FY2013 Results Conference Call: Q&A

Described below is the summary of Q&A session with institutional investors and securities analysts at the FY2013 results conference call held on May 20, 2014.

Q1The amount of improvement in underwriting profit at TMNF from FY2013 results to FY2014 projections can be calculated to be approx. 40 billion yen YoY excluding the following factors; i) a decrease in net incurred losses related to natural catastrophes, ii) the reversal effect of the provision for reserves for foreign currency denominated outstanding claims, and iii) a decrease in net provision for catastrophe loss reserves mainly due to the progress of claims payments for the snowstorms occurred in Feb. 2014. Other than these factors, what kind of improvement factors do you assume?

A1

We project a negative impact from the consumption tax hike in FY2014 to be approx. 29 billion yen on a private insurance basis. On the other hand, we project an improvement from the reversal effect of the large losses in "other" line in FY2013. Also, the reversal effect of an increase in provision in FY2013 for "underwriting result in the first year" in marine (cargo)* is also a positive factor for the profit improvement in FY2014.
* Mainly due to the reversal effect of the claims paid for Hurricane Sandy in FY2012 and the premiums growth in FY2013

Q1（2）How much impact is from the reversal effect of the large losses?

A1（2）

We project an improvement by approx. 5 points YoY in E/I loss ratio (excluding impact from FX and natural catastrophes).

Q1（3）Is the improvement of approx. 5 points all from the reversal effect of the large losses? Doesn't premiums growth also contribute to the improvement of E/I loss ratio?

A1（3）

As you pointed out, premiums growth is also a reason for the improvement, but the reversal effect of the large losses is the main factor.

Q2On TMNF's "Profit and Loss Statement" in FY2013, while "Other ordinary income" was 6.5 billion yen in 3Q, it resulted in 22.4 billion yen as of end of Mar. 2014, which seems to be a huge increase in the 3 months of 4Q. What is the reason for the increase?

A2

The increase in "Other ordinary income" in FY2013 was mainly due to a reversal of allowance for doubtful account. In FY2012, guarantee commissions related to guarantee obligations transferred from a securities subsidiary was recorded in "Other investment income" and the same amount was set aside for allowance for doubtful accounts in "Other ordinary expenses" (impact on ordinary profit was mostly offset). In FY2013, we proceeded the dissolution of the guarantee obligations and losses caused by the dissolution was recorded in "Other investment expenses". However, the losses were mostly offset by the reversal of allowance for doubtful account recorded in "Other ordinary income".

Q3As for international insurance business, could you tell me the FY2013 result and FY2014 projection for natural catastrophe losses?

A3

FY2013 result was 16.6 billion yen and FY2014 projection is approx. 40 billion yen.

Q3（2）Is my understanding correct that comparing with FY2013 initial projections, FY2014 projections for natural catastrophe losses in TMNF and international insurance business increased by 10 billion yen in total?

A3（2）

Yes. Reasons for the increase in natural catastrophe loss projections for international insurance business is due to the depreciation of the yen.

Q4Concerning dividends for FY2013 and FY2014 projections, please tell me the "Average adjusted earnings (excluding EV)" which is the sources of dividends and also please tell me the payout ratio for each year.

A4

"Average adjusted earnings (excluding EV)" for FY2013 was 110.0 billion yen and payout ratio was 49%. "Average adjusted earnings (excluding EV)" for FY2014 projections is 140.0 billion yen and projected payout ratio is over 40%.

Q4（2）Is my understanding correct that projected payout ratio for FY2014 reaches the target payout ratio level of 40% to 50%?

A4（2）

Yes.

Q5In FY2014 projections, E/I loss ratio in auto is projected to worsen slightly by 0.5 points YoY. Could you tell me the reasons behind this?

A5

We project a rise in E/I loss ratio mainly due to an increase in unit claims cost associated with an increase in parts and repair cost, in addition to the negative impact from the consumption tax hike, despite the positive factors coming from past rate revisions.

Q5（2）Is my understanding correct that there are negative factors whose impact exceeds positive impact from the rate revisions?

A5（2）

Yes.

Q6I assume there were certain levels of reversal of outstanding claims reserves since FY2013 results were in line with the projections, even though there was negative impact from snowstorms in Feb. 2014. I believe there were reversal of IBNR reserves in "fire" and "other" lines at TMNF. What are the reasons behind the reversals?

A6

Regarding the reversal of outstanding claims reserves at TMNF, there was a reversal in fire mainly due to changes in loss assumptions for past claims including snowfalls and Thai flood, which had a positive effect on the results. In "other" line, the reserves decreased mainly due to the reversal associated with the U.S. branch reorganized as an overseas subsidiary.

Q7In international insurance business, I believe there were reversals of outstanding claims reserves in the past. In FY2013 results, how much profit was pushed up due to the reversal of the reserves?

A7

The biggest reason for adjusted earnings in international insurance business outperforming the projections announced on 13th Feb of 133.0 billion yen to the actual results of 136.9 billion yen was the amount of natural catastrophe losses falling below the assumptions.

Q8Net income at FL increased by 10.0 billion yen during the 3 months of 4Q in FY2013. I guess this was because of the reversal of additional provision for underwriting reserves, but could you please tell me the reason behind this?

A8

Increase in net profit in the 3 months of 4Q was mainly due to the recording of reversal of additional provision for underwriting reserves in accordance with the improvement of the market environment, etc.

Q9I understand that Kiln kept its disciplined underwriting in FY2013 considering the softening market. I would like to know the impact from the softening market which is factored in your FY2014 projections.

A9

Impact from the softening market is also factored in FY2014 projections mainly in Kiln and reinsurance business. Kiln projects a decrease in adjusted earnings, but this is mainly because of the reversal effect of the benign natural catastrophe losses in FY2013.

Q10Please tell me FY2013 result and FY2014 projection for the amount of dividends income at TMNF from foreign stocks (mainly from dividends from overseas subsidiaries).

A10

FY2013 result was 29.3 billion yen and FY2014 projection is approx. 53.0 billion yen.

Q11TMNF's U.S. branch was reorganized as an overseas subsidiary in Dec. 2013. Could you tell me the impact of FX rate changes on consolidated P/L after the reorganization?

A11

Negative impact on consolidated P/L will become smaller due to a decrease in reserves for foreign currency denominated outstanding claims which were formerly recorded at TMNF's U.S. branch. On the other hand, as we have been explaining, impact to the Group's net asset value is neutral.

Q12I would like to know the impact on EV related to the merger of TMNL and FL.

A12

For TMNL and FL, the amount of EV increase is shown for FY2014 adjusted earnings projections. No major impact is factored in due to the merger.

Q12（2）FY2014 adjusted earnings of FL is projected to be 0 billion yen, so this means that FL projects no EV increase and or decrease?

A12（2）

FL does not project EV increase in FY2014.

These information materials are prepared based on the currently available information for us and described subject to our predictions and forecasts carried out at the time of preparation.
It must be noted that what is described therein does not guarantee our future business performance and carries certain risk of misjudgment or uncertainty.
Accordingly, you are kindly requested to bear in mind that there may be a possibility of sizable divergence between the actual business performance in the future and that of our predictions or forecasts described therein.