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  6. FY2016 1Q Results Conference Call Summary of Q&A

FY2016 1Q Results Conference Call Summary of Q&A

Described below is the summary of Q&A session with institutional investors and securities analysts at the FY2016 1Q results conference call held on August 9, 2016.

E/I loss ratio for auto insurance at Tokio Marine & Nichido (“TMNF”) increased by 0.7 points YoY. What is the reason for the increase?
Since 2Q FY2015, the increasing trend of net incurred losses for accidents occurred in past fiscal years has been factored in for calculating net incurred losses. Because 1Q FY2015 results were before that revision, this 1Q results showed YoY increase in E/I loss ratio.
Excluding natural catastrophes, progress rate of business unit profits for international insurance business was 22-23%, and this seems a little low. What are reasons for that?
The low progress rate is mainly due to realizing capital losses on bonds associated with proactive risk reduction at Delphi.
How much is the realized capital losses at Delphi?
Approximately 9 billion yen (after tax).
How much is the loss regarding Kumamoto Earthquake?
Net incurred losses for Kumamoto Earthquake excluding residential earthquake insurance is approximately 14.1 billion yen.
The net incurred losses for Kumamoto earthquake was initially projected to be 5.0 billion yen at the beginning of this fiscal year. Why did the loss amount increase?
When we announce the initial projections for the loss amount, it was right after the earthquake and information regarding damages was fairly limited. Therefore, we estimated the loss amount based on risks we retained as well as net incurred losses relating to large scale earthquakes in the past. However, since these past large scale earthquakes are few in number and damage situation varies significantly in each earthquake, both the number of reported claims and unit-claims cost increased beyond the initial projections.
It seems that progress rate of sales of business-related equities is high compare to your full-year projections. Are there any changes on the full-year projections of 100 billion yen?
Regarding sales of business-related equities, since we conduct it following a process of thorough discussions with our client companies, how much amount and when to sell is determined based on the agreement with them. As for 1Q results, the amount of equities sold was relatively large as a result, however there is no change in our full-year projections of selling more than 100 billion yen worth of equities.
Regarding auto insurance at TMNF, how is the number of reported claims during three months between April to June?
Excluding the impact from an increase in the number of policies, the number of reported claims in 1Q FY2016 was almost flat YoY.
Considering interest rates and share prices have been declining, I guess ESR of the Company has been also declining. Could you provide us with rough figures for the current ESR?
We think that the ESR has been fluctuating following the movement in interest rates and share prices. However, we only disclose ESR twice a year; 2Q and year-end.
Is there any possibility of taking specific actions before disclosing the ESR in 2Q?
We will not comment on specific actions; however we can say that we are financially sound.
I understand that the loss development from Kumamoto Earthquake and realized capital losses at Delphi were two profit decreasing factors which were not factored in your initial projections for FY2016. As for 1Q results, the Company offset these negative impacts by an increase in gains on sales of business-related equities. In the event when the Company has difficulties in achieving its full-year projections at the year-end, is there any possibility of accelerating the sales of business-related equities?

We conduct the sales of business-related equities based on agreement with client companies following thorough discussions. Therefore even when it seems to be difficult to achieve the full-year projections, we do not have an idea of accelerating its sales to pile up the profit.
You explained that Delphi sold energy sector and emerging markets bonds for the purpose of proactive risk reduction. How much percentage of Delphi’s total asset is still accounted by such bonds?
Through the sales during 1Q from Jan. to Mar., energy sector and emerging markets bonds which formerly accounted for single digit percentage of Delphi’s total asset at the end of FY2015 (end of Dec. 2015) was decreased almost by half.
Bond default continues in the sectors of energy and natural resources even after Apr. Is there any possibility of Delphi recording capital losses on bonds in 2Q? In addition, if possible, I would like to know the amount of unrealized gains and losses of bonds in total at Delphi.
We are now in the process of adding up the 2Q results, however, the loss amount seems to be decreasing. We think that we can expand investment income in the medium-to long-term by proactively adjusting risk asset allocation considering an increasing market volatility and credit cycles.
The Yen is appreciating. Are there any changes on your full-year projections for international insurance business?
There has been no change on our initial projections. Considering the business results at each region and FX rates, etc., we will revise them in and after 2Q if it seems to be necessary.
At TMNF, auto loss ratio in 1Q worsened due to reflecting the increasing trend of net incurred losses for accidents occurred in past fiscal years. Will this revision effect 2Q results also?
We think that the revision which caused YoY increase in auto loss ratio in 1Q results won’t affect in and after 2Q results.
Even though there was a negative impact from Kumamoto Earthquake, since we have a few typhoons so far, do you think the full-year business results of domestic non-life insurance could exceed the initial projections?
Regarding natural catastrophes loss in domestic non-life insurance, there has been no change on our initial full-year projections of 48.0 billion yen. Depending on the situation, we will revise the projections in and after 2Q if necessary.
Progress rate of net income at Tokio Marine & Nichido Life (“TMNL”) seems high. How should we evaluate this?
Three months of 1Q have just passed, and there still remains varying factors such as non-personnel expenses. We would like to keep a close eye on the businss after 2Q.
I suppose that there have been frequent natural catastrophes overseas. How do they impact your business results, and do you think you will need to revise the full-year projections?
In 1Q, net incurred losses relating to natural catastrophes was approximately 5.2 billion yen (before tax) in international insurance business. The loss was within our initial projections and we do not intend to revise our full-year projections of approximately 47 billion yen at this moment of time.

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.