CEO's Letter

We always aspire to be a "Good Company," trusted by our customers and society in their times of need as a truly global insurance group.

Satoru Komiya
President and Group CEO

Reflections on my first year

Whatever happens, we’ll always be there for our customers and society

First, I would like to extend my heartfelt sympathies to all those affected by COVID-19 and natural disasters.
My first year in this position has been a turbulent one. Large-scale natural disasters affected significant portions of Japan’s population for a second year in a row. Moreover, since the beginning of this year, COVID-19 has snowballed into a pandemic that is still claiming precious lives everywhere on Earth. The Olympic Games and other events have been postponed or cancelled and global economic activity has slowed to a crawl. Indeed, COVID-19’s scale of devastation is being compared to the Great Depression of 1929. To make matters worse, July brought extreme rainfall to Kyushu and other areas.
Insurance is a business that underwrites risk and supports customers and society in times of need. Under no circumstances can we allow the foundations of our business to be shaken. A top priority of mine, therefore, is to further build on geographic, business, and product diversification. The aforementioned natural disasters and COVID-19 pandemic have only reinforced this belief.
The Group has spent some 15 years working toward risk diversification by expanding in its business overseas where there is a low correlation with natural disasters in Japan. In fiscal 2019, we acquired the PURE Group, which has posted industry-topping growth in the U.S. high-net-worth market. In Brazil, meanwhile, we have reached agreement with Caixa Group, Brazil state-owned largest mortgage lender, to launch a joint venture insurance company.
Ongoing interaction with our customers, society, shareholders and employees is very important to me. Since my appointment, I have spared no effort to engage stakeholders about the issues facing the Group, our vision, and my own views. There is still room to improve and I promise to create many more opportunities for dialogue going forward.

Tokio Marine Group's competitive advantages, strengths, and purpose

Building a well-diversified business model through M&A

Tokio Marine Group’s greatest competitive advantage is its well-diversified business model. As the founding company of our Group, Tokio Marine & Nichido, Japan’s largest insurance company, has continuously expanded its market share, while generating stable earnings by carefully tailoring products and services to customers’ evolving needs.
Our international business outside of Japan accounts for 50%*1 of the Group’s profits. Across the developed countries, we have established a strong specialty insurance*2 business platform. In the U.S., the world’s largest market for insurance, we are among the top-10 corporate insurance provider, and lead the market specialty insurance.
Regarding emerging markets, we target regions of large market size and high growth potential to strategically capture that growth and geographically diversify risk. In February 2020, we launched Tokio Marine Safety Insurance (Thailand), the third largest player in Southeast Asia’s richest insurance market. The new entity was formed by integrating Safety Insurance PCL, acquired in fiscal 2018, with our Thai subsidiary. In Brazil TMSR has grown to generate annual profits in the bracket of ¥10 billion and above.
These competitive advantages were driven by Group’s M&A activities, whereby our disciplined execution is a strength of its own. In evaluating M&A opportunities we look for (1) cultural fit, (2) high profitability and (3) a solid business model. We target only companies that satisfy all three criteria.
Cultural fit is the most critical. Does the prospective M&A partner share our Group purpose of supporting customers and society in times of need through its business? High profitability and a solid business model in respective regions and markets alone are not, in our view, enough. These must be underpinned by a purpose, a raison d’etre, that meshes with our own.
A shared purpose nurtures mutual respect and learning, regardless of differences in regional focus, markets or business model. It lets partners smoothly exchange expertise and experience for the benefit of customers and society.
By optimally allocating talent in Japan and overseas, and putting such expertise and ideas at the core of Group strategy, we boost Groupwide growth potential and performance. The synergy of a highly specialized talent pool and Group’s collective strength create a powerful competitive advantage.

  • *1 Excluding the effects of natural disasters and COVID-19
  • *2 Specialty insurance provided to companies, such as liability insurance and medical insurance, rather than general auto and fire insurance.

Supporting society with our core identity "To Be a Good Company"

These are volatile, uncertain, complex and ambiguous times. COVID-19 has compounded society’s existing uncertainty regarding the future. Around the world, people are increasingly concerned about the sustainability of society and their future safety and security. I feel that this has led to a renewed questioning of the purpose of corporate existence.
In recent years, there have been calls for a shift to "multi-stakeholder capitalism." This has been our philosophy since our founding, as we have made it our purpose to support our customers and society in times of need. This will never change over time.
Providing all our stakeholders with all the value they seek is hardly a simple task, but we will never stop trying. The status quo is not an option; we must constantly seek improvement. Our core identity "To Be a Good Company" is embraced by the entire Group.
The experience of the Great East Japan Earthquake of March 2011 reinforced this core identity. At the time, I headed the Personal Lines Marketing Department for our retail business and arrived in Sendai a week after the disaster. When I saw how the tsunami had devastated the coast and reduced whole towns to rubble, I was at a loss for words. I reported the situation to management, knowing that we were in for a long battle. The president at the time decided that such unprecedented circumstances called for outside-the-box thinking to settle 80% of claims, about 180,000 cases, by the end of May to help those who were affected by the disaster. This meant paying out vast sums in a period of less than two months.
Frankly, I was impressed by the way our employees and agents rose to the task. Going beyond the call of duty, everyone joined together to address the enormous challenge. They worked night and day, united in their mission of delivering on our promise to the victims as soon as possible.
What motivated and inspired us in the face of adversity was the desire to support the communities we serve and be of service to others. From all over Japan our employees volunteered to come and help out, while the remaining workers filled in for those who came. Needless to say, selling insurance was not on our minds. We had our hands full just helping customers in their time of need.
By quickly satisfying these massive claims we earned an extra measure of support from our customers, which led to a significant increase in our market share. Timely insurance payouts in the event of accidents and disasters boost customer confidence and give people fortitude to face the future.
We take pride in supporting our customers and society to the fullest through valorous teamwork. As a result, we keep growing. This is what drives our group.
Our group-wide sense of unified purpose extends beyond national and geographical boundaries. The year before last, when Japan was hit by one of the largest natural disasters ever, the CEOs of our overseas Group companies contacted us immediately, asking how they could help. In the face of repeated hurricane damage in the U.S. in 2017, we kept communication channels open at multiple levels. This kind of solidarity comes naturally to our group, both at home and internationally.
For strong and healthy collaboration among global group companies, I, as CEO and CCO (Chief Culture Officer), assign great value to dialogue with our executives and employees in Japan and abroad. I prod everyone to discuss issues thoroughly; there can never be too much communication.
Through communication, I share with the management team and with all employees the meaning and value of being part of Tokio Marine Group. They, in turn, take pride in contributing to customers and society as a team so that we will be chosen again and again, which leads to more profits and higher corporate value.
Through this virtuous cycle, the Group will provide more value to all stakeholders and continue to grow over the long term.

Tokio Marine & Nichido market share growth before and after the 2011 earthquake

2008 +0.16pt / 2009 +0.11pt / 2010 +0.25pt / 2011 +0.28pt / 2012 +0.41pt (Managerial accounting basis)

Moving forward with our mid-term business plan

Steady strides forward despite COVID-19 and natural disasters

The three-year mid-term plan launched in April 2018 set KPI targets of ¥400 billion in adjusted net income and a 10.0% adjusted return on equity (ROE). Fiscal 2019 targets were initially ¥400 billion in adjusted net income and ROE of 10.4%, but the impacts of last year’s natural disasters in Japan and this year’s COVID-19 cut our results to ¥286.7 billion and 8.2%, respectively. Discounting these adverse circumstances, the Group’s actual performance was on track to meet projections.
For fiscal 2020, we project adjusted net income of ¥410 billion and adjusted ROE of 12.2%, which reflects the Group’s underlying capabilities excluding COVID-19 impact. Supporting factors are our solid fundamentals, both domestic and international, as well as the onetime effect of our reserve provision in North America for fiscal 2019 and contributions from the newly consolidated the PURE Group. Most of all, we believe that our ability to deliver profitable growth is in line with our plan.

Forward-looking business analysis and portfolio optimization

We have three main initiatives ahead of us: further diversification of portfolio, strengthening integrated group management, and enhancement of business structure. Implementing these will not only achieve our current Mid-term Plan KPI targets, but also enhance our ability to address social issues, with a view towards sustainable long-term growth.
First, Japan’s numerous large-scale natural disasters over recent years are what drive us to further diversify our portfolio. Fiscal 2019’s natural disaster related claims, industry-wide, exceeded ¥1 trillion, of which the Group paid out approximately ¥330 billion.
Our efforts toward geographical and business risk diversification to date have paid off in the Group’s ability to keep net incurred losses from natural disasters exceeding our average budget to only about 20% of the whole Group’s profits for fiscal 2019. In light of recent sequential natural disasters, however, I believe that 20% is still too much and that further risk diversification is well warranted.
In fiscal 2019, we acquired the PURE Group, which is delivering industry-leading growth in the U.S. high net worth market. This promises significant synergies, derived from the acquired company’s growth-supporting business model and limited overlap with the Group’s existing businesses. What cinched the decision was the good culture fit: the company’s management values jibed with our purpose in doing business and our value system.
The acquisition will further diversify the Group’s portfolio, increase the scale and profitability of operations, and enhance capital efficiency. North America accounts for approximately 80% of the Group’s overseas profits. Each US based Group company sells products tailored to its own customer segment, which is differentiated from segments targeted by other Group companies. This approach diversifies risk through a non-redundant "product mix" even though the companies may target overlapping geographical markets.
In emerging markets, we established a joint venture with Brazil’s Caixa Group, which holds around a 70% share of the Brazilian mortgage loan market. This decision to enter the profitable mortgage and homeowners sectors was made with profit stabilization and geographical diversification in mind.
Optimizing our business portfolio is an ongoing process of not only acquisition but also analysis and replacement, as strategically necessary. Our European reinsurance subsidiary TMR was a valuable launchpad for high-gear international expansion. But considering reinsurance market trends and having achieved risk diversification with our current portfolio of primary insurance companies, we executed the sale of TMR in FY2018. In the past fiscal year, we decided to divest 75% of our stake in Egyptian life insurance company TMFT.
M&A must never be an end in itself. Instead of having preconceived M&A goals of region, size or timing, we are flexible and proactive in seeking opportunities to diversify risk in terms of geography, business content and product mix. We judge prospects strictly according to our acquisition criteria mentioned above. Those that qualify enter our pipeline of long- and shortlisted candidates.

Finding new pillars of growth to counter evolving and increasing risk in our lives

The situation in Japan presents its own unique challenges. Automobile insurance currently accounts for half of our insurance premiums, making it a growth driver for the Group as a whole. Although we view automotive sector growth as sustainable over the near term, negative factors loom ahead. Japan’s dwindling population, the sharing economy, automated driving and other disruptors will sharply undermine demand. Before we are affected, we must accurately identify market changes and create new growth drivers.
Disruptive technology and globalization are spawning fresh risks for corporates. This, in turn, generates opportunities for us to expand our specialty insurance offerings. Although market penetration of these lines-of-business is still slow among small and medium-sized companies, in particular, we see vast growth potential ahead.
Over the decades, we have grown and addressed social issues by creating products that meet customer needs based on a firm grasp of the changing risk environment. When the Company was founded, we provided ocean marine insurance to support international trade; during Japan’s postwar economic boom, it was automobile insurance to support motorization.
What’s next could be cyber-risk protection or it could be innovations in the healthcare sector. We deliver safety and security by staying close to our customers. Through this approach, we are developing businesses that will continue to fuel growth for Tokio Marine & Nichido and the Group, while optimizing our portfolio to adapt to the changing needs.

Portfolio Diversification

[Risk diversification] Domestic non-life (underwriting) Control of nat-cat risk. Domestic non-life (Investment) Reduction of businessrelated equities risk. Domestic life Control of interest rate risks Shift to protection-type products. International insurance Diversification improvements with business expansion. Others: Financial and General businesses, FX risk derived from net capital investments, etc. | FY2019 Diversification effects 48%. Risk after diversification ¥2.7trillion: Domestic non-life (underwriting) 24%, Domestic non-life (Investment) 24%, Domestic life 16%, International insurance 24%, Others 12%. | FY2014 Diversification effects 44%. Risk after diversification ¥2.8 trillion: Domestic non-life (underwriting) 21%, Domestic non-life (Investment) 33%, Domestic life 21%, International insurance 14%, Others 10%.
[Trends of premiums and risk* ] [Risk | 2014 ¥2.8 trillion | 2019 ¥2.7 trillion [Disciplined control] ] [Net Premiums written + Life insurance premiums | 2014 ¥3.3 trillion | 2019 ¥4.5 trillion [Sustainable growth]] *: ESR risk (99.95%VaR, after tax basis)

Optimally allocating global talent to create group synergies

The second important initiative is to strengthen integrated group management. We are halfway to my stated goal of energizing human resources and our organization, an initiative which has received positive feedback. To advance, we must establish a system that empowers employees to exercise their abilities and knowledge more globally. This will require boosting the organization’s capabilities, including educating management on mindset and best practices.
For sustainable Group growth, each of our companies in Japan and overseas must refine its expertise to win the hearts and minds of customers in its respective market.
Insurance is called a people business because personal engagement is essential when selling and servicing high-involvement intangible products. Unless our employees demonstrate professionalism we will not be able to give customers the value they seek. In these times of rapid change, a willingness to tackle challenges without fear of failure is another requisite.
While following through on the Group’s commitment to diversity and inclusion, we focus on recruiting professionals and developing specialized expertise while nurturing each employee’s potential and leveraging their experience.
Better alignment of Group companies means better teamwork. It will help us share and utilize the best practices, expertise and experience of each. This will give our Group a level of excellence and a competitive strength that our peers cannot easily replicate.
To this end, the Group is innovating a global HR system that optimally allocates talent irrespective of citizenship or company affiliation. Our goal is for each individual to exercise their management and other skills to their full potential.
In fact, former executive management of acquired companies are now exercising their expertise and experience as Co-Head of International and as Co-Chief Investment Officer of Tokio Marine Holdings. Other initiatives include inter-company and international personnel assignments to put the right person to the right place.
Our integrated Group management approach is already producing Group synergies across the four areas of revenue, investment, capital, and costs. These are quantitatively manifested as a profit contribution of approximately ¥35 billion.

Accelerating business innovation with the use of latest technology

The third key initiative is enhancement of business structure. Here we are innovating products and services, reforming and bolstering sales channels, and raising productivity. The road to these reforms is paved with advanced technology.
In March 2020, we launched a new consumer service application using AI and drive recorders to streamline accident response and claims processing for outstanding efficiency. This marks the first time in Japan that an insurance company has contributed to customer safety and security by lending equipment to customers as a rider on their auto insurance policy.
When a collision is detected, the new service sends the video of the scene to the operations center where AI reconstructs the accident in about five minutes. From this it automatically determines the negligence ratio of the parties concerned based on legal precedents.
The stress of an accident can lead to confused reporting of what actually happened. This system minimizes dependence on the customer to describe details; it also slashes the time needed for Group staff to research case law to determine the negligence ratio. All this leads to quick resolution and settlement of claims.
In our ongoing technology R&D we are accelerating the hypothesis testing cycle for business transformation, new services, and new businesses.
Measures taken under our mid-term plan are steadily boosting shareholder value, outperforming both the stock market and our peers*. Taking 100 as our shareholder value on April 1, 2002, when we established our holding company, TSR of our Group on March 31, 2020 was 355, compared to 232 for our European and U.S. peers and 185 for TOPIX, respectively.
The Group’s 2.7% EPS growth rate over the past five years is comparable to the median and maximum EPS growth rates for our European and the U.S. peers of 1.9% and 6.6%, respectively. I think it is fair to say that the Group has established its reputation in capital markets.

  • * Allianz, AXA, Chubb, and Zurich

Strong Track Record

[TSR*1] Performance(Before Mar. 2020) 3Y 5Y | Tokio Marine: 119 130, Peers*²: 104 115, MSCI World Insurance: 97 109, TOPIX (insurance business): 94 104, TOPIX: 99 103. As of end of Mar. 2020 | Tokio Marine: 355, Peers*2: 232, TOPIX (insurance): 205, TOPIX: 185, MSCI World Insurance: 183.
[EPS*3 CAGR(2014-2019)] [Peers*2] Med. +1.9% | Max. +6.6% | Min. ▲5.0% | TOKIO MARINE +2.7% Source: Bloomberg *1. Total Shareholder Return (TSR): Capital return after reinvesting dividends. Stock price indexed at 100 as of April 1, 2002. *2. Allianz, AXA, Chubb, Zurich *3. Financial accounting basis

Toward ever-more sustainable growth

Leveraging the Group’s strengths to address social issues

Corporations are increasingly addressing social issues as an integral part of business itself, particularly within the frameworks of ESG and SDGs.
For the Group, this approach is in our DNA. We have been in the business of providing safety and security for well over a century. Solving social issues through business is what we do; it is the purpose of our business.
Our support for customers and society is constantly evolving to meet the challenges of the times. We study current issues to seek insights and tailor our business to be a force for social good. This ongoing process is the key to our sustained and sustainable growth.
Climate change is exacerbating the threat of natural disasters everywhere. Our group has been tackling climate change head-on, as an insurance company and in the capacity of an institutional investor and member of the global business community.
The circumstances of recent catastrophes, however, call for a different level of response. Prompt payment of claims is particularly important in such emergencies.
In Japan a total of some 22,000 employees of our Group did their utmost to meet this need during fiscal 2019. Using technology, we are further shortening the wait for claims payments and innovating insurance products that better address the needs of disaster victims. We are also seeking ways to prevent and mitigate catastrophic effects by providing information and other services.
In the capacity of an institutional investor we apply ESG criteria to investment decisions and are creating a fund that supports renewable energy. We are also a founding member of the domestic TCFD consortium. Carrying out our responsibility as a global corporate citizen we enlist in international initiatives, leading the way in dialogue on climate change and TCFD financial disclosure.
COVID-19 has blighted the lives and health of entire populations and disrupted economic activities around the world. It is unclear when the pandemic will end but we cannot ignore how it has accelerated change. Everyday life has evolved in many ways and will change again in the post-COVID-19 world. Government services and corporate practices are also being transformed.
In these times of rapid change and uncertainty, people are becoming more conscious of risk. By the same token insurance companies will be playing a greater role in society. In a matter of months our Group has responded to the challenges of COVID-19 in several ways. In Japan, Tokio Marine & Nichido revised policies that covered communicable diseases to retroactively include COVID-19 under controlled underwriting discipline. Online conferences in North America and in Asia facilitated dialogue among Group company management on business threats and opportunities in the context of COVID-19. This led to valuable insights.
We also set up a global task force to examine how the business environment will change in the medium to long term in the post-COVID-19 world. We are now engaged in a Group-wide discussion on business opportunities that leverage our areas of expertise, such as risk selection.
History shows us that pandemics and natural disasters will always be with us though their shape may change. Whatever happens, our Global Group stays ready to mobilize its vast resources. Responding to catastrophic events is our job but we also use our business to address other social issues. In the process of providing safety and security to our customers and society, we secure sustainable growth for ourselves.
I value your continued support, wisdom, and encouragement.