TKOMF - Tokio Marine Holdings Inc. (TKOMY) Q1 2023 Earnings Call Transcript
2023-08-07 20:47:11 ET
Tokio Marine Holdings, Inc. (TKOMY)
Q1 2023 Earnings Call Transcript
August 07 2023, 04:00 AM ET
Company Participants
Taizou Ishiguro - GM of Global Communications Department
Kenji Okada - Group CFO
Toshihiro Yahata - Global Communications Dept
Kazuhiro Honjo - Head of Alternative Investment Division
Hiroshi Sakiyama - MD and GM of Corporate Planning Department, TMNF
Conference Call Participants
Masao Muraki - SMBC Nikko Securities
Nastsumu Tsujino - Morgan Stanley
Kazuki Watanabe - Daiwa Securities
Koki Sato - JP Morgan Securities
Mia Nagasaka - Morgan Stanley MUFG Securities
Koichi Niwa - Citi
Naruhiko Sakamaki - Mizuho Securities
Taiki Okada - UBS
Tatsuo Majima - Tokai Tokyo
Presentation
Taizou Ishiguro
Thank you very much for joining us today. I'm Ishiguro from Global Communications Department. We will now begin the conference call on the overview of Financial Results for the First Quarter of FY 2023 of Tokio Marine Holdings. First, our group CFO, Okada, will give a 10-minute presentation of our financial results using the presentation material posted on our website today. After that, we will take questions from all of you. Thank you very much. In addition to Mr. Okada, Managing Director of Tokio Marine & Nichido, TMNF, Mr. Sakiyama, is also attending the call today and will respond to your questions as appropriate, including a series of news releases.
Before we begin the call, let me remind you of the following. In this presentation, we may make forward-looking statements based on our current expectations, all of which are subject to risks and uncertainties. Please be aware that actual results may differ materially from those discussed in the forecast. A recording of this meeting is also available.
We will now begin. Mr. Okada, please.
Kenji Okada
Thank you very much for taking time out of your busy schedule to join us today. I am Okada, Group CFO. Today, we announced our first quarter financial results. So let me explain the contents and other related matters. Please turn to page 3. There are three points I wanted to communicate today. First is steady performance towards FY 2023 projections of JPY670 billion.
In the first quarter, there were some negative impacts from Nat Cats in Japan and overseas and North American capital losses, but all of them are within the scope of our initial projections. In addition, yen's depreciation led to an increase in the reserve for outstanding claims in foreign currency and a loss on validation of foreign exchange derivatives in Japan, but those will be offset by the increase in full year profit for international insurance.
In addition, taking into account the domestic fire insurance profitability improvement, expansion of specialty insurance, stronger than expected international underwriting and increase in investment income, I believe it is fair to say that performance is steady towards FY 2023 projections of JPY670 billion.
Second point is concerning Japanese media coverage of TMNF, Tokio Marine & Nichido, which has caused great inconvenience and concern to our customers in the capital market. First, regarding the price fixing of premium rates. As announced on June 20, we take this matter very seriously and have established a special committee headed by several external lawyers investigate potential additional infringements.
As released on Friday last week, we received an FSA directive requiring a report which is exactly on our ongoing investigation on similar incidents. We will sincerely deal with this order as well. We are analyzing the root cause, formulating and implementing necessary measures, both from governance and basic employee behavioral perspective to prevent further recurrence.
Next, regarding fraudulent insurance claims concerning BIGMOTOR, as announced on August 1st, we prioritized the recovery of customers' damages and have begun contacting customers who were or may have been affected. We will not wait for the conclusion of BIGMOTOR’s total investigation and work to proceed with various measures such as supporting safe driving initiatives sincerely and proactively.
Thirdly, despite such incidents, it is our duty to provide insurance coverage at an appropriate rate and conditions based on customer needs. Therefore, I would like to add that the initiatives to further improve domestic buyer insurance profitability shall continue without compromise. In this context, the domestic Nat Cat since July is slightly exceeding our original plan for the year, but apart from that, the performance is strong domestically and internationally.
On this basis, and taking into consideration the fact that this is before the full-scale season of Nat Cat and other factors, we are not revising our full year adjusted net income forecast of JPY670 billion at this time. We do not intend to revise the dividend, share buybacks and other shareholder return policy that we announced the beginning of the year at this time.
Let me now explain, particularly the first point in more detail. Please turn to page 4. First is top-line. In the first quarter, net premiums written increased by 9.9% and life insurance premiums increased by 0.2%. Excluding FX, net premiums written was up 6.7%, thanks to strong domestic and international sales. On the other hand, life insurance premiums declined by 4.1%, which was due to the expected increase in the cancellation of domestic corporate insurance. So the performance is strong overall.
Next, please turn to page 5 for the first quarter assessment of the main components of adjusted net income. The group's adjusted net profit was JPY164.5 billion and the progress rates compared to our full year projection was 25%. That 25% progress rate is lower than our five-year average 36%. We have explained the factors behind this gap at the beginning as we think we are enjoying steady performance.
Let's take a look at each business. Starting with our domestic operations at Tokio Marine & Nichido Fire. Profit drivers are yen depreciation and natural catastrophes that we have explained. About yen depreciation, it sure pushes down the profit of the company, but on a group basis, it is offset with a factor on page 27 and increasing overseas subsidiaries profit in the interim.
Rather, JPY1 depreciation against the dollar will benefit the group's profit by JPY400 million. When we look at our underlying performance, excluding these factors, the progress rate is 40%, on pace with our five-year average. We think that the performance of our profit drivers, domestic fire insurance profitability improvement and expansion of specialty business is steady.
About foreign insurance business, our first quarter results at our key entities were better than local plans by JPY2 billion. To give you some color, our underwriting profit was favorable mainly as Delphi Group and the Brazilian entity TMSR and outperformed local plan by JPY7 billion.
About investments business, we stated back in May that we anticipated more than JPY20 billion of full year capital loss. To this, capital loss of the first quarter was JPY12.4 billion and was somewhat larger. But thanks to the higher than planned investment income, our total investment profit is aligned with our plan at the beginning of the year. This leaves us with negative JPY5 billion gap. This is JPY5 billion. This JPY5 billion is a loss in Europe from fluctuations of currency rates between dollar and pound.
About the first half flash report numbers as our major entities, they outperformed local plans by approximately JPY13 billion further accelerating the solid trends that we had enjoyed from their first quarter. The basic trend remains the same as Q1, but we plan to book additional loss reserves in overseas runoff reinsurance posted by TMNF of JPY11 billion. This is the reserve provision for ADC or adverse development cover, that we signed with buyer at the time of divesting our formerly insurance subsidiary TMR in March 2019.
Social inflation is a factor behind this. We believe that our current reserve level is appropriate, but even in the case that we need to add further reserve in the future, our ADC has an offer limit. So the maximum loss amounts to be added in the future is kept at JPY100 million or so. The loss is a one-time factor and our entire overseas business did more than just offset this negative factor. As you see on page 1, half year flash report at the end of June indicates that our overall overseas business was on pace even after reflecting this particular loss.
To summarize, we need to continue to monitor the progress of the coming natural catastrophes and investment, but our overall understanding of our performance is that it is steady. We would like to satisfy capital market participants by realizing a top-level EPS growth and ROE improvement to one of the world's best. To do this, we will capitalize on our strength of global risk diversification and global and aligned group management and implement corporate strategies steadily.
It goes without saying that our customers trust is the source of all insurance business. We take the serious of -- business very seriously and our holding company will provide thorough supervision and guidance to ensure the implementation of various measures at Tokio Marine & Nichido Fire. We appreciate your continued support. Thank you for listening.
Question-and-Answer Session
A - Taizou Ishiguro
Thank you Mr. Okada. We would now like to take questions. [Operator Instructions] We will now take -- start taking your questions. Thank you. Today's first question will be from Mr. Muraki of SMBC Nikko Securities.
Masao Muraki
Hello, I am Muraki of SMBC Nikko Securities. I have two points. The first point is on page 3. It's regarding price fixing and BIGMOTOR issues. Due to the directive requiring you to submit an official report, so I believe it's difficult to give us details, I would like to ask a question in terms of group governance for BIGMOTOR in around March last year and for Tokyo Group around December last year, TMNF, your subsidiary learned of the fact or the possibility and after that, at the Board of Directors meeting, executive meetings, all these meetings at the holding company, how has the holding company dealt with these matters and what kind of guidance supervisions have been given? We know that your company has some external Board of Directors members, but the long years of the sales operation practices at TMNF, I am also interested in the current state of such sales and marketing practices.
And my second question is regarding investment business. On page 20, Delphi’s capital of JPY11 billion is recorded. And I would like to understand the breakdown of this JPY11 billion if you can give us the breakdown. And also, compared to the initial plan in the US, short term interest rate seems to stay at a very high level and also there is the reserve of a particular loan that group's income gain and capital loss as well as hedge cost. There should be some changes of the market impact on these points. And I would like to understand what kind of impacts are given from the recent market changes.
Taizou Ishiguro
Thank you very much for your questions. For your first question, our CFO, Okada-san, is going to provide an answer.
Kenji Okada
Hello, I am Okada. Thank you for your question. As I said before, about the series of cases at Tokio Marine & Nichido Fire, we have caused great inconveniences and concerns to our customers and capital market participants and we take this whole matters very seriously. And about our understanding and action as holding company, I would like to explain starting with price fixing, we received a report about this matter in January this year to Tokio Marine & Nichido Fire -- from Tokyo Marine Institute of Fire. And as of January, we gave an instruction to do early investigation of the facts of taking sincere actions to customers and formulation of the current prevention measures.
And after that, timely information sharing has been done and we have been providing supervision and we did investigation using external lawyers. And based on this result of the investigation, there was a reporting made at the Board of Directors meeting of the holding company in April and even that on a monthly basis, we have been conducting discussions, including information sharing and actions. And after the BIGMOTOR scandal, after we learned the fact in March 2022, based on the voluntary investigation at Tokio Marine & Nichido Fire and investigation results of BIGMOTOR, a timely information sharing has been done to the management team of the holdings company and to the Board of Directors meetings, we have shared the stance of taking strict actions to BIGMOTOR and also information was shared regarding the action taken. And that is it from my side.
Taizou Ishiguro
Thank you very much. And about the second question, Nambu-san is going to take on this question.
Unidentified Company Representative
Hello, I am Rambus and I am from Financial Planning Department. About Delphi, JPY11 billion breakdown. On a dollar basis, basically impairment loss was JPY50 million and divestment loss was JPY20 million and CECL provision is JPY10 million. This is the breakdown. And about income capital hedge cost fluctuations or changes, there is the increase of the interest rates in the US. For this, we had a low fixed time. We have the divestment loss from our bonds following the advanced fees in Silicon Valley. And this is to avoid risk and also we recorded impairment loss.
As we stated before, compared to the capital loss plan of JPY20 billion, we are so far behind the plan. And so far, as to the actual results from January to June, there are positive and negative factors and overall, we are behind our plan. And to give you more details, for the actual results up until June, as to the divestment loss for loss on sales, the side of the loss has become smaller than before and also impairment loss did not increase significantly. However, given the current market environment, CECL, we have to add reserves and also in line with increasing interest rates, derivative interest rate swap has led to a decrease in the valuation amount. So overall, we are behind our plan.
However, for the income side, from the increase in interest rates, income side has been going up and there is some contribution on the income side. So the we are behind in the other, but we are a positive in the income side. So overall, we are on plan when the two factors are combined, both income side and capital side. And going forward, we will need to monitor the impairment loss level that we may need to book. And after hedging costs, or hedged costs overall, we have reflected some of the hedged costs already.
On an annual basis, the three players of JPY22 billion and minus JPY60 billion compared to the year before and also for the first quarter or sorry, let me start again, at TMNF JPY14 billion or so or JPY22 billion or so for the three major players combined and minus JPY60 billion at the TMNF and JPY90 billion for the three players combined. And as we have been explaining from before, there's the increase in the income side from the fluctuations in the interest rate, there is a support from that. So overall, when all those factors are combined, we are so far basically on plan.
Masao Muraki
Thank you very much and thank you very much for giving us the details. Let me go back to the first question. I would like to confirm. This time, you said that you do not -- you wrote that you do not plan to revise your shareholder returns policy, but the -- about JPY100 million of share buyback budget, does this impact your budget for this share buyback?
Kenji Okada
Hello, I am Okada. About this case so far, we do not believe that this case impact our performance significantly. Therefore, we are going to take a look at the ESR at end of September to decide on the size of the buyback, et cetera, the shareholders return, but so far we believe that there is not going to be an impact from this.
Masao Muraki
Thank you very much for your answers.
Taizou Ishiguro
Thank you. Next question, we need to hear today, Morgan Stanley, Mr. Tsujino, please.
Nastsumu Tsujino
First of all, $11 billion reserve when you sold the reinsurance company. Was this originally incorporated in the company forecast? And the other is auto, domestic TMNF, there was no major loss, right? Major claims in loss ratio? Take care of it good. Is this sign of the securitization staffing? At the current pace the auto loss ratio will exceed your projection or is there anything you could share with us in terms of the projections? Thank you very much.
Taizou Ishiguro
Question number one. Let me answer the first question, this ADR reserve loss development. Sorry ADC, adverse development cover, this reserve development. This was not included in the initial protection because in June, this reserve agent notified us of this reserve increase and so it is not included in the May production. So that's my first question answer. Second question, Yahata will explain.
Toshihiro Yahata
So personal lines underwriting development. Yahata is my name. I'm sorry, your voice broke up, but combined ratio, the projection of the FY '23, is your question, is there a change in your projection?
Nastsumu Tsujino
Yes, it's up by 3.5 percentage points. So in the first quarter, the unit price coming up? So in the first quarter, you talked about, is it in line with your plan or is it settling? Okay, so let me split into frequency and unit price. In the first quarter, the revenge drive impact, the frequency exceeded -- slightly exceeded our forecast. On full year basis, can we have a similar projection?
Toshihiro Yahata
In the same term last year, revenge drive impact started. Compared to that time, the impact is still remaining, but towards the end of the year, this will settle gradually. And like we said in the last financial results briefing, the frequency will go down by 2% to 3%. The unit price is in line with our projection. Originally, of course, we forecasted the inflation impact and last briefing, we expect a 3 percentage point increase, which is in line in DOJ forecast fiscal '23 against fiscal '22 inflation will weaken in their FY '23 forecast. So no big change from our initial forecast. Thank you. I hope this answers your questions.
Nastsumu Tsujino
Thank you very much.
Taizou Ishiguro
Thank you. Now I would like to take questions from Watanabe-san in Daiwa Securities.
Kazuki Watanabe
Hello, I am Watanabe from Daiwa Securities. I have two questions. My first question is regarding auto insurance pricing strategies. In January 2024, you said that the you're going to increase price on the third page for fire line there was a statement about an appropriate condition, et cetera. But then what is the policy of your auto line pricing? And my second question is regarding BIGMOTOR. When investigator is done about the unnecessary breakdown for our customers, it's going to come with some additional costs, but how big is this cost going to be? Is it going be meaningless? And also, if there's something of a nature that you can claim for damage. Thank you very much.
Taizou Ishiguro
I believe I have the right person to answer this question.
Toshihiro Yahata
Hello. Once again, I am Yahata from personal line underwriting department. For the price revision, we already stated that we plan to revise, right? And including one I mentioned earlier increased accident frequency and the increase in the claims price due to inflation. In this way, regardless of whether or not there was any BIGMOTOR incident, we are in an environment where we need to raise our price. But for the BIGMOTOR issue, we only about announcements to individual customers about the necessity to revise the grade and there are also announcement we need to make, but when we think of the insurance provided through the BIGMOTOR, it's 30,000 vehicles, the target for the three years and one year. 10,000 vehicles of the fleet are the targets that are covered by BIGMOTOR which is not big, but it is necessary that we understand the fact that what happened.
And based on the estimates of the side of this impact, we are going to set our policy for the price provision to come. And after the second point of the impact from the breakdown of customers, for the past three years, the target fleet policies were 30,000 for the past three years, but if all of these 30,000 policies were fraudulent, even if those fraudulent, there are cases where we need to return some and also there are some cases where we do not need to do that. And so we need to judge for each policy. And we believe that the -- not all of these 30,000 required returns and on a division of customer is great. And therefore, we believe that the additional cost to come from this incident is not meaningful, related to the revision of the grade. And after the possibility of whether or not we can build a BIGMOTOR for the cost that is going to be incurred, we are not sure and we would like to refrain from giving you the answer.
Kazuki Watanabe
I would like to ask one more question. In the worst case scenario If the bank [activity] (ph) of BIGMOTOR becomes large, do you think that the impact on your company is going to be meaningless?
Toshihiro Yahata
Based on the size information I have just given, I would like to talk based on the risk based on if furnished, but the JPY40,000 to JPY50,000 is the build amounts to owners. So 10,000 are policies per year or 30,000 for three years and even if all of these policies were fraudulent, is limited and even if there's a default, even in the case of default, the impact is going to be not meaningful.
Kazuki Watanabe
Thank you very much for the answer. Thank you.
Taizou Ishiguro
Thank you. JP Morgan Securities, Sato-san, please.
Koki Sato
JP Morgan Securities. Sato speaking. Thank you. I have two questions. First, the question is not just focused on BIGMOTOR but listening to various mass media coverage, the depending on the number referred to BIGMOTOR, there may have been some maneuvering on the CALI So the underwriting volume of CALI could have been a incentive? Is there such a structure? If so, no loss, no profit is the basis of the system, but why does such incentive exist? Various media, they what they want. So if you could share with us your formal view as a company. Second question is international, especially in North America, top line, page 15. You explained the status. Excluding FX, Philly, Delphi, CC -- HCC, minus 0.2%, 2.5% and 0.2%, but 0.6%,7.2%, 6.5% in the first quarter against the initial forecast. And Philly is on track and the others are exceeding. So can we just see that it's exceeding? And if so, which line is stronger than your initial forecast? Could you elaborate?
Taizou Ishiguro
Thank you. First question will be answered by Yahata-san. Second is from international side.
Toshihiro Yahata
Yes, Yahata from the automotive group. So CALI, as you said no loss no profit is the baseline So by promoting that, it does not cause any impact to our profit. So you are right. But why is CALI promoted? CALI and the automotive insurance is a two-tier structure. So it's the additional automotive insurance is on top of CALI. So when there's CALI policy, we can get the touch point with customers on automotive insurance. And so this leads to the top line increase in automotive insurance. And automotive insurance in CALI is considered as one in our company. So of course, we have the insurance top line target on the sales side. So in that sense, this automotive insurance sales volume is a barometer of our sales activity. So we are focusing on promoting the sales. Thank you. I hope this answers your questions.
Taizou Ishiguro
And second question will be answered by Honjo-san.
Kazuhiro Honjo
So I am Honjo from International Business Development Department. Top line, especially in North America. I think that was your question. The short answer is yes, it is exceeding our plan. We're enjoying an upside as you rightly said. Now the background to do that is roughly speaking property business line is hardening and hardening is continuing. In the initial plan, we said it was slowing down with a peak in 2020, but Nat Cat is increasing and the economy, social inflation, loss cost increasing. So depending on some business lines, there's the research in the first quarter, again, this year. So centering on property lines, the rig up is strong. And if I could elaborate for Philadelphia, minus 0.2% to plus 0.6%. So it is a slight increase. Breakup is going well, but the reinsurance repricing in January was a historically high level. So that is the negative. From second quarter, we think this will again become strong And by line, Delphi to HCC, as you can see on page 16, Delphi is life insurance, the group and the short term disability. In HCC specialty line, cyber and medical stop loss are exceeding our plan. Thank you. I hope this answers your question.
Koki Sato
So my clarification. So if that's the case, like some say the CALI, the additional premium portion, the rider portion, you are not recognizing that benefit portion?
Kazuhiro Honjo
You're right.
Koki Sato
Thank you.
Taizou Ishiguro
Now the next question is from Nagasaka-san from Morgan Stanley MUFG Securities.
Mia Nagasaka
Hello. I am Nagasaka from Morgan Stanley MUFG Securities. I have two questions. First question is regarding domestic specialty insurance statement. There's a steady expansion of this and plus $100 billion expansion. I understand that the business is expanding, but the focal area of the fiber et cetera. And if you could give us the color for each major specialty mind, that would be appreciated. And the second question is regarding the pace or pace of your divestment of core shareholding. There's that information on page 13, and it seems that you are so far on plan, but in the first quarter last fiscal year, your pace was very fast I believe. I know that the current market environment is very different, but if you could explain to us how you think of the current progress and also if you could explain the potential of how far of the divestment you will continue in the future. That would be appreciated.
Taizou Ishiguro
Thank you for the questions. For your first question about specialty insurance business, I would like to answer these questions. About specialty insurance, we have the full focus areas of social issues and we plan to increase by JPY100 billion. And in the first quarter, we did steady business in the first quarter and to give you more color in terms of online SME Insurance, it's more than half of the increase in line this time. Originally, 44 -- just before areas of the social issues about JPY60 billion or more than JPY60 billion contribution is to come from these four. And these four areas are so far outperforming the plan.
Kenji Okada
And about your second question on the pace of sales of our policy [indiscernible] holdings. Thank you for your question. I am Okada and about the divestment this year compared to last year, the size is smaller, but compared to our annual full year, our fund is JPY150 billion of divestments and we are so far on pace with this plan. For the last fiscal year, there was the -- it was right after the start of the Russia and Ukraine war. And uncertainty, became much higher last time this year. So that has led to the fast pace of divestment, but the current market environment is different. So we are so far making decision on when is the right time to divest our core share holdings. And so far, I understand that and our current progress is on plan.
Mia Nagasaka
Thank you very much for your answers.
Taizou Ishiguro
Thank you very much. Next Nomura Securities, [indiscernible] please.
Unidentified Analyst
Nomura Securities, [Sasaki] (ph) Can you hear me?
Taizou Ishiguro
Yes.
Unidentified Analyst
I have two questions. I'm not so well versed with non-life insurance business, so this is a basic question. The agency and the repair factory. Do you constantly monitor? And based on that, you rank them and decide on the agency commission? So in this management, an incident like BIGMOTOR, why did you not notice this situation? It's not evident from numbers or it was something that you could not notice? So if you could elaborate, I'd appreciate it. That's my first question. Second question is also a simple question. So you said earlier that the -- you -- if there's a cost incurred, you may not be able to claim that to charge that to the BIGMOTOR, why not? The damage compensation. I this is something that you need to file a lawsuit against them, but why can't you do that? Thank you.
Taizou Ishiguro
So both two questions will be answered from Yahata-san from personal lines department and also additionally from Sakiyama.
Toshihiro Yahata
Thank you. This is Yahata from personal. So the agency commission loss ratio track record is watched to decide on the agency commission rate, but why we did not ascertain this situation. So in this agency point this loss ratio track record is included. In addition, from the result countermeasure point of view, the profit and loss of each agency is watched and if the profitability is bad, we take individual countermeasures. For BIGMOTOR, of course, we looked into it. But in the overall profitability, BIGMOTOR was not particularly bad for in profitability and the profitability by agency has some variability depending on size and the types and the method of repair is also a variable factor. So from -- it's difficult to identify from macroeconomic factors And my second -- your second question, can we charge them in any way? What I said earlier was we have not fully studied ye. So we have -- it's not that we concluded we cannot charge them. The actual cost incurred when they come become clearer, we will think as a company whether to charge them or not. So we will flush out the details going forward. Thank you.
Hiroshi Sakiyama
Sakiyama from TMNF. So as Yahata just said, let me add some more. First question, the point of the agency commission rate, so there are various items, but this is the solicitation. So there is no item that says repair quality. On the other hand, there are various accidents, why could we identify this? Yes, we are responsible for not being able to identify this but on the other hand as publicized according to the external committee report, they were shrewd and cunning and ill willed and sophisticated. And so in our normal process, we do not anticipate damaging the car intentionally and therefore there were things that we could not identify from our normal process. And second question, of course, the customer protection and the elucidation of the overall root cause is the priority and the cost that will be incurred out of that, whether it's criminal or civil proceedings, we have not ruled out any possibility. Thank you very much.
Unidentified Analyst
So in case of criminal proceedings, you have to -- the burden of proof. So you may well come up with the evidence that they were at fault. Is that also a possibility?
Hiroshi Sakiyama
Yes, we will have do a thorough investigation, but just one more point if I may. So when we pay out, we receive all the information and we cannot understand whether there was a faulty repair from the information and that's why the third party investigation committee, they only did the sample -- sampling. So we since last year, said that they need to have a thorough investigation committee. In the recent dialogue, they said that they will have something like the all-case investigation committee. They are moving in that direction. Thank you.
Unidentified Analyst
Thank you very much.
Taizou Ishiguro
Thank you. The next question is from Niwa-san at Citigroup Securities.
Koichi Niwa
Hello, I am Niwa from Citi. Can you hear my voice okay?
Taizou Ishiguro
Yes, we hear you okay.
Koichi Niwa
Thank you. My question is regarding price fixing of our corporate insurance. I just have one question. On page 3, you mentioned that as prevention recurrence measures, you have crafted them and have been implementing them. And I would like to understand more about this. How's the current business? First of all, underwriting insurance of coinsurance is it still persisting in the area of corporate insurance. And for the current fiscal year, do you have a bad numbers we which you can say that you can optimize during this current year. And there are many media coverage that say that the premium level is high, too high, but how is the optimal level of premium decided generally? And also additionally, I would like to understand the following point. I would like to understand the maximum amount and the basis for the estimate if this number, the maximum loss is to change in the future.
Taizou Ishiguro
Thank you for your questions. [indiscernible] is going to take this question. And if any, Sakiyama-san is going to add information.
Unidentified Company Representative
Thank you. I am Hoshio from Tokio Marine & Nichido Fire. And about your first question on corporate insurance, just one company to undertake the entire risk is very difficult in many cases. Therefore, for the purpose of risk diversification, a coinsurance is often used. And for the demands of deposit holders, their demand is to diversify the underwriters to have a more stable capacity sourcing. So the coinsurance is based on the demand of the both sides. And as to the system or the scheme of core insurers, each insurance company to independently decide on our conditions. And based on the results of the proposed amount, the share of the underwriting is decided and proposed to each insurance company and the insurance becomes valid when those insurance companies respond to this and this is the system or the scheme of coinsurance.
And to your second question on the optimal level of premium, the risks around corporate is different from the risks for individuals. There is a major gap to the reality of risk depending on companies and also depending on content of the business and the changes in marketing -- market environment, the risk size and content changes. Different from individual retail insurance based on the customer's accident frequency and safety measures and based on other factors. So we look at individual risk factors and we also and then we decide on the actual premium based on these various factors and meaning that we decide on the optimum premium based on each case based on the various factors and this policy will not change in the future. And the business impact wise, we do not believe that this is going to be a meaningful business impact.
Hiroshi Sakiyama
I am Sakiyama from TMNF. I would like to ask information about the first and the third point About the first point, we are implementing the current prevention measure as stated on this page but as Hoshino-san said earlier, our industry has a system of coinsurance and that's a very common system. And we also have the independent agency system. And in this way, we have some interface or the touch points with our competitors. And based on this, we of course, we need to understand the rules of anti-monopoly law but we also need to understand in what cases there are higher risks than others. And for each case, and we think it is necessary that the, we educate our employees, so our employees are more aware of such risks.
And as to whether we have or we have been thorough to such risk attitude, we believe that we were not sufficient and we -- we regret for this. And as our company, we need to think about our purpose why our company is doing business. So we would like to start from reviewing our mindset and also we would like to once again understand our rules and also we need to understand our risks for each case and each scenario and also about our touch points with our competitors basically we would like to, prevent and ban touch points to eliminate any potential realization of risks and that's what we are doing now. And to the third question, I would like to add some info. As said before, we use -- we are using external lawyers with independency and objectivity and those external lawyers are doing thorough investigation at the committee.
And as to whether the case infringes on anti-monopoly law and as to whether there's going to be a penalty, such decisions will be made from the Fair Trade Commission. So our company is not in a position to make a comment about this, but we have been saying, believe that we do not need immediately rebind our estimates, corporate estimates.
Koichi Niwa
Thank you very much for giving me very great detail.
Taizou Ishiguro
Thank you. Next, Mizuho Securities, Sakamaki-san, please.
Naruhiko Sakamaki
Sakamaki speaking from Mizuho Securities. I have two questions. First, in BIGMOTOR incident and your thinking around that. So in your domestic business, you're trying to improve the efficiency of domestic business, I think. So this kind of claim could not be identified. It's difficult to identify then your digitalization, this may drag or impact your digitalization efforts negatively or not? Second question is the pricing of the fire insurance. In Japan there are four large players. So -- and the risk preference and appetite is not that different. And so I think this will converge, you talked about the price settings, the rate settings So I think it will naturally converge to a similar level among the four large players. So what do you think? That's my second question. Thank you.
Taizou Ishiguro
Thank you. So first question, Yahata-san and Hoshino-san second question.
Toshihiro Yahata
So I'm Yahata from personal lines department. This BIGMOTOR incident, will it negatively impact our digitalization efforts? No, my answer is no. The assessment will be done and we also need to improve the efficiency in the assessment. Yes, we are researching the digitalization, the image diagnosis, and analyzing the past estimate and see what the repair level is, this research is ongoing. So not using this incident as a trigger, but we will continue our research going forward. Thank you.
Unidentified Company Representative
Thank you. Next is about fire insurance. As you rightly said, it's basically the price of the four companies may become similar, I think that is a large trend, but there will be differences in the end to price. We not only need the past incident data, but also the future forecast. So it will not just come to one same level. This will -- the company's strategy will also come into play. And so there will be differences. In addition, company's portfolio, how the underwriting will be pursued how the results countermeasures will be taken, depending on that, the company portfolio will not be homogeneous. There will be differences. By taking these countermeasures, we are trying to improve the quality of portfolio. So we think this will result in differences among the large players. Thank you. I hope this answered your question.
Naruhiko Sakamaki
Thank you.
Taizou Ishiguro
We only have five more minutes until the planned end time for today, but then we have questions from Okada-san, and one more and we might overrun the plans and time. We apologize for that. The next question is from Okada-san from UBS.
Taiki Okada
I am Okada from UBS Securities. About overseas business, I have two questions. The first question is on Page 17. For the over performance of your fully measured entity from the first and second quarters from JPY7 billion to JPY20 billion, there is the underwriting increase and I would like to understand the reason for this. Earlier, there was mentioned that the there's a contribution of North American rate up. But so is it right that this one-time impact is basically the contribution? And also, is it right to understand that we can expect a similar outperformance in the future? And second question, on page 21, TMHCC Q1 results. Excluding currency factors, negative 6.6% on business unit profit but 4% increase in full year plan. So I believe that the -- they are behind plan and also about HCC, I would like to understand how you see the current work as a team HCC, especially compared with other businesses?
Taizou Ishiguro
Thank you very much for these questions. Honjo-san will answer these questions.
Kazuhiro Honjo
Hello, I am Honjo from International Business Development Department. To your first question, in the first quarter, JPY7 billion and the flash reports JPY20 billion. Your question is regarding what first of this number yielded JPY20 billion. And basically in the first quarter, Delphi and Brazilian business operations have been favorable as we stated in the first -- for the first quarter and they are expected to contribute to us further in the future. For the first quarter, in the underwriting for from Kiln, the European business, we can expect a further contribution, the bigger than larger contribution. This is to your first question.
And to your second question about how we see TMHCC performance. Your understanding on TMHCC's performance is correct, that on a local currency basis, our conclusion is that they are somewhat lower than planned. And after investment income, it was on plan, but for the underwriting business, they were slightly behind. In addition, there was an impact from the currency fluctuation between some currencies and this gave a negative impact. For the European business, dollar was depreciated and pound was higher and this impacted the loss in Europe and some fluctuation of currency rate. And how this is going to turn out in the future, we it can change based on the market environment. That's how we see it.
Taiki Okada
And one more point. About my second point about the -- if you could give us a reason why their underwriting business is behind, that would be appreciated. You said that the top line is higher than plan but why is it that the underwriting lines they are behind?
Kazuhiro Honjo
I believe you're talking about TMHCC. About TMHCC insurance underwriting that I said that they were behind in underwriting. This is because of the relatively large impact from the fluctuations of currency rates and also larger things. These resulted in a slightly behind progress.
Taiki Okada
Thank you for the additional answer.
Taizou Ishiguro
I am Ishiguro and I would like to add some information. In the first half, my team HCC is catching up which sis different from the first quarter's actual performance. Next SBI Securities, Otsuka, please.
Unidentified Company Representative
SBI Securities, Otsuka speaking. Can you hear me?
Taizou Ishiguro
Yes.
Unidentified Company Representative
I have two questions. Let me go one by one. First question on August 4th, TMNF issued a release. So I have a clarification on the content. From FSA, there was a order to submit a report. The content in all ranges, this is the order for report, the undercover investigation. So does this mean all case investigation is required and you are doing that? So that's my first question.
Taizou Ishiguro
Thank you. Sakiyama will explain.
Hiroshi Sakiyama
Sakiyama speaking. Thank you for the question. So literally in all branches, asked to investigate all branches to see if there are any similar incidents. That is the order given. So in other words, so looking into all sales departments, it's not that we will look into each and every policy. We're asked to look into all branches to see if there are any similar incidents and report back. So on June 20th, TMNF had a release on March 24th, you reported to FSA and the -- in June 20th. So this was 4Q just one company. So you just need to report on that and the survey, the investigation on all branch will be from the, say, August 4th. So the -- I cannot go into all the details of the order for the report, but as of June, it was not for all branch -- all branches. Thank you very much.
Unidentified Analyst
Understand. Thank you. Second question is a simple question. Page 5 says, so Anshin Life, first quarter was off to a slow start and I understand that. My question is if the yen -- weak yen continues, then there will be a bigger burden on the derivatives and this will lead to the -- you falling short of the full year forecast. What is your visibility right now?
Unidentified Company Representative
Yes, this is accounting department from Anshin Life. If the weak yen continues, yes, this will be a factor that will lead to underperformance against the plan.
Unidentified Analyst
Thank you very much.
Unidentified Company Representative
Hedge accounting cannot be applied in some parts. And so if we look at the P&L, if the weak yen continues, then yes, the increased portion will emerge, but underlying asset, if we look at the economic value base, yes.
Taizou Ishiguro
The next question is from Tsujino-san.
Nastsumu Tsujino
Hello. This time, the price fixing is issue for some cases and you gave additional relief that you are doing investigation for some industries and I heard that some additional cases were uncovered. And about these cases, are these cases in the areas that have been profitable in the first place? And for fire, even excluding natural catastrophe, I know that the fire is a very difficult line to be profitable, three major players included. But excluding network catastrophe, fire line is generally improving at your company. And for corporate insurance, is corporate insurance in the state where you can basically be profitable?
Unidentified Company Representative
Thank you for your question. Your question is whether we have been profitable for corporate fire insurance. Hello, I am Hoshino. I would like to take this question about profitability of the fire insurance. We have been saying that we need to continue to improve profitability. And we would like to take additional measures on the midterm business plan. But at this point in time, we do not see any difference depending on the size of the company and we believe that the trend is same across different sizes of the company. And this incidence will not trigger a change to the policy or the direction we [Technical Difficulty] We generally would like to improve the profitability of the corporate file line.
Nastsumu Tsujino
Triggered by this media coverage -- and then when the first media coverage in the middle of June and after that, corporate insurance related price fixing was covered. Has it impacted your -- the company's business, for example, has it made it difficult for you to propose price increase or given your tough circumstances, are you taking tough actions because you need to increase price?
Unidentified Company Representative
For the intensifying other catastrophe levels, and an increase in frequency of accidents and also negotiation, we need to negotiate the rate. We are in the same environment in the sense that we need to increase our price for fire lines. And the action that we need to take is that we need to provide detailed explanation and we have been doing this. At this point in time, especially from the customer side, based on the series of media coverage, we have not received a special request from customers. And also, the series of media coverage has not prevented us from taking action that we need to take.
Nastsumu Tsujino
Thank you for the answers.
Taizou Ishiguro
And thank you for your questions. And at the end, we would like to take question from Majima-san from Tokai Tokyo.
Tatsuo Majima
Can you hear me?
Taizou Ishiguro
Yes.
Tatsuo Majima
So coinsurance training, we're in the world of free competition. They're only around three P&C companies. And so there was this tepid market share, I think, among companies in this industry, but once this free competition progresses, there will not be market share? There's no fixed share right now. So what is the current status of the share in this coinsurance scheme? This Nat Cat in July, there was hail in North Kanto and Typhoon in Okinawa. If you could share with us the size, the scale, the scale in Typhoon?
Taizou Ishiguro
Yes, Hoshino will answer the first question.
Unidentified Company Representative
First, coinsurance. As mentioned earlier, this is done because of a few reasons. First is for high risk, company risk, one company cannot bear the risk in many cases. And so as insurance company, we need to diversify and manage the risks. Another is the business customer for the policyholder. They want to diversify the capacity source, capacity procurement. And therefore, this is a win-win for both sides. Now if this coinsurance is terminated, what can we do? The policyholders will need to have multiple policies with multiple insurance companies.
So the -- a partial policy insurance will have to be assigned with multiple insurers. By taking this format, the policyholder will have to bear the more burden on signing the policy contracts. If one insurance company will take and try to diversify the risk through reinsurance, the reinsurance market fluctuation will become bigger and so this will destabilize the procurement situation and it's been a while since 1997 as the market has been literally deregulated. So we think that significant coinsurance will remain unchanged. Coinsurance scheme or the business scheme, business structure will not change. I don't think it will change. Thank you.
Taizou Ishiguro
Second question [indiscernible] will answer.
Unidentified Company Representative
In this paper, on page 8, our first quarter was JPY13.1 billion pretax as shown on page 8. And since then second quarter there has been some Nat Cat. In July there were torrential rain and end of July there was hail in North Kanto. All inclusive, most likely scenario is JPY55 billion pretax The typhoon in Kyushu is not included. Thank you. That, I hoped answered your question.
Tatsuo Majima
Thank you very much.
Taizou Ishiguro
Thank you. So I'm sorry we exceeded the time. With that, we will close the conference call on Tokio Marine Holdings' overview of financial results for first quarter of FY 2023. Please do not hesitate to contact us if you have any questions or points to clarify. Thank you very much again for joining us today.
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Tokio Marine Holdings, Inc. (TKOMY) Q1 2023 Earnings Call Transcript