Tokio Marine Holdings Inc

TSE:8766

Earnings Call Transcript 2023-Q2

[Satoru Komiya, executive]

Good evening, everyone, and hello. My name is Komiya. Thank you for your participation to this meeting, despite your busy schedule. I also wanted to thank you for your continuous interest and support towards Tokio Marine Group.

To kick off this telephone conference tonight, I would like to present financial earnings for the second quarter and messages from the management based on the second quarter earnings.

If you have the material in front of you, please turn to Page 3. There are mainly 3 points I would like to convey to you today. First point is about the underlying performance of the Tokio Marine's business.

Although recently, we have been impacted by COVID-19 and natural catastrophes, excluding these transient one-off factors, on underlying basis, performance continues to be strong, led by international business. In fact, normalized profit forecast for this year is revised upwards by JPY 10 billion to JPY 560 billion.

Second point is about transient effects that we are impacted by recently. We are estimating these transient effects for this year, for fiscal '22, to be minus JPY 160 billion, out of which COVID related is minus JPY 130 billion. Most of this is coming from Taiwan business, in which we have revised COVID-related expected loss to be JPY 91 billion based on the enlarged infectious state in Taiwan.

As for Hurricane Ian, this is expected to bring the second largest historical loss in the industry. Its impact to us is expected to be not so big as we center our business in specialty line of business. And our loss is expected to sit within the natural catastrophe budget for international business.

Third point is about shareholder return. I have been saying to investors that profit growth and DPS growth should come hand-in-hand and also that share repurchase will be done with discipline. While looking at the [ standard care ] of business, although there are some impacts of transient effect, our underlying performance is indeed strong. Based on that, we are keeping the DPS for fiscal '22 to be JPY 100, as we had announced at the beginning of the year and that means keeping the DPS growth estimate of 18%.

As for share repurchase, since management recognizes the current level of capital to be ample, we have decided to keep the same amount of JPY 100 billion to be allocated for this year's share repurchase program and that means we will be spending the remaining JPY 50 billion, that decision was made in the Board meeting today. I would like to explain these points in more detail, so please turn to Page 4.

First, on top line. Financial performance in second quarter was led by international business and saw year-on-year 18.7% growth with net premiums written and year-on-year 13% growth in life insurance premiums. Excluding the factor of FX, they still achieved the growth by 10.4% and 3.1%, respectively, with a growth in pace above the levels we showed in the projections announced in May. This tells our underlying performance to be strong.

Full year projection were revised upwards based on recent briskness in underlying performance. So on year-on-year, excluding FX basis, we are projecting net premiums written growth by 9.1% and life insurance premium growth by 2.8%.

Next, I would like to explain about our adjusted net income. Please turn to Page 5. There is no doubt that underlying performance continues to be strong, as I have been explaining. But I would like to look into the details for some components making up the second quarter adjusted net income. Starting with TMNF.

TMNF received multiple impacts of one-off events as follows: one, faster-than-expected spending of natural catastrophe budget triggered by events such as hail damage in June and typhoon. The second is that the impact of floods in South Africa. The third is the increase of COVID-related payments due to spread of infections. And fourth, increase in provision for foreign currency-denominated claims reserve due to yen depreciation. These are one-off factors which impacted earnings of TMNF, but excluding these factors, progress rate of profit versus original projection was 54.8%, showing healthy underlying performance.

Please turn to Page 6. As for TMNL, Life operation was also under the impact of one-off factors such as COVID-related loss and losses on derivatives in part of the investment portfolio, where hedging accounting was not applied. Excluding these transient factors, progress rate of profit was 51.5%, and here too, underlying performance is strong. Not bad at all.

As for international business. As we have announced on August 5, it is under the one-off impact of Taiwan COVID-related loss of minus JPY 53.9 billion to be booked in the second quarter and also under the impact of increasing yen-denominated profits due to yen depreciation. Excluding these factors, rate of progress in profit is 56.5%, suggesting underlying performance is strong. In fact, financial performance of key entities for the second quarter was overachieved versus local plan, which excludes the impact of FX, it was overachieved by JPY 23 billion.

Next, I would like to explain about the full year projection. Please turn to Page 7. Full year adjusted net income on an actual basis is expected to be JPY 400 billion, down JPY 150 billion from original projections. While our underlying capabilities are improving steadily, transient factors accounting for approximately JPY 160 billion, such as the spread of COVID infections and domestic natural catastrophes was significant.

Let me give some color on the Taiwan situation, which was particularly large on the next page. Please open to Page 8. As announced on August 5, net loss of JPY 53.9 billion was reported in the second quarter for the impact of COVID in Taiwan. The assumed COVID infection rate then was 30%, but as of the end of October or actually it hit peak mid-October and has come down since then, the rate as of the end of October exceeded 32% and still counting.

As such, we decided to revise the full year net loss of the impact of COVID in Taiwan to JPY 91 billion. Estimated infection rate for the revised loss is 44%. Infection rates are extremely difficult to predict, but COVID insurance policy is a 1-year coverage until February 15 next year for COVID coverage in Taiwan, and we will not let the negative impact to continue into fiscal year 2023.

Please turn to Page 9. This page illustrates full year adjusted net income projection on a normalized basis, excluding transient factors. As explained already, our underlying performance of the business is strong. We will revise our original full year projection to JPY 560 billion, up JPY 10 billion or up 9% year-over-year from original projections on a normalized basis.

Profit growth driver is organic growth of the international business in North America, in particular. I believe our underlying performance capabilities are steadily enhancing. And I will be covering this in more detail at the IR briefing scheduled for next week.

Lastly, but not least, to summarize. Earnings for fiscal year 2022 was largely impacted by transient factors. For this very reason, management believes it is highly critical to, a, strengthen our individual businesses; and b, enhance the management level through global risk diversification strategy and group integrated management.

This, I believe, is extremely critical. We will buckle down and work even harder so that as a result, we will sustain world top class EPS growth and raise ROE to a level that is comparable to global peers. It is with such strong determination that I intend to run the company. And once again, details will be explained in next week's IR meeting. That is all for me. Thank you.

[Unknown Executive]

Komiya-san, thank you very much for that. And now, I would like to ask Okada-san to take us through the capital policy.

[岡田 健司 (おかだ けんじ), executive]

This is Okada speaking, CFO. Before closing, let me cover shareholder returns. Please open to Page 10. Our basic shareholder return policy is dividend and to maintain DPS growth in line with profit growth. As addressed by Komiya-san, fiscal year 2022 adjusted net income on an actual basis was revised down for transient reasons. However, income projections on a normalized basis remain robust, so as the dividend. Five year average adjusted net income has increased year-over-year from JPY 375 billion to JPY 390 billion. Therefore, DPS for FY '22 will remain unchanged at JPY 300 before stock split or JPY 100 after stock split or DPS growth of 18% year-over-year.

Our stance on capital level adjustment remain intact. As always, opportunity for M&A or risk-taking that contribute to our corporate value and ROE enhancement will be pursued, but if there are no such opportunities, we will execute share buyback. For fiscal year 2022, we announced in May JPY 100 billion share buyback plan. And since our ESR is at 122%, we have ample capital, we will stick to the plan. And today, as was mentioned by Komiya-san, Board resolution, which was held today, passed to execute the remaining JPY 50 billion. The company intends to execute the business strategy steadily and raise EPS and ROE, while suppressing volatility, and respond to your expectations in the capital market. Your continued understanding and support is very much appreciated, and that is all for me. [Statements in English on this transcript were spoken by an interpreter present on the live call.]