| Q1. |
You have downwardly revised Tokio Marine & Nichido's full-year ordinary profit forecast by 5 billion yen on a non-consolidated basis. Could you please give me a breakdown of that revision? I assume that you are projecting damages from natural disasters to be slightly bigger and capital gain to be smaller. But you mentioned that you now expect to reverse catastrophe reserve by 13 billion yen compared with the original projection, which should be a positive factor for Tokio Marine & Nichido's non-consolidated performance. That makes me think that there may be many other factors that will be worse than originally forecast. Please walk me through the breakdown. |
| A1. |
I would like to talk about 1H and 2H separately. We originally forecast a current net income of 80 billion yen, but we downwardly revised this by 5 billion to 75 billion yen. The forecast for current interim net income in the 1H was 35 billion yen, but we actually made 56.3 billion yen, about 21 billion yen above the forecast. The biggest factor for this increase, as I also mentioned in my presentation, was an increase in reserve for outstanding payments denominated in foreign currencies due to the strong yen that reduced our liabilities. When the yen appreciates by 1 yen, Tokio Marine & Nichido's reserve for outstanding payments denominated in foreign currencies falls and this increases profit by about 2 billion yen. This term the yen was stronger than we forecast by approximately 8 yen, meaning that our profit increased by about 16 billion yen. The second big factor was the fact that there were fewer large-scale claims than expected, which is a positive factor of about 10 billion yen. Also, we originally estimated natural disaster-related damages to be 25 billion yen on a full-year basis and simply allotted 12.5 billion yen of this to the 1H. The actual damage in the 1H was 5.6 billion yen, so this was a positive factor of about 6.8 billion yen.
On the investment front, on the other hand, we now expect our overall investment profit to be about 25 billion yen less than the original forecast on a full-year basis. This includes a shortfall of about 11 billion yen in the 1H compared with our forecast. There was also an appraisal gain of about 8 billion yen on exchange-related derivatives in the 1H accompanying the yen's appreciation, and this was a factor in reducing profit from investment in the 1H by about 3 billion yen. Adding these together, the strong yen increased our profits by 16 billion yen, fewer large-scale claims increased them by about 10 billion yen, and less natural disaster-related damages increased profits by about 6.8 billion yen. Meanwhile, investment was a negative factor that reduced profit by about 11 billion yen to about 3 billion yen, as mentioned in the previous term. This made for a net increase in profit of 21.5 billion yen (about 30 billion yen considering the previous term). These are the major factors that affected profit in the 1H.
As for the 2H, although our original projection was 45 billion yen, we now expect profit to go down to about 18.7 billion yen. This is a shortfall of approximately 26 billion yen from the initial forecast. As I mentioned earlier, we initially expected damages from natural disasters to be 12.5 billion yen in the 2H, but we have revised that projection up to about 22 billion yen partly due to Typhoon No. 18. This reduced our profit by about 10 billion yen. Also, as I mentioned earlier, we expect investment income to be about 25 billion yen less than our original forecast on a full-year basis, and in the 2H by about 14 billion yen from the original forecast (about 22 billion yen considering the previous term). We expect these two factors to bring the profit down by about 24 billion yen in total (to about 32 billion yen, as mentioned in the previous term). These were the main factors.
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| Q1(2) |
So, the numbers that you mentioned, for instance, 16 billion yen due to the stronger yen, are all before tax, is that correct? |
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| Q2. |
I have two questions. Investment performance, in particular income gain, seems to be deteriorating, and that seems to be one of the reasons behind the downward revision of adjusted earnings at Tokio Marine & Nichido as well. Could you please explain to me what specifically is underperforming compared with your original forecast? The handout material titled “Information on major subsidiaries' business results” shows a breakdown of Tokio Marine & Nichido's investment income on a non-consolidated basis on page 12, and shows that dividend on stock and income related to foreign securities declined drastically from a year ago. What specifically performed differently from the original forecast for the first 6 months?
My second question is about the year-on-year comparison of top line and profit in your Asian operations in the 1H. I believe the numbers were affected by exchange rates. How did they do compared with a year ago when you take into account exchange rates? And what do they look like when you exclude the impact of exchange rates? I would like to confirm exactly what growth there was this year when we ignore the effects of exchange rate fluctuations. |
| A2. |
Let me start with your first question. The biggest reason behind the decline in investment income, especially interest and dividend income, is the bigger-than-expected fall in dividends caused by the deterioration in corporate performance. Second, at the beginning of the year, we were planning to sell a REIT. However, we decided to postpone that transaction given the market conditions. For these two reasons, we made a significant downward revision to our investment income.
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| Q2(2) |
As for 2H, do you foresee any factors, other than continuously weak dividend income, that will reduce interest and dividend income? Are there any factors to reduce dividend income in the 2H? |
| A2(2) |
Our plan to sell a REIT that I just mentioned was originally scheduled for the 2H. But now that we have decided to postpone it, it will be a new factor that affects our income on a full-year basis. If I may also add one more comment on the 1H results, dividend on stock significantly dropped. At the same time, we canceled some of our investments in funds. This is another reason why the investment income declined.
As for your question on our Asian operations, different currencies are used within the region. Let us look at the Singapore dollar as an example. The exchange rate that we used for our consolidated figures for FY08 1H was the rate as of the end of June 08, and it was 78 yen. The rate applied this 1H was the one as of June 09, which was 66 yen. This means the local currency depreciated by about 15%. Now, the NPW of the non-life businesses in the region was around 15 billion yen, and given this 15% depreciation, the exchange rate fluctuation affected our top line by slightly over 2 billion yen. In terms of the bottom line, on the other hand, if I simply add the locally posted statutory net income of all the consolidated non-life and life companies in Asia, it adds up to 8.5 billion yen. Given the currency depreciation of about 15%, the impact of the exchange rate fluctuation is about minus 1.2 to 1.3 billion yen.
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| Q2(3) |
Just for my reference, what was the actual total number of Asian operations as of the end of the 1H last year? |
| A2(3) |
The total NPW of non-life subsidiaries was 17.6 billion yen in FY08 1H and 13.8 billion yen this fiscal year. The premium income of the life business was 30.4 billion yen a year ago and 10.4 billion yen this year. The simple sum of statutory net income of all the consolidated subsidiaries as of the 1H-end was minus 2.2 billion yen last year and 8.5 billion yen this year, before taking into account inter-company transactions.
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| Q2(4) |
So the life premium income went from 30.4 billion yen to 10.4 billion yen. What was the reason for this sharp decline? |
| A2(4) |
The main reason was that last year we launched a new participating-type life insurance policy in Singapore which sold extremely well. We stopped selling that particular policy. Hence, there is no contribution from that product this year. Because the policy sold massively last year, the top line this year is substantially lower than last year.
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| Q3. |
If I look at risks, the solvency margin calculation at Tokio Marine & Nichido's catastrophic disaster risk is reduced by 15% compared with March-end, while the exposure of your peer companies seem to remain flat. Have you changed your policy pertaining to the retention of catastrophic disaster risks in the 1H? |
| A3. |
We have not significantly changed our policy for assuming or ceding risks. We think that a change of this magnitude could occur depending on how negotiations go at a particular point in time and what the supply and demand situation looks like in the reinsurance market. At any rate, we have not made any material changes to our policy.
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