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

[Interpreted] Good evening, everyone. My name is Komiya. Thank you very much for taking time out of your busy schedule to join us today. I would also like to thank you for your continued support towards Tokio Marine. First of all, I would like to begin by explaining the content of the financial results for fiscal '24 and the message from the management based on these results. Please turn to Page 3 of the document. There are 3 main points I would like to convey to you today. The first point is about fiscal 2024 results. Our management places more emphasis on adjusted net income, excluding gain on sales of business-related equities, i.e., core profit of insurance business. And this figure on an actual basis was JPY 608.9 billion. This is an increase by JPY 27.9 billion over the full year forecast announced most recently in February. This is due to the appreciation of the yen against the foreign currencies used by Japan P&C in its financial results as of the end of March '25, which reduced the burden of foreign currency-denominated reserves for outstanding claims. Normalized basis adjusted net income, excluding one-off effects, was JPY 679.0 billion, in line with the February forecast. This would translate to plus 14% year-on-year growth, which is quite high. This was due to the strong performance of major international businesses as well as the depreciation of the yen against the exchange rate used by international business in their financial statements, which is the exchange rate as of the end of December '24. Another reason was due to the rate increase in Japan P&C and a decrease of large losses. Sales of business-related equities amounted to JPY 922 billion, exceeding the February forecast by JPY 10 billion and 1.5x higher compared to the initial forecast. Source of dividend will come from actual adjusted net income, including gains on sales of business-related equities, which was JPY 1.215 trillion, an increase of JPY 35 billion from the February forecast and 1.7x that of the previous year. The second point is the forecast for fiscal '25, which is JPY 700 billion, excluding gains on sales of business-related equities. This would be 3% growth compared to last year's normalized adjusted net income. This growth will be driven by continued strong performance at the major international businesses and auto rate increase in Japan P&C. The reported growth rate will be calculated based on the FX assumption we set at the beginning of the year for fiscal year business plan, where international business will be exposed to some impact of FX rate. This assumed rate taken at the end of March '25 is showing yen appreciation compared to the actual rate at the end of last year. Therefore, looking at the actual performance, excluding FX factor, I think it is fair to say that the overall growth rate will be positive 7% growth and the underlying trend is favorable. The plan for sales of business-related equities is currently assumed to be JPY 600 billion, the same as the initial plan for fiscal '24. And adjusted net income after completion of sales is expected to be JPY 1.100 trillion. Adjusted net income, including gain on sales of business-related equities will be slightly affected by the pace of sales over the next 5 years until we reach business-related equity holding of 0. We believe that this is not directly related to corporate value, and we will continue to achieve world-class growth with our core insurance business profit. The third point is about shareholder return. We continue to believe that the profit growth of our business and the expansion of shareholder return should be consistent. There is no change to that policy. In this context, the DPS for fiscal year '24 will be JPY 172, an increase of JPY 10 over the forecast at midyear based on the further upward revision of profit. This would result in DPS growth of 40%. Furthermore, DPS for fiscal '25 will increase by JPY 38 to JPY 210 in line with the profit growth I have explained. This will result in DPS growth of 22%. In addition, for capital stock, we will continue to implement a disciplined capital policy. Since last year, we have announced our intention to spend 1% to 2% of EPS growth for share repurchase. Current level of ESR is at an ample level of 149%. We also have several investment opportunities in the pipeline, mainly for bolt-on M&A. Taking all of these factors into consideration, we plan to repurchase JPY 220 billion of our own shares in fiscal '25 for now. We will continue to implement share buyback flexibly throughout the year. But today, as its first step, JPY 110 billion of share repurchase was approved. Mr. Okada, our CFO, will explain more on the capital policy later. Now I'd like to explain these aforementioned points in a little more detail. Please go to Page 4. First is top line. Fiscal 2024 results. As you can see on the left, net insurance premiums increased by 10% year-on-year as announced in February. And excluding foreign exchange effect, it was an increase by 6%. For life insurance premiums on the right, due to the additional implementation of block reinsurance by Asian life in March, life insurance premium decreased by 44% from the February announcement. In this context, our full year forecast for fiscal '25 is for a steady increase in net premiums written by 3% year-on-year and by excluding foreign exchange factor, an increase by 5% year-on-year, driven by rate increases and underlying underwriting expansion. Life insurance premium is expected to be 45% year-on-year growth due to the impact of the block ceded reinsurance program implemented by [indiscernible] life in fiscal '24 and also in April of '25. Next is the adjusted net income. The actual profit for fiscal '24 is shown on Page 5. As I explained earlier, we believe that analyzing and evaluating the normalized basis profit is more important in terms of measuring the strength of our business. So please proceed on to Page 6. Normalized adjusted net income, excluding gains on sales of business-related equities for fiscal '24 is JPY 679 billion, an increase by JPY 82.5 billion year-on-year and 14% growth compared to the previous year. We would like to evaluate this for different businesses. First, in Japan P&C business, there were some profit declining factors such as higher auto loss cost, higher natural disaster budget as well as prior year reserve development for liability insurance in North America. However, we also had other factors such as rate increase in automobile and fire, a decline in large losses and reaction from an increase in foreign currency-denominated reserve for our outstanding claims in connection with the yen depreciation in fiscal year '23. Japan P&C business unit profit increased by JPY 28.8 billion from last year. In the International business, profit decreased in Asian life due to drop in interest rates and decrease in prior year reserve takedown, partly offset strong insurance underwriting and income revenues, especially in key entities and profit boosted by yen depreciation, resulting in an increase in profit of JPY 29.7 billion compared to the previous year. Our full year earnings basically naturally hedged against the impact of exchange rates. In other words, yen-denominated profits in the international business and Japan P&C foreign currency-denominated loss reserve cancel each other out. But it is also true that the exchange rates used for financial results differ depending on the business. In light of this, exchange rate fluctuations in FY '24 were quite volatile. And the exchange rates used for financial closing of each business were all favorable to us. And as a result, the management's honest assessment of FY '24 profits is that there was a wind-aided element to it. And all in all, we believe that a plus 5% growth is a reasonable view. We also factored in a large capital loss on CRE loans in November of last year. To be honest, we were not exactly familiar with the CECL practice. And from our lessons learned, we have revised our average yearly expected capital loss. From minus $265 million, it was revised to minus $440 million. Please turn to Page 7 for FY '25 projections. Adjusted net income for FY '25, excluding capital gains from sale of business-related equities is projected to be JPY 700 billion, and our planned sales amount of business-related equities is JPY 600 billion and adjusted net income, including gain from sales of business-related equities projected at JPY 1.1 trillion, as I explained at the beginning. Let's look at the breakdown by business. Japan P&C will have a 7% growth despite factors such as decrease in profits due to a decrease in dividends from sale of business-related equities and an increase in IT costs. There are positive factors such as absence of prior year loss reserve development for liability insurance in North America and the rate increases for auto. International business appears flat growth year-over-year compared to the previous year due to the strong yen, but excluding exchange rate impact, it is plus 5% growth due to steady growth in key entities and a rebound in the Asian life insurance year-over-year. That is all for me. As seen in the recent tariff policy, the global economy is becoming ever more uncertain and the business and management environment is by no means easy yet. Our company, Tokio Marine remains resilient. We will continue to achieve world-class EPS growth with a high degree of certainty driven by globally diversified, low volatility, robust underwriting and the strong income profits that come from this. By balancing EPS growth and disciplined capital policy, we will further increase ROE. We will manage and run the business with a strong will. Your continued support is very much appreciated.

Thank you very much, Mr. Komiya. Let me turn to Mr. Okada for capital policy.

[Interpreted] this is Okada, CFO. Let me cover shareholder returns and capital policy on Page 8. Once again, as we have stated before, the basis of our shareholder return is dividends and our policy is to realize EPS growth consistent with profit growth. The actual adjusted net income for FY '24, including the gains on the sales of business-related equities, which constitutes the source of dividend, as explained by Mr. Komiya earlier, were revised up. DPS for FY '24 has also been revised up by JPY 10 from the midterm forecast to JPY 172 with a DPS growth of 40% year-over-year. For FY '25, we expect a moving average growth in the source of dividend, on the back of continued favorable profit levels. So we will increase DPS by JPY 38 to JPY 210 and the DPS growth to 22%. Next, please turn to Page 9. Our thinking towards capital level adjustment and share buybacks as a means to achieve this remain unchanged. In other words, Capital generated through organic growth and portfolio review will first be used for M&A and risk-taking that will contribute to improving our ROE. And if such opportunities do not arise, we will carry out share buybacks as we have no intention of unnecessarily accumulating capital. Also, since last year, we have announced that we will achieve 1% to 2% of EPS growth through share buybacks. In light of this, we have taken into consideration the effect on EPS growth. In other words, the ratio against our current market cap of JPY 11 trillion, the ESR level, our current pipeline of bolt-on M&As and the risk-taking opportunities due to environmental changes. And have decided to set their amount of share buybacks for fiscal 2025 at JPY 220 billion for the year at this point in time. And today, buyback of JPY 110 billion as a first step was approved. And finally, regarding the sales of business-related equities, please turn to Page 10. In FY '24, we ended up with a sale of JPY 922 billion, far exceeding our initial plan of JPY 600 billion as we reached agreement to sell from various customers -- counterparts. We plan to continue accelerating sales in order to achieve the milestone of having the balance at the end of FY '23 by the end of FY '26 as set out in the current midterm plan and achieving 0 by the end of FY '29. Therefore, for FY '25, although the overall market, for example, topics has fallen by about 4% compared to the beginning of last year, we have set a sales target of JPY 600 billion, the same amount as last year as our initial plan. We will continue to execute our business strategy to raise both EPS and ROE and thereby respond to the expectations of the capital market such as yourself. That is all for me. [Statements in English on this transcript were spoken by an interpreter present on the live call.]