-or-so trillion or JPY 1.2 trillion is the risk overall, and it will be reduced over the next 6 years. And therefore, naturally, that amount will be released over time. So JPY 600 billion will be sold this year, which means 40% of that JPY 200 billion or more will be released. But in the meantime, this turnaround with the new midterm plan, which is a 3-year business plan that has been announced. And as was explained by Komiya-san, excluding business-related equity sell-down, CAGR of 7% and profit growth is our goal target. And so whether it be profit, underwriting or insurance, the policy and the bulk will be expanded, and we will be taking new risks in that regard and that kind of risk taking is already factored in, in our ESR forecast. So with the sales of business-related equities, risk release amount will not be directly translated as increase in ESR. That is our view. And having said that, ESR is at 135% after a share buyback of JPY 200 billion. And so we do have ample capital buffer, but the use of the capital as was explained by Komiya-san earlier, our top priority is to make business investment in order to grow our profit. And risk taking, what is taken into account in the midterm plan. We want to accelerate that. And the second priority is shareholder return. We want to enhance shareholder return. As for capital, as was mentioned, gains from sales will come to TMNF. And in the past, with sales of equities, capital that was generated as a result was allocated to be used for growth strategy across the group, not just for TMNF, and therefore, this liquidity that is generated within the group, will be used efficiently. That is all for me. I hope we answered your question.

Daiwa, Watanabe-san please.

I'm Watanabe from Daiwa Securities. I have 2 questions. One question is Page 36, dividend payout outlook. Dividend framework in the past, if JPY 1 trillion, adjusted net income will continue for 5 years of JPY 500 million in dividend could be paid. But keeping eye to be revised in '26, would that have a big impact on that dividend period. I don't think anything is decided at this moment, but please share us your view. Second is about the pricing strategy of Japan P&C. Fire of October and auto January price increase has been announced. What is the extent of price increase that you are anticipating? And for fire, how long will it take for the impact of the price increase to earn in? And what is the duration of the policy? How short has it become? So those are my 2 questions.

Yes. Thank you very much for your questions. With regards to the first question, I want to ask our CFO, dividend payout outlook. In fall of '25, we will make an announcement and guidance, but what is our view beyond '26. And the second question, Hosojima-san, pricing strategy, rating strategy for fire and auto and also duration about fire. So let me start with Mr. Okada.

Yes. Thank you very much for your question. Page 36 or Page 38 in the slide deck. Profit growth is reflected in our adjusted net income as a KPI JGAAP. that we use in Japan in terms of comparability with our global peers, there are things that we need to be revised, and therefore, we have made various revisions. And for single year dividend payout decisions for P&C, P&L will be impacted by nat cat. And therefore, we are using 5-year average as a source of dividend payout. And as was explained by Komiya-san earlier, 2025 end IFRS will be introduced. And we are currently doing an analysis of what impact would that have? And also having discussions on how to define profit. And also for shareholder return, how to normalize level, those are things that we are currently considering internally. And we also seek inputs from the capital market stakeholders like yourselves. And what I want to mention today is with regards to shareholder return policy. In the new midterm plan, we said that the EPS growth is our KPI. And beyond '26 EPS growth world top class will be maintained. And DPS growth that is in line with that EPS growth is what we want to realize and as part of our shareholder return. So payout ratio will also be taken into account as part of that. That is all for me. But for the group from our shareholders, we -- the attractiveness of the group compared to where we are today or compared to our peers, we will make sure that our attractiveness will not dim compared to today or compared to our peers. Various KPIs and definitions will have to be revised as a result of the introduction of ICS and IFRS, and we want to engage with you to come up with a good KPI definition. Of course, we are mindful of where our global peers are, but we are still on our way, on our journey towards growth. We are aiming still for continued growth rate. Business growth is necessary during this journey. And there are a couple of things in the pipeline. We need time to be able to consider that. But of course, we will not spend too much time in considering, what is key is that we don't intend to needlessly accumulate capital. And market-based governance has to be executed in a disciplined manner. That has always been our approach. And so those are some things that we have in mind in considering our way going forward. Over to you, Hosojima-san.

Thank you for the question regarding auto and fire. I'm going to be answering this separately. So first, for auto insurance for January '25, this is only a plan so we don't know how much of a rate hike this will be. However, as you can see in the presentation material, most recently, more than what we had imagined, the loss ratio situation is not as good. There are 2 reasons. One is that after COVID with the reopening of the economy, there is expansion of logistics and other moves in society. Peak was last year in the first half. It is on a declining trend, but it's not coming down as much as we had expected. The second reason is because of the repair cost, the parts cost, the wages, et cetera. The inflation is occurring in those 2, and there's wage increase, too. So more so than we had expected, the loss ratio is not as good as what we wanted to see. So compared to before, combined ratio, of course, we want to set the combined ratio to be 95% or less in a stable manner. That is the policy for the auto insurance, and that's what we are still aiming for. To do so, we need to be hiking rates. Of course, we will do the results measures, and we will also be doing preventive measures against fraudulent claims, et cetera, to provide better services for the customers. And on the topic of fire insurance, in October '24, we will be executing the rate hike. Last year, it's based on the advisory rate that was issued last year. And as for the level of the rate hike. It's different policy-by-policy. I will not be able to disclose the specific numbers, but then the advisory rate for houses -- residential houses, the advisory vehicle for a 13% increase. And so it will adhere to that, it will be a significant rate hike. And, as you can see on this presentation material, within the -- in the last year of the midterm plan, we want to be achieving the cost of capital. We need to be creating profit and combined ratio should be the first half of the 80% level, lower 80% level in a stable manner. For duration, I don't have the exact number with me. But for October '22, we have shrunk the term of insurance to be 5 years maximum, and we are seeing the penetration of the short term of insurance, which means the duration should be shrinking. In this fall season rate hike, we -- when is it going to surface within '25 -- fiscal '25, 30% within fiscal '26, 50% of the impact coming from this year's rate hike will surface. I thought the duration was 7 years or so. Is it the right image? I know you don't have the number. I really don't have the number with me today. We apologize. We don't have the exact number for you.

Sato-san from JPMorgan.

My name is Sato from JPMorgan. I have 2 questions. My first question is about Japan P&C business. Last year, the price fixing, corporate insurance, top line visibility, top line forecast. Recently, as you have explained, the situation with the stockholding and also cooperation to customers' business. Those were in your mind. As you were underwriting before, but all that will get eliminated with the change of practice. In other words, a more intensified competition is going to come. There could be more utilization of insurance brokers in the Japan market, too. And also for the evaluation, the target-setting system is also going to be adjusted. So I'm sure those will contribute to more bottom line focused approach. From that perspective, in this current midterm plan, for any reduction in top line, what have you factored in? Can you please explain to me how much of it you have factored in? Looking at Page 14, this is the fireline page, CAGR is 4%. This year alone, I believe you are seeing about 10% type of CAGR, and then it's only going to grow by 1% per year after that. So, I'm still looking at this number, but what was your assumption with the changes in the top line going forward? That's my first question. My second question. Is to do with the current stock price -- your stock price and what is the implied cost of capital that's factored into the current stock price? Because if you go to Page 30, you can see that for the business-related equities. And if you exclude those, you can see JPY 551 billion, but then your market cap is about JPY 10 trillion right now and then unrealized gain from stocks is a little over JPY 2 trillion on an after-tax basis. And so if you exclude that, your market cap is going to be about JPY 8 trillion. But then it's JPY 551 billion against that. So I'm sure there are some technical accounting matters, but then the gain yield should be about 7%, and that is equivalent to your hurdle rate. So from that perspective, what is the rationale in investing in Tokio Marine? Is it correct to understand that there is rational because I know that there's no M&A opportunities, then you will be adjusting the capital, but then the implied cost of capital and the hurdle rate, how would you relate to those numbers?

So to answer your first question, so corporate insurance, what would happen to the corporate insurance business? Maybe from the product perspective, Hosojima-san and also somebody who's looking at the market and having a dialogue, Kitazawa-san in charge of sales, should answer your first question. And perhaps I will also turn to Sakiyama-san for additional information. On the second point, our CFO, Mr. Okada will answer your second question.

So on the first question. Thank you for your question. Regarding fire insurance, as it was mentioned, overall, we will continue to see improvement in fire insurance, we are still midway from our goal. We still need to be improving the profitability further with fire line of insurance. Of course, with the October rate hike, other than that, there are some low profitability policies, which need to be looked at and reviewed. With the business improvement plan, we do mention stringent profitability management as part of that effort for personal as well as for corporate sectors, we need to be making sure that we make profit. So that in case some incidents occur, we will be able to pay the claims. So stable and firm profitability with fire insurance is needed. Going forward in the new midterm plan, we will be putting a lot of effort in doing this profitability improvement in the last midterm plan last year. For fire insurance, we had about JPY 4 billion of profitability improvement just with Fire. So looking at each policy, we need to be explaining the appropriate premium rate and what values we can offer and ask them to agree to price hikes, and there will be a diligent effort to be continued. So far, we have been able to hike rates. We have not seen any drastic drop in the number of policies we underwrite. In other words, we are able to maintain the top line. Top line is also going up due to rate hikes and that is contributing to profitability improvement. The CAGR being low is what you mentioned, I believe. On a net basis, the value insurance cost is increasing because we are expecting some hard in the cycle to continue, and so that has been factored into this number. That concludes my answer to your question. From sales, Kitazawa-san, if you have anything to add, please.

My name is Kitazwa. Thank you for your question. First of all, with the corporate market, as you mentioned, there's globalization, there's digitization and also rationalization to businesses. So the competition is becoming more intensified. On the other hand, with the business improvement plan, as we mentioned in there, there are excessive business cooperation that was done and also the issue of corporate agents. By resolving those issues, we should see a market where the competition takes place over a pure value of insurance policies. And this is something that we will excel at. And so we just compete with the value of insurance we can offer. For the most recent numbers, as the materials show from this year, we will not be allocating the target from the headquarters, but then we will have each office create their own target numbers because there are bad policies, nonprofitable policies, there are some corporations where their performance is deteriorating. So by reviewing those, that should get reflected into the target. As of April and May so far, on the managerial accounting basis, compared to the business plan, we are better by about 1 percentage points. And so as long as those efforts continue to be accepted, then numbers, especially the profitability should benefit from this, and we would like to thoroughly monitor the situation as we move forward. As we have said, this is the duty that we need to serve, and it's only going to get strengthened, they will never get weakened. And so, so far, we are not seeing much impact to the top line. But then by having a dialogue with customers and if they still do not agree, then I guess that will be the part of the top line that we might lose and that we have to accept. So regarding the cost of capital, can we have Mr. Okada answer the question.

Thank you for your question. This is on Page 30. The -- it's a big paradigm shift to reduce business-related equities to 0. So about JPY 100 billion in sales of business-related equity is done every year, and it was seen as part of adjusted net income. But IFRS is going to be introduced. So how profitable it will be defined is quite crucial. And against this backdrop in terms of corporate value of the company, very careful to say that share prices are achieving record highs, but we need to think about the intrinsic value of the company. With regards to businesses that we execute, we do not think that the capital market fully appreciate the value that we have, and therefore, we believe that we have a higher intrinsic value than what you appreciate in PBR is close to 2x and share buyback to be conducted as a part of shareholder return policy, I think, is reasonable. And therefore, mark-to-market to come closer to our intrinsic value, we want to maintain close communication with you. And I'm exactly on the same page as that.

Further questions? Let's go to Sakamaki-san from Mizuho.

Sakamaki is my name, from Mizuho Securities. I have 2 questions. My first question is kind of broad. Are achieving ROE close to global peers? You've been saying that for the past few years. And the higher you go in your ROE, global peers will also go up and therefore, the gap is never -- is not being narrowed down. In the new midterm plan, since it has just been launched, how do you think you'll be able to approach ROE close to global peer level? And is there anything that you have been able to accelerate in the past. If there's anything that you can update, I would very much appreciate. And second, about underwriting profit in the international business, at TMNF, in Japan, risk capital is going to be released and the group companies in the international business, the risk of capital is released in Japan to be fully leveraged in the international business. Do you have that kind of scheme in place. to make that possible, not just in capital, but in terms of teams and also in terms of distribution capacity, underwriting capacity, do you think you have sufficient capabilities. So please elaborate the underwriting profit for the international business.

Okay. Thank you very much for your questions. Talking about ROE, first point. Moving target to raise to global peer level. And referring to that definition, we have come to a point where we are seeing the bank is approachable, but external environment is changing, but we think that we are able to see the banks of the global peers, and we want to be able to achieve that through raising the denominator in the calculation. And I want to ask Mr. Okada, our CFO, and the second question will be responded by Yamamoto -- Mr. Yamamoto.

Yes, thank you very much. If you could please -- I think you were referring to Page 29. Before 2020, our ROE level was this. And in the past 5 years, we have come to the range of our global peers. But in the meantime, global peers have also announced their midterm plans and their range are also going up. And the hard market profitability is improving in the U.S. market. In the meantime, we still have a large amount of business-related equities and therefore, the -- there is a lot of fluctuation in the net asset, the denominator. But after 6 years, our capital structure is going to be transformed. And the capital that is released with the sales of business-related equities as well as Moriwaki-san earlier, capital is going to be generated in this way, which is only occurring to us amongst the global peers. And therefore, making good business investment will become possible. It might not lead to big profit growth in the near term, but it will lead to low capital businesses, like solutions business that Mr. Komiya alluded to in his presentation so that our ROE will come closer to our global peers. We should be able to achieve that. That's all for me.

Regarding the expansion of underwriting in the international market, including what was mentioned in the question, can you please elaborate on the point Mr. Yamamoto.

My name is Yamamoto. I'm the Co-Head of International business. Thank you for your question. Regarding the expansion of underwriting profit in the international business, how do we do about the risk taking -- further risk taking. Well, in the expansion of underwriting profit, we need to be taking more risk and for risk-taking at each group company, we will expect to see some organic growth. So each company has got their own Forte, [ affiliate MA to see ], et cetera, et cetera. All of them has got the Forte to achieve organic growth expansion in the business lines, on M&A, expanding into new lines of business, acquiring underwriting teams. So these will be done at each company, of course depending on the capital situation and depending on the insurance situation, they will be doing that. On the other hand, as group overall, what do we do? If you go to Page 39, in insurance underwriting, if you look at the third line from the top, Global Retention Strategy Committee is in place. So for the group overall, this is where we talk about the underwriting and session versus retention strategy in this committee. For example, as a group in order to do risk taking, what will be the right policy, natural catastrophes, cyber follow these lines of business, what will be the underwriting know-how that we need, how do we utilize capital. These are all discussed in this committee. And on a group basis, whatever is underwritten by each group company. How do we integrate that as group reinsurance scheme. That's also discussed. And so there are things to be done at each company, there are other things to be done on the group level. And the 2 are always tandem to each other. That concludes my answer to your question. [ GRSC ] and also there's ERM committee, the underwriting risk we take, the asset management, the risk we take. We talk about the impact to the ROR. What will be the volatility? Will it amplify volatility? Et cetera. We are always monitoring those in those committees. And then we'll talk about what are the risks that we need to be taking in order to achieve organic growth. I hope that answered your question.

Other questions? Majima-san from Tokai Tokyo Securities.

From Tokai Tokyo Intelligence Lab, my name is Majima. On the business-related equities, how you think about this TMNF. On a book value basis, you have about JPY 3.5 trillion of stocks. And if you sell down then you will have a portfolio with 0 equity holdings in about 6 years time. For yen-based institutional investors, you will become a company with a portfolio with 0 stock holding. And wouldn't that pose investment risk for the institutional investors? For those names, which were invested for business purpose. Of course, there are some names which you should have invested anyways for portfolio investment purpose. So just because they were originally for business-related purpose, you don't really need to be selling them. If you sell them, then you might want to repurchase them afterwards because it's a good name for portfolio investment. If that's going to happen, then you can just relabel them as portfolio investment and just hold on to some stocks. It's just a question I have. And related to that, but slightly different. A few years back, the pension scheme was reviewed and renewed. And for the retirement benefit -- the portfolio, do you have any stocks? And are those stocks also the subject of stock reduction, the 0 holding policy? That was my first question. My second question is that if you go to Page 11, you said eliminating the excessive cooperation to customers' business. As of April, you -- so those companies where you extended cooperation to the business -- have you already informed them that the rule changed? And as of April this year, under a new rule, have you refreshed your relationship with those corporations? Or would you need more time to gradually penetrate this new system where you abolish cooperation to customers' business.

Thank you for your questions. So first, on the topic of business-related equities. It was mentioned little bit in the presentation about our thinking of portfolio investment. There's also a time frame involved. Do we need to wait until it reaches 0. Well, the basic policy is as we have explained, but Mr. Okada, our CFO, will first answer your question. And about the retirement benefit account and the stock holding that will also be answered by our CFO, Mr. Okada. And then the second point about the corporation to customers' business. What is the progress so far were about -- are you standing currently? So that will be answered by Kitazawa-san. And so first, from Mr. Okada, please.

About the sell-down of equities in the presentation material, we have mentioned that and also from Mr. Komiya, we will simply not be relabeling these stocks as a pure portfolio investment. And so among the stocks we hold, they are stocks that could be part of asset management, but we are not really thinking of relabeling them. As you mentioned, in some cases, in -- by the end of '29, other than where we have the capital alliance, the Japanese equities is to reach 0 and that will be on the balance sheet on the TMNF whether if that's appropriate or not and also from the global asset management and diversified investment perspective. That is an important issue that we need to talk about, how to handle equities. So by the last year of the current winter plan, it's going to be halved, which means that the balance will be JPY 1.8 trillion. And so what timing do we create a pure portfolio investment to stocks, that's another issue. But then as a result of holding business-related equities, we did not do any pure stock investment, but that could potentially become a source of investment income going forward. And on the second point about the retirement benefit for the public corporate workers pension account, we did have some equities before. But then basically, we are now doing ALM based on the yen-denominated bonds. That is the current situation. Let me ask Mr. Kitazawa to respond to the second part of the question.

Yes. Thank you very much for your question. for customers and agents to rectify our relationship, excessive corporation and customers' business to be eliminated. The policy was announced beginning of April. We'll make sure that this, [ it still down. ] In terms of substance, there are various things. But regardless of requests, from our counterpart, things that could trigger policies. For example, rental business, rental cars or also copy paper -- papers that are used for copying in our company or individual purchases of various things that our customers handle. Those are when those requests are made, we have already communicated our new policy. But there are certain companies where we are having difficulties. We're making sure that there will be solo discussions and dialogue and this dialogue is to be completed by the end of the first half of this year, therefore, end of September. I hope we answered your question.

Are there any other questions. Niwa-san from Citi, please.

Niwa from Citi. I have 2 questions. First, about business-related equities and second, about succession. Regarding business-related equities, a kind of overlap with other people have asked, but I have minor 2 questions. Once again, why were you able to set that timeline to reduce the business-related equities to 0? I still do not understand. For the past 6 months or so, what were the kind of discussions you had internally, maybe positives and negatives, please elaborate on that? And related question is negative corporate value as a result of acceleration and sell down, is that something that we should be taking into account? JPY 100 billion or so, we thought it was something that will not have negative impact on the corporate value. But by accelerating the process, what will be the negative impact on the corporate value? My first question. And the second question is more qualitative about succession. Komiya-san you will continue to lead the company. I am confident about that. But with regards to succession candidate of your next CEO, what are some discussions that are taking place? In the integrated report, there are some discussions, but looking at the face page. The goal is so high, and therefore, it sounds like you have to rebuild the company. So it's going to be qualitative, but if you could please share your ideas on succession.

So succession for Group CEO, is that your question?

Yes.

So allow me to respond to the second question from me. And the first question which is related to business-related equities, the timeline setting, what were the discussions that took place, so Sakiyama-san, who is responsible for corporate planning in TMNF, JPY 600 billion and more than JPY 150 billion every year that has been decided. So Mr. Sakiyama is going to share the discussions that we had internally.

This is Sakiyama speaking, and thank you very much for your question. In the previous MTP in FY '21, JPY 100 billion a year for 3 years. That was the plan. But in '22 -- at the beginning of '22, for business-related equities, we said that we're going to change. We're going to accelerate instead of just holding on to the business-related equities, but gradually sell. But FY '22, we said that we're going to reduce. That has been the policy. We changed that policy internally. And for the sell-down pace, has been accelerated of JPY 600 billion in 4 years. So in a staged way, we have accelerated -- changed over time. But already from FY '22, we've had that policy. So the managers and so forth, we've had a lot of meetings with people in the field, and we made sure that we have good communication and dialogue with our customers. So in addition to the accelerated sell-down, we had this incident that we had to address and the business environment has changed and our customers' mindset perception towards the business-related equities have also changed significantly. In the past 2 years, we have had dialogues with our customers. And as a result of that, JPY 600 billion in '24, we've made that announcement. We feel that taking into account where we are in terms of our dialogue selling everything within 3 years might not be possible, but gradually reducing in an accelerated way in the next 6 years should be possible. So this was along the extension of what we have discussed with our customers in the past. But JPY 150 billion was referred to as a level that was sufficient to maintain reliable relationship with the customer. That was true in the past. But as I said, things have changed and we're gaining more understanding on the part of our customers, and they are more receptive of the sell-down. And therefore, as a result, the figures that we have come up with. This is not something that we're forcing. It's more on accumulated basis, and we feel that it is realizable. That is all for me. I hope I answered your question.

So I think are there any negatives by accelerating sales of business-related equities? Are there any negatives on the corporate value?

Well, to minimize negative impact on corporate value, we have been maintaining our policy over the years. And under the new policy, that position has not changed. As was mentioned earlier, for example, in order to improve top line growth of fires, dialogue with our customers is extremely crucial and therefore, maintaining relationship of trust dialogue will be maintained. And this level of sell-down, we believe, is feasible. That's all for me.

On the second point about my succession plan about the group CEO, of course, nothing has been decided so far. And in 2019, I became the CEO and from that year in the Nomination Committee and also in the BOD, people have already started to discuss about who should be -- what kind of people should become my successor from the timing of appointment. And of course, since then, a lot has occurred. But my thinking at this point in time personally, integrity, somebody healthy, of course, those are the assumptions. But on top of that, we are approaching a tipping point, that's once in a century, not just the insurance industry, but the whole world isat a tipping point and I have a sense of crisis. And against this backdrop, for the Tokio Marine Group overall, somebody -- it has to be somebody who can do the broad transformation of the group, somebody who can realize transformation. And also at Tokio Marine Group, one of the uniqueness we have is that we have a risk diversification strategy. How can we evolve that. There is one important point and also integrated group management because this is -- are the 2 major pillars of the group management. And so somebody who can achieve a transformation integrated management, including all the employees and senior executive and a leader who can do all that is somebody who should become the successor, and we are continuing to have that discussion on those criterias. Thank you.

From -- via telephone, we have some questions from Sasaki-san of Nomura and from SBI Otsuka-san. So first Sasaki-san from Nomura Securities. I'd like to receive your question.

My name is Sasaki. Can you hear me?

Yes.

So 2 things I'd like to ask you. The first is about on Page 29, the ROE improvement. I will be asking why looking at this page in '26 -- towards '26, excluding equity sales, you have said 14% or more. So as a message, the organic EPS growth is 7%. ROE is 4% to 5%. And then if you're going to return half of that, then ROE should not go up so much. You are entering of such a phase. Is that the right way to understand it? If that is the case, then in order to further enhance ROE, you will need to do some significant signs of inorganic growth. So more so than what you have done, would you be accumulating capital and wait for a bigger [ prey ] to come around? Or is that the plan of the management? On the second point about business-related equities. For those where you have already gained agreement, how much of that do you have in balance if they have not agreed. But then in order to meet your current plan, would you still continue to sell down even without agreement. Those are my 2 questions.

Those 2 questions. I guess they should be answered by CFO, Mr. Okada, and so ROE, excluding equity sales is 14% -- the rationale behind this 14%? And can you further enhance this? The second point about equity sales. So for Mr. Okada, please.

Thank you for the question. As you mentioned, on Page 29, excluding equity sales in fiscal 2016, it should be 14% or higher. And separately, we also showed you that within the EPS, there is adjusted net income improvement and then this number should be in tandem with that. Unlike the last midterm plan regarding ROE, we -- saying ROE should be a certain percentage or higher, not around a certain percent, and that is because there will be the equity sales and the proceeds that we received, as Komiya-san mentioned, for large-scale M&A, we still need to be patient and that is needed. But then in this large market change within disciplined investment if any companies come across to look attractive, then we would like to seek that opportunity. So within this 14% or higher, anything that is inorganic that's not included here might be added on and that would only enhance our ROE to get us closer to the global peers. So that will be the mindset to be have within this 3-year plan. In the last -- the latter question about the getting agreement for the equity sell down. Every day at TMNF, we are talking to our customers. And the general direction, we also talk about the specific value, et cetera, we continue to negotiate. I cannot really say what percent has been agreed on already, but Sakiyama-san mentioned earlier, basically over the course of 6 years, we have that time frame, and that is because so far, what we have discussed with them, where we are getting the agreements. And for each customer, we make sure that we do gain their consent. And so we want to raise the agreement ratio and we want to meet the milestone, which is to have the equity holdings in the 3 years. I hope that answered your question.

Next question is Otsuka-san from SBI Securities.

Otsuka from SBI Securities. I have 2 questions. If you could answer one by one, I'm on Page 12 and my question is about investment, et cetera. According to Komiya-san's presentation, dividend reduction after tax, there's a JPY 60 billion negative impact. And if you apply that to this slide, in this box, in this waterfall chart, JPY 47 billion in positive and minus JPY 12 billion and investment minus JPY 60 billion. So it doesn't -- there's no gains. So in this et cetera, there must be some amount big amount that we need to take into account, if you could take -- explain about that.

Okay. So for investment, et cetera, Sakiyama-san, I think is responsible for corporate planning in TMNF.

This is Sakiyama speaking. Thank you very much for your question. In the presentation earlier, Mr. Komiya referred to JPY 60 billion when all the business-related equities are completely gone when the dividend that we're receiving from business-related equities are completely gone. Page 12 -- in the waterfall chart on Page 12, this is the 3-year and the current midterm plan because dividend -- JPY 60 billion in dividend will not be gone just over the past -- the past 3 years. So a negative impact from that, let's say, JPY 20 billion or a little bit more than that. That kind of negative impact is factored in, but there are also foreign equities and private equity funds and so forth, returns are expected to increase and which is offsetting that. And it is not clearly mentioned here, but maybe I would say the minus is about JPY 10 billion or so. That's how you should interpret.

Okay. That's my first question. I understand. And my second question is on Page 8. I'm on Page 8. About Renew. Originally Renew the background to you -- coming up with Renew is the need of external view and the external view and perspective and internal perspective, there was a gap between the 2. I think that gap led you to create Renew, but -- and you coming up with the midterm plan, this external perception, how is this factored into your new midterm plan? As is stated here, intrinsic value of insurance, like underwriting, I do fully understand the forte that you have. But increasing capital just because of your strength intrinsic value is your view? It doesn't incorporate any external perceptions. Net Promoter Score and so forth should have -- could have also be taken into account. So I was wondering what discussions you had internally.

Thank you very much for that question. So the midterm plan for TMNF and groups MTP, are we truly customer-oriented and taking various issues into account external feedback should be taken into account that these are common threads of themes that we have. And so I want to, first of all, start with TMNF, how to leverage external expertise. Again, Mr. Sakiyama will explain. And also for the group MTP, we will be incorporate to that. And therefore, our CFO -- Group CFO, Mr. Okada will cover that part of the question.

This is Sakiyama speaking. Thank you very much for your question. the series of incidents that we had, the root cause of that was the custom that we had in the P&C industry in Japan and various rules in this industry. Compared to our customers' common sense or the society's common sense, there was a big gap, and therefore, it was a conduct risk coming into reality. And therefore, it's not only about making price fixing and pricing insurance products, but it was something that was associated to various rules and mechanisms across the company. And therefore, we revisited from a customer-oriented perspective to revise the structure. That's the entry point of the recurrence prevention measure. And from the April of this year in the Board of Directors meeting, customer-oriented promotion committee has been launched at the TMNF. And in this committee, various structures and schemes and especially mid-career hires and also young employees, when they feel something is not right. We are gathering that feedback, collecting that feedback to revisit the structure. And we have that committee up and running from April of this year. And we also have external committee, which consists of outside experts. So that we will take external perspectives into account in determining our way forward. NPS that you briefly mentioned, on a trial basis, we have utilize NPS, but from the new midterm plan, we will utilize on a full scale and the NPS scores that we're getting from our customers and also the voice from our agents and customers, we will have a system where we will be able to look at it in a real-time basis. It has been in place on a full scale from February. We have a closed-loop structure, which will start from this fiscal year. So for the Tokio Marine Group as a whole, let me ask our Group CFO, Mr. Okada to respond.

So on Page 41 in the slide deck or Page 87 in the appendix. From April, Internal Control Committee has been revised to a group Audit Committee. And bottom right, you will find specific themes. This week, the first committee has been held after the launch in April. The 3 bullet points. The bottom 2 is about governance. When governance issues arise and the 1 at the top, checking the gap with review of the gap from the common sense of the society, reinspection of our common sense. So checking the business process or a culture that is found within our group companies. [ Mattiama-san ] is an external outside Director of Holdings, and we also have another external director, a member of the committee. And so we're looking at it at the holding level. And if needed, we will give instructions to -- and guidance to our group companies. So TMNF initiative, and there's also a group-wide initiative at the group level. And both are aligned working hand-in-hand to ensure that our initiatives are implemented in a feasible manner. As was mentioned by Mr. Sakiyama and Mr. Okada, we need to get to the bottom of the issues. And these are things that have -- that arose as a result of that root cause analysis. And so at TMNF, we're making sure that outside feedback and [ reviews ] are taken into account. And this is not only related to governance, business models of our group companies are directly associated to this topic. And the midterm plan has started from April but the midterm plan that started from April was also a fruit of input from external directors. And if anything has to be revised or added or changed, it should be changed or added as we go along. I hope that answers your question.

Yes, with regards to NPS, I understood very well. It was not mentioned in the slide deck, so I wanted to definitely ask that question. Thank you very much for your response.

So now some closing remarks from Mr. Komiya before we finish.

I'm sorry that we have extended today's meeting, but it was a critical timing and it was a turning point, and we are announcing a new medium-term management plan. And so I took longer in explaining to you thoroughly about what we are about to do. Thank you for listening. And I hope that you will continue to extend your support and understanding to Tokio Marine in order to realize the purpose of the business and also in executing the plans and the strategies we have and also to show the performance and the results and also to contribute to the stakeholders. And we make sure that these 3 elements are all aligned. So we hope that we continue to receive any guidance and advice from you. And I thank you once again for your precious time and attention to Tokio Marine this afternoon. That concludes the Tokio Marine Group Business Strategy Meeting for the first half of fiscal '24. Thank you once again for your patience. This is the end of the meeting. [Statements in English on this transcript were spoken by an interpreter present on the live call.]