Earnings Transcript for 8766.T - Q2 Fiscal Year 2024

Taizo Ishiguro: Thank you for joining us. I am Ishiguro of Global Communications. We will now start the earnings call for Tokio Marine Holdings overview of second quarter fiscal year 2024 results and full year projections. Group CEO, Mr. Komiya and Group CFO, Mr. Okada will give an overview of our results and capital policy for about 15 minutes using the presentation document uploaded to our homepage today, after which we will open for questions. Disclaimer before we begin. The presentation may include forward-looking statements based on future projections of current forecasts, which are subject to risks and uncertainties. Please be aware that actual results may differ materially. Recordings of the earnings call are available on request. Let us now start. Komiya-san, over to you.

Satoru Komiya: Hello, everyone. My name is Komiya, CEO of Tokio Marine Holdings. I thank you for your participation today and for your extended support towards Tokio Marine. First of all, I will be explaining about the overview of second quarter earnings and key messages from the management. Please turn to Page 3. There are three key messages I would like to convey to you today. The first is about the underlying performance of our business. Regarding the first half earnings, leaving aside the FX factor which worked in favor of us, the underlying performance of underwriting business continues to be strong mainly in international business such as North America and Brazil. Regarding sales of business related equities, it is being done swiftly as we have divested JPY606 billion in the first half of the year exceeding the original projection. Second point is revision of full year projection. As I have explained, underwriting performance continues to be strong. However, situation surrounding CRE loans is tough based on the trend of work from home and interest rate as well as inflation staying high. We will be increasing CECL provisions in the second half of the year in a conservative manner. As a result, excluding sales of business related equities, actual basis profit projection for fiscal 2024 will be reduced by JPY82 billion to the JPY528 billion. At the same time, profit projection including sales of business related equities, which serves as the source of dividend payment will be JPY1,040 billion up by JPY40 billion from the original projection due to accelerated sales of business related equities. Excluding such capital gains and losses or one-off impact such as CRE loan related matters and acceleration deceleration of equity sales. Normalized basis profit projection will be the same as the original projection. Third point is regarding shareholder return. We will have the same policy that shareholder return expansion should be consistent with profit growth. With this policy in mind, regarding dividend payment, which is the basis of shareholder return, because the actual basis adjusted net income projection was revised upward. We are also revising the DPS upward from JPY159 by JPY3 to the JPY162 of DPS. We will continue to be disciplined with capital adjustment. That means incremental capital created will be put to M&A to further enhance ROE and/or to risk taking. If we cannot find such good opportunities then we will use the capital for share buyback. Our most recently calculated ESR was 147%, which is at a fulfilling level. Today, we are announcing TOB on ID&E Holdings which is a domestic top-class engineering consultancy firm by JPY97.8 billion. Other than this, we have multiple potential M&A opportunities in the pipeline mainly bolt-on acquisitions. We also need to be thinking about their impact on EPS growth. Considering the situation comprehensively, we have decided to increase budget for share buyback from the original JPY200 billion to the JPY220 billion. This will be explained in more details from our CFO, Mr. Okada later on. So first, let me explain about the first message underlying profit trend in more details. Please turn to Page 4. This page is regarding top line. My comments will be excluding FX sector. For the first half of the year, net premiums written increased year-on-year by 5.7%, driven by rate increases in Japan and International businesses. On the right hand side, Life Insurance Premiums decreased by 32.9%, due to block re-insurance ceded by Tokio Marine and Nichido Life Insurance Company in April this year. In both P&C and Life businesses, the top line result is in line with the original projections. Based on the actual performance of the first half of the year, we have updated annual projection. So net premiums written on the left will be up 5.3% year-on-year and Life Insurance Premiums will be minus 15.9% year-on-year. Next, I will explain about adjusted net income. Please turn to Page 5. Group overall adjusted net income as of Q2, as you can see on the right hand side, it was JPY771.2 billion and excluding sales of equities, it is the number in the parenthesis which is JPY359 billion measuring this are the progress rate against the original projections for the fiscal year, they are as high as 77% and 59%, respectively. Such high rate of progress is due to brisk underwriting business in North America and Brazil as we have mentioned as well as FX effect, which was in favor to our business. I will be explaining the details more specifically business by business on this page. In the blue box, I will explain about the Japan P&C. So number one, excluding the April Hyogo Hail damage, which was added on to this year's projection at the beginning of the year, we have had a benign Nat Cat for the first half of the year. And number two, provision of yen appreciation at the end of September made us reverse foreign currency denominated claim reverse. These two factors make progress rate look rather high. However, even by excluding these one-off factors, we are still in line with the original projection. We are seeing some increase in the loss ratio of auto, but we already have a plan to respond to this with the rate increase expected in January of next year. Next is International Business. The International Business reporting is based on FX as of end of June and yen depreciation had amplified their profit in yen basis. But looking at it in local currency terms, excluding FX factor, progress rate for the first half of the year is 53% also in line with the original projection. Insurance underwriting business in major markets such as North America and Brazil is strong and investment income in North America is also solid. On the other hand, posting of capital loss on CRE loan was also done in the first half of the year and including that, we are still in line with the plan. Next, I will explain about the full year projections based on the current situation. Please turn to Page 6. Revised adjusted net income projection for the full year 2024 on an actual basis is as you see on the right hand side bar graph is JPY1,040 billion up JPY40 billion versus original projections. Excluding gains from business related equities, adjusted net income will be revised down by JPY82 billion to JPY528 billion. Positive factors include strong underwriting in the International business in North America and Brazil, benign Nat Cat for Japan P&C and accelerated sales of business related equities. Negative factors include conservative CECL provisions related to CRE loans among others. Details of [Technical Difficulty] review of CRE loans are shown on Page 40 and beyond for the -- in the slide deck. Since the CECL provisions are based on highly conservative assumptions on a similar basis in FY2024, a large part of the income related to CRE loans will be used up. Yet from an accumulated return perspective as well as from the conservative reserve ratio adding impairment and CECL, we believe to have an advantage over other players. Needless to say, this does not change our view of the overall credit investment of Delphi Group. We will continue to leverage the long-term and predictable capital to enjoy investment return, while controlling risks appropriately. Please turn to Page 7. This page shows the full year projections of adjusted income on a normalized basis, taking out one-offs, such as gains and losses on sales due to Nat Cat, capital gains and losses such as CRE loans and sales of business related equities. In a sense, this shows our current underlying capabilities, a launch pad if you will for fiscal year 2025 profits. We expect flat growth versus original projections. Management will continue to pursue globally diversified, bottom focused, strong underwriting and leverage robust capital gains as a driver to achieve top tier EPS growth with confidence. With EPS growth and well-disciplined capital policy, we strive to further enhance ROE. That will be all for me.

Taizo Ishiguro: Komiya-san, thank you very much for that. Capital policy will be covered by Mr. Okada.

Kenji Okada: This is Okada, CFO. Please turn to Page 8 for shareholder return. As I have explained in the past, our shareholder return policy is dividend payment, increased EPS sustainably in line with profit growth. This is our policy. Adjusted net income on actual basis for FY2024, including gains in sales from business related equities was as explained by Mr. Komiya revised up by JPY40 billion. Our profit growth remains quite strong. Therefore, DPS for fiscal year 2024 in line with profit growth will be up JPY3 from original plan to JPY162. DBS growth will be up JPY32 year-over-year. Please turn to Page 9 of the slide deck. Regarding capital level adjustment and share buyback as a means to adjust, our stance remains unchanged. In other words, as always, if we have the opportunity to increase corporate value through M&A or risk taking, such transactions will be executed while in case there is a lack thereof share buyback will be executed. Regarding M&A, we announced TOB of a leading Japanese company in the engineering consulting industry, ID&E Holdings for a total of JPY97.8 billion as was explained by Mr. Komiya. This TOB will enable us to make end-to-end value offerings in the area of disaster prevention and mitigation. Such a business model is globally one of a kind. ID&E is focused on capital light consulting business and therefore this is a transaction that contributes to enhancing our corporate value. As for International business, valuation of large M&A remains high and therefore require patience, but there are a number of small and medium-sized bolt-ons in the pipeline. While we are working on growth strategy in Japan and abroad, our ESR is 147% at a solid level. Regarding impact to EPS growth, increase in market cap will also need to be taken into account. We took these factors into account comprehensively and decided to increase share buyback for fiscal year 2024 to JPY220 billion from our original plan of JPY200 billion. More specifically, since JPY100 billion is already approved and executed, the Board approved the execution of JPY120 billion today. We will continue to steadily execute our business strategy to increase both EPS and ROE and live up to the expectations of the capital market. That is all for me.

Taizo Ishiguro: Thank you, Mr. Okada, and the remaining time we have, I would like to take your questions. TMC is explaining how that's [indiscernible] into the Japanese audience. So now Q&A just begins.

Operator:

A - Taizo Ishiguro: The first questioner SMBC Nikko, Mr. Muraki, please.

Masao Muraki: This is Muraki speaking. So CRE loans, I have some questions regarding that, that was in fact for this time. And so if you make provisioning then you said that you will be very conservatively provisioned. But then if you look at the loan to value classes for office properties, I want to know the balance for different LTV classes and also the provision to ratio for different classes according to different levels of LTV. And also as for the timing for provisioning for US Bank and to Aozora Bank, I think you were quite late in making the provision. And it must be because you have some specialized portfolio, but while others are not realizing losses, why are you looking such capital losses?

Taizo Ishiguro: Muraki-san, thank you for the question. From CIO, we have Mr. Nakahara with us. And so our CIO is going to answering your question.

Yoshiaki Nakahara: This is Nakahara speaking. I will answer your question on the first point about the office properties, the provision rate for offices. For different classes of loan to value, you were asking, but we don't disclose such details. I don't have such numbers with me. However, what we have been disclosing this time is on Page 41. The capital loss is 0.9 billion and cumulatively is 1.2 billion more than half of that comes from office type of properties. And as for the balance and also the provision rate for office on average, as you can see on page 42, it's 10.4% for the entire portfolio, but if you exclusively look at our office only, it's 16.5% provisioned rate. And within office there are some sound well performing properties as well. And so when we think that there is a potential risk to the principal, we make provisions and I would say it's less than 40% that are classified under such category. And this is the opposite of the loan to value I would say. This is like the damage being done to the principal, I would say it's about 20% to 50%. And so it's about 25% each for different classes. I hope that answers your question.

Masao Muraki: The last part. So 20% to 50%, I didn't understand what you were referring to.

Yoshiaki Nakahara: So the impairment ratio or damage ratio when it's about 20% within office, so within 1.2 billion some of that comes from the office and on average the damage or impairment is about 40%, but not everything is 40%. If you look at the distribution, there is impairment by 20% out of the entire portfolio and then 25% for the 30%, 40% impairment about 35% and then more than 50% impairment is about 20% of the entire portfolio. So that's the distribution that holding to the different levels of damage or impairment.

Masao Muraki: Thank you.

Yoshiaki Nakahara: And as for the timing that you were asking about, as you realized our portfolio versus the portfolio of the peers, other companies is different. Other players, as you can see on Page 41, the current property value when it goes below the principal value and it has -- that has been happening since about last year. At that timing other companies realized capital loss. And in our case at that point by executing business plan and because we expect the value increases still to happen, we do not recognize CECL and that is in accordance with the US GAAP. However, the situation concerning commercial real estate is worsening and so we wanted to be conservative and so we're going to show the US GAAP. We still wanted to be conservative and therefore we are now excluding value add through business plan execution and that's the change. Of course, we talk to accountant and this is some of that is in line with the US GAAP, which we cannot book within 2024. And so that portion will be carried over to 2025. That concludes my answer to your question.

Masao Muraki: Thank you. Thank you very much.

Taizo Ishiguro: Thank you for the question. Next question. BofA, Tsujino-san.

Natsumu Tsujino: First of all, international business, group companies, full year projection, the ordinary profit of international group company to show total and there is a total for international group companies and the effective tax rate can be incremental and I think that is increasing, not just for this year, but in this first half of the year, but compared to your previous year seems to be an increase that could be because of US GAAP. But please explain why there is a difference? I have one more question, but I guess I can only ask one at a time.

Taizo Ishiguro: So Mr. Komatsu of the Corporate Accounting Department will respond to your question.

Unidentified Company Representative: My name is Komatsu from Tokio Marine Holdings Corporate Accounting Department. Thank you for the question. If you could go into the appendix. Negative number is quite big I think is your question. And in the appendix, net profit attributable to the owners of the parent, the projection minus 23 billion. This is our current projection. And this 23 billion this is a negative profit from companies that are not shown here are appearing here and there is also some rounding of the numbers. There is Tokio Marine & Asian Life is consigning loan to a company called TMEL, which is a consolidated subsidiary and CECL loan is incurred by this company and that is included in the companies other than the above. So that is shows the difference.

Natsumu Tsujino: I see. So Asian Life is consigning loans to this company in the United States and Asian Life is consigned to Delphi correct in the United States and the loan that is held by this subsidiary is that what you mean?

Unidentified Company Representative: It's not really a consignment, it's an investment that we're making and it's a subsidiary of the company and therefore it is not included in the financial management accounting of Asian Life. And so this is an increased amount JPY17 billion or so.

Natsumu Tsujino: And apart from the provisions overseas there are some provisions that we made in Japan, correct?

Unidentified Company Representative: Yes, that is a fair interpretation or understanding.

Natsumu Tsujino: Understood. Thank you very much.

Taizo Ishiguro: Next question will be from Watanabe-san of Daiwa Securities please.

Kazuki Watanabe: This is Watanabe of Daiwa. I'm looking at Page 43, ID&E, impact of the acquisition of ID&E. And so it says the amount is JPY9.6 billion of net profit and so to the adjusted net income is in fact about JPY10 billion and also what is the synergy that you expect to see with your insurance business and what will be the impact on ESR with this acquisition?

Taizo Ishiguro: Thank you. And so synergy and also business matters, Namatame-san, the Chief Digital Officer will be answering that part and as for the impact of ESR, Mr. Okada will answer your question.

Masashi Namatame: This is Namatame. This is Chief Digital Officer. My name is Namatame. Watanabe-san, thank you very much for your question. What we have announced this time which is the acquisition of ID&E for TOB to be done what are the synergies expected? So, to your question, already as we have been explaining to investors at Tokio Marine, we want to be responsive to the societal changes add more value and provide larger area of services against the natural disasters. We want to contribute in disaster prevention and mitigation which is something that is mainly being done by TMNF and also other subsidiaries TDR and TDR have been providing consultation and also disaster prevention consortium CORE for about 120 companies and through the affiliation and collaboration with those companies we have been working on that area. And as a result of that, we have achieved a lot and there has been progress in the area of collaboration. At the same time, we were also thinking that we also need to be enhancing our capabilities. And equally if not more we have to be working on polishing up our capabilities. Within that idea ID&E which is an engineering technology which is directly to strengthening society can be acquired and it will be both of us and we will be able to offer that to a wider circle. Synergy in disaster prevention mitigation in pre and post areas. We have been wanting to develop solution development capabilities that will be augmented by the capabilities by ID&E. So as Okada-san explained against the natural catastrophe, there are four areas that we want to work on which is the evaluation, risk planning and insurance and also the recovery and continuation. And so these are the four value propositions that we will be able to provide to the customers and so these values to be added is unprecedented rather rare in the world and so while we have been doing insurance business that capability will be augmented in a reciprocal manner with what ID&E holds. Based on that the value that we provide to customers can be enlarged and enhanced that is the intent of TOB.

Kenji Okada: About the financial impact and also impact of ESR, ID&E what they have in the midterm plan by 27 June they want to achieve JPY12 billion of net profit then we want to achieve that if not more within our group. And what will contribute to our earnings is that for the fiscal 2024 and they will be part of P&L and from the first quarter of '25 ID&E's P&L will fully be integrated. As of the end of September, their net assets was about JPY84 billion and PBR was 1.17. Goodwill is limited and this is a consultancy firm which is a less capital intensive business. And so to our ESR, in fact ESR is limited. That concludes my answer to your question.

Kazuki Watanabe: I understood very well. Thank you very much.

Kenji Okada: Thank you.

Taizo Ishiguro: Thank you. Next question, Mr. Sato from JPMorgan.

Koki Sato: Mr. Sato from JPMorgan. My question is related to Muraki-san's question earlier. CRE loan provision of CECL has increased. Why was that? I want to rather than asking the background to that, when you held the briefing session in May, there were concerns raised by the capital market and yet you talked about the uniqueness of Delphi and claimed that impact is going to be limited. You that was asserted at the time of IR explanation. So what where did you get wrong, because the interest rates have been high or property value information that's coming from Delphi have there been some misunderstandings, misinterpretations of the market? What do you think was the cause of that if you could give us some color?

Taizo Ishiguro: Thank you for the question. Mr. Nakahara, CIO, will explain.

Yoshiaki Nakahara: This is Nakahara speaking. Allow me to respond to your question. As you correctly pointed out, if you call this misinterpretation, you are right. And the key point is that our loans that you see on Page 41, they were sponsors and these sponsors will increase value and that's the assumption against our investment. That remains unchanged, different what we have explained so far. But higher for longer interest rates and inflation is pushing up costs and the sponsors who are contributing to value increase, their cash flow is deteriorating lately compared to last -- this time last year the situation is completely different. And we're seeing some impact on a delayed manner. And amongst the sponsors, there are sponsors who are facing cash flow problems, who are could go bankrupt, who are not going bankrupt, but seeing issues with continuing business. There are some issues among the sponsors, and therefore, we have been allocating more provision this time this year. So as you see on Page 41, we have been expecting a value add to business upon execution, but this time, we've decided to exclude that value add to business upon execution. And that's how we're showing our current assumptions.

Koki Sato: I see. Thank you very much.

Taizo Ishiguro: Next question is going to be from Sakamaki-san of Mizuho Securities.

Naruhiko Sakamaki: This is Sakamaki of Mizuho. I have the risk associated with the international business question. More so than we expected, the inflation continues, CRE loan related to capital losses continue. So what additional losses are you expecting? I want you to explain that in more detail. As an answer to Muraki-san's question, whatever you cannot provision it will be carried over to '25 and so how much are you going to carry over to '25? And for insurance underwriting, any additional reserving you need to do regardless of CRE loans considering the current situation in US and also in Europe. If you assess the risk level for your international business, how much of that do you see? Thank you.

Taizo Ishiguro: And so for the underwriting related answers Nanasawa-san from IBDD and also for investment related Nakahara-san again CIO will be answering your questions.

Unidentified Company Representative: This is Nanasawa from IBDD. Regarding insurance underwriting, social inflation is ongoing. I think that's a big theme. After COVID, the courthouses were closed, but then they reopened. During COVID social inflation was subdued. However, the courthouses are reopened after COVID especially in the United States. Litigation funding exacerbated the situation. So social inflation concern is heightening is my understanding. On the other hand, at PHLY mainly we have been explaining that proactively we have been reviewing the reserving situation, we have responded swiftly. So going forward as well, coming down on the inflation is not really seen and so we do need to stay tuned to the inflation, the risk selection, rate increases will take place as necessary. So that we are always adequately reserved. And what we have been working on so far, we will continue to do. And so it's not that we have any new concerns about disciplined underwriting, proactive rate increases will continue to be done to respond to the current situation.

Yoshiaki Nakahara: From the investment side, as I repeat on Page 41, regarding the CRE loans, I'm going to be using this page once again. So CRE loans, as you see here, we have a cumulative JPY1.2 billion of the losses, which is expected towards the end of the year. We may not hit that number, but then whatever is lack of that, it will be carried over to next year. And the situation may change going forward. So depending on the situation, perhaps next fiscal year, maybe there will be 20 billion or so to incur next year, but that will be explained as part of the projections for next fiscal year. For other assets similar to CRE loans, any assets with the loans similar to CRE loans, we do not have such other asset classes with similar magnitude of losses.

Naruhiko Sakamaki: Thank you.

Taizo Ishiguro: Thank you for your questions. Nomura Securities, Sasaki-san, over to you.

Futoshi Sasaki: This is Mr. Sasaki from Nomura Securities. I have one question about the US business outlook. For example, provisions for CRE loans, let's say, for example, there's some upside to sales of business related equities, do you think you can use that to clean up the balance sheet. So that could be quite onetime temporary. But apart from that, for example, firstly has set aside big reserve for US business and also for Aviation lease outside of courts. There's been a private settlement outside of court settlement and therefore downside there could be downside risk in insurance underwriting. Taking those into account, with regard to outlook in the US business, there is no change, or are you seeing some change in your projections for the US business. If you could share with us your views, that's very much appreciated.

Taizo Ishiguro: Thank you for your question. Mr. Nagasawa of the International Business Development Department will respond to your questions.

Unidentified Company Representative: With regard to reserving, are there any major concerns? We do not have any concerns about with regards to rate environment. There is something that I can share with you. By breaking down into lines of business, for example, rate up in property line, until some time ago, there was a rate increase trend. I do not say that the rates are coming down, but it's more moderate, I would say. In casualty line, depending on size of business, but commercial auto, for example, and general liability impact of social inflation is still being felt and therefore rates are going up. In the meantime, workers' compensation, D&O and financial lines in these lines of business, the trend is more of a declining rate. High and rising rates are no longer observed. So that is our view of the environment. With regards to reinsurance, 2020 -- coming to 2023, market has stabilized in renewal in June and July. Property underlying capacity is solid and we're seeing rates coming down. In the meantime, there were hurricanes. And then for reinsurance, we're not expecting rate decrease, we're expecting somewhat flat growth in rates for reinsurance going forward. So the rate environment, I would say, has been a favorable win for us, but there are some changes in the trends that we're seeing. So this is something that we will monitor very closely going forward. Our group companies' rate out plan is being executed and therefore our group companies will continue to steadily increase rates, but the market environment is as I just explained.

Futoshi Sasaki: I understood. Thank you. So with regards to CRE loan, the capital loss associated to CRE loan, there is less visibility into the future. That is why you've reflected that into your balance sheet. It's not that you're looking at the -- that there are negative downsides, but there is less visibility into the future.

Unidentified Company Representative: Yes, you're correct. Yes, very simply put, that is what has led to us setting provisions.

Taizo Ishiguro: Next from SBI, Mr. Otsuka, please?

Wataru Otsuka: Wataru Otsuka from SBI Securities. I hope you can hear me. Regarding M&A, ID&E, I want to have more details on this. So with the acquisition of ID&E, the conclusion I guess is that on May 24, you talked about the disaster prevention and mitigation and you said the target market size is JPY1.5 trillion is going to enhance your presence within this market, which you calculated as JPY1.5 trillion. I know I need to do more investigation,, but looking at the documents by ID&E they are not necessarily focusing just on disaster prevention and mitigation. They do other things and so including synergy that you're expecting. Can you disclose more details on what you expect to achieve with this company? And so I know that being CORE, the consortium, you have been accumulating know-how, so why did you decide to do the M&A?

Taizo Ishiguro: Namatame-san will answer your question.

Masashi Namatame: This is Namatame. Otsuka-san thank you for your question. And so including the history, I'd like to explain our intent. So ID&E with our collaboration through even before CORE, we knew about them, but then through CORE, since the establishment of CORE, they are also the initial founding member of CORE and in the disaster prevention we have aimed that as our targets and we have been developing various menus within CORE. Within that the separate projects that we have done together, we have achieved a lot and so by doing the disaster prevention initiatives together we will be able to capture the needs of the customers deeply and also to provide value to be added even more through collaboration on top of that in the disaster prevention and mitigation. ID&E capability is going to be leveraged even more so that we will be able to respond even better to these societal issues, which is what we are aiming to do as a management. And so we have this overlapping intensified a few companies and we wanted to deepen our relationship together we wanted to work on natural disasters and other societal issues. And as we discussed we have come to announce what we announced today. And therefore this is an engineering consulting company, but more so than what you might imagine that engineering consulting they are separate initiatives that we have been doing together and what they do is actually very close to the disaster prevention or almost disaster prevention itself and they have had many experiences both domestically and internationally where they have been active in that area. This company is an engineering consulting business, but on top of that they have been doing some urban and spatial development business. This is not simply the use of properties or use of buildings and also designing the construction designs, but in the process of designing they want to enhance the disaster prevention capability attached to the property or to the city and they have many experience of doing that. So superficially if you look at some of the examples it's not necessarily just disaster prevention and mitigation. I know that they are active in other areas as you mentioned or as you might read from this but then the philosophy, deep inside them is very similar which is natural catastrophe that we will face. Disaster prevention is going to become even more important whether it's pre or post is going to be embedded into whatever they do including construction or engineering consultancy. We have confirmed that with them and by working on this together our capability in the disaster prevention and mitigation area is going to be enhanced very quickly.

Wataru Otsuka: So that means the Tokio Marine Group, Tokio Marine Holdings status quo your disaster prevention and mitigation service not only will it get enhanced, but then ID&E which is going to be your subsidiary. Do you think that ID&E's earnings will also expand by becoming part of Tokio Marine Holdings?

Masashi Namatame: The short answer to your question is yes. You have the right assumption. So our disaster prevention and mitigation solution provisioning capability is going to be enhanced exponentially. And also on the ID&E side, their 4K has -- they have their areas of 4K and they have their main market, but then we will be using our sales platform to be selling their services and so we will have a better access to a bigger customer segment. So from both sides, there is more value to be added and to be enjoyed reciprocally.

Wataru Otsuka: I understood very well. Thank you very much.

Taizo Ishiguro: Three more people have their hands up, Niwa-san, Majima-san and Tsujino-san, second round. So, in this order, we would like to answer your questions. Mr. Niwa from Citigroup.

Koichi Niwa: Thank you for giving the opportunity to ask my question. I hope you can hear me.

Taizo Ishiguro: Yes, we can.

Koichi Niwa: Business related equities, your progress in sales of those equities. So having in three years and zero in six years, I think was the direction going forward, but after that the big announcement was made some time has passed, any changes in your plan and what are the reactions of companies? Are there any other areas where you can further reduce shares? And if you have an optimistic view on a book value basis compared to the original plan, you already made an upward revision of 10%. Is it because of individual companies or because the plan is being accelerated, are you going to need six years in order to completely reduce business related equities? I would like to get some sense on that.

Taizo Ishiguro: Thank you for your question. Mr. Okada will respond to your questions.

Kenji Okada: So as we've announced this time, originally, we said JPY600 billion a year that will be sold, but that has been raised to JPY750 billion. It's an upward revision. At the beginning of the year, there were negotiations taking place, and we did not receive an agreement from our customers. But during the year, we have been able to receive approval agreement from customers and therefore we have been able to increase our sales. On a book friendly basis, the progress in sales of business related equities are on track, I would say, but we do think to develop by 2029 and having in three years this is still our plan and through our negotiations with our customers, if we can accelerate their sales, we plan to do so. From the beginning of the year, we have been having regular dialogues with our customers. But in the meantime, there are still companies that value stable shareholding and therefore end of 2019 is still the goal for us to completely reduce the business related equities.

Koichi Niwa: Thank you very much for your comment.

Taizo Ishiguro: So from Tokai Tokyo Intelligence, Mr. Majima please.

Tatsuo Majima: ID&E, I have further questions. So I also look at the consultancy firm. So I have some knowledge about this company. Right now this company relies heavily on public spending and so when they rely so much on public spending their profit is mainly earned in the first quarter, which is January the 3rd, and so I guess it's about JPY12 billion in profit, but that gets incurred in January to March. Other months, they almost have no profit because of the nature of their business. So based on that, when this becomes a consolidated subsidiary, I don't think this pattern will change. And so in your fourth quarter, ID&E, JPY12 billion or so is going to make a contribution, but in other quarters they make no contribution is expected and that will be the impact. On this, I believe they're going to be increasing the earnings volatility for Tokio Marine Holdings, what do you think about this?

Masashi Namatame: From, Majima-san, thank you for the question. This is Namatame. So ID&E in the construction or engineering consulting business due to the nature of their business, they do a lot of work in the winter time, I know that we have the same understanding. Indeed for this fiscal year, I guess I can agree with you on the point you mentioned, but then over longer term because of the track record they have for the past 15 years or past 20 years, their profit has been very stable and they have been expanding their profit throughout their history. So over the longer term, the earnings volatility is not going to get accelerated. They are not going to become a factor to do so on us. And also compared to the profit profile of insurance underwriting the fee business on annualized basis, fee business type of profit is very stable, because as a result of consulting they receive a fee and so I believe their volatility is quite low. That concludes my answer.

Satoru Komiya: This is Komiya speaking. Let me add something to your question, because we have received quite a few questions on this ID&E. In disaster prevention and mitigation, they're doing that, but for urban and spatial development business last year in November we have smart mobility business that began in November and so there's some synergy in the area and they also have energy business. We have also established a preparation company to do the decarbonization business and so it will be mainly disaster prevention mitigation but then their technology and their know-how can be deployed using our platform and it was mainly for public business in their case but then we want to expand the capability more to the private sector and also insurance is at the center we have pre and post businesses together with the technologies they have we will be able to provide a new and consistent business that we can start. Since a few years back, we have said that we are here to provide solutions to resolve the FIFO issues and we will be developing this business until it becomes a major pillar appropriate for the group. And so for disaster prevention and mitigation including natural disasters, this is a biggest issue carried by Japan. And in this area, we will be providing, of course, insurance, but in other businesses, the stand which the insurance business was pre and post. So I think it's going to be meaningful, impactful and a new business that we can develop and we can nurture going forward. That is our idea as of today. That was just some additional comments from the field.

Taizo Ishiguro: Thank you very much. So lastly but not least, Tsujino.

Natsumu Tsujino: Also full year EI loss ratio assumptions inclusive of Nat Cat, you disclosed data, but taking out Nat Cat excluding Nat Cat, I don't think you're expecting big Nat Cat in the second half, so for the first half projection in auto, it hasn't changed that much in your revision this time around? Is that a fair understanding or if you have a number that you can share, please do so. Your peers have raised slightly their projections for loss ratio. It could be because your projections have always been conservative, but what is the reason why you made that decision?

Taizo Ishiguro: Thank you for your question. Yahata-san will respond to your question from personal lines underwriting department.

Unidentified Company Representative: Normalized loss ratio, I think, was your question. For the second half and for the full year, we have made some little bit of downward revision, but it's not like one point, but zero point less than one percentage point revision is minor. So frequency and unit cost, I think was your question. For both frequency and unit cost, if I may make some supplementary comments. As for accident or frequency, FY2023, there was impact of people there were increase in car accidents after COVID. And compared to 2023, 2022, 2023 was an year where we saw a pickup in frequency of accidents. But from the second half of 2023, that increase in accidents had somewhat subsided and therefore has decreased. And as a result, in first half of 2024, compared to the previous year same time previous year has -- accident rate has decreased and this trend is expected to continue through the second half of the year. So in terms of the impact of accident frequency as 4% that we shared in May, 4% reduction, we did not revise that forecast significantly. About unit cost of accidents, impact from inflation and also sophistication of the vehicles and also the repair cost going up and wage for repair is also going up. So those are pushing up the cost of accidents, unit cost. So in the first half of this year, we're expecting the trend to remain flat and the CPI announced by the BOK is expecting a slight decrease with increase in inflation, but towards the second half of the year, we have revised up, but again, as we shared in May, 4% increase. This outlook has not changed. And therefore, with regards to frequency and also rise in prior policy premiums, the poor severity, we're expecting somewhat of deterioration, therefore, revised the client cost. So on a normalized basis, a slight downward revision. That's those are the factors that are factored in.

Natsumu Tsujino: Thank you.

Taizo Ishiguro: Thank you very much. So that concludes the overview of second quarter for fiscal 2024 results and for your projections of Tokio Marine Holdings. If you have any further questions, please do not hesitate to contact us and thank you for your participation once again. This is the end of the telephone call. Thank you.