CEO Letter

June 2024, early summer in the historic town of Kyoto. As I listened to the aria performed on the platform of the Kiyomizu-dera Temple, I was pondering:“ I really want to create a world where accidents do not happen, and losses, even if they cannot be avoided, are minimized.”

I was surrounded by 50 some global insurance company CEOs, who were enchanted by the atmosphere and absorbed in the lingering impressions from our earlier discussions.

The Geneva Association^* held its General Assembly in Japan for the first time in 15 years, and this was my first participation. Exploring with the top management of global insurers how the industry can contribute to society was a valuable experience.

The conference, held over three days, included keynote speeches on Japan’s tradition and culture and a session in the Kiyomizu-dera Temple.

The conference provided many opportunities to experience the excellence of Japan, a sustainable society founded on well-being and continuing so over the course of its history. Having the participating CEOs express their resonance and appreciation was a great honor as a host country participant.

More importantly, given the significant changes in global risks and the increasing complexity of societal issues, it was valuable for the entire industry to bring together global CEOs to engage on how the insurance industry can contribute to society. In-depth discussions encompassed heightening risk-hedging mechanisms and supporting the transition to a decarbonized society through active engagement.

As the CEO of Tokio Marine, a company founded in Japan, a country prone to natural disasters, and through various discussions, I reaffirmed my commitment to addressing the“ protection gap” against natural catastrophes among various imminent societal issues.

Today, natural catastrophes such as hurricanes and earthquakes cause economic losses of several hundreds of billions of dollars each year, and the losses are increasing. However, only about 30% of these losses are covered by insurance. The remaining 70% is the“ protection gap” for which insurance companies have not been able to provide support.

We have faced natural catastrophe risks head-on with maximum efforts to further promote insurance through diversifying our business portfolio and arranging effective reinsurance for stable coverage. However, with finite capital and with just underwriting, there is a limit to what a private insurance company can achieve in addressing the massive protection gap of natural catastrophe risks.

That has made me think about how we can reduce the loss itself, by drastically enhancing our value proposition in the area of disaster prevention and mitigation. The discussions held at the General Assembly in Kyoto galvanized my vision to contribute to a safer and more secure world that is resilient to disasters.

We have been enhancing our values in the“ pre- and post-incident” areas such as disaster prevention and mitigation, early recovery, and prevention of recurrence. In November 2011, we established CORE, a disaster prevention consortium. By collaborating with more than 100 organizations representing a wide array of industries, we are creating and implementing solutions to reduce natural catastrophe damages from various aspects. For example, in response to the Noto Peninsula earthquake in January 2024, we disseminated real-time weather alerts and road collapse information for safe evacuation and recovery activities in the affected areas. For those affected by liquefaction following the earthquake, we offered consultation services to mitigate the damages.

Utilizing these solutions helps to avoid or reduce damages, or alleviate the extent of loss, and allow for faster recovery, thereby preventing recurrence. If this is achieved, our economic value will improve through lower loss frequency and lower loss cost per claim and in aggregate. For clients, this will reduce insurance premium, while securing our proper margins, leading to stable risk placement without excessive cost increase.

Purchasing Tokio Marine’s policies and solutions prevents accidents and damages. If they occur, the impact can be mitigated, and the premiums will not be substantial. In other words, the more we focus on delivering our values, the more resilient our stakeholders will be against disasters, reducing the social costs and creating a safer and more secure world. In this virtuous cycle, the client base will increase, leading to growth of our corporate earnings. This upward spiral is the value creation cycle that we aspire to and the world we envision.

For the time being, our initiatives are making progress mainly in Japan. However, natural disasters are a global challenge, and these initiatives can be laterally deployed around the world. I believe there is significance in starting this from Japan.

Furthermore, the protection gap is not only an issue in natural disasters. It is also prevalent in various areas, including cybersecurity and healthcare. I see broader application where Tokio Marine can play an even more important role for our value creation.

By providing solutions to societal issues through our business activity, we create social value and grow our economic value at the same time. Persistence in meeting stakeholder expectations through our value creation approach will allow us to sustainably grow over the next 100 years. This is my sincere belief as I engage in day-to-day management.

Let’s turn to our latest business performance and standing.

We posted record adjusted net income in fiscal 2023, with strong underwriting mainly in North America offsetting the impact of various natural catastrophes in Japan and elsewhere.

On a Group basis, we are becoming a formidable organization, with Group companies reporting solid performance supporting and complementing others experiencing temporary challenges.

Net premiums written increased 6% year-on-year to 5.8 trillion yen. Profit excluding one-time factors, such as the impact of natural catastrophes and COVID-19, increased 11% year-on-year to 685.5 billion yen. This past year has given us confidence that our underlying capabilities are stronger and will continue to improve.

The profit plan for fiscal 2024 is 1 trillion yen. On top of the profit based on our stronger capabilities, the plan is inclusive of capital gains from our“ zero business-related equities” policy, which accelerates the sell-down of our equity holdings.

The recent strong performance is supported by the “global risk diversification” and“ global Integrated Group Management,” which are our unique strengths. These are the core strategies that the Group has long nurtured, and we will refine them further

I will start with“ global risk diversification.” The insurance business is about underwriting“ risks.” Our commitment and promise to our stakeholders should not waver under any circumstances. Any type of incident, occurring anywhere in the world, will affect our business in one way or another. This is the assumption to which we must manage the risks to ensure our financial soundness. This way, we always keep our promise to our stakeholders.

“Global risk diversification” is required to raise the bar. Over the past 15 years, we have built a highly diversified portfolio by organically and inorganically expanding our business outside of Japan, where risk correlation with Japanese non-life business is low.

As a result, we were able to keep the impact to our profits from large-scale natural catastrophes and the COVID-19 pandemic losses to about 20% to 30%. However, we believe this percentage is still high, and we will engage in further risk diversification.

Next is“ global Integrated Group Management.” Expansion of our non-Japanese business through M&As resulted in a diversified risk portfolio and profit growth. Yet for Tokio Marine, our greatest achievement is welcoming talent with great expertise and industry knowledge.

As societal issues and risks amplify and become more complex around the world, we must accurately recognize these challenges, create solutions, and manage those risks as risk management professionals. Accordingly, we have improved the quality, accuracy, and speed of our management decision-making by assigning the best talent in corresponding areas to ensure that the right person addresses the challenges. This is how we call upon our global wisdom.

We are in our ninth year of Integrated Group Management, and by increasing the number of non-Japanese executive officers and reinforcing our global committees, we continue to evolve, developing our unique competitive values.

Such values will be passed on to the next generation of leaders. We are taking various approaches to ensure that the baton is passed on to those who will rise to lead the future of our Group.

For example, the Tokio Marine Group Leadership Institute (TLI) was launched in April 2023, and I am serving as the inaugural dean. TLI plays a central position in group management leadership development. With a commitment from our global management team and drawing on their collective wisdom, we aim to develop a talent pool with competitive strength in the global market, while handing down the true understanding of our business purposes.

Foundational to our unique strengths are“ human capital” and“ intellectual capital.” We will continue to invigorate them to develop better talent and culture, and pass them on to the next generation. In addition, we will join forces with various external partners to create social values through which we continue to expand our purposeful business propositions.

Our unique strengths support our business performance, but the pace of change in the business environment is accelerating. Recognizing this as a once-in-a-hundred-year tipping point, we have a strong sense of urgency that a mere extension of existing initiatives will not be enough to respond to further changes.

The world is uncertain and full of increasingly complex societal issues that we must face. Against this backdrop, our new Mid-Term Business Plan̶“Inspiring confidence. Accelerating progress.”̶was launched in April 2024.

In preparing the plan, we imagined the future in about 10 years. We discussed the vision we wish to achieve, that is,“ our long-term aspiration 2035,” incorporating the opinions of younger employees who will support Tokio Marine in the future as well as those of external experts.

Through this exercise, we identified that while insurance is our core in protecting customers and society“ in their times of need,” we must take further steps to become the partner that“ always” supports our stakeholders with solutions for“ Prevention and Recovery” of loss and even beyond for“ Well-being.” This realization of the value creation cycle is what we aspire to.

Toward this long-term aspiration and as one of the Mid-Term Business Plan’s key strategies, we are mobilizing initiatives to develop and commercialize solutions beyond insurance.

For example, in the area of disaster prevention and mitigation, solutions, such as the aforementioned response to Noto Peninsula earthquake, are already being implemented. We are also developing new solutions using the latest digital technologies, such as a 3D modeling tool that visually demonstrates expected damages from disasters or satellite data that allows quick and accurate assessment of damages in the affected areas.

In November 2023, we established Tokio Marine Resilience, a new company dedicated to businesses in this area. We aim to provide a wide range of comprehensive services, from the visualization of disaster risks to the implementation of disaster prevention measures, and to post-loss early recovery and for recurrence prevention support. The estimated market size is significant at more than 1 trillion yen, and we will proactively seize these opportunities. We wish to nurture it into the third pillar of income, after the“ Japan and non-Japanese” and“ P&C and life insurance” businesses, that drives several tens of billions of yen in profit.

This nonetheless does not change our key strategy for the Mid-Term Business Plan to further develop our core insurance business corresponding to increased societal issues and risks.

Our management of business is ambidextrous, enhancing insurance and exploring solutions. As for our insurance business, we will sustainably achieve top-tier profit growth by leveraging our strengths from the globally diversified, strong underwriting portfolio, and superior investment returns from our liabilities profile.

Our three-year KPI is to achieve world-class EPS growth at +8% or higher.^* The insurance business can be said to be an“ aggregation of local businesses” composed of vastly different markets among countries and regions. We first focus on organically achieving top-tier profit growth by leveraging the unique strength in each country and region, such as Japan and the United States. Based on this, we will create a better global business portfolio as a Group through global risk diversification and disciplined capital management. As a result, we will control volatility while achieving a solid growth trajectory. We pride ourselves as a“ growth stock,” prioritizing the delta in profit growth, which might be rare in the financial services sector. As such, we must aim at the top-tier delta that matches the global peers. The“ +8%” target represents the management’s commitment.

We will also continue to achieve the delta for dividends, which are the basis of our shareholder returns, and DPS growth consistent with the top-tier EPS growth. We will continue implementing management that aligns our purpose, strategies, and resulting profits, ensuring that they are consistent with our contributions to our stakeholders.

Our ROE in fiscal 2026 is projected at 14%^* or higher. This still leaves a room to expand when compared to our global peers. However, we will fully divest business-related equities holdings, which is the main cause of this gap. We have been reducing business-related equities for more than 20 years. Recently, the“ six-year” target was established as a deadline to complete the selling of business-related equities. While the cue to such a result is not what we expected, we are determined to see this through.

Furthermore, we will increase our ROE level to match that of our peers by implementing our unwavering disciplined capital management, that is, rebalancing our portfolio with higher ROR business investments and risk taking.

Implementing transparent governance is the prerequisite for realizing our aspirations and sustaining top-tier profit growth.

We take this opportunity to sincerely apologize again for any concerns caused to our stakeholders by the price-fixing misconduct at Tokio Marine & Nichido.

This was a significant incident that fundamentally undermined the trust of our customers̶the very basis of the insurance business. Management takes this matter seriously.

Tokio Marine has conducted business based on a customer-oriented approach. However, some of our industry and company practices, such as business-related equity and cooperation in customer’s business, have become incompatible with the social norms.

Tokio Marine & Nichido will eliminate such practices and comprehensively implement preventive measures. Furthermore, we will review and fully overhaul all business processes and models from a customer-oriented perspective and transform into a new company that customers truly trust and need. As Tokio Marine Holdings, we are determined to see this through.

In addition to the individual initiative by Tokio Marine & Nichido, we will strengthen internal control and governance on a Group basis. We believe it is particularly important to continually review whether the norms of the industry and the company have become incompatible with society and whether there are lessons to be learned from outside, with an impartial external perspective. Accordingly, we have been implementing various measures, such as deliberation by the Group Audit Committee, of which the majority of members, including the chairperson, are external members. Other measures include active recruitment of external experts and deployment of those experts across the Group companies.

Everything we do depends on each employee doing the right thing under all circumstances. Whether everyone truly believes that the work to be done is valuable and wholeheartedly resonates with the company’s purpose is critical for implementing this. Similar incidents should not occur if we can establish this basis.

This belief was renewed when I visited Kanazawa and Nanao soon after the Noto Peninsula earthquake in January 2024.

We set up a task force immediately after the New Year’s Day earthquake, and more than 2,000 employees from all over Japan headed to the disaster-affected areas. We applied our collective strength to accelerate claims payment to enable affected customers to start rebuilding their lives as soon as possible.

What I observed were our employees fully devoted with a strong sense of mission to stand by our customers and local community in their times of need̶to deliver our promise and expedite claims settlement for their earliest recovery.

The task force was filled with a sense of purpose and the firm conviction that our work and the company’s business are valuable in serving society.

This is our culture and strength that have been handed down in the 150 years since our founding. My primary mission as the CEO and the Chief Culture Officer (CCO) is to further strengthen and deeply instill a culture, and nurture our people to pour their passion into fulfilling our purpose. I will continue to lead from the front.

Lastly, I would like to repeat my heartfelt gratitude to all of our shareholders and investors for the support that makes it possible for the Tokio Marine Group to continue its business activities̶thank you.

As I have stated above, we are at a once-in-a-hundred-year tipping point now, making everything uncertain. We are aware that we will be unable to grow merely by extending the status quo. This is why we will further diversify risks and accelerate growth. Capital unlocked by the sale of business-related equities will be invested to create future pillars of profit growth to realize our purpose. Our disciplined market-based capital management will remain unshaken.

Looking back on the previous MTP period, various challenges occurred throughout the world. With a strong resolve to make something out of crises, we dealt with and overcame challenges, bringing together the power of the entire Group each time we faced difficulties. In that process, I think we steadily improved our underlying capabilities.

We understand that the current business environment is not easy at all; however, we will manage our business on the back of our strong business foundation and our abilities to overcome and to respond to difficulties. With a strong desire to achieve the top-tier EPS growth and to raise ROE in the next three years and beyond, we are still on our journey to“ growth.”

I want to keep the Company actively working for you and meet everyone’s expectations in the process.

I appreciate your continued support for the Tokio Marine Group.