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

Good afternoon. As it is time, let us start the session. Thank you for joining us for Tokio Marine Holdings business strategy briefing for the second half of fiscal year 2024 in spite of your busy schedules. I will serve as the moderator and I am Ishiguro from Global Communications. Today's session is held in a hybrid format where participants are joining both in person and online. The moderator is giving announcements for the Japanese audience. [Foreign Language] Let me introduce the participants. Starting with Tokio Marine Holdings, Group CEO, Satoru Komiya, Senior Managing Director and Group CFO, Kenji Okada; Senior Managing Director and Group CSO, Yoichi Moriwaki; Senior Managing Director and Co-Head of International Business, Kichiichiro Yamamoto; Senior Managing Director and Group CDO, Masashi Namatame, Managing Director and Group CRO, Kiyoshi Ajioka; Managing Director and Group COO, Kiyoshi Wada; Managing Director and Group CAO, Shumpei Takizawa; Managing Director and Group CIO, Yoshiaki Nakahara; Executive Officer and Group Sustainability Officer, Mika Nabeshima, outside Independent Director and Chair of the Group Audit Committee, Ms. Haruka Matsuyama. Next, from TMNF, President and Chief Executive Officer, Hiroaki Shirota. Vice President, Executive Officer, Kenichi Kitazawa; Senior Managing Executive Officer, Eiichi Hosojima; Managing Executive Officer, Hiroshi Sakiyama. From Marine & Life, President, Tetsufumi Kawamoto is here. We will first start with an opening presentation by our Group CEO, Mr. Komiya, using materials posted on our homepage. After which, we will open the floor for questions. We are scheduled to end at 2:30 Japan time. Over to you, Mr. Komiya.

Hello, everyone. My name is Komiya. And thank you very much for coming to this meeting today. And I would also like to thank you for your continued support to Tokio Marine Holdings. Last week, we held a financial result announcement and the second quarter conference call to explain our projections for fiscal 2024 management's view of the current business environment and other topics. We would like to thank everyone who participated in the conference call. We have long said that we are on a journey to achieve world-class EPS growth and raise ROE to the level of global peers. We have been on this journey for some time. Now we have come to an inflection point in this journey, in order to drive this journey further. In fact, in the past few years, through discussing with you, we are at an inflection point, or tipping point, to change the business model once in a century and we have embarked on new initiatives to create new businesses. Most recently, from some of the market participants, it was said that our ROE drag factor was the business-related equities. We also had some low profitability lines of business and some initiatives required for business expenses. And in the Japan P&C business, we have come to another tipping point. This is not an inflection point continuing from the past, but we had to take off and jump for the new initiatives. As announced last week, we have also taken a step to do TOB over ID&E holdings, a leading company in the engineering consultancy industry in Japan. The picture on the cover of this presentation deck shows our commitment. And I hope that through today's discussion, we can all share the same view of what the world will look like after we take off and jump as this picture shows. Now please go to Page 2. As this page shows, I will be speaking for about 40 minutes, after which I would like to invite your questions and comments. I thank you for your interest in cooperation in advance. Please go to Page 3. Here is a summary of the three main points I would like to share with you today. The first is realization of top-tier EPS growth. The most recent EPS growth was year-on-year plus 8%, which continues to be robust. The source of this growth is the top class profit growth in each region, a well-diversified underwriting portfolio and strong asset management, leveraging the nature of insurance liabilities. And these are highly reproducible or highly predictable. We will be able to continue our journey of profit growth with a high degree of both angle and confidence. That is how I see it. Next is the middle box, raise ROE to the level of global peers. Our current ROE is 19.1% and which is one of the highest in the Japanese financial sector. But we will significantly raise it to more than 20% in fiscal '26. This figure includes the impact of sales of business-related equities, which makes ROE comparison with global peers difficult. But we recognize that our ROE, it's still inferior to that of global peers. The main reason for this is that we hold a large volume of business-related equities, whose profitability is significantly inferior to that of our core insurance business. We will sell all of them to reduce our equity holdings to zero in 6 years. In other words, the largest drag factor of our ROE will be completely eliminated in 6 years. And that is a large room for ROE improvement that is unique to Tokio Marine not found in global peers. That is the advantage we have at Tokio Marine. We will then use the capital created for M&A and risk taking that can raise ROE. And if we do not have prime opportunities to do so, we will execute share buyback. This capital discipline and market-based governance will remain unchanged, and we believe it is the essence of our company. Lastly, we will maintain a high level of balance between profit growth and governance. At Tokio Marine and Nichido Fire, triggered by the incidents that have surfaced since last year. It is currently undergoing a major transformation that will even recreate the entity. After the work is done, it will transform itself to become an organization that is strong and muscular, that can achieve sustainable growth in an appropriately competitive environment. If we can lead the whole industry in this direction, the Japanese P&C insurance industry itself can transform into an attractive market from a global perspective. This is what I would like to do. At the group level, the group Audit Committee was newly established in April this year, and it is chaired by our Independent Director, Ms. Matsuyama, who is with us today. While we thoroughly leverage outside perspective, we are discussing the verifying business processes and culture. In addition, we are facilitating hiring of specialized talent and centralized governance functions across the group. In the future, we will further drive these efforts to improve the quality of management. These are the key messages. Now let me move on to each topic. First, please refer to Pages 4 and 5 for the group business strategy. On Page 4, we show our EPS growth in 2024 projection and midterm plan target. On Page 5, we present our track record for the past 10 years, including peer comparison. We intend to deliver top-tier EPS growth with limited volatility. In fact, our 2024 projection continues to be one of the best in the world with plus 8% EPS growth. The breakdown of this is plus 6% by adjusted net income growth and plus 2% by share buyback. I will explain about its driver, strong organic growth. Please turn to Page 6. The pie chart on the left side shows profit breakdown of 2024 projections, excluding equity sales. So this is a profit of our core business companies. Japan P&C and International North America account for 90% of the profit. Both businesses, as shown on the right side of the slide are local #1 class and top tier regionally in terms of top line growth, combined ratio and the resulting underwriting profit. Now I would like to take a closer look at each business. First, please turn to Page 7 for Japan P&C business. First, I would like to explain, or rather the Japanese nonlife insurance industry, where it is at in terms of phase, including Tokio Marine, while also looking at the history of competitive landscape of the industry as a whole. First of all, if we define before the insurance liberalization in 1996 as Phase 1, back then, all coverage and rates were the same for all companies, resulting in noninsurance tactics, such as business-related equity holdings, business cooperation and personnel support often becoming the keys for insurer selection. Then we move on to Phase 2 where it became possible to differentiate through core insurance business after liberalization. However, lack of patents for insurance products met that competitors could superficially imitate products. As a result, bad habit of conventional competition with noninsurance tactics persisted, creating inefficient and competitive structure unique to this industry. Currently, we are in Phase 3. Triggered by the issuance of business improvement order regarding price adjustment incident, the entire industry decided to break away from this bad habit. Although it was triggered by an unfortunate incident, each member of the industry is implementing change according to its business improvement plan. And in this new competitive environment, we have been asked to provide the ability to offer true intrinsic value of insurance to our customers. We will not only refine our products development and underwriting capabilities, which are our strongest skills, but also strengthen our ability to provide solutions going beyond simply claims payment. For example, disaster prevention and mitigation in the area of disaster resilience are such solutions, which we plan to strengthen and acquire, will become something that other nonlife insurers cannot easily imitate and even change the definition of insurance. We intend to gain overwhelming support from customers and agents by doing so. Next, I would like to explain further on how the implementation of Re-New initiative will impact the profit growth of Japan P&C. Please turn to Page 8. In the current midterm plan, we plan to grow Japan P&C underwriting profit at a CAGR of 10% or more by offsetting the increase in nat cat budget with rate increase in auto and fire and growth expansion in specialty insurance with low penetration. The plan is therefore solid with high degree of realization. The impact of Re-New, as shown in the orange box on the right side of the slide, will have an add-on impact. Let me give some color on this additional impact on Page 9. The orange-colored section in the middle is the add-on impact from Re-New. It is broken down into increased customers, loss ratio improvement expense ratio improvement and resulting underwriting profit growth rate. Although each of these initiatives will not have a short-term impact, they will increase the CAGR of underwriting profit by 1% even during the current midterm plan period and will continue to drive further profit growth beyond that. Let's take a deeper look into each of the initiatives. Please turn to Page 10. The world we want to realize through Re-New is a world where the resilience of our customers in Japan is enhanced while reducing social cost, creating a world filled with peace of mind and safety. As one step towards making this world a reality, we have decided to launch a tender offer for ID&E Holdings, Japan's leading engineering consulting company. Through this TOB, we will be able to make end-to-end value propositions in the disaster resilience field, including disaster prevention and mitigation right at the heart of non-life insurance, and this business model will be one of a kind on a global scale. This is not something that other non-life users can easily emulate. And we will achieve both reducing loss costs and increasing the number of customers while delivering value to the society. Please turn to Page 11. This page shows measures to improve loss ratio. It is the duty of an insurance company to sustainably provide appropriate insurance coverage at a fair price according to the needs and risks of our customers, needless to say. We have been working to increase rates and taking measures against large-scale, high loss ratio contracts, but we believe that it is also true that there were contracts that we accepted at insufficient rates due to excessive focus on top line and market share. The pie chart in the slide shows a breakdown tiering of in-force policies likened to PHLY or TMK underwriting strategies. There are JPY 58 billion in policies that require targeted action in Fire, and JPY 22 billion in Specialty that are unprofitable or offering excessive capacity. By taking drastic measures to these policies, we will raise their tier, or decide not to renew, thereby adding another JPY 5 billion profit improvement impact over the midterm plan target. Please turn to Page 12 for expense ratio improvements. In the new competitive environment, bad practices such as tasks, substitution and secondment of our employees will no longer exist. So distribution will naturally be required to be independent and deliver quality. As shown on the left side of the slide, we will eliminate excessive support for agents where quality is substandard or the so-called 2-tier structure with agents. As a result, the proportion of our sales staff that was allocated to the 2-tier structure, which is equivalent to at least more than JPY 7 billion in labor cost will be released. We will then redirect the freed-up capacity activity volume to growth areas such as specialty and solutions. On the right side of the slide, regarding agency commissions, the structure will shift significantly to better reflect the values they offer. Part of the agency's operations will migrate to a direct operation model to ensure quality to our customers while reducing commissions. So total Agency commission currently is approximately JPY 400 billion through segmentation and targeted specialization of agency operations, approximately JPY 40 billion in agency commissions will be reduced. And as a result, commission ratio in the 19% range to be achieved by the end of the current MTP and 18% range after completing Re-New. With this approach, we will also steadily develop a direct model that meets our customer needs. Quality and efficiency will be enhanced. This kind of pathway to the future will be pursued. Moving to our international business. Please take a look at Page 13. Our international business consists of North America, Europe, Latin America, Asia, and Oceania and the Middle East and Africa. And under the current midterm plan, we are aiming for a high profit growth of CAGR 7% or more. The drivers are as shown on the right side of the slide, strong and stable underwriting in North America. Underwriting in Brazil that embraces high growth potential. And investment management capabilities of Delphi, leveraging the long-term and predictable insurance liabilities. Please take a look at Page 14. From here, I will take a closer look into each of the business, starting with the North American business that accounts for more than 80% of profit coming from the international business. I will take a simple holistic view by comparing with peers where I can. On the left. Bottom line in our North American operations, 5-year CAGR by the end of fiscal year '26, the final year of the midterm plan is 11% or higher. The aim -- we aim for a higher rate than our North American peers. Profit growth can be broken down into underwriting and investment. You can see in the center of the slide that our strong underwriting profits, backed by a highly diversified underwriting portfolio and outstanding underwriting capabilities are growing at a CAGR of plus 16%. On the right side of the slide, you can see that strong investment profits, leveraging Delphi Group's capabilities are growing at a CAGR of plus 9%. Furthermore, if we divide North American underwriting into the broader lines of business, we have specialty P&C and employee benefits. And pages 15 and 16 show breakdown by line. First, on Page 15. Specialty P&C excess workers' comp, and D&O, surety, cyber, renewables. Specialty P&C consists of more than 100 lines that are not easily affected by market cycles and have low correlation to one another. Also, as we speak, we are actively taking new risks through bolt-on M&As and bringing underwriting teams on board. Looking at the quantitative aspects, as shown on the left, we have achieved strong growth compared to peers, such as increasing underwriting profit at the CAGR of plus 23%. You can also see on the right that the source of this growth lies in our highly profitable underwriting portfolio with a combined ratio of around 90%, which is based on our thorough bottom-focused policy. Please turn to Page 16. The employee benefit line is a short-tail line that offers corporate employee benefits such as HCC's Medical Stop Loss and Delphi Group's disability coverage. Although quantitative comparisons cannot be made due to the lack of meaningful disclosures by peers, this line of business has also maintained consistently high profitability by being bottom line-oriented, executing rate setting based on loss cost and risk selection. In the past few years, we have steadily expanded scale of business, including bolt-on M&As and has achieved plus 25% CAGR growth in underwriting profit. Next is Brazil. Please turn to Page 17. We held a special presentation on Brazilian business in July this year and uploaded its video on our website. So many of you may be familiar with its strength already. The growth rate of its underwriting profit is CAGR of plus 42% being by far the fastest growing in the group. By leveraging on our excellent talent, and thorough use of DX and IT technologies, growth is achieved by high-quality operations and top class cost efficiency with admin expense ratio of 8.5%. On top of this, the company's high price competitiveness and its ability to frequently revise rates in a timely manner based on sophisticated data analysis have allowed them to win overwhelming support of its clients and brokers. Next, we would like to explain our unique strength, which is Delphi Group's credit management. The strength of Delphi's credit management, and the key to its repeatability, are endorsed by strong underwriting expansion. This is the middle of Page 18, by the way. This is leading to increase in long-term and predictable insurance liabilities, bringing expansion in AUM. At the same time, without being swayed by market fluctuations, we continue to invest carefully in credit assets with high ROR that has allowed us to secure stable income yield. In fact, yield has outperformed the benchmark by about 300 basis points, regardless of the cycle, as you can see on the right. We believe this is the strength we will continue to enjoy. On the other hand, total return, including capital. As you can see on the left, it's the pink line on the left. This will decline to 4.8% per annum in fiscal '24 due to the conservative CECL provision, et cetera, on CRE loans. Even by doing this, total return will still be in line with the U.S. P&C insurer average. Since CRE loans is an impact to our fiscal '24 financial results and may not be an asset class that you are familiar with, I will explain a little more about CRE loans, including management's view on Page 19. Delphi's CRE loans are mainly for construction and renovation projects with high yield in short duration. Duration is about a few years. This requires asset managers to exercise good investment selection for business plans, and ability to execute a workout if situation requires them to do so. Delphi Group has been able to achieve high total returns, as you can see on the right. On CRE loans by taking advantage of its capabilities. The current environment is characterized by a persistent trend to work from home, people not returning to office as well as interest rate as well as inflation staying high, which I view as market events that I monitor keenly. In such challenging times, we will conservatively increase CECL and other provisions as they are required, when we believe it is always better to be showing the worst-case scenario in planning for CECL provisions. And therefore, looking at single year of fiscal '24, bulk of the income related to CRE loan asset class will offset such provisions. Even so, as you can see on the right of the slide, the cumulative return of 6.6%, as well as the conservatism and defensiveness of the provision rate combining impairment and CECL are considered solid compared to other players. Recent trend does not change our overall evaluation of Delphi's credit operation. This is a message which I wanted to convey to the market participants. For our part, we intend to continue to make solid investment returns with appropriate risk management, taking advantage of the long-term and predictable nature of investment money. And through Delphi's unique and highly capable talent, we will continue with investment activities. Please turn to Page 20 and 21. As we have explained, the organic growth capability of our international business is not just opposed. We believe that we can continue to achieve top class growth in each region with a high degree of certainty and repeatability. We are constantly looking for opportunities to acquire good companies that meet about 3 principles of M&A and offer high ROI and risk diversification as we have always done in the past. On the right side of Page 20, you can see our track record of large M&A transactions with an ROI of 16.2%, that is well above our cost of capital of 7%. In the past, the successful track record has attracted the next M&A deal. In other words, we had acquired companies to think that if they were to be acquired, they want to join Tokio Marine Group. This was the case with PHLY, for example. The first major M&A deal was in 2008 when we acquired Kiln, and Mr. Charles Franks, the CEO of Kiln is now the purpose ambassador of TLI, our Tokio Marine Group Leadership Institute, our leadership development organization. Today, he's traveling all around the world to promote purpose of the group. Against this backdrop, I would like to talk about our view of the M&A environment today. Valuation of large M&A deals remains high and much patience is needed. On the other hand, we will seize bolt-on M&A opportunities and execute them with discipline. In fact, we have several potential opportunities in the pipeline. On Page 21, for your reference only, we have provided market data on rate cycle in the North American commercial market, and M&A activity. We can see some correlations between the two. That is when market softness, attractive M&A opportunities expand. I have high expectations for this to happen. Each of us has our own view on when the market will soften, but we will continue to be disciplined in our M&A efforts. Next, I would like to explain our solutions business, which we hope to nurture into another pillar of profit growth. Please turn to Page 22. In the Japan P&C section, I mentioned about the TOB over ID&E Holdings. ID&E Holdings and Tokio Marine are cofounders on November 24, 3 years ago, we cofounded disaster prevention consortium core. As co-founders, we have already been promoting multiple collaborations. ID&E Holdings is Japan's leading engineering consulting firm and its business is less capital intensive, which is exactly the kind of solutions business that we are aiming to establish. Furthermore, if ID&E Holdings can add their technical capabilities, experience and track record to Tokio Marine Group through this TOB, as shown on the left, we will be able to provide integrated value in the area of disaster resilience, such as disaster prevention and disaster mitigation on the left of the slide, which drives further growth. This is what we expect, and we will make sure it happens. Now that we have delved into the individual business strategies, I would like to once again return to group business strategy. First, I'd like to explain dividend as a way of returning flow profit to shareholders. Please turn to Page 23. Once again, the basis of our shareholder return is dividend payment and we will continue to increase DPS in line with profit growth. In this context, our profit projection for fiscal 2024, including gains on sales of business-related equities, which constitute the source of dividend payment was revised upward by JPY 40 billion. This is despite increase in CECL provision done in a considerate manner, an acceleration of sales of business-related equities. To be consistent with the upward revision of profit, DPS for fiscal '24 is also revised upward by JPY 3 to JPY 162 from the initial plan of JPY 159. And as for the future, with the introduction of IFRS and ICS at the end of fiscal '25, we are planning to revise various KPIs and definitions, such as profit. Accordingly, we welcome having discussions with you on this, and we have no change to our schedule of giving some guidance on this next year in the fall season. What I can say on this now is that we will achieve world-class EPS growth and DPS growth in tandem. This is one thing that will not change. Turning to Page 24. Our disciplined capital policy. This one also remains unchanged. In other words, the capital generated will be used for M&A and risk taking that will contribute to improving our ROE. If we are not blessed with good deals, we will carry out share buybacks. We will continue this disciplined capital management. Most recent ESR is 147% at a solid level. In addition to the TOP, for ID&E Holdings announced last week at a total of JPY 97.8 billion PBR, 1.17x, we have a number of M&As, mainly bolt-ons in our pipeline. Considering the impact on EPS growth, we need to take increase in market cap into account as well. By taking these factors into consideration holistically, we've decided to increase share buyback for FY '24 from the initially announced JPY 200 billion to JPY 220 billion. Page 25 describes ROE, which can be seen as a result of business growth and capital policy. Current ROE is 19.1%, top tier in the financial sector in Japan. We aim to increase our ROE to above 20% in FY 2026. The graph on the left shows our position versus our global peers. The numerator of this figure includes profits from sales of business-related equities and the denominator includes unrealized gains from business-related equities, making it difficult to compare with peers. However, our management's view based on self assessment is that our ROE has not yet caught up with our global peers, and we, therefore, need to fundamentally increase our ROE. On the right side of the slide is the movement of profit and capital to realize ROE of more than 20% in FY '26. We will grow the profit, which is the numerator of ROE at a CAGR of 7% or more, excluding gains on sales of business-related equities. Meanwhile, we will achieve growth of capital, the denominator at a CAGR of approximately 4% with discipline, without accumulating unnecessary surplus capital, but also without falling into a shrinking equilibrium. This spread will be maintained and enhanced to raise our ROE to the level of our global peers steadily. Please turn to Pages 26 and 27. ROE is calculated by dividing ROR and ESR. And the key to increasing ROE is business-related equities. Our current ROR, excluding gains on sales of business-related equities, is 16.1%, which is made up of 19% from core business ROR and 4% from business-related equities. It is clear that business-related equities are a drag factor in our ROR, but we will aim to fully divest in 6 years and release JPY 0.8 trillion in risk amount. The risk released will be allocated to our core business with high ROR and in the absence of good M&A or risk-taking opportunities, we will execute share buyback. ROR for the company as a whole will increase. Page 27 describes our path to fully divesting business-related equities. In short, we are on track. In fact, in fiscal 2024, we expect to sell JPY 150 billion, up JPY 150 billion from our initial plan and we'll continue to advance sales as much as possible. 2026, 20% will be the take-up of business-related equities against our net assets. Please turn to Page 28. So what I have explained so far is strong profit growth, improved ROE and shareholder returns consistent with the above are all possible only because of quality management. Integrated group management, which is a distinctive feature of the group is in its ninth year. It has already become a part of our daily life. We will expand the number of international executives and enrich our global committees. In this way, by bringing together the wisdom of the entire group, we are further improving the quality, confidence and speed of our management decisions as a holding company. It is also extremely critical to nurture the next generation of management talent and pass the baton to them. And we are doing this earnestly. To give some color, TLI, which I serve as the inaugural President, started from April last year, and TLI is the center to develop group management leaders. We are hiring and nurturing highly competitive talent globally across the group in an integrated manner. The outcome is manifested quantitatively in the group synergies shown on Page 29. Currently, we are generating annual synergies of $640 million and growing year by year. Direct written premiums through revenue synergies are approaching $1 billion. If we were to realize a profit of $640 million through acquisition, assuming the average PER for North American PSC to be 12x, the acquisition price would exceed JPY 1 trillion. With no extra cost, we have been able to achieve such a large value. We will continue to expand this as a unique strength of our company. Lastly but not least, let me turn to strengthening group governance. Please turn to Pages 30 and 31. Regarding governance issues in TMNF, we are making steady progress in the business improvement plan formulated and submitted to the authorities in February this year. After much reflection, we see this as an opportunity for change. To thoroughly eliminate not only individual cases that have already surfaced but also clean out potential and past hidden issues. We are currently focusing on building a mechanism that by design, detect a sense of misalignment and conducting walk-throughs of all workplaces, utilizing third-party perspectives. The information leak incident reported to authorities in August was a past issue that surfaced as a result of the issue identification mechanism. The root cause was similar to the insurance premium fixing incident. Therefore, we will steadily execute the business improvement plan that we are currently implementing. Once the issue identification mechanism is effective, we should have a lean company that can self-cure before the wound festers. In a world free of bad habits, we can maximize our capabilities and achieve sustainable growth. Steady progress is being made towards strengthening group covenants as well. Regarding use of external perspectives, the Group Audit Committee, newly set up this past April, is looking into the company's business processes and culture from the perspective of revisiting common sense and sharing lessons learned. Regarding strengthening governance systems and functions. The holding company is working to strengthen its oversight by consolidating governance functions of group companies, hiring external specialists and directly monitoring group companies. By making sure we execute these measures thoroughly, our group quality management, including governance, will be brought to a new level. That is all from me. We will continue to enhance both growth and governance, and we'll manage our business in a way that aligns our business purpose and strategy with the resulting profits and contributions to our stakeholders. Your continued understanding and support are very much appreciated. Thank you for your attention.

[Operator Instructions] [Foreign Language] Any questions from the floor? Muraki-san from SMBC Nikko, please ask your question and please wait until the microphone comes to you.

My name is Muraki from SMBC Nikko. I have two questions. So the first question is about Japan P&C, the Re-New initiative. Looking at this picture, after you land, any clues on what would happen number wise, what will be the impact on the bottom line? If I go to Page 11, the initiatives to the low profitable policies will be JPY 5 billion, and the business expense will be JPY 7 billion and then agency commission will be about JPY 30 billion. So I believe it will be, in total, the impact by about JPY 42 billion. And is this the right number to assume pre tax basis, the impact on to the profit after you land? On Page 8, I'm looking at this picture for the current midterm plan by '26. How much of that would you expect to see within this midterm plan? And also qualitatively, listening to your peers in their explanatory meeting, they are taking some actions to the low profit policies or cutting some business expenses from the overhead expenses, et cetera. So versus the peers, any reasons why you would have a better advantage over your peers in the similar initiatives? My second question is on Page 31. You talk about -- I guess it's 31, yes. The independent director, this is a question to Ms. Matsuyama, who is with us. And so the group audit committee, which you share, what's the progress of the strengthening of your governance efforts? Because I read the dialogue and free and vibrant culture, which is the Tokio Marine culture, but then there's a gap between that versus the reality. And also globalization is happening. And so based on what you feel any issues or any hurdles that you feel as you get involved in managing Tokio Marine?

Thank you for the question. So regarding Japan P&C, the Re-New impact, and the impact to the bottom line, Mr. Sakiyama is going to be answering that. And then qualitatively, improvement to the low profit policies and the advantage we have to that initiative, Hosojima-san will be answering your question. And then the CEO, Mr. Shirota will add any comments if needed. And then the second question will be answered by Ms. Matsuyama. So first from Sakiyama-san, please.

Thank you for the question. So Re-New after we complete the work, what will be the impact on the bottom line. The numbers that you have mentioned, as far as what we know as of today, after the Re-New is complete -- first of all, we don't really know when it's going to be complete, clearly, because cooperation to businesses and suspension of that, we have already introduced that topic, and we have worked on it. And then business-related equities will be done by '26. And then the double tier structure, we are starting to talk to them. They're starting to understand, but then I believe it will take some time before the agents become independent and get rid of the 2-tier structure completely. And so as to when we see the surfacing of the impact will differ for different initiatives. But then at least by the next midterm plan, we want to see some achievement in all of these initiatives. And as of today, for the ones that we can list as of today, the numbers that you mentioned, I heard them, but then as we run, we will brush up ourselves. And when we talked about this at the onset of the year, the menu was already set, but then within 6 months we have enlarged the numbers. We have enlarged or extended our goals. And so as we run and work on the issues, we will be updating the goals. And then our advantage over the peers, the product side, Hosojima-san, will talk about that after me. But the overall picture that I need you to understand is that be it equities cooperation to business, double tier structure, a world without this element is where we can compete with intrinsic value of insurance. And under such a world, the proposals and creation of insurance programs and cooperation with the international subsidiaries and extracting their know-how and technologies expansion of the capacity with the long-standing relationship with the reinsurers, the arrangement capability is also where we have our advantage. And so these are the strengths that we have. And the world after Re-New will be the world we can show some excellence over these initiatives. And you might think that we always have those capabilities. However, up until now, such strength were there. But then because of the share of the equities and also the amount of contribution we had with the business relationships that determined selection of insurers. So we were not able to fully express our forte. Without these tactics, noninsurance tactics, I'm sure we will be able to show our excellence over the peers even more. And another strength we have is the solutions business, which is going to be growing going forward. And like insurance policies, it's not that we just need to change the wordings on the contract and change the business, but then exemplified by ID&E, the capability to offer such solutions is not something we can develop overnight. And so once we establish it, it's not going to be easy to emulate. From Hosojima-san, please.

So I'd like to explain further on the underwriting. First of all, in this industry, the whole industry will become more bottom line focused and more sensitive to the profitability. We have come to that stage and I believe that will lead to creating this industry even healthier. And that means that we have the underwriting capability to also compete with the global peers. From that perspective, we are moving towards such a word as an industry. And with that in place, where can we show the competitive advantage, as Sakiyama-san mentioned, our global network, the global international subsidiaries, their underwriting capability is excellent, even above the market average as it was presented. And on a daily basis, we talk to them, what kind of underwriting is possible? What do we need to be careful of, that kind of information exchange takes place every day. And so with the overseas subsidiaries talking about underwriting and having some deep discussions with them and also aiming for a similar style of underwriting also in the domestic market is our forte. Another point is that within this presentation material, if you turn to Page 11, you can see that we have always been bottom line focused and we have always taken some measures to the low profit policies, but we're only going to be expanding that initiative and that will be a point of differentiation. The largest policies are going to be led by the headquarters. And we can see some improvement with the low profit policies. But then the more policies we include the frontline sales reps and their effort will become important. It's not simply declining policies, but explaining the appropriate level of premium rate and talking about the global corporations, claims handling, providing appropriate amount of coverage, et cetera. So being able to explain that to the customers and making sure the customers understand so that we reduce the ratio of the low profit policies is what we need to be doing. And so the strong frontline personnel that we have will be the strength.

Just to add the numbers that Muraki-san just mentioned, and so JPY 5 billion for low profit and then double tier system getting rid of that is JPY 7 billion and then agency will be JPY 30 billion. Every one of these will be handled within Phase 1 of the Re-New. And also not to be so defensive, but then how can we be offensive so that we achieve growth. I believe the growth strategy will be on top of those efforts. Matsuyama-san can you answer the second question.

Thank you for the question. My name is Matsuyama. I'm an independent Director of Tokio Marine. The -- in the Audit Committee and the progress of the discussions we've been having in the committee for the past 6 months, we have had two perspectives in having the discussion. The first is that last year, since last year, we have seen many incidents that surfaced, and there was a price adjustment, information leakage, et cetera. And so that continues. And as Komiya-san mentioned, they all come from the same route. And that was a problem. And so structurally, there has to be some reform in TMNF, we are doing the renew initiative, making sure that this progress with the renew is one thing we need to confirm and make sure that it's not too lenient or that -- making sure that it's deep enough in reforming. This is something to be done by TMNF, of course. However, as the work progresses, it will have some negative impacts to the financials. It could accompany some pain, of course, from those perspectives, we need to make sure that we are disciplined enough and not too lenient. And so that has to be monitored from Tokio Marine Holdings in one of its efforts to manage a subsidiary, which is TMNF. Another point is that from the group Audit Committee, this has to spread horizontally within the group because TMNF, what they're working on, is unique to the P&C industry or perhaps to the insurance industry, including life insurance, they all come from the same problem. And so other than TMNF, we need to have the lessons learned to be shared across the group to other subsidiaries and to have a right sense of crisis. And also, apart from the incidents, the group overall is globalizing ever more. And the profit coming from the international business is even bigger. And so far, it's going well, but then overseas subsidiaries. They have bigger risk in some ways. In Tokio Marine, we have some subsidiaries with advanced auditing function, and they are smaller entities who are lacking the governance functions and need to do more in terms of fulfilling governance requirement. And so, among the international subsidiaries, we need to be monitoring the level of governance equipped out those entities. And furthermore, the issues that I can identify. The first is that as Komiya-san said, the 2-tier structure with the agents is one of the issues we have, the reform that we have seen recently. And this topic is very difficult, it's time consuming. And if Tokio Marine works on it, not much impact. This is something where the P&C industry as well as the agency industry entirely must change. And to do so, that is a difficult task, that we need to be doing. Tokio Marine within the P&C industry is a leading company and it has to be the front runner. And so we need to be committed to changing the entire industry as it continues with its effort to change. Another issue that I can identify is that in the integrated report, you said you read the report, but the changing of the culture is another issue. Right now, in the Board meeting, et cetera -- regarding compliance, we have discussions. And because we have such -- was so large and to every employee to equip the right sense with each employee is going to be time-consuming. And so, the top management of each entity must do so by taking time. And also it should not become just a onetime boom, but there has to be a continuous persistent effort to always work on this topic. Thank you.

Watanabe-san from Daiwa Securities.

I am Watanabe from Daiwa. I have two questions. My first question is with regards to the supplement material that we received about LTV after mutation, above 100% is going to be gone, and there's downside risk, which is the downside risk of the property price. In the CRE loan, the industry seems to be on increasing trend from 2024. The property prices, what are the assumptions of the property prices? In footnote too, it says it could be different from appraisal value could differ from actual third-party appraisal. But when prices go up, could there be reversal of provisions with markups, what are your scenarios? And my second question is a question to [indiscernible], Outside Director, and this is similar to my -- the question asked by a former question. So the business process, culture, there are misalignment with the society, common sense. From your perspective, as an outside director, what specifically was the misalignment with common sense in the society antigen? So if you could share with us some of the discussion points at the Group Audit Committee? Those are my questions.

Thank you for your questions. With regards to CRE loan in the supplementary material that has been distributed to you, about how we look at the property prices and the trend of CCL. Nakahara-san, CIO, will respond to this question. And with regards to Group Audit Committee, again, [indiscernible] will respond to your question. So on CRE loans, Nakahara-san, over to you.

This is Nakahara speaking. Allow me to respond to your question. With regards to the setting of the prices, actually, we are doing the appraisals on one-by-one basis. It's not that we're using specific indices, but when you look at the properties on a one-on-one basis. But naturally, we're looking at how things are developing currently. So the current index, for example, about 60% drop for offices in other properties for residential, 20% to 30% drop. So those situations are also reflected in our assumptions. In terms of projection 2024, in non-office properties like residential housing, there's somewhat of a rebound. But in the meantime, for office, it's still very low, and there's no end in sight. We're of course, estimating recovery and expecting to do a workout. As a result of workout and when prices recover, we should be able to collect to a certain extent, but as is explained here, we have set provisions, not estimating possible recovery. But if there are any recessions and if the market deteriorates overall, of course, to a certain extent, we will be impacted by that. So that is the current situation. So with regards to CECL, I think you are all familiar with this. Assuming that the market situation will not improve and work out is will be the key to the CRE loans for Delphi, but not assuming any workout will be effective. That's the assumption to the provisions. So with regards to your first question, we announced our earnings last week and had a phone conference. And since then, with many investors, the global communications department has been having communications with many investors. And taking those discussions into account, Nakahara-san has made this explanation. But I would like to ask Ishiguro-san of Global Communications to give some supplementary comments.

We announced our earnings last week, and small meetings, one-on-ones, we had many meetings since then. And in terms of questions that were related to your question, what kind of provisions were made? Was it sufficient? And the amount of JPY 100 billion was coincided with the amount of upside to sales of equities of business-related equities. And so we've received a lot of questions associated to that. And so as was mentioned by Nakahara-san, the types of loans that we have is about the construction and renovation. And therefore, assuming a value add was already factored in. And in terms of this appraisal that we did this time around, we did not factor those in. And in principle, we are only investing in a single lender. So floor lenders is different. It's -- therefore, we have the freedom of our workouts, but we're taking that outside of the scope as well. And therefore, I think we have a certain level of conservatives aspect into our provisions. So referring to the supplementary material that was distributed today, LTV less than 100%, we're trying to incorporate almost all of that. And from the third quarter to the full year, there's about JPY 400 million worth of GAAP and this JPY 400 million is amount that we need to finalize with the accounting auditors. It's very conservative, and therefore, whether we'll be able to 100% set it aside, we don't know, but there's much downside impact, and that's why we're showing this as our full year projection. But for those that we are not able to set aside as was mentioned by our CIO in the earnings, briefing, we will set those aside as provision beyond next fiscal year. And the amount of JPY 100 billion, which coincides with the sales gains in sales of business-related equities, so the announcement was made on -- on Tuesday last week, and the market price went down by 7%, and we announced -- about JPY 100 billion was our announcement, and we've been talking with investors and there seems to be similar cases with banks. In other words, any upsides from the original guidance will be processed in such a way for unrealized gains in foreign equities, for example. And we've been questioned that JPY 100 billion came for that, but that was not at all our case because we're making a full swing on business-related equities as well as with provisions for CRE loans and just, it was out of coincidence that the amount was quite similar. There seems to have been some miscommunication in which case, I would like to apologize, but that was my explanation for clarification. Thank you for that. So [indiscernible], for the second part of the question?

Yes, this is [indiscernible] speaking. So your question was with regards to any misalignment between Tokio Marine Holdings and the society. What was that misalignment about? And I think people have different views. As an outside independent director, I have been asking questions in the Group Audit Committee. The biggest surprise for me was, as was explained earlier in the review, was about the corporation and customers' business and employee secondment and so forth. I was really, really surprised -- purely surprised by that. It's been a little bit more than a year that I became Outside Independent Director. And until then, I did not really think about the relationship between insurers and agents. But in the course of discussions with the Group Audit Committee, it's really not abstract. We looked at the substance and what really is going on. And being explained in how business is run and I was truly surprised. And the reality -- but for people working inside the company that has been the norm and the extent of surprise was very different for internal directors and outside independent directors. So that's the kind of sense that gets misaligned. When people are in that business for many years, it's very natural that you lose that normal sense. So the next question emerges when the incident surface, why did it have to go on for so many years? When someone senior to you tells you to do something, why didn't people question that. So that will be a culture question. As was asked earlier, the company should have this open-minded culture and yet the people -- junior people in the organization might have a different sense towards the culture of the organization. When the people on the stage joined the company, they might have enjoyed that free and liberal culture. But now the company has grown to become such a big company, that kind of sense of freedom has been lost, and I think that is common to many companies in Japan. And that kind of -- when someone feels that something is not right, it's maybe more difficult today to raise that voice. That could be the reality. And the question is how to change that. So the entire company is united to change the culture. That's all for me.

So Muraki-san Watanabe-san has raised a similar question. So I want to ask [indiscernible] to make some supplementary comments.

This is Shirota speaking. As was just been explained, customs in the industry, has to be revisited, and we are earnestly addressing it. I'm also the head of the Japan P&C Association, and we are working to improve the situation. The customs that we've had with the agents, cooperation and customers' business secondment of our employees and also business-related equities with our customers. The industry is going to come up with a guideline. The association is going to come up with the guideline to make sure that there's not going to be any funny kind of difference among companies. And with regards to secondment, and the corporation and customers' business, we are already starting our dialogue with agents and agents have consented to this new approach. But there's also the issue with a 2-tier structure. The media is also covering that. What the agents should be doing is being covered by insurers. And on this 2-tier structure, we have already been engaged with the agents, 99% of them, and we're getting consent from them with our new initiatives. But pulling out secondment, we're not cooperating in customers' business. Further than that, we need to improve the quality like education and extending support is going to be necessary. And therefore, it's going to take some time, but we are quite forward-looking in executing our initiatives. That is all for me.

From JPMorgan, Sato-san, please. My name is Sato from JPMorgan.

My first question is regarding the international asset management risk, especially how you are monitoring the risk? And the second question is about your capital policy. So on the first question regarding asset management regarding CRE loans, and the capital loss that you have booked, Mr. Komiya said that you staking the attuned to the situation, but you believe it's a market event? And then, [indiscernible] also commented about the fall in the share price. Personally, the way that you have issued warning before was inadequate. That is how I feel about this issue, because as analysts, we are -- we heard single lenders and it's a value up project and it should be okay is what we have been telling our investors. And so perhaps there was lack of learning on our side about the valuation of the situation from Delphi. First of all, were you getting appropriate and adequate information from Delphi to you? And from that perspective, the loss that you have at this time with Delphi, the way you communicate with them and also CLO, the balance is more than JPY 1 trillion. And so any other high-risk assets that you plan to revisit and review are you doing that kind of exercise? Or are you planning to do that kind of exercise? So let me confirm on those initiatives. My second question is on Page 24. It talks about your capital policy. What I wanted to ask you is ESR 140%. So it looks like a threshold, but what does it mean to you, 140%? Because this time, to -- you have added JPY 20 billion to the share buyback as a capital level adjustment. But then you have acquired IDNE Holdings. And it's a cash out and so less impact on ESR and your M&A pipeline, you always maintain your M&A pipeline and their market cap got bigger. So with all this in mind, you -- we haven't really seen activities as your reaction to the fact that you have exceeded the 140%. So the fact that you have exceeded 140%. What reactions have you taken? And where can we see that?

Thank you for your question. So on the first question about Delphi. To Delphi -- as I said, our evaluation to Delphi hasn't changed. But how do we monitor them, et cetera. So let me answer that question first, as far as I know. And then I will turn to Nakahara-san, our CIO. Don Chairman, the CEO of Delphi and Vincent, et cetera, the top management members and me versus CIO, CFO, there's -- the line of communication is always open. And to me on a monthly basis, the Delphi members participate in a meeting, and we are updated with the situation, and we do the monitoring. In between CIL, so Don and Stefan or Vincent, all the members listed here and Nakahara-san, the CIO and other members perhaps meet on a biweekly basis and have monitoring meeting and also meetings about other topics. And then, also within Delphi for each asset class, they have their own meetings. And so based on that, we have ERM committee, we set the risk boundary. And so whatever they do, it's always within that boundary and we do monitoring and also change our views about the status quo from time to time. So any time and any where we have the line of communication open. However, the timing this time regarding CECL in May this year, we have talked about it to you and when I started to question this is perhaps early summer. And what they said was that there are multiple sponsors who are starting to give up on projects, and they said multiple sponsors. And because of the situation, we have talked about various assumptions, but within the worst-case scenario, they will have that in mind as they work through. And then, if worse case scenario starts to get a reality, then they were going to do the deep diving. In this -- once again, looking back, perhaps what we communicated with you, we are discussing whether -- if there were other ways or other volumes of the communication that should have been done with people on your side. And from Nakahara-san, other than what I have just mentioned, I don't think I was wrong, but can you add anything? Just as an additional information for commercial real estate, last year, in fall, I -- we did the deep diving and I think I have communicated that to you back then, last fall and after the situation worsened. And so the deep diving had to take place. For the commercial real estate, there is an outside manager as well as Delphi and Tokio Marine Holdings together did the deep diving and identify the problematic ones. And of course, identification is not enough. After that, we continue to monitor them. We established a task force in a timely manner, we have always exchanged information. And as Komiya-san said, that situation had always been updated to the top management. And how CECL came out, I think it's self-explanatory. If you look at the financial earnings, it was JPY 20 million in fourth quarter last year. In this year, it was about [ JPY 40 million ] to [ JPY 50 million ]. So it may be a larger amount, but that was the appropriate level of CECL. But then the direction changed perhaps after summer. After we closed the second quarter, as of the end of the second quarter, it became 3 digits. So it was more than what we had expected originally. And the reason as mentioned by Komiya-san. And so then once again, we had to revisit their assumptions. So we were simply going by the accounting rules. And we were simply going by the rules, where, if anything, exceeded their assumptions, we thought that we have to become even more conservative. So under the leadership of Mr. Komiya, we did over review of the situation. And so perhaps the timing was late -- maybe that's what you want to say. But then it's not that we were lacking communication rather we should have detected or infer the outcome earlier, and that's a lesson learned. And as I said in the telephone conference, we do not identify any other major problematic assets, but CLO, et cetera. Other asset classes might have similar issues. And so we will keep the mind in the communication, and we will try to communicate that to you in a timely manner in the future, if it ever happens again or if there's further development, that concludes my answer to your question. When it comes to CECL, it was only introduced in 2023. So, Delphi had their investment policy to hold till the end of the maturity, and they decided to invest in CECL. And with the accountants and also auditors, how we appraise CECL, we are doing this conservatively in provisioning with the worst-case scenario. But then whether if it's going to be admitted accounting-wise or not is another question. And so one side of CECL is how we manage it, asset management. And it's not that we just need to spend the time and see how it develops. But then we need to have a clear path of what we want to pursue going forward. And of course, we will keep a good line of communication. While we do that, the CRE loan is just maybe an unfortunate situation. But then if you look at the entire portfolio for North America, it's still achieving plus 8%, so -- including the team members, we are monitoring CECL very closely. And so there's always a risk and return. And from time to time, as need arises, we try to communicate the situation clearly to you, and we will continue to do that. So on the second question about capital policy, Okada-san, please.

If you go to Page 24, the ESR assumption at the beginning of the year versus the most recent assumption, the two numbers are there. And this is the initial year since MTP started. It's the first half year earnings since MTP started for share buyback. We have used it a flexible way of shareholder return and other than ESR, we look at the risk appetite and also business investment opportunities, and we make that decision comprehensively. So that policy regarding share buyback has continued since the last midterm plan. However, in the new midterm plan, EPS growth, and we are seeing 1% to 2% of contribution from share buyback to EPS growth. And so we have said JPY 200 billion, and so it was an increase by JPY 80 billion since last year. However, the ESR most recently is 147%. It rose since the beginning of the year. And more so than what we had expected, the acceleration of equities took place. What we said at the initial onset of the year that the risk-taking initiatives is also making progress. And so expansion of risk taking. And including the capital buffer. It's there. And IDNE, the goodwill is low and not much impact on ESR. And so there isn't much impact coming from that acquisition. But as Komiya-san said, other than IDNE, we have other opportunities in the pipeline and also expansion of market cap took place. And so we believe now JPY 220 billion is now the right amount to do share buyback. In expansion of the corporate value, there are no business investment opportunities available. We don't want to be holding capital as we have said many, many times, and that still remains to be our policy. Further profit growth is aimed and also deployment of capital to contribute to shareholder value is also the aim, and we are only at an interim point towards those goals. The capital that gets released from equity sales, how do we deploy that? As I said, we are doing the market-based governance or growth-oriented investment, business investment. If we do not have those, then we do share buyback. But then for the business investments, centering around the North America, we have a plan for organic growth. And so that organic growth will require some risk taking. And it's a deal. So of course, we don't really know how it's going to turn out, but there will be more bolt-on type of M&As to become available and also expansion of AUM, bigger asset management is also in the plan. And so these are the plans of what we know as of today. And also the new solutions business, IDNE is a part of that. So based on those assumptions, we have the basic policy as what Mr. Okada explained, and we were going to be executing along the policy.

Sakamaki-san, over to you from Mizuho.

We are running over time, but this is a very important topic. So please bear with us. I have two questions. This is Sakamaki from Mizuho. First question, sorry to dwell on this, but the losses related to CE loans -- CRE loans. How do you -- how should you be explaining quantitatively? So some explanation on that. I don't think you'll explain this, but recently -- but EPS, the volatility and stability. I think you've been talking about that. Gains from sale -- if you do not have gains in sales from equities, impact on EPS, it could have been quite significant with the scale of loss cut, maybe you could have done it more mediculously. This time around, for underwriting, you said that you will maintain high quality. But for investment, what is the risk sensitivity that you have? If you could give some supplementary comments on that? I would very much appreciate. Second question is about the acquisition of IDNE in the solution business outside of disaster risk mitigation, I think you are preparing for business expansion. Do you seek opportunities for M&A in other areas in the solution business, to accelerate your speed and growth? And I think you can enjoy synergy. But if you take a synergy out, what is the size of the business that you could contribute as a group going forward? If you could share with us your outlook.

Thank you for your questions. So with regards to asset management risk, what is our sensitivity to -- on the investment side, CIO Nakahara and Okada, CFO, will respond to your first question. And with regards to the second question, I will take off and then ask Namatame, CFO and Moriwaki, CSO to cover. Let me start with Nakahara-san.

This is Nakahara speaking. As was explained by Komiya-san already, the -- we have long-term predictable insurance liabilities that we can tap into. And we're not investing to gain -- enjoy capital gains. Instead of enjoying volatility, we're investing in areas where we can see incremental growth. So therefore, revenue impact is being controlled to a certain extent, in our investment. But unfortunately, for CRE loans, it was more than what we anticipated. And as was explained. But Komiya-san, there were some impacts that we were not able to foresee, but we're trying to control impact on profit as much as possible so that we can earn income in a stable manner. That is all for me.

Okada, CFO. As was correctly pointed out, earnings and volatility were causing concern on the part of our investors, which I feel apologize for, but CECL before RCCL was introduced, there was no market cap, and we were -- we're looking at the number that is close to economic base, and now we are revaluing based on CECL. And it's a new method that we have introduced. And therefore, we had not been able to capture the market value earlier on -- has taken us time to gain that know-how. As mentioned by Nakahara, it was kind of a deep dive on the market value per property basis and the provision that we're sharing with you this time around, should have been updated on a quarterly basis. And would like to give you a more meticulous update on where we are, going forward. Inclusive of CRE loans, when we make investment in the United States, we're leveraging the capabilities of Delphi, but the portfolio situation is being monitored by holdings. We already have a mechanism that makes that possible. So risks are visualized. And when it comes to new investment in those areas where we can expect growth, we are very selective, investment committees are held almost every week. And for the existing investments, we hold meetings on a monthly basis. I already talked about the schedule. But monthly meetings are held to follow up and monitor the developments. We have such a mechanism in place. And when things like CRE loan issues come up, Delphi and Holdings was set up a joint committee so that we can do a deep dive. In addition to that, in credit loss for the group, we have a cap, which is set by the ERM committee. And when there is a financial crisis, for example, we have a stress test taking that into account, which is done on a regular basis. And therefore, group management soundness is being insured, when we're taking risks, but margin these things have to be upgraded regularly, I believe. So coming to the second part of your question about the solutions business. In terms of topic, disaster risk reduction is one thing, but medical checkup, disease prevention and staying healthy, living healthy and longer, this kind of health care business. And decarbonization support for the SMEs. And mobility service, people and goods being interactive in a more efficient manner. So Tokio Marine Smart Mobility was established in November of last year. There are couple more. So 15 targets and 169 items of SDGs, where do we stand in terms of our capabilities and based on our business purpose, what are the areas where we can be of help to address at challenges? We are having these discussions. And when we come out with the plan and when we present figures, we're very confident with the figures and more than JPY 10 billion in the midterm plan, and I'm saying that we want to make it one of the pillars of the company. In terms of our group companies, in terms of profit, it's like JPY 100 billion. Tens of billions of yen, JPY 100 billion. And that's the order of the business scale that I have in mind for the solution business to be in line with Japan P&C or Japan Life business. And I might have made it difficult for Namatame-san to speak out, but I would appreciate if you could make some supplementary comments from the scope of your business.

Thank you very much for your question. I am Namatame. So talking about the future direction of the solutions business, inclusive of the IDNE Holdings business. In terms of direction going forward, as was mentioned by Komiya-san, the societal issues that we must address. So we've taken a bird's-eye view and seek connections with our insurance business, we have been prioritizing some of these topics. And if you could look at Page 10 in the handout, healthcare, mobility, decarbonization and disaster risk prevention. We have been working in this area. So disaster-risk prevention and mitigation, if I could talk about that, disaster consortium core was established 2 years ago, and we've been collaborating with 120 companies and the business development has been taking place in a co-creation effort. The more we are working on this area, the more we feel that we need to develop our own capabilities and also collaborate with other players. And that has led to the strategic dialogue with IDNE. And therefore, the strategic initiative. Once the two companies are integrated, there will be various joint initiatives that we will be implementing together offering end-to-end value proposition. It will be comprehensive and it will be supplementary to one another. And in addition to that, the capabilities of both companies will enjoy synergy as well. For example, engineering report of IDNE could be leveraged in insurance field or the data and insurance could be utilized in the engineering capabilities and IDNE. That's the kind of world that we can see together with IDNE Holdings to our customers, including local governments, when there are losses incurred, offers could be made to them in terms of solutions. So that's the kind of world that we are envisioning. It's going to be a new world, a new sets of values, new customers and we want to further enhance our -- expand the scope of what we can do. Well, M&A -- talking about M&A, there is a counterpart. And basically, we want to work beyond what we can work offer collaboratively, whether there is alignment in terms of strategy, those are some key points that will lead to further M&A. But we would like to give enough thought to that. With regards to our discipline in M&A, in the solutions business, we will make sure to maintain disciplined approach. So opportunities for M&A in disaster risk prevention. Anything in mobility or there could be some opportunities? Anything that you can share Well, we're not ready to share anything specifically, but expanding the disaster prevention mitigation or in the field of mobility, was it last week? Mobility platform baton has been launched. So collaborating with many logistics companies have already started. So through these initiatives, collaboration with companies to offer specific solutions will emerge.

Moriwaki-san, over to you.

Already explained by CEO and also Namatame-san. So I just want to briefly talk about how we're going to approach this. In terms of field, as was explained by Komiya-san, it's disaster-prevention and mitigation and mobility and health care and decarbonization. There are preparatory companies and other operating companies as well. We're planning to work in that direction. And for disaster-prevention and mitigation, we've set up a consortium, and the same will be done for mobility. In the meantime, for healthcare and decarbonization, we have not yet come to a point of establishing a consortium, but business will be expanded in these areas through alliance with various companies. In order to prepare the foundation for future business. We cannot come up with the new business on our own in a short period of time, and therefore, alliance open innovation. In other words, adopting inorganic approach in order to accelerate the speed of expanding our business, one of which will be the TOB of IDNE. And also for other businesses, we will use those means to expand the scale of the business to a certain level in a short period of time. That is basically our strategy. It's not that we will come up with a certain profit in a certain period of time, the CEO was very aggressive earlier. I will not give numbers, but we are going to take inorganic means in order to achieve a certain level. I cannot commit to any specific number or date but I'm completely aligned with the CEO in terms of the will going forward. That's all for me. I hope we answered your question.

From Tokai Tokyo Securities, Mr. Mashima.

My name is Mashima. The other day, regarding business-related equity sales there was a review with the cooperative deposit the banks have been abolished. I believe that was issued by the Industry Association. And you are selling equities and so you must have a lot of cash and interest rate has been hiked by BOJ. So perhaps there is more merit with you in making deposit. However, if there is a request for cooperation from the banking sector, you will not respond to such cooperation by making bigger deposit. So how are you doing the credit operations or credit management with those partners? My second question is on Page 53. It talks about the risk control by the life insurance company. And for the low surrender and payment insurance, the long duration management of such liability is difficult, so you are doing the block session. So does it mean that for the lower surrender value policies. I'm sure the balance will grow. And so ultimately, would you continue to do this block of reinsurance? And when you do so, what are the risks? For example, the reinsurer might not manage it well. And so the principal needed for the policy is not secured. And so there could be more financial burden on your side, when they come to majority, et cetera.

So the first question will be answered by CFO, Mr. Okada -- or is it CIO or Nakahara-san, perhaps about the credit operations. And then on the second question, Kawamoto-san from Tokio Marine and a Life Insurance Company will answer the second question. So first from Nakahara-san, CIO.

So after we sell equities, how do we manage the cash, I believe that was the gist of your question. And as you noticed the cooperative deposit requested by banks will not continue. We will not respond to such request. And so what do we do with the cash? What we have been doing is a colon or CPE? So they are short-term cash management that we have been doing. And so we will continue to do those in order not to waste the cash. And even if it's short term, we still make some profit out of these operations. It's something we have been doing in [indiscernible], and we will continue doing this. The second question will be answered by -- it's about block session -- block reassurance, right. So [indiscernible], please.

My name is [indiscernible] Life. I'd like to answer your question. So in April, we did the block reinsurance April this year. And from our side, we execute stringent ALM. And so both assets and liability are managed in totality in order to control interest rate risk. But the interest rate risk control is becoming more sophisticated and enhanced as part of that, we have decided to do block reinsurance. What became subject of this is that, the whole life insurance with lower surrender value. We have suspended sales of those issues, but then it still had higher interest rate risk. So we decided to do the block reinsurance with those policies. Cash flow being simple and dispute over the reinsurance rate being less, we have picked policies where the initial premium payment had already been complete. The future is undecided, but we want to continue to control interest rate. And so, if needed we will continue to use this methodology of block reinsurance. And by looking at the economic rationale, we will make the necessary decision from time to time. The counterparty risk that you were asking about for the reinsurers, they are highly credible reinsurers who have participated in this program. And also, we have collateral taking from the reinsurers, and we are monitoring the value of the collateral in managing and reducing counterparty risk. And we make sure that we do so, before arranging the reinsurance. And so the situation that you mentioned should not the surface. And so this is a part of the interest rate risk control diversification. And so based on economic rationale, reinsurance and also the government bond management are all part of the same effort.

Sasaki-san from Nomura Securities.

Yes, this is Sasaki speaking. Just one question. At the outset, for the P&C -- Japan P&C business, you explained at the outset. But my concern is that there has been a collaboration in the customers' business. And the windows past customers are going to be eliminated? Will you be losing some business [indiscernible] or IDNE, you said that there will be only positive, so if that is the case, that is fine. But if there is any business that you might lose going forward, what is the area? And what is the scale? And what are some countermeasures you're taking in order to prevent that? That is my only question.

Maybe this is a question to Sakiyama-san. Thank you very much for the question. I would like to ask Sakyama to respond to your question.

This is Sakiyama speaking. Sasaki-san, thank you for your question. Under renewal, there are various initiatives, not just business-related equities, but cooperation and customers' business to be eliminated and eliminating the 2-tier structure and excessive support to be eliminated. As a result of that, we have expected some negative impact. But before we started this initiative, it was difficult to foresee. But after 6 months, what I can say is that there's going to be a negative impact. But as was mentioned by Shirota-san earlier, we are receiving consent for many of the cases. For most of the cases, we're getting information from the sales reps and impact on sales, several billions of yen, maybe JPY 10 billion or so. There could be some negative impact. But to start with why is it that we're going to have conversation with them because there are areas where quality is substandard and so forth. So we could lose policies and contracts, but it could have a positive impact on our bottom line. For example, positive by eliminating loss-making policies. And by taking out 2-tier structures, freed up time will be used to create new markets. So those are positives. And therefore, there was some upside in renew plus CHR 2% has increased 2.5%. So that's an upside additional impact. So it's -- although there will be a negative impact, it's not going to be significant. Maybe I asked it in a wrong way. For example, for auto, Certain dealers, I think, could be using or selling only your products. And I think there could be some negative impact from that if you sell their shares. But is it correct to understand that even those impact is going to be limited. Yes, the example that you said is an area that we're having discussions in the working group. We don't know how it will land at the end of the day, but we are not going to completely lose our business and that's the kind of way we are seeking. And therefore, our direction going forward is that sales of business-related equities are not going to have that big impact. Well, Kitazawa-san is overseeing sales. So I want to ask Kitazawa-san if there's any supplementary comments.

Yes, this is Kitazawa speaking. I'm overseeing domestic sales allow me to supplement. As was mentioned by Sakiyama-san, the various initiatives that we're pursuing for improved profitability under renew, like eliminating 2-tier structure and excessive customer cooperation, there could be some negative aspects. We're estimating tens of billions of yen in impact. But as was mentioned earlier, for example, in terms of profitability improvement, in those areas where we cannot enjoy increase in profit. For example, we would not renew some of the contracts, but we would increase the rates for some of the existing. When we ask when we are asked by the agents, what TMNF can do for them, we will come with an answer. And at the end of the day, we're seeing that some of the contracts are maintained or we're ending up with increased rates. And one fact I can say from data is the customer feedback data. This is customers' voice. NPS that we value so much, and we're tracking it from this fiscal year. Our recent data for the month of October, customers NPS at the time of contract was up 11% year-over-year. And therefore, our initiatives are supported by our customers. So these are also data that we're sharing with our agents. So careful communication is very important. What has just been shared by Kitazawa-san includes small companies, large companies as well as individual retail customers. Yes, that is correct.

Lastly, can we just have some closing remarks from Komiya-san, please?

So we apologize for extending the time limit, but thank you very much for your participation. And as I said in the very beginning, we will have taken off, we are jumping to make change, and we are in the middle of a journey, and we will continue with this journey in a robust manner. So I hope that you will continue to keep your eyes on us and not just in a big meeting like this, but there will be more casual or day-to-day venues having conversation. I look forward to those and I ask for your continuous support and interest over Tokio Marine Holdings. Thank you for your participation today. This concludes the IR meeting for the second half of fiscal '24. Thank you very much for your attendance. [Statements in English on this transcript were spoken by an entrepreneurinterpreter present on the live call.]