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

Thank you for joining us for the Tokio Marine Holdings IR briefing for the second half of FY '25 in spite of your busy schedules. I'll be serving as the moderator. I am Ishiguro, Head of Global Communications. Today's session is held in a hybrid format where participants are joining both in person and online. The moderator is giving announcements for the Japanese audience. [Foreign Language] Let me introduce the executives joining us today. From Tokio Marine Holdings, Group CEO, Mr. Masahiro Koike; Vice President, Director, Group CFO, Mr. Kenji Okada; Vice President, Director, Co-Head of International Business, Mr. Kichiichiro Yamamoto; Managing Executive Officer, Group CSUO, Ms. Mika Nabeshima. From TMNF, President and CEO, Mr. Hiroaki Shirota; Senior Managing Director, Mr. Hiroshi Sakiyama. From Asian Life, President, Mr. Shuji Asano will be joining. We will first start with an opening presentation by our Group CEO, Mr. Koike, using materials posted on our homepage, after which we will open the floor for questions. We are scheduled to end at 2:30 p.m. Japan time. Koike-san, you have the floor.

Good afternoon, everyone. Thank you very much for joining Tokio Marine Group's business strategy meeting today. Today, following the outline on Page 2 on your material, I will spend approximately 30 minutes explaining Tokio Marine's management and business operations. After that, I would like to take questions and comments from all of you as long as time permits. Looking forward to this meeting. Please turn to Slide #3. Six months ago, at our May IR briefing, I had the opportunity to greet you and share my commitment. It has now been 5 months since I assumed the role of Group CEO. During this time, I have been traveling extensive both domestically and internationally, striving to spend my time at the front lines, the very source of our company's value creation. Through town hall meetings and other forums across various locations, I have engaged in dialogues with many employees, both domestically and internationally. This aligns with the realization of our unique sustainability management as described on the slide, which starts with our employees, specifically, employees who are deeply committed to fulfilling our purpose of protecting customers and society in times of need serve as the starting point for all activities. Through providing high-quality products and services, we contribute to solving the challenges faced by our customers and society. As a result of being of service, we ourselves achieve sustainable growth and deliver solid returns to our shareholders and all stakeholders. Since our founding, we have cherished this unique Tokio Marine value creation model. I strongly feel that momentum is high among our employees across all domains, domestic and overseas and solutions to continuously evolve this model, pass it on to future generations and deliver value to all stakeholders. And after receiving feedback from our employees that are direct and sometimes very straightforward, but these voices help me to enhance and move Tokio Marine even further into the future. Now please turn to Page 4. So today, we have 2 key messages to share with you. The first is the robustness of EPS growth. Our track record over the past 5 years has been trending among the best globally and fiscal 2025 is keeping its underlying growth trend. Furthermore, while some lines in international business centered on North America showed some signs of softening, they remain resilient. Japan P&C is also progressing steadily amid major industry-wide transformation. So each business continues with their strong performance. DPS will expand in line with this robust EPS growth, and this will remain unchanged even after the adoption of IFRS in fiscal '26. The second point is ROE improvement. Currently, we are midway through our journey toward raising ROE to global peer level. After adopting IFRS, our ROE will stand at around 13% on an apple-to-apple basis with our peers. We will continue to strive to further enhance ROE through profit growth and disciplined capital policy. Within this context, our current ESR stands at 155%, providing ample firepower for growth investments or shareholder returns. While we recently announced 2 bolt-on M&A deals, we have raised our annual share buyback program to JPY 240 billion after comprehensively reassessing factors such as the uplifting effect to EPS growth and other M&A deals in the pipeline. Now let me move on to explaining the main points. Please turn to Page 5. So this slide shows our EPS growth track record. As you can see, our 5-year CAGR of 19.9% is among the world's best. Furthermore, as indicated in the lower right, our EPS growth volatility is also the lowest, demonstrating that we have been achieving stable growth. Please turn to Page 6. Here, the right side of the slide shows our EPS growth plan compared to peers. Our plan of 8% or more is at competitive level with peers, and our current performance is also progressing steadily at 8.9% growth. Now let's delve deeper into the drivers of our world-class EPS growth, which are the organic growth of our core business and our M&A activities. Please turn to Page 7. Our current profits are largely comprised of international business and Japan P&C business, and the underlying trend remains solid. For fiscal '25, we expect results to largely align with our initial plans, and we continue to believe our midterm targets are achievable. Going into a bit more details, within the international business, while we see some impact from softening and changes in the operating environment, such as lower premium rates, our portfolio is resilient. We believe we can continue to achieve growth with expansion of underwriting profit as the main driver. Furthermore, in the Japan P&C business, the effects of previous rate increases will significantly materialize in fiscal '26. So we are also seeing achievement of the midterm plan at solid. Please turn to Page 8. Regarding organic growth in our international business, as shown in the center of the slide, our North American operations, which account for 90% of profits, achieved profit growth over and above our peers in both underwriting in orange and investment in green. Although there are some softening in certain categories and the operating environment is rather difficult for asset management, we have revised our current fiscal '25 profit projection upward by 2% on a currency-neutral basis. Please turn to Page 9. Our North American underwriting business consists of 2 main lines, Specialty P&C and employee benefits. As shown on the left side of the slide, we have a high competitive advantage. The right side of the slide shows the portfolio composition of these lines, clearly demonstrating a highly diversified structure. This was not built overnight. Looking at recent rate trends, a remarkable 75% is comprised of lines with stable rates, meaning these lines are relatively unaffected by the current soft market conditions. While we are not immune to rate cycles, our robust underwriting framework has enabled us to build a highly resilient portfolio. In order for us to continue to achieve meaningful and superior profit growth, we will maintain and solidify the strength in our portfolio. Please turn to Page 10. This chart, which I am attaching for reference purpose, illustrates the history of the rate cycle in the North American commercial market and the profit growth of our North American operations. As you can see, our North American business has a track record of achieving sustained and stable growth over a prolonged period by leveraging both underwriting profits and investment gains and losses to navigate rate cycles. Now let me explain our 2 main lines of business in North America and our asset management activities. Please turn to Page 11. First, our Specialty P&C line comprises over 100 lines of business, forming a diversified portfolio with low correlations. We apply our strength, a disciplined underwriting strategy to this portfolio, rigorously executing risk selection and pricing based on the rate environment. This commitment to sustainable business operations in a forward-looking manner and the strict adherence to a strategy of no excessive underwriting or expansion has led to the consistently favorable combined ratio levels shown on the slide and the achievement of profit growth exceeding our peers. We also view the meaningfully limited impact of the Los Angeles wildfires that occurred earlier this year compared to our peers as further evidence of our disciplined underwriting strategy. Please turn to Page 12. Next, the employee benefits line consists of TMHCC's medical stop loss and Delphi's disability insurance, among others. The key to this line is steadily expanding the top line while stabilizing the combined ratio around 95%. Furthermore, leveraging our strength in highly specialized absence management service, we have gained strong support from customers and achieved stable profit growth. Please turn to Page 13. Next is regarding North American investment. Regarding asset management income or income gains, we are showing AUM times yield as factors. First, concerning AUM, as shown in the center of the slide, it continues to grow at around 10%, supported by our strong insurance business. Regarding the income yield on the left side of the slide, we are consistently achieving yields approximately 2% above the market by leveraging the strength in credit investment possessed by our central asset management subsidiary, Delphi. We intend to continue monitoring the credit market movements and carefully and appropriately seize investment opportunities. Please turn to Page 14. Having explained our North American operations thus far, I would also like to touch upon our Brazilian operations from the perspective of building a global portfolio. Brazil now accounts for 7% of international business profits and is growing very strongly. The competitive edge over Brazilian operations lies in disciplined underwriting capabilities and DX/IT technological expertise. Leveraging these strengths, we achieved price competitiveness and risk selection through agile rate adjustments and high profitability through rigorous cost efficiency. The slide shows the combined ratio, top line and as you multiply the 2, the underwriting profit. Each figure clearly demonstrates its overwhelming strength. Currently, for fiscal 2025, performance is again exceeding the initial plan. Please turn to Page 15. Regarding our overseas M&A strategy, we have achieved growth through M&A and continue to search for more as a means to further diversify our portfolio and acquire competitive strength. At the same time, we have consistently adhered to our principles for acquisitions, the 3 principles, as you can see here, and a disciplined in and out strategy. This policy remains unchanged. To update you on how we see the current landscape, we see an increase in deal opportunities, both large and small, partly due to softer rates and other factors. However, we also see that valuations for large M&A deals remain appreciated. Meanwhile, we continuously update our list of candidates we wish to bring into our group and actively pursue necessary actions. We believe that when all conditions, including timing align, this will lead to results. Amidst this, I am pleased to report that we have 2 recent bolt-on acquisitions to share with you this time. Please turn to Page 16. First is the U.S. collector vehicle insurance business acquired by PHLY in the United States. Collector vehicle insurance is a niche auto insurance segment where PHLY excels, targeting specific vehicle types like classic cars. Enthusiasts of these vehicles typically handle their cars with great care. Through product and service design, this market maintains a low loss ratio of around 50%. Furthermore, against the backdrop of increasing retirements among the baby boomer generation, the market is expected to continue to grow strongly. PHLY had long aimed to expand its business in this area and has now acquired a business from Ignyte Insurance, which holds #2 position in this field. Acquisition price is $615 million with gross written premium at approximately $160 million. This acquisition not only expands our customer base, but also provides us with advanced underwriting expertise and talent, further enhancing our specialization. We, therefore, have high expectations for our growth in this market. Please turn to Page 17. The second acquisition announced last week on the 21st of November is of Agrihedge, a U.S. company providing fee-based services to livestock producers. The acquisition price is $970 million. Its fee income is approximately $100 million. In addition to incorporating the company's fee-based businesses such as insurance agency service and derivative brokerage service into our revenue stream, we are also acquiring solution providing capabilities, including consulting service for the agricultural industry. This will further enhance TMHCC's competitive advantage in the agricultural and livestock insurance market. This will not only enforce TMHCC's underwriting capabilities, but this will also lead to solutions business. And therefore, this acquisition is very meaningful for the entire group. Next, I will explain our Japan P&C business. Please turn to Page 18. As shown on the left, top 3 companies account for approximately 90% of the Japanese P&C market. Among the 3, TMNF's profitability or combined ratio has been the lowest by a significant margin in the last decade. Our lines of business consists of 2/3 personal and 1/3 commercial. The strength of our personal lines lie in our flexible rate increase capabilities that beat inflation as in the case of auto insurance in October this year and our quality distribution with high productivity. In our commercial lines, we have unique strengths such as global standard underwriting capability and expertise, refining together with the European and American group companies and our ability to provide solutions enhanced by welcoming ID&E into the group. Japan's P&C market is undergoing major transformation as it moves away from its past way of doing business, legacy, and this will bring about significant changes in the competitive environment. As we transition to a business environment where success is defined by the intrinsic values of an insurance company, we take this as an opportunity. We will continue to refine our capabilities even more to further increase our advantage. Let me give some color from several perspectives. Please turn to Page 19. First, let's look at our ability to implement rate increases. While rate cycles in Europe and the United States vary by lines of business, they are generally softening. Japan, however, is seeing the opposite. Market is hardening. The left shows auto insurance. Due to primarily to inflation, last year's combined ratio was the highest level in the past 10 years. In response, we implemented a rate increase last October last month ahead of our peers. Thanks in part to our agents' strong customer relationships, we were able to minimize the impact on policy renewals after the rate increase as expected. The effects of this rate increase will be significant in FY '26, and we will continue to strive to stably achieve a combined ratio below 95%. On the right is fire insurance. As a result of implementing rate increases almost every year since 2019, our combined ratio has improved to the 80% range. In FY '25, we expect to finally achieve an ROR of 7% or more or profitability equivalent to the cost of capital. We will continue to stay relentless to make improvements. Please turn to Page 20. Let me take you through the structural reform of distribution, which is the core of our Re-New initiative to transform TMNF into a new company. This will have the greatest impact on expense ratio. There are 2 major initiatives. First, regarding completely eliminating the so-called 2-tier structure or having our own employees perform agency work, our dialogue with all 40,000 agencies is progressing smoothly, and we expect to completely eliminate by the end of fiscal '26 as planned. From FY '27, we, together with agents, will provide products and services to customers under a new task allocation scheme based on operational quality standards. This is the second point. Our staff are working hard to complete discussions with all agencies with the aim of completing the effort by the end of FY '25. As a result of these efforts, we plan to reduce the expense ratio to less than 30% on a current J-GAAP basis and to around 26% on an IFRS basis. Please turn to Page 21. Our initiative to improve our insurance underwriting portfolio by implementing thorough profitability measures is progressing smoothly. Specifically, we have carefully examined our portfolio and identified low profitability policies as Tier 2 and Tier 3. In terms of volume, this accounts for approximately 8% of the JPY 1 trillion in fire and specialty insurance premiums. For Tier 2, we are taking measures by category. For example, we are categorizing into solar power generation facilities and old properties and taking measures that are effective for each category. And for Tier 3, where profitability is particularly challenging, we are taking more in-depth measures on an individual contract basis by raising rates and reducing excessive capacity provision in order to rationalize large-scale unprofitable policies. The key is that we are implementing these initiatives based on our purpose without downsizing or falling into a shrinking equilibrium. In fact, our top line has actually increased, and our bottom line will also improve by JPY 14 billion under the current midterm plan. Next is Page 22. In response to changes in customer values and behaviors, we are focusing on diversifying distribution channels. Specifically, we changed the name of our direct channel, EDSP, to Tokio Marine Direct Insurance, incorporating the Tokio Marine name and launched a full-scale advertisement campaign. After the brand was refreshed on October 1 this year, number of contracts and premium income in auto for October alone were both 1.2x higher than the previous year, and I feel it is going well. The direct market is expected to continue to expand. So we aim to achieve growth that significantly outperform the market. Please open up Page 23. Next, turning to the use of AI and data. The use of AI and data is an important initiative that can unlock great potential in the evolution of the insurance business models. We are exploring ways to utilize AI and data that are tailored to the nature of business models of each region and business and are also promoting practical initiatives. For example, in our Japan P&C business, where 70% of the business is made up of standardized commodity lines, we are using AI for standard tasks such as call centers and responding to inquiries from agents, thereby improving customer experience and reducing expense ratios. In our international business, proprietary AI developed and leveraged for underwriting auto insurance in Brazil enhanced our capabilities. We have also -- we are also seeing positive outcome in North America, where specialty lines for businesses are the main focus through sophistication of underwriting and claims payment. These are some examples of domain-specific AI utilization. In addition, this year, we established the AI hub within Holdings, which is already responsible for cross-group planning and development support. By harnessing the group's collective expertise, we aim to further enhance the strength of each company's business model. We will continue accelerating these efforts. Please turn to Page 24 for details on our Solutions business. Once again, the Solutions business is a business anticipated to play a key role in our continued advancement and represents a major growth opportunity for the future. We are pleased to welcome ID&E into our group in the area of disaster resilience to reduce losses and risks. It is no exaggeration to say that this is an important page in the history of sustainability management as a company in the insurance business. Up until now, we have been making preparations in the solutions area, expanded our capabilities and steadily made effort. The fact that we have welcomed ID&E into our group demonstrates that the vision we have conceived is by no means a self-centered delusion. While challenging, it is indeed achievable. These steps to pursue the business with strong commitment and persistent effort have similarities with the path we have taken in expanding our international business as shown at the bottom. Like our international business, we want to firmly develop the solutions business into the group's next major pillar by committing with a strong sense of purpose. Please turn to Page 25. It has only been 6 months since ID&E became a wholly owned subsidiary, but this is the summary of collaborative approaches to our customers. First, in the area of private sector disaster prevention, TMNF selected 150 companies that are at high risk of disaster or highly sensitive to risk and made joint proposals to enhance disaster resilience to 40. We are starting to see orders come in. Recurrence prevention initiatives are also based on insurance payments in the event of disaster. This is also underway. Because there were a few natural disasters in fiscal 2025, we, in other words, us and ID&E, were able to develop detailed strategies for specific approaches, although actual results are yet to be seen. And then in the public sector, shown at the bottom, we are beginning to close some deals by adding TMNF's capabilities to ID&E or by tapping into TMNF's network. Collaboration between different companies and co-creation of value is unchartered territory for us, therefore, not easy and will take considerable amount of time. However, as anticipated before the acquisition, we feel confident that we can work together to contribute to improving the resilience of society as a whole. I hope that through these efforts, we will also be able to make our own insurance underwriting portfolio more resilient. It was a very promising first 6 months. Please turn to Page 26. So I talked about each of the businesses. And from here, I will talk about group management and capital strategies. I will start with ROE. As mentioned at the IFRS briefing held at the end of September, after the adoption of IFRS, our ROE level on an apples-to-apples comparison with global peers is around 13%, 1-3 percent, and we are currently on the journey to raise ROE. As shown on the right, realizing top-tier EPS growth based on this, transforming our business portfolio, including by leveraging M&A and expanding our solutions business, including fee business. We will steadily implement these steps to raise ROE. Please turn to Page 27. Regarding dividends, once again, the basis of our shareholder returns is dividends, and we will continue to increase DPS sustainably in line with profit growth. After the adoption of IFRS from FY '26, gains on sales of business-related equities will no longer be included in adjusted net income. Through the sustained expansion of average adjusted net income, which is our core -- which is our source of dividends, we will continue to achieve world-class EPS growth and DPS growth consistent with it. There will be no change to this policy even after the adoption of IFRS. Please turn to Page 28. Lastly, on share buyback. First, our current ESR as of the end of September 2025 is at a robust level of 155%. In May, we announced our share buyback forecast for FY '25 at JPY 220 billion. However, after comprehensively considering factors such as the level required to boost EPS growth by 2%, announced bolt-on transactions and other M&A in the pipeline, we have now decided to raise the annual amount by JPY 20 billion to JPY 240 billion. We will continue to implement a disciplined capital policy. Finally, I would like to once again express my sincere gratitude to all our stakeholders, including our shareholders and investors for the support that has enabled us to carry out our business. Thank you very much. As a truly global company with roots in Japan, we intend to work to continuously improve our corporate value while refining our global integrated group management. We appreciate your continued support. That is all for me. Thank you for your kind attention.

Kioke-san, thank you very much. So from this point onwards, I would like to receive questions from the participants and I would like to limit the number of questions to be one question per person at a time. Those people at the venue, I will point to you and please wait until the microphone comes around to you. [Operator Instructions] We may not be able to answer all of your questions due to the time limitation. In case we have no time to answer your questions, Global Communications will get back to you later on. So now I'd like to open the floor. SMBC Nikko, Muraki-san, please.

My name is Muraki from SMBC Nikko. Since I'm limited to ask one question, I'd like to go back to Page 3. At the very beginning of your presentation, you said that you want to be evolving your business model so that you can pass it down to the future generations. I'd like to know a bit more on that point. So if you foresee the next 5 years or maybe 6 years, and you look at how Tokio Marine is today and how would you like to change that in the next 5 to 6 years. On Page 38, I am seeing the very familiar slide. So Kiln, PHLY, which were acquired at [ Sumi-san ] and then through Nagano-san's times and also Komiya-san's times, you have expanded your footprint and not only underwriting, but you have always been mindful of diversification as you executed investment as well. MS&AD and Sompo Holdings, they are getting into the reinsurance market in the United States. MS&AD and Dai-ichi have made minority investment to asset management business as fee business. AXA, who you index yourself to, they don't like complexity in business. So to simplify their portfolio, they have sold their asset management business. And so in the course of the next few years, including M&A opportunities, what are the areas that you want to strengthen or geographical areas that you want to strengthen and other areas where you don't want to strengthen so much or maybe a form of investment that you want to avoid perhaps in the next 5 to 6 years?

Thank you for the question. So let me answer your question. 5 to 6 years or even further out, how do we want to evolve ourselves into the future? In the domestic insurance business, also international business and also the newly established Solutions business, in each of these 3 businesses, they all need to evolve in their own ways. While that is the aspiration, what we want to do is that we need to be purpose-driven. We want to continue to be purpose-driven and also further diversify the portfolio. That's where we attach the importance. The major pillars to do that would be the Solutions business because Solution business, it is a form of providing safety and security to customers and make sure we are at the service of each local community. So this is outside of our underwriting business. It's something that is outside of the traditional area, but we want to expand and further enhance the Solutions business. And after ID&E, we would like to look into further organic creation as well as seek for more M&A opportunities also in the Solutions business. The second major pillar is the further risk diversification to be done globally. Because right now, as Muraki-san mentioned, we began in year 2000 for our full-scale globalization, and we have been diversifying risk globally. And right now, about 65% of profit actually comes from international business. This 65%, about 90% of 65% of the profit is actually from the United States. So I have just introduced our Brazilian business. We have some businesses in Europe. And we also want to create another major pillar within the International division for further profit contribution. While we are surrounded by uncertainties, we want to become even more resilient on a global scale. I said that we want to provide safety and security. We want to expand our ecosystem based on safety and security. I reiterate, we need to be purpose-driven. And our employees need to feel the worth in working for this under this banner. And that's what will excel our enhancement, and that's how we can expand our ecosystem. In the next midterm plan, I'm sure there will be more details to be shared with you, including some numerical targets we will have to this aspiration.

Any other questions? Watanabe-san from Daiwa Securities.

Watanabe from Daiwa Securities. I have one question. This is on Page 70 of the handout. Private credit. On the left-hand side, you show the exposure of AUM within CRO, there's lending and the overall exposure across the group, how much is it? And on Page 72, at the time of global financial crisis, Delphi was able to remain in a positive territory. Why was that possible? If you could explain that.

So there were 2 questions. Let me ask Okada, our CFO, to respond to your questions.

This is Okada speaking. Allow me to respond to your 2 questions. First, with regards to private loans, the exposure of the group today, in terms of AUM, it's JPY 600 billion. And to the second part of your question, track record, before global financial crisis, it was in 2012 that we acquired Delphi and due diligence at the time of M&A, we did check how it went. But even at the time of Lehman shock or global financial crisis, insurance liability was backing its liabilities, and therefore, there were no issues with liability. And therefore, even if there were volatility in the market, they did not have to go through a fire sale. And so credit risk and liquidity premium, they were able to address appropriately. And that is why they were able to maintain a high return even during the global financial crisis.

Any other questions from the floor? Takemura-san from Morgan Stanley, please.

My name is Takemura from Morgan Stanley MUFG Securities. I have some questions regarding Slide #26. I was able to capture your image very well by this slide. And so when you are aiming for the global peer level ROE, number one, which is the top-tier EPS growth, this, I believe, is going to become the biggest driver towards achieving that level of ROE. Related to that, one thing I want to confirm with you is that the direct insurance, while you want to grow your direct insurance by growing direct business, how much impact will it bring to the overall profit? And what is the loss ratio? What is the expense ratio associated with your direct business? The second is that at the bottom of the slide, you're also showing some financial leverage and yours is 3%. In a way, perhaps if you take the equity plus debt, the leverage that you are using now is about 3%. And compared to the peers, you are at a very different level in terms of financial leverage. But over the medium to longer term, what do you think would be the appropriate level of financial leverage for Tokio Marine?

Thank you for the question. Two questions, right? And so direct insurance impact of direct business and also financial leverage, what is the definition and also what we think is appropriate level. And so the first question will be answered by Okada-san, our CFO.

Regarding direct insurance, Tokio Marine Direct -- within the direct players, we are smaller than some of the others. The top line level from the most recent years, it is still loss-making on a single year basis. Over the medium to longer term, we want to grow the top line, perhaps JPY 50 billion level so that it will start to make a positive profit contribution to the entire group. And as a leading investment source that we are making some advertisement promotion this year, but we are starting to see the good impact of this. And so we want to ride on the momentum in order to turn the business profitable as soon as possible. On the leverage question, on 26, the ratio, this is net -- the ratio of hybrid capital within the net asset. And so including the senior financing, this is the hybrid portion out of the net asset. And as for the issuance of hybrid bonds, I know each company make their own decisions. In case of Tokio Marine, in 2020, when we acquired Pure, we had issued hybrid bonds. Basically, for large-scale M&As, if we need to add up some capital, sometimes we consider issuance of hybrid bonds. And so this is not for the recapping purpose, and it's not that we have a target for how much hybrid bonds we should utilize. It's only when you compare this versus ROE. We just wanted to draw your attention to the differences in the financial leverage levels of Tokio Marine versus the peers.

Sakamaki-san from Mizuho. Next question.

Sakamaki from Mizuho. With regards to growth through M&A, I have one question. Going forward, will there be an acceleration of growth through M&A compared to the past in terms of capital adequacy or execution capability to execute M&A? For example, 4 to 5 bolt-ons have been executed in the past, but the number of M&As could be executed in a year, would that be accelerated going forward? What is the current capability of the company? How do you see it? This is my small first question. And my second question is with regards to solutions business, you have targeted solutions business, and so goodwill might have increased. And so I think higher growth through M&A is needed going forward. In that sense, by utilizing leverage, is it possible to further accelerate the growth of the companies you acquire? Two questions.

Thank you very much for those questions. So international business is where we are contemplating on M&A. So I'll ask Mr. Yamamoto, Co-Head of International to respond to that question.

Yes, this is Yamamoto speaking. Sakamaki-san. Thank you for those questions. In terms of the trend of M&A going forward, I think was your question. As you correctly pointed out, from around the year 2000, we have been engaging in M&As. In terms of our capability to engage in successful M&A, yes, indeed, it has grown. But the key is depending on the market, how many available deals will there be? And from that perspective, looking at the current market condition, the number of potential transactions is definitely increasing, and this trend is expected to continue going forward. Let me give you some color. The insurance market is heading towards a softening. For example, PE funds that have certain deals before softening, they will be willing to sell them off. That's for sure. And even the businesses that are currently under insurance companies ahead of softening of the market, they want to make their business more resilient. And therefore, the noncore business could be sold off. And we're seeing such trends emerging, and that is why we're seeing more potential deals available in the market. And that has led to the 2 deals that we have reported to you. But underwriting discipline and the acquisition criteria, we will definitely stick to it. And it all depends on the price, whether it will meet our level. But when there is a rise in opportunity, there could be deals that will fit our criteria. And there are still some that are in the pipeline that we're currently working on, and we're hoping that there will be more opportunities in the future. So I hope I answered your first question. With regards to the second question, I think the question was on CIH. There is a solution aspect to it. So what is the synergy in the solution business? Okay. So this is Yamamoto speaking. I want to also respond to the second part of your question. With regards to Agrihedge, if you could please turn to Page 17 of the material. Goodwill is increasing. So whether we are expecting high growth, I think, is the question. On the left-hand side of Page 17, as you can see, the business Agrihedge has high potential for growth. And the main reason for that is -- well, this is the agriculture and livestock business insurance, especially for cattle livestock, the penetration of insurance is not high at this moment. And that has led to the high growth in the past. And similar growth is expected going forward. And as you correctly pointed out, there is goodwill or intangibles, but high growth that will meet the intangibles is expected. And also another unique strength of this company is that it's not just hedging insurance or derivatives, but for the farmers, we'll be able to offer solutions to the farmers. In other words, analyzing the risk of price volatility, so providing training for that and coverage for that. So it's a packaged solution to the farmers, which is the strength. And combined with that, we expect a strong and high growth. That is all for me.

If I could briefly follow up on that. Page 87 further growth through flexible capital policy it says, but that doesn't mean that we will utilize hybrid bonds in order to create a source for further M&A, depending on the opportunities. If there are opportunities out there, depending on the size, we are able to be flexible. That's what is shown on Page 87. And as was mentioned by Yamamoto-san, we will stick to the 3 principles of M&A. This policy remains intact, which I think is extremely critical. And for the Solutions business, having such a company in our ecosystem, of course, we are expecting a synergy impact to co-create value. And therefore, we will be pursuing our strategy in line with the intentions that you've explained -- mentioned in your question.

Sato-san from JPMorgan, please.

My name is Sato from JPMorgan. As a major interest, I am looking at as surplus, you have about JPY 2 trillion from the end of March, it must have increased even more. So in this situation, how much longer are we going to tolerate this level of surplus? That is my interest. In that sense, under the new definition, there's not going to be the upper limit to the target range. But you are not showing your ROE target. So I don't think the situation is so good. So you have ample surplus over how much of the time would you be able to put it to work or return it to shareholders? Of course, shareholder return over and above what you have done historically to adjust this level. So any ideas on how to use the surplus?

From CFO, Mr. Okada, please answer the question.

Thank you for the question. So first of all, under IFRS, the ESR range, as it was explained and as you reiterated, we are going to be removing the upper threshold in terms of our target range. Capital is important in order to grow our EPS. And also as a result, we want to make the ROE to be on the global peer level. As you show on Page 26, the IFRS-based ROE as of today is about 13%. And then through the measures 1, 2 and 3, we want to enhance this even further by raising the ROE, that is one way to prove that we are doing efficient capital management. In terms of ROE target, with the introduction of IFRS and also the timing for the midterm plan do not align. Therefore, in the current midterm plan, if you go to Page 30, under the current definition of ROE, we are showing some targets, 20%, including business-related equities or 14% without. And then we want to make sure that we achieve those targets under the original ROE as we indicate here. And then in next midterm plan under IFRS starting from fiscal '27, in May of '27, we will be refreshing our ROE target according to the new IFRS-based definition. And that's the timing at which we will be disclosing our new ROE targets to all of you.

Mashima-san from Tokai Tokyo.

My question this time around is the financial institution agents or relationship with financial institutions or banks or more specifically with MUFG. Under MUFG, there's MUSD agent, insurance agent, which I think is the largest financial institution affiliated agent in Japan. So share buyback, TOB or share buyback TOB was conducted and the relationship -- equity-related relationship, I think, will be diluted going forward. But there has been some issues in terms of relationship with banks. Banks, I think, with regards to their relationship with insurance companies, I have a sense that they are willing to kind of distance themselves from insurance companies. And also, there is a call to not provide excessive favors and looking after each other. And especially when it comes to insurance business with MUFG, how is that going to evolve going forward? That is my question. And in the case of Sumitomo Mitsui, they have a major agent called GINSEN's and in July that has been established. And therefore, there are certain companies that are trying to enhance the relationship, strengthen the relationship. But I'm asking what your view is.

Thank you for your question. I'll ask Mr. Shirota, who is the President of TMNF, to respond to that question.

Thank you very much for the question. This is Shirota speaking. I'm not exactly sure whether I have a good understanding of your question. Mitsubishi MUFG unwinding of business-related equities, well, Mitsubishi Bank and insurance business, what is our view on the business relationship with the company? Is that your question? Well, yes. I see. So what we are working on is unwinding of business-related equities and also revisiting second amend of our staff. And with regards to the business customs that we've had over the years, we're working to unwind it. Even if it is within the same group, we are addressing it in the same way. Having said that, we won't have equity ownership type of relationship. But as an important partner as a financial institution, we want to be selected by our customers. That stance remains unchanged. And by correcting our relationship, we want to further work together in order to be preferred by our customers. So just because it's an agent of a financial institution, it doesn't mean that we're going to change our relationship with them. It's an appropriate level of competition that we want to seek further growth. I hope I answered your question.

Well, in terms of net premiums written with these major financial institutions, is that growing or decreasing?

I don't think I have -- I recall properly. But in terms of financial institution channel, it is growing vis-a-vis other channels. That is my understanding.

So Niwa-san from UBS, please.

My name is Niwa from UBS. I have a question regarding the North American business on Page 9, please tell me. So on the right, if I look at the pie chart, within this, the stable rate lines of business, you have much of your business coming from the stable rate environment. Regarding this, if you have any lines where competition is intensifying, please let me know which lines those are? And is it the relaxing of the underwriting discipline by the players? And if there is a background serving to that, please let me know the environment because of alternative capital, and because of the distortion and relaxing of the underwriting discipline by the MGAs, I hear about these stories in the market. And so if you have any viewpoint on what is happening in the North American market, let me know. And should I still see that these are stable rating business? Or is it that there is more pressure to be imposed on the underwriting profit even in those rather stable lines?

So Yamamoto-san in charge of International business, please answer the question.

My name is Yamamoto. Niwa-san, thank you for the question. So here, situation is different for each line of business. I cannot make a blanket statement. Due to various reasons and factors, some competition is intensifying, things moving in the other direction, more pressure being imposed on bottom line, et cetera. As long as looking at the lines we have, we do not see any relaxation of the underwriting discipline in any of the lines we have. However, according to the market, for example, D&O and cyber. At one time, there was escalated premium rate and that improved profitability. So now it's coming down and competition is intensifying. And that is because MGAs and also the new entrants are coming into the market, and that is what had intensified competition. Finally, in North America, the rate decline has stopped, but these are the cases where competition intensified due to new entrants and there was a higher pressure imposed on the bottom line. So that's one case. Another case I'd like to introduce with you for a different reason when we talk about profitability is that where it says MSL, this is medical stop loss. This is related to medical expenses, which continue to inflate. So this is a single year renewal basis, and so you can change the rate each year at the timing of renewal. However, we need to look at the underlying performance, the results and make sure that we get adequate rates. And so that's how we look at the medical stop loss. As you mentioned, recently, depending on some lines of business, the uniqueness appears in different reasons and sometimes the rates are stable or volatile all for different reasons for line by line. So for each lines of business, we need to look at the uniqueness. We need to keep our underwriting discipline. And if on the market side due to increase in the new entrants and intensified competition, et cetera, as Koike-san, our CEO, mentioned, we will not be doing any excessive underwriting because we need to keep our bottom line, and that will still continue to be the stance of Tokio Marine Group.

Let me just add something to that. So as Yamamoto-san mentioned, competition is intensifying in some areas of business. So when we do the underwriting for certain lines of business, perhaps the -- achieving the top line goal has become rather difficult. However, looking at the bottom line, at least in line with the midterm plan that we have shared with you, we will be able to achieve the midterm plan targets.

Let me see if there are any further questions. BofA Tsujino-san has her hand up by phone.

My first question is kind of a follow-up to Sato-san's question earlier. Year ending March '27, former standard, 14% is achievable in the old ROE and capital adjustment might not be necessary. And from May '27 under the new target, there is a target for the year ending March '29. And if there is a target, you will be making that judgment of whether you're going to have a target will be sometime in the future. So we should be waiting for that patiently. Is that what you're saying? Am I hearing you properly? That's my first question. And my second question is improvement in Japan P&C, and you also talked about your plans. But in specialty, every year, there's always this big large account, large loss, large loss every year. And are you able to price properly? It's usually Japanese companies in the international market, large losses. compared to non-Japanese P&C companies, aren't you offering a low rate? That's my question and concern. And if -- of course, if there is a challenge, there is room for improvement, which is, I think, also quite favorable, but those are my 2 questions.

Thank you for your questions. There were 2 questions. With your question with regards to your question on ROE, I'll ask Mr. Okada, CFO, to respond. And the second part of your question on specialty, I'll ask Sakiyama-san to respond to that question.

Yes, this is Okada speaking. This is my response kind of overlaps with what I said to Sato-san, but from fiscal '26, IFRS will be adopted officially. And therefore, in May of next year for the full year plan for '26 and if we achieve the full year target of '26, the ROE target will also be disclosed on an IFRS basis. In the meantime, the current midterm plan, which started JGAAP, next year will be the final year. And so I think it will be kind of a reference basis, but JGAAP basis, ROE improvement from 3 years from '24, whether that is achievable or not will also be disclosed. And so at the time of the closure of FY '26, we would like to do a recap on the same way. So the ROE level, how are we going to raise ROE with regards to our next target? It will be in the next midterm plan. In other words, each business unit and each group companies will deliberate on this for the next midterm plan and the target will come up -- will be announced in May of '27. Now when it comes to capital level adjustment, of course, achieving the level -- the target is extremely critical, but the ESR level and contribution to EPS growth and the business investment pipeline, we want to be flexible by thinking about it on every 6 months. So we will be mindful of the ROE level, but also look at the capital level and those factors will be taken into account in deciding on the shareholder return for next fiscal year. And basically, we are contemplating on maintaining our shareholder return policy for next fiscal year.

Sakiyama from TMNF. Tsujino-san, thank you very much for your question. And your question, I think, pertains to the increase in IBNR in the United States, and we're seeing losses in specialty this fiscal year. So IBNR increase in North America last year in property, for example, in auto, this I think, is unthinkable in Japan, but 10 million or more development took place in the United States for auto or there was delays in litigations in the United States and damage has increased. So IBNR has been developed next year. So we have taken enough countermeasures last fiscal year, I think, is part of your question. But this year, again, a similar trend is occurring in specialty in North America. But actually, this year, 10 losses that occurred 10 years ago, loss has developed. What occurred in last fiscal year was excess layer where TMNF was underwriting, but this time, it's an umbrella type, which is under primary insurance coverage in Japan. All of a sudden, which is something that goes back 10 years ago and has all of a sudden developed. In other words, the nature of IBNR or losses is different last year and this year. But what is common is loss developing for prior year losses. And from 2023, social inflation trends have been taken into account in North America. We have strengthened underwriting and reducing the limits and so forth. These initiatives are implemented in a disciplined manner. And therefore, in our underwriting policies, today, we do not have major concerns. I hope I answered your question.

So this is Koike speaking. I would like to briefly supplement. With regards to the first question, Mr. Okada said it well. We will be setting our ROE for the next midterm plan. But in the meantime, investment to our business is our top priority. But if there is a lack of opportunity, we will revise on a 6-month basis flexibly. Now when it comes to the second part of your question, you said Japanese companies overseas and low rates, Japan business overseas, well, I think you are right. But in the past 3 years, we have been able to improve our profitability quite significantly. And so today, in terms of the competitive landscape, local companies in the United States, we are -- there are cases where there is an underbid where we will lose our account. And that is what we are seeing lately.

And so on telephone, we have Sasaki-san from Nomura Securities.

My name is Sasaki from Nomura Securities. On Page 24, let me ask you a question. And so in this plan, the solution business, you want to scale up your solutions business. And what I wanted to ask you is what is the size that you're thinking of to what level do you want to grow this business too? And also, where would be your monetization point? And so what ID&E used to do? Is it through the consultation fee mainly that would feed to the profit? Or is it that the bundled sales of insurance policies that would enhance your profit growth? And so where would be your monetization points? And if possible, when I hear of solution, I think of asset management. And outside of Japan, other insurance companies who have their names listed, when they have a good competitive asset management business, valuation tends to be higher. But if I look at Tokio Marine for the next 5 to 10 years, is asset management part of your expansion story? Do you have any of that kind of ideas right now as you want to scale up the business?

Okay. So first, regarding solutions business, let me answer the first part of your question. So when we talk about solutions business in terms of the size that we are thinking of, as Okada-san mentioned, towards the next midterm plan, we will be more realistically and on a detailed level, we'll share with you our target in terms of the size of the business. In terms of the monetization points, there will be various and diverse monetization point. So one is similar to what ID&E used to do or what Agrihedge is also doing, which is through consultation fee. So that will be a fee business. That will be one monetization point. The second I can think of is collaboration with insurance business. And so whatever we do may lead to expansion of underwriting and so underwriting profit is another. And furthermore, if we want to create new values, we want to seek for new potential of growth in those new areas, but that is not so easy. And so to begin with the fee income and also the expanded underwriting will still be the main contributors. But when we talk about solutions business, it's not that we are only looking into fee business. That is not the correct way to look at it because ID&E, for example, they provide consultation. They have the urban planning and they also have energy business. And so energy business is not necessarily fee business. They are doing the energy business themselves. So there are various ways to contribute to security and safety. We just need to mix and match these different components that would best contribute to the growth of the group. And then is asset management a meaningful target for the future years. As you know, we have a TMAM, Tokio Marine Asset Management, within the group. And do we want to expand this kind of business? I would not be ruling out the option of doing so. But then right now, asset management business itself is not at the center of the focus right now as we look into the future.

Next question on phone, SBI Securities, Otsuka-san.

Otsuka from SBI Securities. I hope you can hear me. Yes, loud and clear. Top page in your story of value creation, I definitely would like to ask this question to you, Koike-san. In order to realize your purpose, what do you think is lacking? If I ask it the other way around, what do you think needs to be changed on a short-term basis or what will take time but has to be changed over the medium and long term? If I could have your views on that. I kind of asked a similar question 6 months ago, but I hope you could respond to this question.

Yes. Thank you very much for your question. In order to realize our purpose, what is missing? What has to be changed? What is missing? Rather than saying what is missing, and I think this is something that I said when I assumed the position, for Tokio Marine Group, the business model evolution is what we need. We've been in the insurance business and generate intrinsic value and offer value to our customers and society. We've been focusing on that. But in addition to insurance, through solution business, we will offer a sense of safety and security. So changing the mindset I think, is something that will require major change. And also the products offered as solution by bringing ID&E into a group and the preparation company that is currently being developed, that is how we want to materialize the solutions business and the lineup, the product mix of solutions is also extremely critical. We need to enrich our offerings. What will make this possible is the employees, the aspiration, should I say, of our employees. And as I said at the outset, I've been holding Townhall meetings in and outside of Japan. And I am sensing the strong passion amongst our employees. The members that are working to change the business model, I feel that they also are very enthusiastic about this. So when you ask me the question of what is lacking today, I would say that the products that we can offer in solutions business, I think that will be a short answer to your question.

Understood. Kind of a follow-up question. Sorry about that. Page 24, this is a very easy to understand chart on Page 24, I appreciate. And you were talking about employees' mindset and aspirations. Apart from that, I also want to ask a question from a capability perspective. The Page 24 at the bottom, this is about acquiring international business by solutions business. This is outside of insurance intrinsic value and it's a noninsurance M&A. So not just a mindset change, but capability, I think, has to be added. Anything to add on that?

Yes. Thank you for that. For Tokio Marine Holdings, how are we going to manage the solutions business, that's very critical. And I didn't say that we are missing something on that because we have welcomed ID&E in the group, and we have already built up that capability. Within PMI, apply common sense as an insurance company, there are areas that are not working well. And that's definitely an area where we're striving to deliver in the solutions business, which is new to us. But by having this new company into our group, ID&E allows us to come up with a more flexible way of thinking and the value creation-wise, definitely, this is going to bring about some positive impact. So I look forward to that capability within your group.

Any other questions? Watanabe-san from Daiwa please.

ROE and adjustment of the denominator. And so Sompo Holdings who has already begun IFRS, the unrealized gain becomes part of the capital and that makes the denominator bigger. As you sell down your equities, DE, which is the denominator side of the equation gets bigger and bigger. And so apart from EPS or ROE, any capital adjustment you're planning to do for that denominator side? And also, when you review this every 6 months, is it so that you can adjust it for more than 2% of your market cap.

Okada-san will answer the question.

So IFRS, with the introduction, we have revisited, changed the definition of ROE and then the denominator side of the equation, as we -- when it's a gain is unrealized, it does not get included in the denominator. However, once we sell the equities and it becomes cash, it does get included in the denominator. And so in the next midterm plan, towards fiscal '29 as we need to be selling down our equities to 0, we have factored in that the denominator is going to get bigger. And even including that, we want to bring up the ROE to the global peer level, and that will be part of the new midterm plan starting from '27. As capital adjustment, the appropriate level of capital from our perspective in a multifaceted manner, we look at the level of ROE and also what we want to prioritize, which is the business investment, the M&A pipeline and also in the current plan, there will be some contribution to the growth of EPS. And so we want to look at these factors comprehensively. And rather than including ROE to those targets, by doing what I have mentioned, we want to be raising up the ROE so that we make a midterm plan and then we review the situation every 6 months. That's what I foresee. When you do that, 2% of market cap and adjustment over and above that level, would you still do it even if it's at that scale? EPS growth, we are aiming for 8% or more and then 1% to 2% will come from the adjustment. And so 2% is the level that we are thinking of in terms of contribution to EPS. But then once we move on to the next midterm plan, we still really haven't started discussing that in details yet. And so do we set the target for EPS growth? Are we going to be setting the target for how much of ROE growth and also share buyback, are we going to be announcing any plans related to share buyback those have yet been discussed internally.

Are there any other questions? If not, can I ask Mr. Koike to give a closing remark?

Yes. Thank you very much for joining us in spite of your busy schedules. Through our exchanges with you, we, I think, are able to receive ideas and hints on how to grow our business going forward. I might be repeating myself, but we want to deliver a growth evolution that is true to our identity and grow our business. Solutions business, domestic P&C and international business. We don't exclude the possibility of welcoming new companies through M&A. So with good governance in place, we'll make sure to further grow our businesses so that we will evolve and grow as a global company with roots in Japan. Your continued support is very much appreciated. Thank you very much.

And with this, we would like to conclude the IR briefing for the second half of FY '25 (sic) '26. Thank you very much for joining us today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]