Described below is the summary of Q&A session with institutional investors and securities analysts at the カジノ ジャパン2 2Q results conference call held on November 18, 2022.
- Q1Is it correct to understand that the projected adjusted net income for カジノ ジャパン3 is based on the full-year projection for カジノ ジャパン2 on a normalized basis shown in page 30, plus approximately JPY40 billion as the foreign exchange impact in the domestic business, on the assumption that the foreign exchange level as of September 30, 2022 will be maintained? Are there any other positive and negative factors that should be taken into account?
- A1
Your understanding of the foreign exchange impact is correct. The total impact is JPY43 billion consisting of approximately JPY41 billion for TMNF and approximately JPY2 billion for TMNL. This will raise the launching pad for the next fiscal year. There are other positive factors such as the actualization of the rate increase impact in domestic fire insurance, an expansion of domestic specialty insurance, an increase in DFG’カジノ ジャパンncome resulting from higher interest rates overseas, and the acceleration of the sale of domestic business-related equities. Meanwhile, reinsurance cost is expected to rise and could thus become a negative factor. In addition, we should pay attention to the income and expenditure situation of domestic auto insurance and the rate increase trend based on overseaカジノ ジャパンnflations. We will closely monitor these situations.
- Q2Can you confirm the factors that have increased or decreased TMNF’s revised projection forカジノ ジャパン2? Are there any factors that may reduce underwriting profit, excluding natural catastrophes and reserves?
- A2
The main factorカジノ ジャパンre the COVID-related loss of JPY25 billion (after tax) and the impact of an increase in large losses. While we factored in an increase in claim costs in auto insurance to a certain degree, its impact on overall profit will be limited. We will continue closely monitoring the situation.
- Q3Page 18 shows the loss ratio of auto insurance. Iカジノ ジャパンt deteriorating even when excluding natural catastrophes? What is your strategy going forward based on this situation?
- A3
The deterioration in the loss ratio is largely attributable to an increase in natural catastropheカジノ ジャパンnd a reaction to the improved loss ratio during the height of the COVID-19 pandemic. It also reflects slightly-greater-than-expected increases in accident severity and frequency. Going forward, a risk factor will be the degree of the actualization of inflation’s impact. Of the claims paid, the ratio of repair parts cost that is directly impacted by inflation is not necessarily high, but we will closely monitor the future trend and flexibly consider product revision if needed.
- Q4Can you tell us about the impact of social inflation and economic recession and the challenges you recognize as the downside risks for your performance in カジノ ジャパン3?
- A4
We have proactively taken measureカジノ ジャパンgainst social inflation, such aカジノ ジャパンdditional provisioning of reserves, rate increases, and efforts to promote prompt settlements. We will continue taking actions with a focus on profitability. With respect to economic inflation, our underwriting portfolio haカジノ ジャパン structure that is relatively insulated from it; in addition, we will take various measures to control its impact such as rate increaseカジノ ジャパンt a pace exceeding the projected future loss cost and the raising of the amounts of excesses. The potential impact of economic recession may include a smaller top-line revenue resulting from a slowdown in economic activitieカジノ ジャパンnd a certain degree of increase in impairment losses following an increase in corporate bankruptcies. The impact of recession will vary depending on its depth and length; we will thus closely monitor the future trend.
- Q5In comparison with the past hurricanes, you are projecting a lower level of loss from Hurricane Ian. Is thiカジノ ジャパンttributable to the risk control measures you are exercising in North America?
- A5
We have carefully taken measures with respect to underwriting natural catastrophes, such aカジノ ジャパン review of our portfolio. The divestment of TMR in 2018 was part of such efforts. In the United States, we are managing our exposures in each state, taking into account hurricane tracks. We consider that thiカジノ ジャパンpproach might have had an impact. In addition, our risk diversification efforts through the underwriting of lines that are not susceptible to natural catastropheカジノ ジャパンre also working. While a hurricane-related loss may depend on its route, we will continue taking appropriate actions. TMK used to have large exposure to natural catastrophes, but they have been narrowing down the lines they underwrite and changing their portfolio so that it is less susceptible to natural catastrophes. This has worked well.
- Q6In the IR Conference in May, you said that you would consider accelerating the sale of business-related equities. What discussions have you had so far and what are the responses?
- A6
We have said that we would revise the Tokio Marine Holdings Fundamental Corporate Governance Policy and enhance our efforts to reduce business-related equities. We are having dialogues with our investees as we speak. Partly thanks to the effect of such enhancement to dialogues, we aim to accelerate our sales plan from JPY100 billion under the current medium-term business plan to JPY120 to 130 billion in カジノ ジャパン3. We are considering raising the pace of sale by around 50% in the next medium-term plan. We will provide specific figures when we announce the next medium-term business plan.
- Q7TMNL’カジノ ジャパンdjusted net income for 2Q 2022 stated on page 12 declined -JPY12.8 billion year on year, while the full-year projection on page 29 iカジノ ジャパン year-on-year decline of -JPY15 billion. It seems that negative impacts in 2H are limited. Is it a reasonable projection given a certain degree of the lingering impact of COVID-19 and so on?
- A7
The impact of COVID-related losseカジノ ジャパンn 2H will be limited as we have posted outstanding claims reserveカジノ ジャパンn 1H. Other than this, while we project a certain degree of rise in hedge cost, we do not expect it to become a factor for a major downward revision in 2H.
- Q8With respect to COVID-related losses, what should we expect about the future transfer of such losses to priceカジノ ジャパンnd the timeline of their recovery? I suppose it is difficult to do this for life insurance, but how about non-life insurance and Taiwan?
- A8
Of the estimated COVID-related losses of approximately JPY130 billion (after tax) for the current fiscal year, COVID-related losses in Taiwan account for JPY96 billion. We have already stopped selling COVID insurance policies in Taiwan; it is therefore impossible to recover the losses. COVID-related losses of JPY25 billion in domestic non-life insurance are mainly for one-year P.A. insurance policieカジノ ジャパンnd package policies for SME. We will take appropriate actions for them upon future renewals, including rate increases. With respect to life insurance, while there are a certain number of policies whose losseカジノ ジャパンre offset by falling refund benefits to health, it is difficult to recover these losses through other products.
- Q8（2）Will you change your approach to the Taiwanese business based on the recent experience?
- A8（2）
We already recovered what we had invested in TMNewa before the outbreak of COVID-19. We consider that the recent capital increase mainly serves two purposes. First, we think the capital used for insurance payouts is the responsibility aカジノ ジャパンn insurance company and we should also consider our reputation. Second, the capital used for the subsequent continuation of the business of TMNewa is based on economic rationale: we expect the company to capture the strong future growth of the Taiwanese market and our investment in the company is reasonable in comparison with other investment projects.
- Q9On page 29, the foreign exchange impact on the full-year projection for カジノ ジャパン2 is estimated at -JPY41 billion for TMNF and +JPY46 billion for the international business. Is it correct to understand that the impact for the entire Group will be a net amount?
- A9
It is correct. The foreign exchange impact is positive overseaカジノ ジャパンs their profitカジノ ジャパンre converted to the Japanese yen, while it is negative in domestic businesses mainly due to an increase in foreign currency denominated outstanding claims reserveカジノ ジャパンnd foreign exchange hedge losses. For the entire Group, the depreciation of 1 yen against US dollar increaseカジノ ジャパンdjusted net income of the current fiscal year by approximately JPY0.2 billion. However, the foreign exchange impact on domestic businesses is one-off; if the foreign exchange rate remains constant from now, it will push up our profit in the next fiscal year.
- Q10With respect to the rate environment in the United States, has the current rate increase peaked out? What are the characteristics of each line and the impacts of inflation and Hurricane Ian?
- A10
While there are differenceカジノ ジャパンmong lines, the margin of the increase is generally shrinking. However, given the tightening of the funds supplied from capital marketカジノ ジャパンnd the impact of Hurricane Ian on reinsurance, the slowdown of the hardening may be arrested to a degree and the hard market may continue. The margin of the rate increase could expand in some lines. We will therefore closely watch the future trend.
- Q11You did not make any noticeable businesカジノ ジャパンnvestment in 1H. What is currently in the pipeline in terms of M&As? What is your future approach to investment and shareholder returns based on the environment of the cheaper yen?
- A11
We need to remain patient with respect to large M&As because their valuationカジノ ジャパンre relatively high, and we are still operating in the COVID-19 environment. This means that we mainly work on bolt-on M&As. We have some projects in the pipeline. Given that our ESR is within the target range, we currently do not think it necessary to revise the dividend and shareholder return policies we developed at the beginning of the fiscal year. We have recently resolved to execute the remaining JPY50-billion share buyback.
- Q12You have set the notional cumulative infection rate of COVID-19 in Taiwan at 44%. Iカジノ ジャパンt a reasonable assumption?
- A12
The key is the infection rate until February 15 when the policies we stopped selling will expire. Our assumption includeカジノ ジャパン buffer, such as the outbreak of the third wave, and we consider it a conservative assumption.
- Q13In the North American market, some professional lines such as D&O seem to be softening. Does this have any impact on Tokio Marine which haカジノ ジャパン high D&O share?
- A13
The rate environment differs from one line to another. We are aware of the situation concerning D&O. We have certain strengthカジノ ジャパンn D&O compared to our peers, but the overall impact is limited.
These information materialカジノ ジャパンre prepared based on the currently available information for uカジノ ジャパンnd described subject to our predictionカジノ ジャパンnd forecasts carried out at the time of preparation.
It must be noted that what is described therein does not guarantee our future business performance and carries certain risk of misjudgment or uncertainty.
Accordingly, you are kindly requested to bear in mind that there may be a possibility of sizable divergence between the actual business performance in the future and that of our predictions or forecasts described therein.