FY2013 1Q Results Conference Call: Q&A

Described below is the summary of Q&A session with institutional investors and securities analysts at the FY2013 1Q results conference call held on August 9, 2013.

Q1You mentioned that dividends from overseas subsidiaries were recognized in the category of "Overseas subsidiaries" because they came in through an intermediate holding company in the US. How much is the amount?

In 1Q FY2013, dividends from overseas subsidiaries increased by approx. 16 billion yen YoY from 4 billion yen to 20 billion yen.

Q1(2)Ordinary profit of "overseas subsidiaries" increased by 34.7 billion yen YoY. Excluding the intra-group dividends, is it correct to understand that the actual increase in ordinary profit at overseas subsidiaries was about 19 billion yen?


Q2In the North American market, while the rate of premiums for primary insurance showed upward trends mainly in commercial lines, reinsurance rates for natural catastrophe risks after May have declined by 10% to 15%. I am concerned with the impact on your reinsurance business. How are you dealing with this market environment?

As you have pointed out, the catastrophe reinsurance market is softening due to sufficient capacity in the market. Even though the impact on our overseas reinsurance business is expected to a certain level, the current earnings growth is consistent with our initial plan. We continue to aim at bottom-line-oriented growth through risk diversification by means of underwriting in non-natural catastrophe businesses etc, while closely watch the market trends.

Q3How do you evaluate the current progress of the underwriting profit at Tokio Marine & Nichido Fire (TMNF), compared to your full-year projections?

Although TMNF's underwriting profit remained at 3.1 billion yen in 1Q FY2013, the combined ratio improved YoY to 90.9%. Also in its core business of auto, loss ratio improved, and top line showed strong growth towards our full-year projections. Excluding uncertain factors such as future natural catastrophes and foreign exchange rate trends, we consider the current progress to be on track.

Q4How did Detroit's financial crisis affect your financial results?

The Group's total credit exposure to Detroit- related municipal bonds was approx. 10 billion yen as of the end of FY2012. Proportion of GO bonds in the total exposure was less than 20% and there was no major impact on our results in 1Q FY2013. Although we need to closely watch the future trends including the treatment of the GO bonds, we consider that our exposure to Detroit will not have a significant impact on our financial results.

Q5In international insurance business, how much reserves in Asian operations were taken down relating to Thai Flood? And how much was foreign exchange gains at Kiln? Also, how much is the amount of natural catastrophe loss recognized in 1Q in international insurance business?

Reversal of reserves relating to Thai Flood in our Asian operations was approx. 5 billion yen (after tax), and foreign exchange gains at Kiln was approx. 2.5 billion yen (before tax). Natural catastrophe loss in 1Q FY2013 in international insurance business was approx. 3.6 billion yen (before tax) mainly caused by tornados in Georgia, USA.

Q6Tokio Marine & Nichido Life (TMNL)'s results seem to lag behind the full-year projections. Business expenses increased due to stronger sales of new policies than that of competitors, and capital gains declined sharply. What are reasons for the increase in losses on derivatives and provision for foreign-currency denominated underwriting reserves?

Main reason for the increase in losses on derivatives was due to an increase in impairment losses on interest rate swaps (receive fixed-interest rate) for ALM purpose, associated with the increase in interest rate. The increase in provision for foreign-currency denominated underwriting reserves was due to the depreciation of the yen. Most of the increase was offset by foreign exchange gains on foreign-currency denominated securities, etc., and have a limited impact on profit.

Q6(2)Does that mean an interest rate hike could be a decreasing factor for TMNL's profit?

Continuously operating on the basis of ALM with careful attention to interest rate changes, we do not expect the full-year results to fall significantly below our projections.

Q6(3)Is that because you think you can compensate for the losses on derivatives by future gains from sales of securities?

We expect no significant decline in TMNL's profit from the full-year projections because its underwriting profit in 1Q FY2013 is almost in line with our projections and we continue to operate on the basis of ALM with careful attention to interest rate trends.

Q7What are factors for the increase in E/I loss ratio in fire (excluding impact of natural disasters) at TMNF?

Main factor was an increase (by approx. 4 billion yen YoY) in provision for reserves for foreign-currency denominated outstanding claims associated with the depreciation of the yen. Also, an increase in incurred losses due to the reversal effect of fewer losses in 1Q FY2012 related to factory-related policies was another factor (YoY increase by 1 billion yen to 2 billion yen).

Q8Loss ratio in auto improved YoY at TMNF. Was there a positive effect by fewer claims owing to the revisions of the grade rating system in October 2012? Did the revision also have an effect on the increase in unit claim cost?

E/I loss ratio in auto improved by 1.5 points YoY. This was because of revenue growth mainly due to the product and rate revisions in October 2012. Although it is difficult to accurately grasp the impact of the grade rating system revision on fewer claims, a tendency can be seen that claims frequency is settling down to an extent mainly in vehicle damage insurance. In addition, fewer petty claims can be another factor increasing the unit claims cost due to changes in claims composition. Our Business Plan incorporates these factors, and we think the loss ratio trend has been in line with the initial plan at this moment.

Q9Sales of business-related equities seem to progress steadily, with a sale of 28 billion yen in 1Q. Do you expect any upward revisions of the sales plan?

TMNF plans to sell approx. 100 billion yen worth business-related equities every year in the 3 years under the Mid-Term Business Plan. In 1Q FY2013, the sales progressed in line with the plan toward the annual target of 100 billion yen this year. We will continue efforts toward achieving the target.

Q9(2)Do you think capital gains are in line with the original plan?

There has certainly been an increase in gains on sales of securities in accordance with the rise in stock prices, but we think capital gains were roughly in line with our projections.

Q10In international insurance business, the acquisition of additional shares in Thailand subsidiary was explained as a factor for revenue growth in Asian operations. How much is the contribution to the topline as a result of the acquisition of the additional shares?

The contribution from the acquisition of additional shares in Thailand subsidiary was approx. 3 billion yen in terms of net premiums written in 1Q FY2013.

Q11Concerning reinsurance business, underwriting results seem to have worsened as the increase in adjusted earnings remained at 0.6 billion yen, despite the favorable increase in net premiums written by 10.6 billion yen YoY. Is there any particular reason for that?

There are several factors causing disparity in YoY increase between net premiums written and adjusted earnings, including losses on foreign exchange with the depreciation of the sterling pound at our UK subsidiary, and a temporary technical factor associated with the recording of a major contract (i.e. an increase in provision for underwriting reserves*). However, on an actual basis, there was no significant change in profitability of the business.
* This information was added at the time of website release

Q12The economic environment in South & Central America has been changing in the recent years. Are there any changes also in your business projections for the region?

Our business in South & Central America experienced favorable growth also in 1Q FY2013 centering on its core auto business and we expect the same trend to continue. We will continuously monitor the local market conditions and business performance.

Q13According to the Supplemental Material for the conference call, consolidation adjustment in ordinary profit under "Others (Elimination, etc.)" marked -36.8 billion yen YoY in 1Q FY2013. YoY increase in dividends at "overseas subsidiaries" associated with the establishment of a US intermediate holding company was explained to be approx. 16 billion yen. So it follows that the remaining some 20 billion yen was an increase in dividends received at TMNF. Is my understanding correct?

Yes. The remaining was about the same amount of dividends from overseas subsidiaries received at TMNF.

Q14While you explained that reversal of reserves relating to Thai Flood was recorded at Asian operations in international insurance business, there is no significant change in incurred losses from the flood in the financial accounting results. Were there any other factors to increase provision for outstanding claims reserves?

Regarding Thai Flood, TMNF recorded approx. 4 billion yen of claims paid, and approx. 18 billion yen of outstanding claims reserves are remaining. There was no major change in the amount of incurred losses. The reason for the reversal of reserves related to Thai Flood being one of the increasing factors for adjusted earnings in international insurance business is the timing difference in recognition of the change in reserves between financial accounting basis and adjusted earnings basis. The reversal occurred in the period between January and March 2013, which is recognized in 4Q FY2012 in TMNF's financial accounting, while on an adjusted earnings basis, it is recognized in 1Q FY2013.

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.