CFO Letter

Capital Management Cycle

Track Record of Disciplined Capital Management

• *1Combined only with the amounts disclosed (acquired from Refinitiv Eikon)

Organic Growth

Our approach does not align with the typical “shrink to grow” strategy. Instead, our key focus for boosting ROE revolves around molecular expansion, or “organic growth,” specifically aiming for the worldʼs top-class EPS growth. The characteristics of our portfolio are (1) a domestic market foundatiニュー カジノ 入金不要ボーナスhat generates stable earnings, (2) growth of specialty companies in developed countries encompassing less correlated business lines, and (3) high growth in emerging countries such as Brazil and Asia.
In my role as Group CFO, I contribute to the growth of each business by actively engaging ニュー カジノ 入金不要ボーナスhe management strategies developed by each business, which are formulated based on capital allocation and other measures. For instance, I collaborate with the senior leadership of each business to address shifts ニュー カジノ 入金不要ボーナスhe business landscape, evaluate strategic advancements, and determine if any adjustments are warranted. Additionally, I play an active role in shaping the forthcoming Mid-Term Business Plan commencing next fiscal year.
In fiscal 2022, both domestic and overseas Group entities effectively executed their management strategies, achieving growth beyond market norms in appealing sectors. Consequently, on a normalized basis, adjusted net income surged to 617.1 billion yen, a year-on-year gain of 22%, and adjusted ROE rose to 15.1%, up 2.4 percentage points year on year.

• *2The breakdown of adjusted net income is the profit of each business unit.
• *3Domestic non-life insurance = TMNF
• *4Domestic life insurance = TMNL
• *5Other domestic non-life insurance, financial, and other businesses, and gains relating to sales of business-related equities, etc., that are not included in business unit profits
• *6The following one-time effects totaling +72.9 billion yen were excluded from the fiscal 2021 actual result of 578.3 billion yen: 1) Natural disasters: Approximately +17.0 billion yen, 2) North American capital gains, etc.: Approximately +24.0 billion yen, 3) COVID-19: Approximately +23.0 billion yen, and 4) Gains ニュー カジノ 入金不要ボーナスhe sale of business-related equities: Approximately +9.0 billion yen (ニュー カジノ 入金不要ボーナスhe portion of sales exceeding 100.0 billion yen)
• *7The following one-time effects totaling ‒173.1 billion yen were excluded from the fiscal 2022 actual result of 444.0 billion yen: 1) Natural disasters: Approximately ‒26.0 billion yen, 2) North American capital gains, etc.: Approximately ‒10.5 billion yen, 3) COVID-19: Approximately ‒134.0 billion yen, 4) Conflict: Approximately ‒14.0 billion yen, 5) South African floods: Approximately ‒4.0 billion yen, and 6) Gains ニュー カジノ 入金不要ボーナスhe sale of business-related equities: Approximately +15.0 billion yen (ニュー カジノ 入金不要ボーナスhe portion of sales exceeding 100.0 billion yen)

Portfolio Review/Business Investment

As an insurance company, we increase returns by taking risks in insurance underwriting and asset management as a key to our business. We have positioned Enterprise Risk Management (ERM) as the cornerstone of Group management. ERM takes into consideration our risk appetite, to what extent we undertake risks (risk strategy), whether return on risk is sufficient, and whether risks are appropriately diversified (see pp. 50‒53). We have also established the ERM Committee to discuss ERM strategy. As the Committeeʼs chair, I assess the growth potential and profitability of all businesses and the risks associated with each strategy in a forward-looking manner and formulate a capital allocation plan to optimize the business portfolio from a Group-wide perspective.
From the standpoint of business investment, we often receive inquiries during our dialogues with the capital market about “the next step in M&A.” However, for us, M&A is a “means” for risk diversification and profit growth, rather than being an ultimate “goal.” Therefore, we deliberately refrain from setting an “M&A budget” or a “profit plan dependent on M&A.” In the case of large-scale M&A opportunities, we generally perceive current valuations to be inflated. Consequently, we believe that exercising patience is crucial as we engage in Market Intelligence activities, constantly monitoring long and short lists of potential acquisitiニュー カジノ 入金不要ボーナスargets, and carefully selecting “promising companies” that offer a sufficient return on investment (ROI). Concurrently, we proactively seize opportunities for smaller-scale bolt-on M&A, capitalizing ニュー カジノ 入金不要ボーナスhe experience and insights within the Group to execute these initiatives consistently.
Under this guiding principle, we have pursued disciplined and strategic approaches to various entry (M&A, etc.) and exit (divestment, etc.) opportunities, considering risk diversification and future growth prospects. For instance, we have undertaken initiatives such as the acquisition of Pure Group, establishment of a local entity in Canada, and bolt-on M&A through Delphi Financial Group (Standard Security Life Insurance Company) and ニュー カジノ 入金不要ボーナスne HCC (Gulf Guaranty Employee Benefit Services, Inc.). Simultaneously, we have divested from reinsurance subsidiaries and ニュー カジノ 入金不要ボーナスne Kilnʼs subsidiary Highland, all aimed at achieving optimal capital allocation.
Following a review of our capital structure, we issued hybrid bonds when we acquired Pure in consideration of capital costs. ニュー カジノ 入金不要ボーナスhe future, we will also explore the use of hybrid bonds as necessary as one of the means for achieving the optimal capital structure while preventing equity dilution.
From a capital restructuring perspective, we have been consistently reducing business-related equities for over 20 years. Recently, we announced our intentiニュー カジノ 入金不要ボーナスo sell more than 600 billion yen worth of business-related equities over the next four years, to 2026. We intend to prudently utilize the capital generated from this accelerated divestment.
By following this approach, we have consistently enhanced our corporate value by effectively refreshing our risk portfolio. Looking ahead, we will maintain proper risk control while accelerating growth through well-considered capital allocation.

Achieving Growth through a Flexible Capital Strategy

• *1 The breakdown of profit is based ニュー カジノ 入金不要ボーナスhe profit of each business segment (yearly plan), except “Other businesses” are included in “Japan.”
• *2Profit on a financial accounting basis for TMNL

Shareholder Return

ニュー カジノ 入金不要ボーナスne Group regards dividends as the basis of shareholder returns and our basic policy is to sustainably increase dividends per share (DPS) in line with profit growth. Specifically, we calculate ordinary dividends based on our 5-year average adjusted net income to temper volatility and apply a dividend payout ratio that aligns with global peer standards. For fiscal 2023, against the backdrop of consistent profit growth, we have been steadily expanding the foundation for dividends, our 5-year average adjusted net income. As planned, by raising the dividend payout ratio to the targeted global peer level of 50%, we forecast a 21% increase in DPS compared with the previous year, marking the 12th consecutive year of dividend growth.
We use share buybacks as a means of adjusting capital levels and decisions will be made based on comprehensive consideration of economic solvency ratio (ESR), market conditions, opportunities for M&A, and additional risk-taking. Given our ESR of 124% as of the end of March 2023, well withニュー カジノ 入金不要ボーナスhe target range, our approach for fiscal 2023 is to implement a flexible share buyback plan of 100 billion yen throughout the year, with an initial resolution of 50 billion yen made in May.

Dividend Growth

• *1DPS = Five-year adjusted net income × Payout ratio / Number of shares
• *2Figures in parentheses are prior to the three-for-one stock split in October 2022.

Status of the Economic Solvency Ratio (ESR)

• *3Amount of risk calculated by a model using 99.95% VaR (AA-rated basis)

ROE

As a result of these initiatives, our adjusted ROE has been consistently above the 7% cost of capital. However, as mentioned earlier, we recognize that this level is not yet satisfactory. Our goal is to achieve the worldʼs top-class earnings per share (EPS) growth while executing disciplined capital policies, aiming to elevate our ROE to a level on par with our global peers.

Adjusted ROE Is Trending Above the Cost of Capital of 7%

Steady Improvement in ROE

Reference: Price-to-Book Value Ratio (PBR) Is Currently Above One

Enterprise Risk Management (ERM)

ERM^*1 Framework

Finally, I would like to reiterate our commitment to Enterprise Risk Management (ERM), which serves as a pillar of management. In concrete terms, we always maintain a keen awareness of the interplay between “risk,” “capital,” and “profit” within the Group. By ensuring the adequacy of capital in relatiニュー カジノ 入金不要ボーナスo risks and achieving high profitability, we aim to sustainably enhance our corporate value.

• *1Enterprise Risk Management

ニュー カジノ 入金不要ボーナスne Group’s ERM Structure and Initiatives to Strengthen it

The risks surrounding ニュー カジノ 入金不要ボーナスne Group are becoming more diversified and complex due to global business development and changes in the business environment. In addition, in todayʼs uncertain and rapidly changing political, economic, and social climate, we must constantly watch for the emergence of new risks and take appropriate action. From this point of view, we are not limited to conventional risk management for the purpose of risk mitigation and avoidance, but are comprehensively assessing risk in qualitative and quantitative ways.
In addition, we are continuing our efforts to further strengthen the ERM structure. For instance, we are enhancing risk assessments to include risks that are difficult to quantify, such as cyber risks, and improving natural disaster risk management, including a review of our reinsurance schemes.

ERM Cycle

• *2Emerging risks are new risks that arise due to changes ニュー カジノ 入金不要ボーナスhe environment or other factors, encompassing those that were not traditionally recognized as risks and those that have increased markedly in severity. Specifically, these risks are identified through internal discussions, considering results from subsidiary assessments and information from external sources.
• *3Material risks refer to risks that could have a substantial impact on financial soundness, business continuity, and other critical aspects. Specifically, we focus on emerging risks as well as material risks from the previous business year withニュー カジノ 入金不要ボーナスhe Group. We assess the impact (evaluating economic, business continuity, and reputational impacts) and consider the frequency and likelihood to identify the most significant factors. We specify these risks using the following 5×5 matrix.
• *4For material risks, we formulate response measures (Plan), implement these measures (Do), assess the outcomes (Check), and make improvements (Act).

Reference: Qualitative Risk Management

In qualitative risk management, all risks, including risks that emerge due to changes in the environment, are identified and reported to management, while risks to the Group are discussed at the management level as needed. Risks identified in this manner are evaluated not only in terms of the economic loss or frequency of occurrence but also in terms of business continuity and reputation. Risks that have a large impact ニュー カジノ 入金不要ボーナスhe financial soundness and business continuity of the Group or of individual Group companies are identified as “material risks.” For identified material risks, we assess the sufficiency of capital through the quantitative risk management process described below, draw up control measures before the risks emerge and countermeasures*5 to be taken if the risks do emerge, and conduct PDCA management.

• *5Pre-emergence risk control measures include monitoring and risk management based ニュー カジノ 入金不要ボーナスhe market environment and regulatory trends, while post-emergence risk response measures include manuals (including business continuity plans) and mock drills.

Detection of Emerging Risks and the Process of Identifying Material Risks

Examples of Emerging Risks

Emerging risks/Scenarios	Examples of responses
(1) Progressive deterioration of public infrastructure and corporate facilities Risk that insurance payouts will increase as growing deterioration of public infrastructure and corporate facilities leads to frequent major accidents	Response to economic impact Appropriately assess risks and develop products that meet customer needs, while generating stable profits through risk-appropriate underwriting, risk diversification, and arranging reinsurance With respect to (4) above, engage in research and analysis ニュー カジノ 入金不要ボーナスhe impacts of climate change
(2) Space risk Risk that insurance payouts will increase due to widespread power grid failures caused by geomagnetic storms and frequent communication disruptions resulting from space weather and increased space debris
(3) Innovations in medicine and biotechnology Risk that insurance payouts will increase due to innovations in cancer diagnosis and genetic diagnosis technologies
(4) Global warming (physical risks of climate change) Risk that insurance payouts will increase due to intensifying environmental degradation and disasters caused by global warming
(5) Inadequate response to decarbonization (climate change transition risk) Risk of a decline in value of invested companies that lag behind ニュー カジノ 入金不要ボーナスransitioning to a decarbonized society, impacting the value of the Group’s assets Risk that the Group’s efforts towards decarbonization are perceived as inadequate by society, damaging our reputation	Response to the impact on business continuity and reputation Publicly disclose our fundamental approach to climate change,underwriting and investment policies, and the initiatives based ニュー カジノ 入金不要ボーナスhese, and exchange opinions with experts and advisors in the climate field
(6) Delayed response to stricter global focus on human rights Risk that ニュー カジノ 入金不要ボーナスne Group’s efforts regarding respect for human rights are perceived as inadequate by society, damaging our reputation	Response to the impact on business continuity and reputation Publicly disclose our fundamental approach to human rights, human rights basic policies, management structure for respect of human rights,guidelines for responsible procurement, and initiatives based ニュー カジノ 入金不要ボーナスhese,and exchange opinions with experts and advisors in the human rights field

Material Risks for Fiscal 2023

Emerging risks/Scenarios	Examples of responses
(1) Domestic or overseas economic crisis, chaos in financial and capital markets The value of the Group’s assets may fall substantially due to a global economic crisis ニュー カジノ 入金不要ボーナスhe magnitude of the 2008 global financial crisis occurs, or turmoil in financial and capital markets caused by geopolitical risk.	Response to economic impact Investigate the impact ニュー カジノ 入金不要ボーナスhe market due to geopolitical risks Control exposure through credit risk aggregation and management Conduct stress tests to confirm capital adequacy and funding liquidity Establish action plans for financial crises and interest rate increase risks
(2) Loss of confidence in JGBs The value of the Group’s assets may fall substantially as Japanese government bonds plummet in value due to a decline ニュー カジノ 入金不要ボーナスhe government’s creditworthiness or the emergence of hyperinflation.
(3) Major earthquakes A major earthquake beneath Tokyo or along the Nankai Trough may lead to significant human and material losses, causing widespread disruptions to social and economic activities, including those of the Group, resulting in large insurance payouts.	Response to economic impact Appropriately assess risks, including risk aggregation,and develop products that meet customer needs, while generating stable profits through risk-appropriate underwriting, risk diversification, and arranging reinsurance With respect to (3), (4), and (6) above, conduct stress tests to confirm capital adequacy and funding liquidity Response to the impact on business continuity and reputation Establish crisis management systems and business continuity plans, and verify their effectiveness through emergency drills With respect to (7) above, develop cybersecurity measures, and verify their effectiveness through emergency drills
(4) Major wind and flooding disasters (including physical risks of climate change) Major typhoons or torrential rains may cause extensive physical damage, leading to significant disruptions in social and economic activities, including those of the Group,resulting in large insurance payouts.
(5) Volcanic eruptions The eruption of Mount Fuji or similar volcanic activities could result in widespread physical damage due to volcanic ash and other effects, leading to significant disruptions in social and economic activities, including those of the Group, resulting in large insurance payouts.
(6) Pandemics The widespread outbreak of a new infectious disease could result in significant insurance payouts.
(7) Cyber risk A cyberattack targeting many Group customers or supply chains may lead to significant insurance payouts. A cyberattack targeting the Group’s systems may result ニュー カジノ 入金不要ボーナスhe leakage of sensitive information and disruptions to business operations.
(8) Inflation Due to soaring raw material costs and rapid increases in global prices, insurance payout costs rise, resulting in diminished underwriting profits from the inability to revise products in line with risks or secure reinsurance.	Response to economic impact Analyze the impact of inflation on insurance products and undertake product revisions and underwriting commensurate with risk
(9) Disruptive innovation Innovations that drastically reshape industry structures through digital transformation and innovative new entrants may erode the Group’s competitive advantage and lead to significant reductions in premium income and profits.	Response to economic impact Ensure the competitive advantage of our insurance business by implementing basic strategies and executing projects for digital transformation Expand into new businesses, primarily in areas closely aligned with our insurance operations
(10) Continued mutation of COVID-19 virus The continued mutation and sustained spread of COVID-19 may lead to disruptions in business activities.	Response to the impact on business continuity and reputation Establish crisis management systems and business continuity plans, and verify their effectiveness through emergency drills (Response to economic impact is detailed in (1) above)
(11) Geopolitical risk Escalation of tensions between nations into military conflicts could lead to extensive human and material damages, leading to significant disruptions in social and economic activities, including those of the Group.
(12) Conduct risk Deviation between industry and corporate practices and societal norms could lead to the perception that the initiatives of the ニュー カジノ 入金不要ボーナスne Group are inadequate by society,damaging our reputation.	Response to the impact on business continuity and reputation Conduct surveys on employee awareness and behavior, and enhance the efforts of the Group by compiling and sharing best practices
(13) Violation of laws and regulations Non-compliance with regulations concerning personal data protection, anti-money laundering, and the reinforcement of economic sanctions related to the US-China tensions and the Ukraine conflict may result ニュー カジノ 入金不要ボーナスhe imposition of fines and penalties and harm the Group’s reputation.	Response to the impact on business continuity and reputation Monitor domestic and international social environments, trends in government agencies, and changes in regulatory requirements, and take necessary measures accordingly

Reference: Quantitative Risk Management

In quantitative risk management, the Company measures risk amounts and conducts stress tests using risk models based ニュー カジノ 入金不要ボーナスhe latest knowledge available, verifying from multiple perspectives that its capital is sufficient relative to the risks it holds, with the aim of maintaining its credit ratings and preventing bankruptcy.
Specifically, the Company quantifies potential risks using a statistical metric called “Value at Risk (VaR)” on a 99.95% confidence level, which corresponds to an AA credit rating, and verifies its capital adequacy based on the Economic Solvency Ratio (ESR) arrived at by dividing net asset value*1 by risk capital. A 99.95% VaR is equivalent to the damage caused by an occurrence of a risk that happens once in 2,000 years. Although many insurance companies around the world use 99.5% VaR (once in 200 years), ニュー カジノ 入金不要ボーナスne Group uses a much more stringent standard to evaluate risk capital. The target range of the Groupʼs ESR is 100%‒140%, and as of March 31, 2023, the Groupʼs ESR was 124%, confirming that the Group is adequately capitalized.
We also conduct stress tests based on scenarios involving significant economic losses from material risks such as domestic and international economic crises, disruptions in financial and capital markets, loss of confidence in Japanese government bonds, major earthquakes, major wind and water-related disasters, and widespread outbreaks of new viruses. We also assess scenarios where multiple critical risks materialize simultaneously. Through these stress tests, we confirm separately that there are no issues regarding capital adequacy and liquidity.

• *1Calculated by adding the value of catastrophe loss reserves, deducting for goodwill, and making other adjustments to consolidated net assets on a financial accounting basis.

Status of the Economic Solvency Ratio (ESR)

• *2Amount of risk calculated by a model using 99.95% VaR (AA-rated basis)