| Q1. |
The accumulated amount of underwriting profit for 3Q was 44.3 billion yen and that of 1H was 35.4 billion yen. (Consequently, underwriting profit for the 3 months of 3Q comes out to be 8.9 billion yen.) In 1H, a release of reserves for foreign-currency-denominated outstanding claims reflecting the stronger yen was approximately 18 billion yen (a factor to increase the profit). In addition, there was a release of catastrophe loss reserves for 25.2 billion yen in auto insurance in 1H. By excluding the both factors, underwriting profit for 1H comes out to be approximately a negative 7 billion yen.
If I do the same calculation for the 3 months of 3Q, it comes out to be approximately 18 billion yen by adding back 7.5 billion yen of the provision for catastrophe loss reserves in auto insurance.
(This result seems to show higher profitability in the 3 months of 3Q.) Is this because of the use of a simplified method for calculating provisions for outstanding claims in 3Q, or does this indicate fewer accidents (in auto insurance) compared with 1H? |
| A1. |
Regarding factors fluctuating profitability in the 3 months of 3Q (YoY), the profit decreased due to a decline of reversal of catastrophe loss reserves by approximately 23.5 billion yen. On the other hand, it increased due to a decrease of incurred losses related with natural disasters by approximately 15 billion yen.
As regards other factors which increased underwriting profit, firstly, the expense cost was lower in 3Q FY2010 compared with 3Q FY2009, in which a new IT system for fire insurance was released. Secondly, a 2 yen appreciation to a dollar in current three months compared to a 2 yen depreciation in the equivalent period last fiscal year increased the profit by approximately 8 billion yen due to a decline in provision for reserves for foreign-currency-denominated outstanding claims.
In addition, there were factors to decrease profit due to an increase in incurred losses in auto insurance and fire insurance. This is partly because of the reversal effect of release for the U.S. IBNR provisions of approximately 2.6 billion yen in 3Q FY2009.
(Consequently, underwriting profit in the 3 months of 3Q decreased by 12.3 billion yen (YoY) and we can't say that we performed "better" in underwriting profit in the 3 months of 3Q.)
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| Q2. |
Even though you have not changed the full year projections for underwriting profit of 8 billion yen, you seem to have a buffer to outperform. I assume that you expect negative impacts on 4Q results due to the exhaustion of the balance of catastrophe loss reserves, but I also assume that provision for catastrophe loss reserves will be 16 billion yen for 4Q. In addition, additional provision for standard underwriting reserves at Tokio Marine & Nichido Life is expected to be the same level (16 billion yen) on its full year result. If the above estimate is right, I think you still have a buffer to outperform, don't you? |
| A2. |
No revisions are made to our full-year projections based on 3Q results because of uncertainties (in market environment and exchange rate fluctuations). Based on the premise of 8 billion yen (of the currently projected underwriting profit for full-year), approximately a negative 36 billion yen will be posted to underwriting profit during the 3 months of 4Q.
For one thing, this is due to the additional provision for catastrophe loss reserves, which has profit decrease effects of 20 billion yen. More than that, main reason is that we stand on the projections that the expense cost of 4Q will increase by an over 10 billion yen YoY. We will, however, continue various measures to reduce expenses.
In addition, since full-year projections of (provision for) foreign-currency-denominated outstanding claims stays same as at the end of 1H by considering exchange rate fluctuations, the assumption is based on the premise of a 2 yen depreciation for the 4Q. So, it will work to decrease the profit by approximately 4 billion yen. Other than that, though it depends on the status of large scale accidents and the balance in auto insurance, provision for outstanding claims (private insurance basis) will also reduce the profit by the same level as reserves for foreign-currency-denominated outstanding claims.
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| Q3. |
As for auto insurance, comparing the 3 months of 2Q and those of 3Q, a worsening trend of incurred losses (YoY) seems recovering. I remember, however, that incurred losses for 2H was expected to be decreasing in revised forecasts which were announced at the end of 1H. In comparison with that projection, does the number of accidents reported in the current 3 months show any improvements or not? |
| A3. |
Mainly in automobile physical damages insurance and property damage liability insurance, frequency of accidents (YoY) have settled down, but the unit cost of insurance payment has increased compared with the projection. As a result, (total net claims paid) exceeded the projection.
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| Q3-2 |
Regarding your explanation of the increase in unit cost of insurance payment due to heavy snowfall, I think there was not yet much influence with snow in November and December. You have explained that you could reduce unit repair cost by means of, for example, using recycled bumpers. Could you give me your thoughts on the reason for variance between 3Q results and the projection at this point? |
| A3-2 |
The number of accidents in 3Q settled down to the level of the projection, however, the unit repair costs of insurance payment for automobile physical damage insurance and property damage liability insurance has been increasing since last December.
We had snow on December 25th and year-end and its impact has been under a detailed analysis. Since the unit repair cost of insurance payment with snow is expected to be higher, we have been analyzing how much impact to expect in 4Q results, considering snow in January and February, as well.
The number of reported accidents on snow days has been increasing from this January. Looking at January one month alone, the number of reported accidents (YoY) exceeds a little above that of 3Q.
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| Q4. |
I would appreciate if you could show me the expected loss or exposure related to the flood in Australia if you recognize any. I think these will be posted in 4Q, though. |
| A4. |
Approximately 5 billion yen is expected to be paid at this point, however, since it is a flash figure, there are possibilities of significant revisions.
As for the international insurance business, since fiscal year ends at December-end, the losses will be recognized over 2 fiscal years; FY2010 and FY2011. Details are not yet available at this point.
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| Q5. |
Regarding commercial fire lines, a decline in revenue might be effected from the intensifying rate competition these days. I would like to hear your thoughts on the current market environment, your stance on underwriting and outlook after FY2011. |
| A5. |
Concerning the overall competitive environment centered on commercial fire lines, I think it is happening globally, not only in Japan. It is also affected from cost reduction efforts by companies following sluggish economies. The competition is getting more present, as witnessed in Japan, too. The outcome depends on clients, but we see considerable bids from time to time.
In relation to your question after FY2011, our policy is not to chase the underwriting volume under such an environment. This applies to businesses outside Japan as well. We look for the opportunities to charge appropriate insurance premiums over risks. In addition, our competitive positions are not simply determined by premiums especially in Japan. We would like to keep offering our additional value to clients in the area of loss prevention or other risk management capabilities to win the competition.
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| Q6. |
You have been continuously selling stocks and reducing investment risks. In case that risk capacity increases due to a decline of asset management risks, are you going to take more insurance risks or to reduce overall risks both investment and insurance risks? |
| A6. |
Our business portfolio is heavily focused on Japanese market in terms of asset management as well as in insurance business. By reducing Japanese stocks, especially business-related stocks, we would like to utilize the released risk capacity toward business investments which generate higher ROEs.
When we say business investments, we assume the mainstream businesses would be to take insurance risks. Such risks might be outside Japan, rather domestic, and the overall trend would be that we prefer business where insurance premiums are appropriately priced over risks.
In a nutshell, we are likely to take more insurance risks as part of our mainstream business, while such activity may involve M&As depending on timing or opportunities, possibly in a short period of time.
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| Q7. |
As regards auto insurance, the next issue will be the insurance rate increase. Amid this, I think there may be a certain revision on the bonus-malus system. Would you please tell me the status regarding what you see inside your company or in the industry on this issue? |
| A7. |
In July 2011, we will launch a new insurance rating scheme by age, which was already introduced into the current Reference Loss Cost Rate. Now we are in a final stage to make additional adjustments to some of those rates reflecting the state of revenues and expenditures.
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| Q7-2 |
Are there any updates on discussions on necessity of revising the bonus-malus system? |
| A7-2 |
We strongly recognize the necessity of the revision because it is one of the structural factors of worsened profitability of auto insurance. While we hope to see the revision as soon as possible, it may not necessarily be easy. We haven't yet reached a stage to tell you a definite timing of the revision.
Regarding the industry-wise perspective that you mentioned earlier, I understand that you were referring to the revision of the Reference Loss Cost Rate. If so we are not the right party to talk about it.
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| Q8. |
Please explain the impacts in case of the revision of a corporate tax rate. |
| A8. |
In case that the bills clear the diet by the end of March, we will be effected. Since it is not finalized and the detailed codes are not known yet, however, it is hard for us to tell you what is going to happen and when at this point.
Looking at the corporate tax rate revision as a whole, there are positive and negative factors. In terms of the net asset value, the impact is expected to be roughly neutral. Of course, if the tax rate declines, it decreases the tax burden and it works positively to the profit in a long term.
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| Q9. |
I remember that the full-year projections of the adjusted earnings for the international insurance business was 53 billion yen. Its 3Q result was 44.5 billion yen, so, by subtracting the 3Q results from the full-year projections, the 3 months of 4Q might look slightly down in profit (compared with the past three quarters). Please tell me if you recognize any other factors which can decrease the profit for the international insurance business in 4Q including the flood in Australia you explained earlier. |
| A9. |
Expected claim payments relating to the earthquake in New Zealand were announced to be approximately 6 billion yen (in the range of 5 billion to 7 billion yen) but it might possibly increase to approximately 13 billion yen.
As other factors to decrease the profit, there is a possibility that some part of the expected losses relating to the flood in Queensland, Australia, will be posted in FY2010.
Each of our reinsurance units, however, assumes certain amount of catastrophe losses (in advance), so, not all the before mentioned factors will negatively impact on our profit outlook. Since the announcement of (the full-year projections of) 53 billion yen at the end of 1H, some of the companies have slightly raised their profit forecasts.
(In comparison with 1H) the appreciation of the yen against the dollar progressed by about 3% from mid-83 yen to mid-81 yen. Within the range of its impact, (adjusted earnings) might go down. As a whole, however, we do not expect its impact as significant on a consolidated basis.
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