FY2012 Results Conference Call: Q&A

Described below is the summary of Q&A session with institutional investors and securities analysts at the FY2012 results conference call held on May 20, 2013.

Q1Tokio Marine & Nichido's underwriting profit in FY2012 was ¥7.3 billion, which was lower than the full-year projections you announced in 3Q (Feb. 2013). What were factors of the difference?

There are mainly two reasons; foreign exchange effect and a decrease in reversal of catastrophe loss reserves than projected. Firstly, provision for reserves for foreign currency denominated outstanding claims increased due to the progress of the yen's depreciation from the assumption (¥86.58/USD) used for the full-year projections announced in 3Q (Feb. 2013). Secondly, the amount of reversal of catastrophe loss reserves decreased due to claims paid falling short of projections mainly in fire.

Q1(2)What level of foreign exchange rates do you assume in FY2013 projections?

FY2013 projections are based on foreign exchange rates as of the end of Mar. 2013.

Q2The media including the newspaper recently reported rate revisions in auto, but I believe Tokio Marine & Nichido has not yet officially decided its intention regarding rate revisions. As shown on page 19 of the presentation material, are future rate revisions etc. factored in the FY2013 2.3% YoY growth projection for auto net premiums? In addition, what exactly does "the continuous effect of rate revisions" on the same page mean?

Though profitability improvement in auto has been steadily progressing, we continuously acknowledge that further measures are necessary. We are considering various measures including rate revisions, but we have nothing to announce as of today. For FY2013 projections, we have factored in effects of various measures which are undergoing consideration.
"The continuous effect of rate revisions" on the presentation material refers to the effect of rate revisions in Oct. 2012, some of which the effect is projected to continue in FY2013.

Q3My understanding is that Tokio Marine & Nichido's FY2012 underwriting profit turned out to be lower than the full-year projections announced in 3Q (Feb. 2013) due to the depreciation of the yen and other special factors including an increase in provision for catastrophe loss reserves exceeding the projections as of 3Q (Feb. 2013). Excluding these special factors, I believe the result of underwriting profit should be better than the projections as of 3Q (Feb. 2013). If my assumption is correct, which insurance lines showed favorable underwriting profit?

As you pointed out, excluding the special factors, underwriting profit outperformed the full-year projections as of 3Q (Feb. 2013). Main reason is that there were fewer large-scale losses in "Other" line than projected.

Q4I think FY2013 also has special factors including claims payments related to Thai Flood. In my view, the YoY improvement you projected for FY2013 underwriting profit is relatively conservative. In addition to these special factors, do you project an increase in large losses, etc. compared to FY2012?

For FY2013 projections, excluding special factors which we already acknowledge, we assume an average level of net incurred losses. In "Other" line, we project an increase in net incurred losses compared to FY2012.

Q5What is the FY2013 projections of E/I loss ratio (excluding natural disasters, including loss adjustment expenses) in auto?

E/I loss ratio is projected to be 67.8% including natural disasters and loss adjustment expenses.
* The question was regarding the auto E/I loss ratio "excluding natural disasters", but figures of impact from natural disasters for each insurance line are for internal use only. The above answer is FY2013 projections of E/I loss ratio in auto, including natural disasters and loss adjustment expenses.

Q6What is the trend of reported claims during the three months of 4Q (Jan. to Mar. 2013)?

The number of reported claims during the period decreased YoY. We believe it is because although this year experienced heavier snowfall than an average year, it was still less impact than last year which also experienced heavy snowfall. Another factor was less snowfall during Mar. 2013 due to the warm winter.

Q6(2)Do you see any effects of revisions of the new grade rating system introduced in Oct. 2012?

The purpose of the new grade rating system introduced in Oct. 2012 is to ensure fairness of premiums paid among policy holders, not to decrease claims. It is difficult to grasp the trend with accuracy because there is only a limited amount of data, as the policies (subject to the new grade rating system) have only commenced in Oct. 2012, and it is also impossible to attribute if the action of making a claim or not, is a result of the new grade rating system. However, we do see a trend of decrease in the number of reported claims after Oct. 2012, mainly in vehicle damage.

Q7On page 11, one of the reasons for Kiln's revenue growth is explained as "upward rate revisions in reinsurance business." Could you tell me the latest trend in the reinsurance market?

In FY2012, due to natural catastrophe losses from Hurricane Sandy etc, reinsurance rates showed approx. 5 to 10 % increase for contracts with a claims record, and for those without a claims record remained the same level or showed a slight increase, which were still lower than expected. We do not expect to see a market-wide increase in reinsurance rates given the current situation, since the level of capital of reinsurance companies has not been affected in general. In addition, alternative capital such as catastrophe bonds have started to flow into the market. We will continue to closely watch trends in the upcoming U.S. mid-year reinsurance renewals scheduled in June-July.

Q7(2)I understand that the market trend in the reinsurance market is not factored in the FY2013 projections. Is my understanding correct?

Your understanding is correct. The underlying assumptions for FY2013 projections do not factor in the possibility of future rate changes.

Q8In FY2012, Philadelphia, Delphi, and North America seemed to have performed significantly better than the original and updated interim projections. In North America, in addition to the depreciation of the yen, was reversal of outstanding claims reserves one of the factors for profit increase?

As you pointed out, in each entity in North America, profit increased mainly due to reversal of outstanding claims reserves.

Q8(2)In the FY2013 projections, adjusted earnings at North America are projected to decrease. Is it correct to understand that the positive effect of the reversal of outstanding claims reserves will disappear in FY2013?

Yes, it is. Profit increase due to the reversal of outstanding claims reserves was temporary. A decrease in adjusted earnings is projected in FY2013 due to the reversal effect.

Q9In TMNL's FY2013 projections, net income is projected to decrease due to an increase in provision for underwriting reserves owing to a decrease in the standard interest rate. Is my understanding correct that the gap between the standard interest rate and the assumed interest rate will widen considerably, which will lead to a large amount of provision for underwriting reserves?

We cannot disclose the exact figures, however please note that the main reason for projected decrease in net income is due to an increase in provision for underwriting reserves.

Q10In TMNF's FY2013 projections, net premiums earned is projected to increase. Is this because of the positive effect of seasonal revenue growth from Feb. to Mar. FY2012 carried over into FY2013? Or, did you factor in the steady revenue growth experienced throughout FY2012 into FY2013 projections?

The projected increase in net premiums earned at TMNF is due to effects of the sales tie-up with Meiji Yasuda Life Insurance Company and the steady revenue increasing trend experienced throughout FY2012 in auto and fire, which are projected to have an effect also in FY2013.

Q11In the airline industry, service disruption due to trouble in the electrical system of the aircraft attracted considerable interest recently. Will this affect claims payment in your company?

We would like to refrain from answering details regarding specific contracts including if we have underwritten these or not.

These information materials are prepared based on the currently available information for us and described subject to our predictions and forecasts carried out at the time of preparation.
It must be noted that what is described therein does not guarantee our future business performance and carries certain risk of misjudgment or uncertainty.
Accordingly, you are kindly requested to bear in mind that there may be a possibility of sizable divergence between the actual business performance in the future and that of our predictions or forecasts described therein.