MS&AD Insurance Group Holdings Inc

TSE:8725

Earnings Call Transcript 2023-Q4

[Mitsuteru Miyake, executive]

Hello, everyone. Thank you very much for your participation on MS&AD Insurance Group Holdings First Information Meeting for the fiscal year 2023. My name is Miyake. I am from the Corporate Communications and Investor Relations department, and I will be presiding and conducting the proceedings today.

Now I'd like to introduce our company staff who are attending today. First of all, today's presenter, Mr. Noriyuki Hara, the President and Group CEO; and from your left, Hiroshi Arakawa, Executive Officer responsible for underwriting and reinsurance; Satoru Tamura, Senior Executive Officer and Group CRO; Tetsuji Higuchi, the Executive Vice President and Group CFO; Tamaki Kawate, the Executive Officer responsible for International business; and Takuma Hayakawa, Executive Officer responsible for Financial Services business.

Today, we will begin this information meeting with a presentation from Mr. Hara, the President. And with regard to your questions, there will be a Q&A session after the presentation.

Now I would like to move on to the presentation session. Mr. Hara, please?

[Noriyuki Hara, executive]

Hello, everyone. I am Noriyuki Hara, President of MS&AD Holdings. Thank you for taking the time out of your busy schedules to participate in our Information Meeting. On May 8, the COVID-19 in Japan was downgraded to common infectious disease, and we believe that we are finally starting to regain our daily life from before the pandemic.

On the other hand, considering the fact that the telecom meeting has taken root as a way of working, we are holding this event both in person and remotely. And many people are attending via Zoom in addition to those who came to the venue.

In fiscal 2022, well, the effect of the Russian military invasion of Ukraine and COVID-19 remains, large-scale natural catastrophe events such as the June hail disasters entered in the Kanto region, Typhoon 14 and 15 and Hurricane Ian, which hit North America, had a tremendous impact on the lives of many people and business activities of many companies around the world.

In addition, the market environment remained unstable with rising interest rates and falling stock prices worldwide and financial visibility in Europe and the United States and the global economy was shaken by concerns of inflation and economic slowdown. And today's key points are shown on Page 4.

In fiscal year 2022, although profit declined due to the factors I mentioned earlier, group adjusted profit was JPY 172.7 billion against the revised forecast of JPY 170 billion.

As for shareholder returns, the annual dividend will increase by JPY 20 year-on-year to JPY 200. In addition, we decided to purchase up to JPY 20 billion of own shares.

Next, I'll explain our financial forecast and outlook for fiscal year 2023 onward. In light of changes in the business environment, we have revised our group profit forecast for 2023 fiscal year to JPY 350 billion compared to JPY 400 billion target when the medium-term management plan was prepared.

However, the effort to strengthen the profitability have made steady progress by taking actions appropriately responding to changes in the environment, we will not change our quantitative targets for fiscal year 2025, the final year of the management plan. That is to say IFRS-based net income of JPY 470 billion to JPY 500 billion and adjusted ROE of 10% or more.

Today, I will explain the progress of our efforts to achieve the target profit in fiscal 2025, the final year of the current medium-term management plan as well as our efforts to sustainably increase corporate value by raising ROE and lowering the capital cost ratio.

First, I will provide an overview of our financial results for fiscal 2022. Please take a look at Page 6.

Consolidated net premium written in the non-life insurance business increased by 9% to JPY 3,934.4 billion, mainly due to a significant premium income increases at overseas subsidiaries. Group adjusted profit for domestic non-life insurance overseas subsidiary and domestic life insurance decreased. But in the second half, we steadily increased profit to JPY 172.7 billion against the revised forecast of JPY 170 billion.

The group adjusted ROE was 4.8%, and the ESR that shows financial soundness was 228%. The annual dividend per share increased by JPY 20 year-on-year to JPY 200. In addition, we decided to repurchase up to JPY 20 billion of own shares.

In addition, looking at the ESR level and also liquidity as well as the stock price levels, taking those comprehensively, we have decided to repurchase our own shares up to JPY 20 billion.

So please take a look at Page 4 (sic) [ Page 7 ]. The full year group adjusted profit for fiscal '22 was JPY 172.7 billion. If the incidental factors are excluded, such as losses related to Russia and Ukraine, losses related to COVID-19 and impact at Ms Amlin which marked its assets to market, it was JPY 253.7 billion.

In addition, we believe there were approximately JPY 56 billion of downside factors that were not transient, such as the impact of inflation, severe natural catastrophes and an increase in large losses, and we will strengthen measures against these factors in the current fiscal year and beyond.

As shown on Page 8, the ESR, the measure of financial solidness was 228% at the end of March 2023, a level that fully meets the lower target range of 180%, even under stress caused by market fluctuations.

Next, regarding our shareholder returns. Please go to Page 9. In our medium-term management plan, the shareholder return policy is to between 50% of the group adjusted profit as a basic return. And after our transition to IFRS in fiscal '25, it will be 50% of the base profit for shareholder returns. We will also consider additional returns in light of ESR levels and the business environment as well.

We are considering dividends at 35% to 40% level of the group adjusted profit as a guideline, and we expect the annual dividend for fiscal '23 to be JPY 240.

In the second half of this presentation, I would like to talk about the financial forecast and the outlook for fiscal '23 onward and corporate value enhancement initiatives.

Please go to Slide 12. Here is a breakdown of the JPY 50 billion downward revision we have made for the fiscal 2023 group adjusted profit forecast, together with our recognition of the changes in the environment and countermeasures. We have already taken several actions in fiscal '22, such as provisions for IBNR.

In addition, we will make counter-measures such as strengthening our measures against large losses, reducing overseas natural catastrophe risks and promoting our 1 PLATFORM strategy. By accelerating these initiatives, we will respond appropriately to any environmental changes.

Now please go to Page 13. Here are the financial forecasts for fiscal 2023 and the factors contributing to profit growth. We expect that some onetime losses from the incidental factors in fiscal '22 will go away in fiscal '23, including Russia, Ukraine related losses of JPY 16 billion and COVID-19 related losses of JPY 52 billion.

In addition, we project profit recoveries by JPY 60.9 billion in the domestic non-life insurance business, mainly due to improved profitability for fire insurance as well as improvement by JPY 10.2 billion in the domestic life insurance business and JPY 106 billion in international business, mainly due to increase in profits at MS Amlin.

Next, I would like to talk about the structure for achieving our quantitative targets. The IFRS-based net income of JPY 470 billion to JPY 500 billion in fiscal '25, the final year of our management plan.

Please go to Pages 14 and 15. From 2024, we will promote management resource allocation. The balance is risk, return and capital with a focus on international business where profitability has recovered. In fiscal '25, the profit ratio for the international business will exceed 30%. And by diversifying domestic non-life insurance and domestic life insurance business, we will be controlling earnings fluctuations for the period and will continue to earn steadily.

Now in the next part, I would like to explain about some of these profit growth initiatives. And you can see on Page 17, the overall picture of our efforts to enhance corporate value. We consider our capital cost ratio of group to be around 7%, and here is the conceptual illustration of how we believe we can achieve a stable expansion of equity spreads by improving ROE and by reducing capital cost ratio.

The progress of major strategies in the domestic non-life insurance business is summarized on Page 18. And today, as part of our efforts to improve group ROE, I will update you on the improvements in domestic Fire Insurance profitability, please go over to Page 20.

In Fire Insurance profitability is steadily improving, thanks to initiatives such as product enhancements and rate revisions. Even when the impact of the reinsurance market hardening is taken into account, we expect to turn to profitability in fiscal '25. In the case of Personal Fire Insurance, the rates that will enable us to secure profits in fiscal '25 will be applied appropriately 40% of the policies, and we expect to be able to secure overall profitability as the policy portfolio improves.

Next up, please take a look at Page 21. Large accidents tended to increase in corporate fire insurance in recent years. In response, we have been taking countermeasures against them and will further strengthen measures such as line size management, with profitability, rate increases, review of underwriting conditions.

And we will work to improve the profitability by preventing accidents, reducing the impact and supporting recovery through products and services provided both before and after coverage.

Next, I would like to talk about reduction in expense ratio as the second point, please refer to Pages 23 and 24. In fiscal year 2022, the combined expense ratio of MSI and ADI was 33.4% as planned. Taking into account the impact of inflation, the forecast for fiscal year 2023 is 33.2%, 0.5 percentage points higher than the previous forecast, but we aim to achieve a level below 31% as soon as possible by increasing insurance premiums through steady rate optimization and reduction of operating expenses.

The cost reduction efforts we've been making since the previous medium-term plan successfully reduced JPY 18 billion in fiscal 2022 compared with the reduction target of JPY 46 billion under the current medium-term plan.

As for the 1 PLATFORM strategy, we have already made progress with integrated management of the head office function and the expansion of BPO, and we will continue to make strong progress in the future.

The third point is about expanding profit at MS Amlin. Please refer to Page 27. In fiscal year 2022, MS Amlin posted a loss mainly due to marking to market its invested assets. However, the company posted a full year insurance underwriting profit of JPY 10.2 billion in fiscal '22, mainly due to curbing natural catastrophe risks, improving underwriting conditions for non-GAAP risks and increasing underwriting of highly profitable lines.

In fiscal year 2023, we projected an insurance underwriting profit of about JPY 26 billion on IFRS 17 basis, factoring in additional reserves for uncertain future losses. Together with the rebound from losses in the mark-to-market valuation of assets and increase in interest and dividend income, we now expect a profit contribution to the group.

We'll strive to gradually increase profits while improving our underwriting portfolio. The states that serve of AUL, Lloyd's business is shown on Page 28.

The portfolio has been improving well, and we can foresee non-cat loss ratio of 50% or lower. We aim to stabilize and expand profit by the expansion of good loss ratio lines. With especially natural catastrophe risks, we aim to control risk amount of 10-year return period and aim to increase underwriting profit when reinsurance market hardened significantly.

Next, please look at Page 29. MS Reinsurance has also made significant progress in improving its portfolio and stepped into growing phase. While reducing the amount of volatile natural catastrophe risks, we will promote diversification based on the long relationship with direct insurers. We will expand our underwriting, particularly in agricultural insurance and financial lines, which are highly profitable and effective for risk diversification.

Next, I would like to talk about the initiatives, the capital cost reduction. Please see Page 32. This slide shows that we are continuing to reduce the risk amount for North American wind and water disasters with 10-year return period. We are working to carefully expand underwriting profit by seizing opportunities in the hardening reinsurance market, while controlling natural catastrophe risks.

Please now go to Page 33, we'll talk about the reduction of the strategic equity holdings. The second point of our efforts to reduce our capital cost ratio. In the medium-term management plan, we had originally planned a reduction of JPY 100 billion per year and more than JPY 400 billion reduction over 4 years. But we have decided to raise reduction target of JPY 600 billion over the 4 years.

In fiscal '22, we reduced JPY 206.6 billion, in line with this plan. We will keep this reduction pace in the next medium-term plan, and we'll aim to have the balanced value compared to September '22. If you achieve this target, the ratio to consolidated net assets on an IFRS basis will be approximately 20%.

Our group would like to grow together with the society as a platform provider of risk solutions, as we put it in a medium-term management plan subtitle. For this reason, we will steadily implement the medium-term management plans, basic strategies of value in transformation and synergy, while responding to changes in the business environment by improving profitability and lowering the capital cost ratio.

In fiscal '22, MS Amlin's profitability has improved. We will steadily increase its profits through a diversified portfolio. With fiscal '25 IFRS-based net income of JPY 470 billion to JPY 500 billion and an adjusted ROE of at least 10%, we believe we can continue to provide our shareholders with stable returns. We look forward to your continued understanding and continued support. Thank you.

[Mitsuteru Miyake, executive]

Thank you, Mr. Hara. Let us move on to Q&A session. [Operator Instructions] From this call, Mr. Muraki of SMBC Nikko Securities, Mr. Muraki Masao, please.

[Masao Muraki, analyst]

Muraki is my name from SMBC Nikko. I have 2 questions relating to the international business and also domestic business as well. First of all, starting with the international business, receiving the numbers, I'd like to ask additional questions as well.

I'm referring to Page 14. Page 14, which shows this for '23 and '24, and it compares between JPY 124 billion to JPY 140 billion, so there is increase of JPY 140 billion -- JPY 14.4 billion. And IO's, International business shows a JPY 9 billion increase and transfers JPY 1 billion; international life insurance, JPY 3 billion; and Amlin only JPY 4 billion. So those are the expected increase in profits.

Starting in the fiscal year and for the next 2 years, the change in the profit increased. Those numbers represent the accurate profit increase figures. Let me just confirm that. That's the first question.

The second question related to the domestic business efficiency, and I'm referring to Page 23. As shown on that page, inflation is taken into consideration and also the consumption tax increase was conducted, and therefore, there has been some delay in the expense ratio reduction, I believe, in progress therein.

And what I'd like to ask is the following. It relates to a longer-term perspective, 10 years ago, you achieved -- you announced the function-based reorganization. Currently, you are now implementing 1 PLATFORM strategy. I think that succeeds the function-based reorganization. Thus far, you had 2 major non-life insurance companies side-by-side, while pursuing higher efficiency.

So I would like you to take a stack of that strategy. And also through only those measures in fiscal '26, are you sure that the expense ratio would be below 32% and beyond that, even below 31%. So what is the certainty with which you think you can achieve those targets? How confident are you?

And secondly, it was also mentioned in the past meeting that you always mentioned that you have not excluded the possibility, but do you have any consideration about the further reorganization or restructuring including merger of these 2 non-life companies, if there is any change in your thinking, I would like you to share that with us. So both overseas and domestic business.

[Noriyuki Hara, executive]

Thank you very much for your question. Two questions. First, about the international business, you would like to know the breakdown of profit increase by different segments. So Mr. Kawate will respond to that question, first of all.

[Tamaki Kawate, executive]

Thank you very much. Kawate is speaking. Thank you for your question.

With respect to the breakdown, Mr. Muraki, you're quite right, as mentioned in your question, especially with respect to Amlin, in 2023 between JPY 48 billion and in '25 resulted JPY 52 billion. So between '23 and '25, the increase is JPY 4 billion.

With respect to 2023, last year '22, we had various incentive factors and those factors are going to disappear. And therefore, I think there is quite a high certainty that those target of '23, it can be achieved, but we have not attained the target in the past several years.

And therefore, we would, first of all, like to confirm the achievement of 2023 before moving on to '25. So on the full year basis, we confirmed various local subsidiaries and its achievements. And especially in the Lloyd's business, Lloyd's head office, the Lloyd's Corporation, needs to approve the business plan of AUL. And therefore, AUL seems to be quite bullish about its plan.

But in terms of consolidated plan, we took a rather constrained view of that. And therefore, this also means that there is quite an upside for that. That's all. SME point, in terms of the current situation of this year and also whether it's going to be actually approved by the Lloyd's Corporation, it could be revised upwards. So that's how I would like you to understand the situation.

So can we move a little bit insurance business? Yes. I did understand Amlin, but from a different perspective, for IOI's number, the number for IOI is on Page 64.

[Masao Muraki, analyst]

Third, the Toyota Retail business is showing the positive profit, although in a delayed manner. But how are you going to achieve that? The profit of JPY 14 billion, can that really be generated by IOI's profit increase? In terms of confidence compared with your confidence about Amlin's achievement, it could be just the opposite of that. How confident are you?

[Tamaki Kawate, executive]

With respect to the Toyota Retail business, probably Mr. Tamura will respond to that and also about inward reinsurance from overseas, Arakawa will respond to that.

[Satoru Tamura, executive]

Tamura speaking. As you correctly pointed out, on Page 64, it refers to Toyota Retail. And for '25, rather substantial figure is shown for the improvement in profit for Toyota Retail. From medium-term plan, and also, there has not been any change from the very beginning about the medium-term plan, especially with respect to European business. In the past, it also covered.

They only covered new vehicles, but new countries are included and also the vehicles on the road are also included. And therefore, through those means, plan was formulated. However, for fiscal '22, as you can see, those numbers in Europe, it was really a very struggling business performance there.

In Europe, all of a sudden, loss deteriorated after COVID and traffic improved, the traffic increased, and that had already been incorporated as an expectation. But at the same time, something that we have not seen in the past, that is to say the bodily injury, large losses occurred more than one.

And also the theft, especially of Lexis luxury cars increased rather significantly and the supplies in Japan as well. And therefore, for 2022, the achievement was quite difficult. We know why the losses increased and countermeasures had already been introduced and being implemented. And therefore, it may be a while before the benefits can be enjoyed probably not within '23, but we expect to see benefits from those measures.

And also, we are discontinuing high-loss businesses. And for theft, permanent basis, we introduced a secondary or second immobilizer have been distributed to customers. And therefore, this is 100% successful in preventing the sales and collaborating with the Toyota, the new components are going to be incorporated to the vehicles, which also addresses this theft. So this will start being installed quite rich in the future. And therefore, we intend to be able to achieve this target, which is the initial plan.

And other than Europe, China and Australia are major markets, and they are generating profit as we had expected. And right now, the steady progress is being made. For moving towards fiscal '25, I believe the recovery can be achieved as we are planning right now. That's all.

Now with respect to inward reinsurance from overseas is the next point. And as you see here, for 2022, the final premium income and also adjusted profit is shown here. And the profit -- positive profit is attained. That's one important topic. And as is mentioned at the outset to the slide, last year, we had hurricane, Ian. That was a huge one.

But the -- we reduced the coverage of United States flood and storm damage and that resulted in what you see here. For fiscal '23, for the protection coverage, we are now ready to offer that. So up to a certain level, even if the natural disaster could occur to a certain extent, we now have the line, which allows us to retain the positive profit. We are aiming to benefit from the hardening of the market while maintaining the risk coverage as well. So we intend to continue this business. That's all.

[Mitsuteru Miyake, executive]

And the next question, on the very expense ratio. Question about the expense ratio. So the effects of our initiative and also the effects of merger. Higuchi, you would like to respond to that question?

[Tetsuji Higuchi, executive]

So fiscal '23 that was a restructuring initiative started. And in this restructuring process, growth and efficiency was pursued at the same time. That was the objective, and that was the strategy.

And how did it turn out in terms of growth? The 2 insurance companies, we have 2 insurers. In both of these companies they were able to grow very strongly in terms of the top line. And so the 2 companies have continued to sell products, and that has contributed to growth in the top line.

In terms of efficiency, so a reduction of JPY 50 billion of expenses -- and so -- however, there was an improved or even more effectiveness in terms of reducing expenses. So in terms of improved efficiencies, we were able to follow through on our objective of efficiency.

Now in the restructuring process, there were some things that we were not able to follow through that is integration of some of our products and also in the loss payment services department. The integration of that, the department also needed to be done. However, we have been able to decrease expenses by more than JPY 10 billion by integrating the organizations and also and the platform for payment of losses.

The platform has not come to a final form yet, but we are in the process of integration of the system, MSI is using the new system ending 2025. ADI will start using that new system. So that would also promote further efficiency of our systems. And so in restructuring what we have aimed for had been implemented steadily.

Now on top of that, we have this 1 PLATFORM strategy that we are undertaking. And there are some remaining portions that need to be integrated, especially the head office functions need to be unified as 1 PLATFORM.

And also some routine activities can be outsourced as BPO. So that is the kind of efficiency-related activities that can still be performed. So we have -- we are selling our products with the 2 insurers. But we want to retain this structure, at the same time we want to deficit between the 2, and we have already determined how to do it. So -- and otherwise, we will be integrating the operations so that we will be able to increase further efficiencies and also especially in the head office functions, we like to further pursue efficiencies.

Regarding the merger process before that, 31.9% achievement. On that part, yes, we would like to follow through on that and that's our plan.

And the expenses reductions, JPY 46 billion is our target. And 39% progress have been made. So JPY 46 billion reduction is the target, but it has been done faster than planned. So by fiscal '25, 31.9% achievement, we are confident will be achieved.

And then for the pros and cons of the merger, as we have been saying all along, we have not changed our position. So the option of a merger is something that we are always looking at. And currently, the biggest impact of a merger is the impact on the top line. And we were -- I was earlier talking about growth with the 2 insurers, and we have been able to achieve growth. So if this could be one insurer, then there's a need to adjust the share. So there may be a negative impact on the top line in a significant way. So that is one challenge that needs to be overcome.

So because of these factors, the combined ratio is in the 90%, the mid or lower 90%. So we want to grow the top line. And by doing so, we will be eventually be able to improve the bottom line and also the enterprise value. So currently, in this restructuring, as an extension of our restructuring plan, we would like to continue to further pursue efficiencies.

So that is to say that we will continue to have this option of merger on M&A. And if ever, we're going to have another M&A, there may be some negative aspects. We are not considering that there will be any negative elements in that. So I think M&A is an option that we can always choose.

[Operator]

Next, Watanabe san of Daiwa Securities. Watanabe san, please?

[Kazuki Watanabe, analyst]

Daiwa Securities, Watanabe. I have 2 questions as well. The first question relates to shareholder return. On Page 7 of the materials for fiscal '22, you cited 2 factors for fiscal '22.

In terms of the total shareholder return for fiscal '22, instead of JPY 309.7 billion and you used JPY 253 billion instead. Could you also explain the reason why? And also, there may be some influence from natural catastrophe, so please respite. And with respect to the shareholder return based upon the reports coming from the Tokyo Stock Exchange, what other discussion did you have on that? So please share that with us.

And also, the automobile insurance pricing on Page 19, you're expecting to see profit increase for fiscal '25. Do you think price increase is not necessary to change that. And also Page 20 fire insurance, you're expecting to make a fire insurance to become positive? What is the likely combined ratio for fire insurance, was a profit level considering the change in the advisory risk premium for that line? Two questions.

[Noriyuki Hara, executive]

Thank you for your questions. We will say 2 questions. First one relates to the shareholder return. And your question specifically related to Page 7, the reason behind using this JPY 253.7 billion as a basis. And also the companies below PBR of 1x was -- the question is focused by Tokyo Stock Exchange to improve the situation, also to internal discussion took place over the question. Higuchi san will respond to that.

[Tetsuji Higuchi, executive]

With respect to the shareholder return, our shareholder return policy is to pay 50% of group adjusted profit and both by cash dividend as well as a share buyback combining those 2. So that's the basic policy. So in that regard, for the current fiscal year, the starting point for return for the shareholder return is the group adjusted profit of JPY 172.7 billion. 50% of that would mean between JPY 80 billion to JPY 85 billion. That's at the 50% of that.

With respect to the expectation of our dividend per share, that's JPY 200. So that totaled JPY 170 billion. So already, it exceeds JPY 80 billion or JPY 85 billion or 50%.

In terms of the excess part as shown on the right-hand side of this page, we have described there that we will take into account or consider the potential additional returns. So this would reflect the additional return that we are offering while distributing.

And also, we will retain our forecast for dividend. So JPY 170 billion is unchanged. So what sort of approach are we going to take about share repurchase?

On that particular point, there are several factors which were taken into account comprehensively namely the situation of stock price as far as we are concerned, as was described earlier, our share level is PBR -- below PBR of 1x, and therefore, we need to see this. And also we look at ESR, currently, ESR stands at 228%. So it is within the target range, but it's on the higher end of the range itself. And therefore, on that point as well, to a certain extent, some adjustment or reconsideration could be made.

We need to consider some adjustments on that as well. So that's the second point.

And in relation to that, we have been continuing from the past the total shareholder return level, and we have continued to expand total shareholder return over the years. And that is described on Page 95. This shows the trend of the total shareholder return from the past. For fiscal 2021, toward the end of that, it exceeded that range significantly. So this 1 year may be rather a special case.

But looking at the total amount of shareholder return over the past years, it has continued to increase, and we consider that continued increase as well. At '25 it's JPY 125 billion.

And therefore, exceeding that level is one of the factors that we considered. So out of those factors I have just mentioned, vis-a-vis the basic return, we did take into account the potential addition to that. And we wanted to show that based upon track record, that's one of the considerations. And in relation to that, it took into consideration the stock price level ESR situation and also the trend of total shareholder return over the years and also the liquidity on hand.

So all of those factors were taken into account, which led to our decision to buy back our own shares up to JPY 20 billion.

At the Board meeting with respect to basic policy, we received the approval or content to that basic policy by the Board. And on that basis, we now live in the world in which environment is changing rather rapidly. So we had to take into account the balance with other stakeholders. That was the point raised at the Board meeting.

For example, wage increase for employees, whether wage increase is adequate or not. And also the agents were also the stakeholder of the company, what sort of actions can be taken. A vis-a-vis customers, what should be the approach that we should be taking. So while those elements are taken into consideration, the shareholder return should be well balanced. Those were the discussions that placed in the BOD meeting. That's all for me.

[Unknown Executive]

The PBR of 1x lesser than that, we are fully conscious of that. But as I mentioned today, we will continue to increase ROE by increasing profit. And as we do that, while we increase our profit, we will increase that ROE and we intend to exceed PBR of 1x or higher.

So let us move on to the second question. Regarding non-life in Japan, automotive and fire insurance prices, especially the combined ratio for fire, what is the combined ratio that we are assuming? So Arakawa San will like to respond.

[Hiroshi Arakawa, executive]

Regarding automotive insurance, we're not going to raise the prices. So if you look at Page 19, as you see on the right top, this is a correlation between the frequency and the price and in 2019 is the basis, and it's coming down. But if you look at the unit price in green, you can see that it's going up.

Even before 2019, the unit price has been increasing between 2017 to 2020, there is an increase of about 20%, and that trend continues. That is because of the higher functionality of the automobiles. However, the frequency of the accidents -- there is increased safety features in automobile and also less traffic due to COVID-19 has resulted in lower frequencies. But -- so the index is slightly over 100.

So if you look at the correlation between the 2 elements, the revisions of the price is something that we can consider. That's quite obvious, I think.

And also for fire insurance, last year, last fiscal year, as I stated here, there was large losses in non-cat losses over the previous year. It was a major significance, and that's why we were not able to achieve our target. But this non-cat losses, for example, there was good improvement based on our initiatives and the policy portfolio is increasing or improving.

So overall, the situation is going for the better. So we want to -- I want to reduce the non-cat losses, but the life losses should go back to its normal level. And by doing so, by fiscal '25, we'll be able to turn to profit. That is the general target that we have. So after we overcome that, then we would like to then reach the combined ratio that we are targeting for.

[Kazuki Watanabe, analyst]

Now for fire insurance, other insurance, the ratios are like less than 90%. But what do you think is the optimum level?

[Unknown Executive]

Well, I'm sorry I do not have an optimum level for me as a combination.

[Noriyuki Hara, executive]

As was just mentioned by Arakawa San, fiscal '25, the fire insurance, we'd like to turn to profitability. And of course, the capital cost even if begin to account the capital cost, we would want to be profitable. That's what we are aiming for. So it may be in the next medium-term period, but I would like to achieve that.

[Operator]

Next, from JPMorgan, Mr. Sato, please.

[Koki Sato, analyst]

I am Sato from JPMorgan Securities. Two questions. Number one, as was mentioned, the non-life in Japan. I'd like to ask a question from a different perspective. So last year, you set out your medium plan and compared to then, you're looking at the profit for fiscal '23 in non-life, that's Page 13.

So primarily the domestic non-life coming down. So I think there was a decline of about JPY 60 billion, if you just look at the non-life in Japan. But fiscal '25, the final year of the medium-term plan, the reduction is only by JPY 15 billion. So this inflation and other elements that are contributing to this, these are factors that are very structural, so it could still remain at that time. But in the medium-term plan, if you implement the plan, and then just to get the results, I think you still -- the down side could still retain -- will be remaining.

But -- so do you think new initiatives to retain this downside of JPY 15 billion, what are the measures that you are factoring in? So do you have any effective measures or initiatives that you are having in mind? The rates, I think, is something that you could possibly consider, but it's not explicitly factored into this. So how else are you going to catch up to achieve these goals?

And my question number two, Page 17, you have shown on Page 17, the capital costs 7% is the cap and derived level. So other non-life groups also are looking at the same level. But for your company, the valuation, like group adjusted profit and the market cap, like it's multiple is about 7, so the capital -- implied capital cost is probably a little bit higher than that. Now -- so simply, what is your view on that particular point?

And also if capital cost that is required is actually higher then you should also increase ROE, but also to fundamentally reduce your capital cost, you have to consider measures for that. But on the right-hand side, you do have measures for reducing your capital cost.

Well, these are generic ones. But there are things that you may have to focus on primarily. So what do you think will be the measures to reduce capital costs like did to fundamentally revisit your portfolio, is that a possibility? I do want to know your views on this.

[Unknown Executive]

Thank you very much for that question. So first question was about the Japanese non-life insurance. So fiscal '23, down by JPY 60 billion and then JPY 25 billion or JPY 15 billion down. So we are going to improve during this period -- midterm plan period. So how are we going to achieve it? That's your question. So Arakawa would like to respond to the first part of your question.

[Hiroshi Arakawa, executive]

Thank you. So some additional measures that we are envisioning. And also in fiscal '22, final figures could have an impact. But the top line plans could be changed. For example, the casualty lines, the SMEs would have risks. So we need to hedge for the risks. So the plan or the numbers in the plan could be changed. Or for automotive, the -- we would like to also expand the area where the telematics are implemented.

So that's another measure that we are also adding. And also for the rates, well, it's not explicitly included, but we do have some tentative numbers included in the plan. So it's probably not the final numbers, but we do have some quantitative numbers included in the plan, although it's tentative.

And furthermore, in terms of rate adjustment for both motor, automobile and fire insurance, we factored in that possibility, although when, is not decided specifically, but the price adjustment is incorporated for both motor and fire insurance lines.

In addition to that, on Page 12, various measures are shown described there. For fiscal '22, when the books are closed for that, to certain extent, for the results for fiscal '23 some reserves are established. For example, the provisioning for IBNR for inflation, not just the international business but domestic business we incorporated that.

And also the IBNR provisioning for causality insurance is incorporated and also, for the first year business profit, we incorporated that for '22. So that could be drawn down for fiscal '23. So those are the measures we've already taken for fiscal '23. And for large losses, we have been taking measures for the past few years, which has been intensified gradually.

To a certain extent, in that sense, the large losses that we had incurred in the past, we analyzed where those losses occurred, what are sort of industrial sectors and what sort of risks were the sources of losses and we analyzed those and we reviewed and then we changed underwriting those areas. In the past, the discount was the major causes. But even if the accidents occur, if a specific industrial sector was prone to accidents, we reconsider change the conditions and also change the rate as well as line side that is to say the amount of underwriting was revised.

So those are the concrete measures we have taken. Fire insurance is a rather short-tail business. So we believe through those measures, those large losses could stabilize further going forward. For casualty large losses, which are primarily liability. And in this area, the past losses tend to increase substantially, but improvement measures have been incorporated.

But at the same time, the liability tend to be rather long-tail. So the losses occurred in the past year could linger on. So taking into account we have taken some reserves for fiscal '23 as well. And of course, the -- this is not specifically for non-life business domestically, but for foreign bonds, we now have a higher hedge cost. And therefore, we are sending those foreign bonds in fiscal '23 so that the hedge costs could be reduced. So including those -- those measures have been taken in fiscal '23 to prepare for fiscal '23. That's my response to your first question.

The second question relating to the cost of capital and judging from the capitalization, the actual cost of capital could be higher. So not just those measures described here, more fundamental measures may be required. So Mr. Higuchi will respond to that question.

[Tetsuji Higuchi, executive]

About the cost of capital ratio, the assumption is there. First of all, 7%, which is shown here. As you correctly pointed out, we derived this figure from -- the 7% was derived from [ Cap M ]. And we are confirming whether that is applicable or not periodically and in the most recent period, I believe 7% is valid.

And you have implied that the cost of capital ratio implied by the market is higher, and we have a similar consideration and awareness of that. So we believe it is very important to continue with our efforts to cost of capital ratio. And your point is quite right.

We consider this to be a very important challenge that we really need to address seriously too. The cost of capital of our company, why is it high?

One of the factors behind that is due to the volatility of the profit, especially the international business, the profit volatility, especially of the international business was quite high. And this is one of the factors behind high cost of capital ratio.

Secondly, the weight of strategic retail equities is quite large. And because of the market volatility, our net asset value tend to change. And therefore, this is one of the challenges that we need to address, and we are fully aware of that. The third point is as follows: we have taken counter measures and the implementation has been completed. And specifically, this relates to a major life insurance in Japan and the mismatch of sensitivity between liabilities and assets for interest rates and domestic life insurance consider that to be important factor behind the high cost of capital.

And we have the same awareness as well. And therefore, what do we do to address that particular characteristics. For one thing, focusing on the international business, we are trying to restrict volatility of profit? And several questions have been raised on this particular point throughout [indiscernible] is entering on MS Amlin, we now have this structure, which enables the more stable generation of profit. But on this particular point, we do not have actual track record that we can show you to demonstrate that the volatility of profit, especially international business has been contained.

And I think it's very important for us to present to be able to present to you the track record of that. And at the same time, the natural catastrophe risk was another factor causing volatility of profit. And as we have shown you on the slide, specifically Page 32, the overseas natural catastrophe risk as shown on this page is being reduced significantly, and this should start generating positive benefits.

On the life insurance, the mismatch of sensitivity of interest rate -- sensitivity to interest rate change was quite significant. But in the past few years, we have completed various measures to address that significantly. And therefore, shortly, I believe that particular point, the problem was resolved.

And as you getting more in the understanding of the situation and I think that effect could be duly recognized. The third part relates to the strategically held equity, and this continues to be the challenge. We are aware of that, and we will continue to believe that this strategically held shares is one of the top risks for the company. And since we are fully aware of that, as we explained earlier, as shown on Page 33. In the medium-term plan, our target was to reduce JPY 400 billion. But compared with that, we are accelerating our efforts to reduce that to achieve JPY 600 billion reduction. And if that is continued for the next medium-term plan for another 4 years, I believe the strategically held equities will be halved from the current level. So through those measures, we intend to reduce cost of capital steadily and we believe we can do that. Thank you very much.

[Unknown Analyst]

But re-revisiting your business portfolio. Can you talk to that? I think in the past, you have made some minor changes, but I think you tend to have some holdings and then you struggle. That is the image I have about what you have been doing. So do you have any views on that?

[Unknown Executive]

Yes, if I may. So the business portfolio, well, rather than reducing the cost of capital ratio, ROE increase is something that's very important. So we have the holdings and then we struggle, as you pointed out. As a result of the struggling, we now see some hope and results, that is MS Amlin, because basically speaking, the ratio of capital -- cost of capital should be outperformed by the returns that is what we are asking the business to perform.

So -- and also, there is aspect of a strategic importance. So for each of the businesses that we have in the portfolio, we would like to have a long-term perspective and set goals over the long term. As for our exit strategy, of course, we do bear that in mind in some cases. But as we have stated in the past, we are still looking at how the individual businesses will turn out. So I will refrain from making any specific comments, but the restructuring of our business portfolio is important.

We understand -- and within Japan, there is a business with the nursing homes. We have exited from that business. So we do have experiences of withdrawing from some businesses. So we will be identifying the situation of the business one at a time. As was mentioned by Higuchi-san, and we do talk to the CEOs of our businesses, and they have this higher consciousness on ROE. So by when would they be able to achieve 10%? They have plans to achieve that. So they have this higher awareness on ROE. So we would like to take that in account into account when we consider our business portfolio. Thank you.

[Unknown Executive]

Thank you, Mr. Sato. Now I'd like to now open the floor to the Zoom online participants. From Mitsubishi UFJ Morgan Stanley, Tsujino-san, please. [Operator Instructions].

[Natsumu Tsujino, analyst]

If I may, I hope you can hear me.

[Unknown Executive]

Yes.

[Natsumu Tsujino, analyst]

Regarding shareholder returns. So basic returns plus alpha. So the dividend part, how are you going to increase the dividend payments? So it's -- you're going to pay -- increase the dividend payment from JPY 200 to JPY 240, but in the future, if the policy is 50% of the adjusted profits, but the dividend part if the profits increase and is it going to increase or are you going to set a target, the increment and then return? And for additional returns to shareholders, I think ESR levels and the share prices will be taken into account, you said.

So when is it going to be triggered? I don't still understand when this will happen. So I think on the additional shareholder returns, is it going to be done on a regular basis? If you have any specific ideas, could you tell us how you plan to do it? So that was my first question. Could you respond to the first question, please? Did you not hear me. I hear no response.

[Unknown Executive]

Sorry. Thank you, I hope you can hear me.

[Natsumu Tsujino, analyst]

Yes.

[Unknown Executive]

So how are we going to increase our dividend payments. So are we going to have a specific increment of increase or what is the policy behind dividends? And also any other explicit mention of shareholder returns. So Higuchi would like to respond.

[Tetsuji Higuchi, executive]

Yes. Thank you very much for that question. For dividend payments. So for us, the adjusted group profit or 50% of the group profit will be returned. And as a payout ratio, 35% to 40% that is the level that we use as a guidance. So we increased profits and also want to increase that level of dividend payment payout ratio. So the group adjusted profits is expected to grow as we have shown. So in line with the growth in profits, the payout ratio would be somewhere between 35% to 40%.

And as we pay out our dividends. That is our basic policy. So the repurchase of our own shares. So the differential of a 10% to 15% is the range in which we will be repurchasing our shares. But additional shareholder return is additional. So depending on the situation, at the time we would like to be flexible in making judgments as to whether to pursue it or not.

[Natsumu Tsujino, analyst]

Well, I think this is an important point. So this time it's JPY 220 billion repurchase and ESR and the share price is the basis. And maybe next year, this time of the year, maybe the share price and the multiples may be improved, but still it may be low in level. And the ESR may be probably the same level. If that is a situation next year in the financial market, if the market -- the financial market is not in confusions then you will be able to provide a stable increase in dividends?

[Unknown Executive]

Well, this is hypothetical, so it's hard to respond to. But I did talk about our policy already as Higuchi-san mentioned. So for us, as we have always been saying, we want to maintain this increased dividend trend. So fiscal '23 JPY 240 is our plan. And in the following year, we want to continue to increase our dividend payments. So I do hope that you understand that is our position.

[Natsumu Tsujino, analyst]

And 1 more simple question. Well, it's complex, Page 23. So this familiar cost reduction measures. So on the right-hand side, the large systems will be improved. So in fiscal '24, and the depreciation is coming down. So this cost here is decreasing. But -- so you may be able to cut costs but there are some other elements. So maybe the cost is not going to come down overall. And also you talk about the additional reductions, and I don't understand the relation.

So in fiscal '23 to fiscal '24, if you read this diagram, how much increase would there be? And then because of the inflation, maybe you have to pay more salary. So that's probably a different allocation. So for fiscal '24, fiscal '25, can you elaborate on the breakdown of what you're going to do?

[Unknown Executive]

So the reduction of expense ratio, I think, is what you're asking. So fiscal '24, fiscal '25, so how much are we going to reduce? So there are investments in large systems, but any other factors that would push it up? Yes. So you want to know how much we intend to reduce. So Tamura, would like to respond to that question.

[Satoru Tamura, executive]

So fiscal '24 to '25, the expense -- we will be reducing the expenses as planned in the medium-term plan, and we'll execute it and then the personnel costs will be reduced. And also for DX, digital transformation, digitalization will be improved efficiencies, so that would also reduce costs. And I do not have any specific numbers with me right now. But for the numbers, I would like to respond to you separately if there is an opportunity to talk to you.

[Unknown Executive]

So we will come back to you later individually. Thank you very much. Thank you, Tsujino-san, for your question. Moving on to those people in the hall Majima-san of Tokai Securities.

[Tatsuo Majima, analyst]

I'm Majima, Tokai Tokyo Research Center. One question relates to your life insurance subsidiary, primary life. As the interest rate increase, financial situation here are very poor. Probably the net assets may decrease to 1/2 maybe. But since the company is engaged in variable annuity and therefore, the liability also decreases. So in terms of the payment, there is no problem. But as interest rate continues to increase MS Primary Life, in the case of this company, gradually, do you intend to increase capital as looking at the situation? And MS IO Life is the fixed insurance company, and therefore, the financial conditions might be quite different. But merging these 2 subsidiaries is that one of the options?

But this primary life is a joint venture company. And therefore, can you ever think of exiting from that business? Probably you may not be able to respond to that. But what is your approach and thinking on terms -- in terms of the life insurance subsidiary, as the interest rate continues to rise?

Another question relates to non-life business. And when Funabiki-san was in charge of this, he often talked about cultivating new customers who had not been captured by existing agents or existing network. He was talking about the insurance products embedded to other approaches. Other companies sometimes offering those embedded products by joining hands with a realtor, for example. And so could you respond to those 2 questions?

[Unknown Executive]

Thank you for your question. Your first question relates to your life insurance subsidiary, especially under the rising interest rate environment, the financial conditions of life insurance subsidiary. And based upon that, what is our approach to those life insurance subsidiary, including the possibility of a merger. Higuchi-san will respond to that.

[Tetsuji Higuchi, executive]

There's a primary life, it's not a joint venture, but it's a wholly owned subsidiary, owned 100% of this subsidiary. And in terms of the interest rate change or fluctuation because of the change in the interest rate. Of course, net asset is affected by that, as you correctly pointed out in your question. However, looking at the current situation of the business. And so long as that business continues, the company is not in a situation where the capital increase in the form of capital injection is required.

And the MS Primary Life and also Mitsui Sumitomo IO and you referred to the possibility of merging these 2. These 2 companies are engaged in totally different form of business. In the case of MS Primary Life, its business is mainly variable annuity. It offers that. But in relation to that, it also offers fixed whole life insurance, and that's the main state of its business.

Whereby annuity business is only maybe 10%-or-so of a portfolio this figure may not be completely accurate, but it's around 10%. And also it specializes in over-the-counter sale of banks or financial institutions. And the products, the primary life offers is asset formation or asset building products.

On the other hand, in the case of Mitsui Sumitomo IO Life, its focus is on cross-selling life insurance policies through non-life agents offering medical care insurance or nursing care insurance, those protection-oriented insurance products are distributed and offered. So even if these 2 companies are merged, the benefits of merger is very difficult to come by. And also, they have rather different risk profile. And therefore, these 2 businesses need to be continued through different entities, I believe, because by doing so, I think there will be better contribution to the enhancement of corporate value of the entire group.

That's how I think of this Primary Life. That's all. This primary life is engaged in the foreign currency denominated currencies. And of course, with the U.S. interest rate increases, we are -- the company is affected by that, but this is not affected by Japanese interest rates.

Last year, the U.S. interest rate increased, and therefore, it had to add to increase the level of premium for those companies for this business. And for Page 25, the total profit of both of these 2 life insurance [indiscernible] are shown combined and starting in the 2025, this level of profit has been generated last year, there has been some increase in profit related losses. But excluding that, at least, we can hope to generate this sort of a profit from primary life. So we would like to continue strengthening that.

The second point relates to your non-life business, joining hands with the platform operators, how are we distributing embedded-type products. And Arakawa-san will respond to that.

[Hiroshi Arakawa, executive]

The insurance product distributed by embedding them into the e-commerce is pursued. And there are different types of that. So a few weeks ago, we issued a new showing mobile battery protection offering of insurance and joining hands with the mobile battery operators when there is natural disasters, we will provide those to evacuation centers so that the evacuees could use those batteries. So this might be somewhat different, but we are trying to expand the products distributed to products -- e-commerce product. And for embedding them, it requires development of IT system as well. So the basis for decision for investment is whether there is a strong need for that.

So we are generating various ideas and discussing with potential partners in this area. So we do think that it's very important.

[Unknown Executive]

In many different areas, we are pursuing those embedded type products and some are under consideration as Arakawa-san has just mentioned. So that's how it stands at this moment. Did we respond to the question?

From UBS Securities Okada-san, please.

[Taiki Okada, analyst]

I'm Okada from UBS Securities. I have 2 questions. Number one, once again, on Page 9. This additional shareholder returns and the items that you have listed here. So if you cannot execute efficient growth. So if you can share with us the situation of considering efficient growth. And also we if you think that the efficiency is improving. So if there is a need for ROE like maybe JPY 20 billion in fiscal '22 was the number that you had. So what do you have in mind when you say this on the stage? And also additional point about the MS Amlin performance or the plan for Amlin, the hardening of the insurance business, how do you factor that in?

And also going forward, in 2 or 3 years' time, the reinsurance business, what is the cycle -- where in the cycle of reinsurance business would they be in 2 years' time, 3 years' time?

[Unknown Executive]

Thank you very much for the question. So the first question is about additional shareholder returns. So if there is no efficient growth investments and also ROE. So we want to raise ROE. So when it says so when deemed necessary. So when do you deem necessary. That's the question, right?

[Taiki Okada, analyst]

Yes.

[Unknown Executive]

So for the investments in the businesses, we look at the market environment, namely, well, first of all, in North America, the specialty insurance companies, these large-sized companies and the valuation level is relatively high still. So it is a rather difficult situation. That's our understanding. However, last year, transfers, investment was executed and MGA market that is growing in North America.

So investment in that market, MGA market, so in Silicon Valley, we have a corporate venture capital. So a venture capital type investments in start-ups, that's smaller in scale, we would like to continue to explore opportunities. And for start-up investments, Silicon Valley Bank went bankrupt. And some of the funds have withdrawn. So we believe that it is an opportunity to make investments in quality assets. So we continue to be prudent, but we are willing to make some moves, if possible.

And also in Asia, -- if you look at Asia, we are always looking for opportunities. And in Asia, the investment opportunities are not so abundant but we do also continue to monitor the situation, and we do find that there are some opportunities here in Asia. And also, when you say if we need -- if we find that we need to improve the efficiency of capitals.

Well, there are various cases that we have in mind. For example, the efficiency of the capital, so if we cannot achieve our targets, then we have to make some decisions to do something. That's one option. But in the long term, we have been repurchasing our own shares. So we will continue to do so to gradually improve our capital efficiencies. So that is one additional factor. So we are looking at it from various perspectives.

And I think there are opportunities in various areas. And as for a second question about the performance of Amlin and the hardening of reinsurance and how much are we factoring in the increase in rates? And also the cycle of reinsurance, the hardening and softening, so where in the cycle would we be in? [indiscernible] would like to respond.

[Unknown Executive]

Yes. So for Amlin, in general, the increase in rates, well, in fiscal '22, it was 14% or 15% increase in rates was executed for nat cat, it was higher in percentage. But overall, the rates were increased by 14%, 15%. And then in fiscal '23, Amlin overall had about a 10% increase in rates that was the plan. That is the plan for fiscal '23, 10%.

But in January '23, as we have published we have been able to increase the rates far above that level. And also in June, July in North America, the wind and storm disasters, just like January, the hardening still is occurring. So not as much a confusion in the market in January, but the situation is still very hard or tough.

So for fiscal '23, the 10% that we have factored in, in our plan, I think it's going to be higher than that 10% level. Now beyond next fiscal year, you look at whether there will be major natural catastrophes this year or any other incidents occur. But so far, new reinsurance establishment that we saw in the past or the incoming capacity into the capital markets, there is nothing that is impacting the supply-demand situation in the market. At this rate beyond fiscal '24, there may be some fluctuations, but I think this hardening phase will continue. That is the perspective by the market.

But fiscal '24-'25, the rate level is going to remain flat. So we have a conservative plan for Amlin. So this hardening situation will continue. But then if it starts to soften beyond next year, the plan will stay or remain flat. That is the plan.

[Unknown Executive]

Thank you, Mr. Okada. Now I think we are moving very close to the scheduled conclusion time. So I would like to entertain one more question before concluding this Q&A session. Anybody wishing to ask a question? Anybody with a question? Niwa-san of Citi Group Securities.

[Koichi Niwa, analyst]

Niwa of Citi. I have 2 questions. One relates to ROE and the other one relates to asset management or investment. And then looking at Page 14, ROE to exceed 10% stably, that was the long-term plan that you have. It may be quite effective, especially comparing that against the global peers, I would like you to assess that consideration or plan. I mean external environment is quite good. And therefore, 20% of ROE tends to be quite commonplace. So compared with that, is your target aggressive enough for ambitious enough? 10% seems to be quite realistic or 20% could be the average of the industrial So what is your view on that? Could you comment on that, please? That's the first question.

The second question relates to the investment activities. The external environment, including interest rate is rising, it may be temporary, but stock market performance seems to be pretty good. So with that in the background, your investment policy appears to be rather conservative. You could -- there seems to be some room for taking risks there. Is there any such room for greater risks or because we have been quite conservative, there is no such room for taking greater risks? In terms of capital or amount of risk we have taken, there seems to be some room for taking further risks in the investment area. So what is your view on that? What is the approach for taking investment risks?

[Unknown Executive]

Thank you for your questions. First question related to ROE compared with the growth of peers. Our target level may be somewhat quite reserved that seems to be your view. We could be more ambitious. That seems to be your view maybe as your questions. So I'd like Higuchi-san to respond to the question.

[Tetsuji Higuchi, executive]

Yes, in terms of a perspective of ROE, looking at the insurance business and looking at the ROE from the investment business perspective, around 12%, I believe, represents 1 yardstick that we can consider. So that's our view. I mean ending at higher ROE needed to be targeted and to achieve that or to have a higher target, what do we need to do?

And that's not what we constantly think about and we need to pursue that at all times. So in terms of ROE improvement, as you pointed out in your question, we consider that to be a very important topic. And as for how we can achieve that higher ROE, we'll continue to work on that as an important topic and challenge for us. We would like to continue considering that and promote our implementation of that.

Currently, ROE is below 10%. So first objective is to achieve 10% stably and see that. For the current year, it is around 12%. So achieving that, we would like to move on to the higher level, the next level.

As Kawate -san was explaining, the profit improvement that Amlin has made significant progress. I believe elements that allows us to increase our way are in place. So we need to make sure that, that's going to be the case. So we'll continue to work on improving our ROE. So the second question related to investment, we could take greater risks to increase returns, that seems to be the opinion of the questioner. Hayakawa-san will respond to that.

[Takuma Hayakawa, executive]

Yes. Hayakawa is my name. Thank you for your question. In terms of asset management, the basis of the -- our strategy is shown here. For one thing, the financial soundness need to be maintained at all times. And in terms of the specifics of that, in terms of the matching of insurance with insurance liability, and also the liquidity risk need to be considered and managed quite properly. So those are important factors.

And on that basis, based upon individual company's decision, they are allowed to take risks. So that's the basic policy for overall group investment strategy. So while keeping financial soundness, investment to aim at higher upside is actually implemented. So in that sense, the -- when taking higher risks any upside of that, there is another criteria that we need to satisfy.

That is to say we need to have the proper foundation that allows us to do that. That is like the constitution of the entire group. So each company within the group is following that. More recently, Domestically in Japan, we did not have many substantial investment opportunities. So upside was pursued outside of Japan, and on the common basis for the entire group, we have been trying to lay and build the foundation for such greater risk for investment activities. On Page 30 describes that structure that we use.

Basically speaking, private equity, the private assets, private debt, those private assets are areas in which individual companies within the group made the investment, especially the MS have their track record of investing in private assets. They do have talent in that area. So initially, we -- and second, people to establish a company in New York, the company is called MSR.

And last year and this year, the different companies [ seconded ] people to work in those local entities. And therefore, they are seeking upside by having those people locally stationed. So that's how we are addressing this. That's all from my response.

[Unknown Executive]

With respect to the investment in asset management, taking a little bit more risk to increase return have been something that we have been pursuing already, and we are taking initiatives in this area. In the case of Mitsui Sumitomo Insurance, Alpha project is pursued. And in different types of assets are invested by us to increase returns.

So I'd like to ask Hayakawa-san to make some additional explanation of that.

[Takuma Hayakawa, executive]

Alpha project in the project that is pursued by Mitsui Sumitomo Insurance on its own as an [indiscernible] company, taking overseas credit risk as well as private asset risks. And rather broadly in this project, those risks are taken. And the preparations have been underway in the past few years, and it's implemented under the current medium-term plan.

More specifically, it has borne fruit in the form of MSO that's a subsidiary. And we are increasing investment into private assets and also credit investment overseas are being increased through this, and that's the policy that this company is working on right now. And since we now have this vehicle that we can use for investments. So various companies within the group that had been investing in different asset classes overseas, and they have been wanting to increase those investment overseas.

And now that we have realized those individual companies are doing that. So since we have this platform established in the context of Alpha companies, so Alpha projects, this vehicle is going to be used by different companies within the group.

Earlier, I did not mention that for the overall investment activities, you implied in your question that maybe we're not taking proactively the investment risks. But we have taken risk in terms of strategic equity holdings. And therefore, if you add that risk, it's not that we have like risk exposure in investment activities.

[Unknown Executive]

Thank you, Mr. Niwa, for your question. This concludes the Q&A session. So this concludes the first information meeting for fiscal 2023 by MS&AD Insurance Group Holdings. Thank you indeed for your participation.

[This transcript has been translated by an interpreter present on the live call]