CFO Letter

Our long-term aspiration is to continue achieving “top-tier EPS growth” through sustained strong profit expansion in both insurance underwriting and asset management. In addition, we aim to raise our ROE to a level of global peers by implementing a disciplined capital policy (capital circulation cycle).

Specifically, we will implement a three-pronged approach. First, we will strategically review our portfolio based on organic growth to generate capital and funds.

Second, we will allocate these resources to strong business investments. Third, if no favorable investment opportunities arise, we will prioritize returning capital to shareholders, aiming to enhance ROE while maintaining a balanced capital circulation cycle. This approach will be continued in our new Mid-Term Business Plan starting in fiscal 2024. In the following sections, I will provide a comprehensive explanation of our capital policy, with a focus on the new Mid-Term Business Plan.

I will begin by outlining the qualitative aspects of our strategy for the Mid-Term Business Plan 2026̶“Inspiring confidence. Accelerating progress.”̶which commenced in fiscal 2024.

In the past, we have based the development of our mid-term business plans on a review of the current plan and recognition of its challenges, then formulated key strategies and measures for the next plan. However, the business environment surrounding us is undergoing rapid changes, and our operations could be more significantly impacted than ever before. In this context, particularly from the perspective of “growth,” there was a concern that continuing with existing strategies and initiatives might not adequately address future environmental changes. Therefore, in developing the new Mid-Term Business Plan, we adopted a backcasting approach.

In concrete terms, we analyzed medium- to long-term changes in the business environment and, based on that analysis, envisioned “Our Long-term Aspiration 2035” for the Tokio Marine Group. We then examined what actions are necessary over the next three years to achieve that vision and developed our plan accordingly. In addition, we considered which issues need to be prioritized in the current context and identified further strengthening of discipline as one of the key strategies for the new Mid-Term Business Plan. First, I will explain the “3 Pillars” of “Growth” and the “2 Pillars” of “Discipline” that are central to the “Group Major Strategies.”

As the business environment evolves more rapidly than ever̶due to factors such as technological advancements and the increasing severity of natural disasters̶existing auto and fire insurance profitability could be impacted. Moreover, there are growing opportunities and needs for new solutions and coverage for emerging societal issues and risks. To continue fulfilling our purpose in this changing landscape, we must diversify our revenue sources further to achieve growth beyond our previous trajectory while also strengthening governance at the Group level. Recognizing the need to balance growth and governance at a high level, we have established “growth” and “discipline” as the central pillars of our major strategies in the new MTP.

Given the rapidly changing business environment, we aim to achieve sustainable profit growth by (1) dramatically expanding the domains where we deliver our value, (2) providing this value through a highly specialized and diverse distribution model to ensure we are chosen by customers, and (3) extensively improving productivity.

Based on the series of incidents that occurred during the previous MTP, we will strengthen our internal controls and governance at the Group level while continuing to enhance disciplined management of our business portfolio and capital.

Next, I will outline the quantitative goals and KPI targets for the new MTP. We have consistently achieved top-tier EPS growth while managing volatility, and we will continue this through the implementation of our “Group Core Strategies” and “Group Major Strategies” under the plan. Specifically, the EPS growth target of the plan is a CAGR of +8% or more, excluding gains from the sale of business-related equities, which we continue to recognize as world top tier. 8% EPS growth will be driven by a CAGR of +7% or more profit growth with an additional +1‒2% from share buybacks. Furthermore, the target for adjusted ROE in fiscal 2026is set at 14% or more, excluding gains from the sale of business-related equities.

The drivers of our growth remain unchanged: a globally diversified and robust underwriting portfolio and strong investment returns leveraging its predictable insurance cashflows (AUM) which together constitute a solid basis for organic growth. Specifically, for the Japan P&C business, we plan for a CAGR of +5% or more through improvements in auto and fire insurance profitability, expansion of specialty insurance products, and further operational efficiency. For the international business, we aim for a CAGR of +5% or more through balanced growth in underwriting and investment focusing on developed markets. It is important to note that the performance of the international business in fiscal 2023, the launch year of the new MTP, includes significant gains from the takedown of prior-year loss reserves, which are not factored into the plan. Excluding these reserves, the international business is expected to achieve a CAGR of +7% or more. Our plan aims for balanced growth across our top-tier regional insurance businesses, leveraging strengths in each area to achieve organic growth comparable to our peers.

In addition, the strong base profit from organic growth will be significantly enhanced by accelerating the sale of business-related equities. As a result, the projected overall EPS growth will be CAGR of +16% or more, while the adjusted ROE is expected to be 20% or more. Given the high level of interest in business-related equity sales, I will provide a detailed explanation in the following section.

For more than 20 years, we have been selling business-related equities and reallocating the released capital into high-quality investments to boost ROE as well as M&A and risk-taking activities, which has contributed to profit growth and improved capital efficiency. We are now committed to bring down business-related equities to “zero*1” in six years, with an intermediate goal of halving them within the next three years as part of our new MTP.

As a result, we anticipate higher profits from these sales in the coming six years. However, as the unrealized gains from these equities are already included in our capital, the sales themselves will not generate new capital. The true impact on corporate value will depend on how effectively we use the released risk amounts (approximately 1.2 trillion yen out of the total 4.3 trillion yen in post-diversified risk) for high-quality investments and risk-taking.

To achieve the organic growth target (CAGR of +7% or more) in the new MTP, we will engage in substantial risk-taking within our existing operations. We will also explore inorganic (M&A) opportunities. However, M&A is a means to achieve risk diversification and profit growth, not an end in itself. Therefore, the released capital from accelerating the sale of business-related equities will be used with ongoing discipline. Given that current valuations for large-scale M&A are still high, we will continue to conduct market intelligence, maintaining a long and short list of potential acquisition targets, and carefully select companies that offer a high Return on Investment (ROI). At the same time, we will actively pursue small to mid-sized bolt-on M&A opportunities, leveraging the Group’s experience and expertise.

Our shareholder returns will continue to prioritize ordinary dividends under the new MTP, aiming to sustainably increase DPS in line with profit growth. Specifically, the dividend base will be set as the five-year average of adjusted net income to minimize volatility, with ordinary dividends calculated by applying a 50% payout ratio, which aligns with global peer standards. For fiscal 2024, due to significant gains from the sale of business-related equities, the profit plan is set at 1 trillion yen, substantially increasing the five-year average of adjusted net income. Consequently, the DPS for fiscal 2024 is projected to be 159 yen, reflecting a +29% increase from the previous year and marking the 13th consecutive year of dividend growth.

Looking ahead, we plan to adopt the International Financial Reporting Standards (IFRS) by the end of fiscal 2025, alongside the introduction of the new International Capital Standard (ICS). With these changes, we expect to review various indicators and definitions, including for profit, starting from fiscal 2026. Despite the new standards, we remain committed to achieving top-tier EPS growth and aligning DPS growth accordingly. We will carefully assess the dividend payout ratio and other related factors, engaging in discussions with stakeholders in the capital market. We aim to provide a comprehensive update on these changes and our strategy in the fall of 2025.

Our approach to share buybacks remains unchanged as a means of adjusting our capital levels. We make decisions based on a comprehensive assessment of factors such as ESR, market conditions, opportunities for M&A and additional risk-taking, and the common practice among global peers of executing share buybacks amounting to approximately 2% of market capitalization annually. Given that our ESR was 140% as of March 31, 2024, we plan to conduct share buybacks totaling 200 billion yen throughout fiscal 2024, with an initial resolution of 100 billion yen in May.

As a result of these efforts, the current adjusted ROE has improved to 15.0% for fiscal 2023. However, this improvement includes some impact on net assets from external factors such as rising interest rates, alongside profit growth. The target for adjusted ROE in the new MTP is set at 20% or more^*1 for fiscal 2026 (excluding gains from business-related equities, 14% or more^*1). We aim to fundamentally enhance ROE through both profit growth and effective utilization of capital, thereby raising it to levels comparable with global peers.

As an insurance company, we increase returns by taking risks in insurance underwriting and asset management as a key to our business. We have positioned Enterprise Risk Management (ERM) as the cornerstone of Group management. ERM takes into consideration our risk appetite, to what extent we undertake risks (risk boundaries), whether return on risk is sufficient, and whether risks are appropriately diversified. We have also established the ERM Committee to discuss ERM strategy. The committee assesses the growth potential and profitability of all businesses and the risks associated with each strategy in a forward-looking manner and formulates a capital allocation plan to optimize the risk portfolio from a Group-wide perspective. By doing so, we aim to achieve capital adequacy and high profitability relative to risk. This approach is intended to sustainably enhance our corporate value.

Based on this risk-based management approach, we are committed to disciplined portfolio reviews and business investments while considering risk diversification and future growth potential. For example, we recently acquired the PURE Group, established a local subsidiary in Canada, and engaged in bolt-on M&A with Gulf Guaranty Employee Benefit Services (GGEBS) through TMHCC, while also divesting subsidiaries in Guam and Saudi Arabia as part of our In/Out strategy. We will continue to carefully manage our risk portfolio, controlling risks and expanding corporate value through appropriate capital allocation.