Tokio Marine Holdings Inc

TSE:8766

Earnings Call Transcript 2021-Q2

[Taizou Ishiguro, executive]

Thank you all for joining us. I am Ishiguro of IR Group. I would now like to begin Tokio Marine Holdings' earnings call for fiscal year 2020 second quarter results, which we announced today.

Now I would like to share with you the highlights of our performance from Page 3 of the presentation material. First, top line or net premiums written. In the second quarter, our top line grew by 0.1% year-on-year or by 4.4%, excluding the currency impact. To break this down in more detail, top line of domestic non-life business declined by 1.6% over the year, mainly because CALI premiums were lowered.

In the international business, while there was a negative impact from stronger Japanese yen that was more than offset by execution of overseas growth strategies, including new consolidation of Pure Group as well as rate increases and top line increased by 3.8% year-on-year. As for full year projections on top line, we made a slight upward revision to domestic non-life business from our August projections, mainly due to top line growth in fire and specialty business. We also made an upward revision to international business on a local currency basis due to rate increases in developed markets. So the underlying trend is favorable overall, but in Japanese yen terms, due to the appreciation of Japanese yen, we made a downward revision by JPY 10 billion.

Next, life insurance premiums in the international business increased due to rate increase in medical stop-loss business of TMHCC. However, top line of domestic life business declined due to increased surrender in corporate insurance. As a result, life insurance premiums declined by 3.2% year-on-year. For full year, we made a slight upward revision on the domestic business. We also revised our projection in the international life insurance business upwardly as the negative impact of stronger Japanese yen is expected to be offset by steady rate increases at TMHCC. And for our life business overall, we revised our top line projection upwardly by JPY 10 billion.

Next bottom line or statutory consolidated net income in the second quarter declined by JPY 54.2 billion over the year to JPY 62.3 billion, mainly due to the negative impact of COVID-19 by JPY 73 billion. To highlight the key points here for the major 3 businesses. In the domestic non-life business, bottom line increased by JPY 41.2 billion year-on-year due to decline in accident rate attributable to COVID-19 and year-on-year decrease in natural catastrophes in addition to the favorable growth at the top line.

Next domestic life business grew its top line by JPY 9.5 billion over the year, mainly due to the absence of increased expenses on system development that we booked last year. International business, in addition to the negative impact of the pandemic by JPY 86 billion as we completed the acquisition of Pure Group in February this year and began the depreciation of its goodwill and intangible fixed assets, the bottom line declined by JPY 107.3 billion over the year.

Next to review our full year projection on the bottom line, please turn to Page 4. As for statutory consolidated net income, we made an upward revision by JPY 25 billion from our August projection. To look into more detail, we revised up the projection for domestic non-life business by JPY 17 billion. While losses related to natural catastrophes are expected to increase from our August projection, that is expected to be more than covered by takedowns of cat loss reserve, improved impact of COVID-19 and increase in earned premiums backed by top line growth. We also revised upwardly projection on the domestic life business by JPY 6 billion, mainly due to sales gains of foreign bonds and decrease in hedge costs. International insurance is revised downwardly by JPY 3.1 billion, but this is attributable to JPY 10.4 billion impairment losses on equities of our life subsidiary, which is now consolidated to our group. So the underlying business trend is in line with our plan.

Next on adjusted net income, which is a source of shareholder return. Adjusted net income was revised up by JPY 22 billion from August projection to JPY 332 billion after excluding impact of catastrophe loss reserves and impact of impairment losses on equities and overseas subsidiary.

Impacts of COVID-19 on full year forecast is on Page 5 and income of natural catastrophes is on Page 7.

Lastly, let me turn to ESR and shareholder return. Please jump to Page 31 in the slide deck and our news release on shareholder return. Level of ESR as of end of September 2020 was 165% before capital adjustment with contributions in the first half and improved market environment. This level is up 12 points from end of March 2020. We have today announced a capital adjustment of JPY 50 billion, which brings the ESR to a level of 163%. Let me explain our thought process. First of all, ESR of 165% is within our target range. As long as we are within the target range, the company will strategically consider business investment and/or additional risk-taking and/or shareholder return. This policy remains unchanged. On top of that, economic conditions under the pandemic or a sense of uncertainty of the market has somewhat improved from the earlier stage, and the impact of natural catastrophes is expected to be not as big a few years ago. While we still remain committed to actively pursue business investment growth as capital accumulation from income can be anticipated, we have decided to make capital adjustments.

Ordinary dividend for fiscal year 2020 remains unchanged from the beginning of the year. JPY 100 per share to be paid as interim dividend and JPY 200 per share for the full year, which is a JPY 10 increase, an increase in dividend for 9 years in a row. Details of shareholder return will be explained on Investor Day next week.

Lastly but not least, natural catastrophes we have been experiencing in the last few years and the ongoing COVID-19 puts us in a challenging business environment. What the company must do in spite of that is to increase our capabilities, the earning power of the group in a stable manner and to strive towards achieving our goal, adjusted net income of over JPY 500 billion and adjusted ROE of about 12%. This is what we intend to explain thoroughly at the Investor Day scheduled next week. We are committed to responding to our shareholders' expectations by enhancing profitability over the medium and long-term in a stable manner. Your continued understanding and cooperation is greatly appreciated.

This is all for me.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]