FY2015 2Q Results Conference Call Summary of Q&A
Described below is the summary of Q&A session with institutional investors and securities analysts at the FY2015 2Q results conference call held on November 18, 2015.
Regarding FY2015 full-year projections in international insurance business, the Company originally projected approx. 46 billion yen (before tax) for net incurred losses relating to natural catastrophes. How much do you project it in the revised projections? Additionally, please share with us the level of net incurred losses relating to natural catastrophes as of the end of 2Q FY2015.
Net incurred losses relating to natural catastrophes as of the end of 2Q is approx. 11 billion yen (before tax). In the revised projections for FY2015, it is projected to be approx. 27 billion yen (before tax) and approx. 20 billion yen (after tax).
In the revised projections for FY2015, dividends income from foreign stocks at Tokio Marine & Nichido (“TMNF”) is revised upward by 90.0 billion yen from the original projections. You explained that the revision is due to dividends from subsidiaries for financing HCC acquisition. Is there any idea whether to accelerate the sales of business-related equities to repay financing of the acquisition cost in the future and to restore ESR, which decreased associated with this acquisition?
Under the new Mid-Term Business plan which we announced last May, we plan to sell more than 100 billion yen of business-related equities every fiscal year, and there have been no changes on this policy. We will continue to reduce business-related equities from the perspective of maintaining comfortable ESR level.
Regarding losses by Typhoon 15 (Goni) in August, the Company made a news release on Sept. 30 explaining that incurred losses on a direct underwriting basis at TMNF may increase to about 32 billion yen. Having said that, as of the end of 2Q, the loss amount has already increased to approx. 42 billion yen, an increase of 10 billion yen. Please explain the reasons behind the increase in loss amount from the original outlook.
The incurred losses we announced on Sept. 30 was an estimated figure based on typhoons occurred in the past. The main factor of the increase from the original outlook is an increase in unit claim cost. Certain deviation may occur between actual results and estimates depending on the scale and the route of typhoons.
Regarding international insurance business, FY2015 full-year projections of net incurred losses relating to natural catastrophes is revised downward to approx. 27.0 billion yen from its original projections of approx. 46.0 billion yen. Nevertheless, its business unit profits is revised downward by approx. 4.0 billion yen from the original projections. Please share with us the underlying factors for the downward revisions in Europe, etc. and your outlook for FY2016 and onward.
Regarding business unit profits projections in international insurance business, the main factors for the downward revisions are i) several large losses in Europe, ii) Tianjin explosions, iii) impact from exchange rates and iv）the market fluctuations in life insurance business in Asia (excluding Japan).
Regarding the outlook for FY2016 and onward, there are some concerns such as softening of the market due to oversupply of capital in reinsurance market, as well as economic slowdown in the emerging countries, each of which could have a negative impact to direct-underwriting business and profit growth in emerging market respectively. We will closely watch the situations going forward.
At TMNF, projections for underwriting profit excluding natural catastrophe losses and the effect of catastrophe loss reserves is revised downward by approx. 8 billion yen from the original projections. What is the main reason for the downward revision? Is it because of the increase in provision for IBNR reserves in auto?
Underwriting profit excluding natural catastrophe losses and the effect of catastrophe loss reserves at TMNF was revised downward due to an increase in net incurred losses in auto relating to accidents occurred in past fiscal years as well as several large losses in marine and other lines occurred in the first half of FY2015.
- Q5. (2)
In the underwriting profit, are there any lines of business which profits are revised upward on full-year basis reflecting an improvement in profitability more than originally projected in the first half of FY2015?
- A5. (2)
Yes. Some lines are revised upward reflecting favorable results in the first half.
Regarding adjusted net income for FY2015 full-year projections, is my understanding correct that the main factor for its downward revision by 31.0 billion yen is due to natural catastrophes?
Yes, it is. The main factor is impact from natural catastrophes. Whereas, as you can see in the reconciliation of adjusted net income, the degree of downward revision is larger in adjusted net income than in net income on financial accounting basis due to effects from provision for catastrophe loss reserves and adjustment associated with the impact of inclusion in expenses of taxable impairment losses on equities.
Some non-life insurance companies and major banks in Japan have publicly announced to accelerate their sales of business-related equities. As regards to Tokio Marine, is there any discussion to change your policy on sales of business-related equities which you announced in the Mid-Term Business Plan at the beginning of this fiscal year?
At this point, there is no change in our policy to sell more than 100 billion yen of worth business-related equities annually as shown in the Mid-Term Business Plan. We have been selling business-related equities worth approx. 100 billion yen annually on average since FY2002. We will continue to reduce the equity holdings from the perspective of reducing risks.
Do you have any plan to update the Mid-Term Business Plan reflecting the completion of the acquisition of HCC?
We would like to elaborate on that at FY2015 Interim IR Conference scheduled in late November.
Regarding consolidated net income, while the revised projection for FY2015 is 220.0 billion yen, that of 2Q results were 85.6 billion yen, with progress rate of less than 40%. Whereas adjusted net income whose revised projections for FY2015 is 296.0 billion yen, that of 2Q results were 140.3 billion yen, with progress rate of about 50%. Is my understanding correct that your business is progressing steadily in line with the projections?
As regards to consolidated net income, progress rate of 2Q results is a little bit low since loss ratio in domestic non-life business generally tends to be higher in the first half due to natural catastrophes, in addition to an increase in net provision for catastrophe loss reserves owing to premium growth. On the other hand, progress rate of 2Q results in adjusted net income is higher because it excludes the effects of catastrophes loss reserves. Whereas this fiscal year has been affected by an increase in net incurred losses from natural catastrophes, excluding the effect from that, overall business is progressing steadily.
Regarding the second half of FY2015, if claims payment progresses in fire and auto relating to typhoons, and if claims payments increase in auto due to seasonal factors, catastrophe loss reserves would be taken down associated with an increase in W/P basis loss ratio, and this works positively to consolidated net income. On the other hand, the effect of taken down of catastrophe loss reserves is excluded in adjusted net income.
Excluding effects of natural catastrophes and large losses, is the business progressing in line with the original projections?
At TMNF, business is in line with the original projections excluding effects of natural catastrophes and large losses. International insurance business is also progressing as originally projected excluding the two factors. We would like to continue to closely watch the softening of the market and any signs of economic slowdown.
Please share with us the amount of net incurred losses relating to large losses.
At TMNF, it is nearly 10.0 billion yen (before tax) in the first half of FY2015. In international insurance business, the amount is approx. 3 billion yen (after tax) in Europe.
In the reconciliation of adjusted net income and adjusted net assets, adjustment for goodwill and other intangible fixed assets for FY2015 projection is revised to decrease by 540.0 billion yen from the original projections. Is my understanding correct that the changes are mostly goodwill related to the acquisition of HCC?
Yes, it is correct. HCC’s balance sheet will be consolidated from 3Q FY2015 and goodwill associated with the acquisition of HCC is factored in the revised projections for FY2015. Please note that adjusted net assets, which is the denominator of adjusted ROE, are calculated on average balance basis. Goodwill associated with the acquisition will affect adjusted net assets at the end of FY2015.
Regarding FY2015 full-year projections, adjusted net income is revised downward by 31.0 billion yen from the original projections. Will this revision have an impact on annual dividend for FY2015?
Under the Mid-Term Business Plan, we regard adjusted net income on past 5-year average as the source of dividends. Therefore, the impact of downward revision in adjusted net income for FY2015 will be diluted. Given that annual dividend for FY2015 is maintained at 105 yen per share, the payout ratio will be around 38% compared to 37% in FY2014. We would like to pursue steady growth of total dividends amount in line with profit growth while enhancing stability of profit growth.
How do you plan to finance the acquisition of HCC? Will you finance it by cash on hand or external financing?
Although part of the acquisition was financed by external financing, such as loan, it will mostly be financed by cash on hand within the Group. Please note that we do not plan equity financing.
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.