FY2014 1Q Results Conference Call: Q&A

Described below is the summary of Q&A session with institutional investors and securities analysts at the FY2014 1Q results conference call held on August 8, 2014.

Q1At TMNF, outstanding claims reserves for auto decreased by 14.8 billion yen from the end of the previous fiscal year. What were the factors behind this decrease? Also, TMNF's E/I basis loss ratio for auto has greatly improved to 58.3% in 1Q, while its full-year projection is 65.8%. What is your projection for its trend going forward?

A1

At TMNF, outstanding claims reserves for auto decreased mainly due to a decrease in accident frequency excluding the impact from natural catastrophes, in addition to the claims payment relating to the snowstorms in Feb. 2014, which accounted for more than 5.0 billion yen.
As for E/I basis loss ratio, we consider the following factors may have led to its decrease, in addition to the effect of rate revisions implemented in the past:

1. i) Decrease in the number of claims associated with the revision of the grade rating system
2. ii) Decrease in the number of traffic accidents itself


The decrease in the number of traffic accidents itself possibly resulted from the decrease in traffic volume led by the rise in gasoline price and expressway tolls.

It is difficult to predict how gasoline price and traffic volume change going forward, so excluding such factors, we think that the increasing trend of unit claims cost continues centering on vehicle damage and property damage liability coverage, whereas the decrease in the number of claims associated with the revision of the grade rating system disappears. We will continue to keep a close eye on the trend of auto loss ratio.

Q2In international insurance business, net premiums written for "reinsurance business" have increased significantly compared with the full-year projections. What were the reasons for this increase? Wasn't this revenue growth factored in your full-year projections announced on May 20?

A2

Although reinsurance business was affected by the softening of the market as we expected, by leveraging our high level of expertise, we achieved revenue growth in non-catastrophe businesses. This increase was not factored in our full-year projections.

Q2（2）What kind of risks did you underwrite specifically?

A2（2）

Lines underwritten were auto, homeowners, and others in U.S.

Q3The full-year projections for auto E/I basis loss ratio at TMNF is set at 65.8%, an increase by 0.5 points YoY. Is there any revision under consideration reflecting the recent improvement?

A3

In general, auto loss ratio tends to increase toward the fiscal-year end, so we think we need some more time to have a clear view on its trend. At this moment, we have not made any revision to our full-year projections.

Q4In international insurance business, life business in Singapore recorded a revenue growth. What specific efforts were made for this growth? In addition, do you project that the revenue growth will continue going forward?

A4

The revenue growth was mainly due to strong sales of saving-type products sold by banks or through agency channels. We project the revenue growth will continue for some time going forward.

Q4（2）I understand that saving-type products have limited contribution to profit. Is this correct?

A4（2）

As you pointed out, the degree of contribution to profit is relatively lower in saving-type products than in protection-type products. However, we strive for profit growth through sales expansion.

Q5Regarding auto, I understand that the simplified calculation method is used for calculating outstanding claims reserves in 1Q. I assume the use of this simplified method tends to cause excess provision for reserves, failing to reflect the recent improvement due to the usage of the average of past loss ratios. How much did the simplified method affect 1Q FY2014 results?

A5

The simplified method had almost no impact on 1Q FY2014 results, because the effects of consumption tax hike, revised grade rating system, etc, were factored in respectively, in addition to factoring recent improvements in accident frequency.

Q6Regarding auto, how much did the number of reported claims and the unit claims cost change YoY?

A6

The number of reported claims decreased by more than 6% YoY, but the unit claims cost increased by approx. 10% YoY* in vehicle damage and property damage liability coverage
* one-year period comparison as of June 30

Q6（2）Does that mean the unit claims cost decreased for other coverage such as bodily injury liability?

A6（2）

You are right.

Q7Which type is the saving-type product that has been selling well in Singapore, variable type, or fixed type?

A7

That is the fixed type product.

Q8At Philadelphia and Delphi, adjusted earnings decreased YoY. How should we see their progress toward the full-year projections?

A8

The reason for the decrease was an increase in natural catastrophe losses at Philadelphia, and a decrease in realized gain at Delphi. However, the both were within the range of our projections and we don't think our full-year projections need to be revised at this moment.

Q9Following your strong performance in 1Q, is there any possibility to revise dividends projections announced on May 20?

A9

As of the end of 1Q, there is no change to our projections (75 yen per share, an increase by 5 yen compared with FY2013) announced on May 20. We will consider it after 1H based on our business performance, etc.

Q10Auto combined ratio seems to be on an improving trend. Going forward, is there a room for further improvement? If there are any specific measures you are going to implement, including further rate revisions and other plans, please share them with us.

A10

While underwriting results are improving currently, there are also factors to increase loss ratios, including consumption tax hike, an increase in unit repair cost, etc. Therefore, we will continue to keep a close eye on our underwriting results. Going forward, a rate revision is planned in October this year, but after that, there is no plan at this moment. Meanwhile, we will continue our management efforts including further reduction of business expenses.

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.