FY2013 2Q Results Conference Call: Q&A

Described below is the summary of Q&A session with institutional investors and securities analysts at the FY2013 2Q results conference call held on November 19, 2013.

Q1According to Tokio Marine & Nichido Fire (TMNF)'s revised projections for FY13, whereas E/I loss ratio in auto is projected to improve from the original projections, E/I loss ratio for private insurance total is projected to worsen. What is reasons for the deterioration in E/I loss ratio other than auto?

In 1H, loss ratio for overseas travelers insurance in P.A. worsened mainly due to the depreciation of the yen, and we expect this trend to continue in 2H. In addition, 1H experienced major accidents in marine and other lines. Therefore, revised projection for FY13 assumes an increase in incurred losses based on the occurrence trend of major accidents in 1H.

Q2As for TMNF's revised projection for FY13, net provision for catastrophe loss reserves is projected to increase by 25.3B yen from the original projections. Is that mainly because of the review of the schedule for claims payment relating to Thai Flood?

Yes. The carry-over of claims payment relating to Thai Flood to the next fiscal year has the greatest impact. We project that claims payment of more than 10B yen relating to Thai Flood and Hurricane Sandy is to be carried over to FY14.

Q2(2)How much impact do you project for reversal of catastrophe loss reserves in FY14 as a result of the carry-over of claims payment relating to natural catastrophes occurred in previous fiscal years, including Thai Flood?

We would like to refrain from making any comments on FY14 projections at this moment.

Q3Although the reinsurance market has been softening, is my understanding correct that your reinsurance business in 1H (Jan. 2013 to June 2013) was not affected significantly? In addition, whereas FY13 projection for reinsurance business is revised upward, how much impact from the softening market are you taking into consideration?

As you pointed out, catastrophe reinsurance market has been softening since the beginning of 2013, however, its impact on our reinsurance business was limited in the interim results. With such market environment taken into consideration, we are conducting disciplined underwriting to ensure profitability. As for FY13 revised projections, we made the plan on the premise of continued disciplined underwriting stance.

Q3(2)Do you see any signs of negative impact from the softening of the market after 3Q?

The softening of the market has been continuing even after 2Q. We are keeping disciplined underwriting stance, focusing on profitability, as we have been in 1H.

Q4As for international insurance business, do you have any plans of revising its FY13 original projections for natural catastrophe losses of 35B yen (before tax)?

Considering the level of natural catastrophe losses in 1H, which was approx. 5B yen less than the original projections, we have revised the FY13 full-year projections downward to approx. 30B yen.

Q5As for FY13 revised projections, did you factor in the impact from possible abolishment of the special corporate tax for reconstruction which is under discussion by the Government? How much impact would it be on your financial results?

The expected impact from possible abolishment of the special corporate tax for reconstruction is not factored in FY13 revised projections. We estimate the impact to be approx. -7B yen on a consolidated basis. Q6.

Q6Please explain the situation of TMNF's auto insurance in 1H, in terms of claims frequency and unit claims cost.

Claims frequency decreased YoY, as there was a decreasing trend in number of reported claims to some extent mainly in vehicle damage coverage, due to impact from the revision of the Grade Rating System, etc. Unit claims cost continues to rise in vehicle damage and property damage liability coverage, mainly due to i) an increasing trend in repair parts cost and unit repair cost and, ii) a decrease in reported claims mainly in small claims owing to the revision of the Grade Rating System.

Q7TMNF's E/I loss ratio in auto is projected to improve from the original projections. Is this because of the decrease in claims frequency factored in?

Yes. FY13 revised projections reflect the impact from the decrease in claims frequency in 1H.

Q8What is the impact from Typhoon 26 (Wipha), and Typhoon 30 (Haiyan) occurred in the Philippines?

1H financial results include losses from Typhoon 18 (Man-yi) which was approx. 12-13B yen. We estimate the losses from Typhoon 26 (Wipha) to be slightly smaller than Typhoon 18 (Man-yi). As for Typhoon 30 (Haiyan), though loss assessment is currently in progress, we assume that its impact on our business results including our reinsurance business would not be significant at this moment.

Q9Regarding Detroit bankruptcy in the U.S., is there any impact on your financial results so far?

At this moment, we do not see any progress in the trial. Therefore we did not factor this issue into our 2Q financial results. For your information, total exposure to Detroit for the Group's major domestic and overseas subsidiaries at the end of 2Q is approx. 10B yen, which has not changed significantly from the end of 1Q.

Q10At TMNF, while expense ratio in 1H worsened YoY, you project the ratio to improve YoY in the revised full-year projections. Please explain the details of the business expenses in 1H and full-year projections respectively.

In 1H, expense ratio worsened due to an increase in personnel expenses, despite non-personnel expense being almost at the same level YoY. On the other hand, we project the ratio to improve mainly due to a decrease in system development expenses.

Q11What is the projection for agency commission ratio going forward?

We project 17.1% for FY14, which is almost at the same level as FY13.

Q12How do you calculate the risk discount rate which is used for EV calculation in domestic life insurance business?

When calculating the risk discount rate, we add the risk premium rate of 6% to the 20-year JGB interest rate and round the figure off at 1% intervals. The risk discount rate used for 2Q results and revised projections for FY13 was calculated based on the 20-year JGB interest rate at the end of Sep. 2013. As for FY13 full-year financial results, we will calculate the risk discount rate based on the market interest rate as of the end of March, 2014.

Q13As for TMNF's revised full-year projections for FY13, how much impact do you project for additional provision for outstanding claims reserves related to the consumption tax rate hike and the depreciation of the yen?

As for the consumption tax rate hike, we project an increase in provision for the reserves by approx. 6B yen, corresponding to outstanding claims scheduled to be paid in FY14 and beyond. Also, we project approx. 7B yen increase from the original projections in provision for reserves for foreign currency denominated outstanding claims, due to the depreciation of the yen.

Q14Do you have any plans for rate revisions considering the expected increase in claims cost and business expenses associated with consumption tax rate hike?

Whereas premiums are nontaxable, claims cost and business expenses are subject to consumption tax. Regarding the impact from the consumption tax rate hike scheduled in April 2014, we estimate a rise in combined ratio (private insurance basis) by about 1.8 points. As a countermeasure going forward, together with continued management efforts including further reduction in business expenses and improving cost efficiency, we are going to consider rate revisions as an option.

Q15Though adjusted earnings projections for FY13 were revised downward from the original projections, I understand that this was mainly because of the impact from change in the risk discount rate for EV calculation in domestic life insurance business. The adjusted earnings (excluding EV of domestic life insurance business), which is the source of dividends, was revised upward in the revised full-year projections. Are there any changes in your policy of shareholder returns?

Our policy on shareholder return has not changed, that is, the primary means of shareholder return is dividends, which we plan to increase in line with profit growth. The target payout ratio is 40% to 50% of average adjusted earnings excluding EV. As for interim dividends, we increased dividends per share by 2.5 yen from the previous year to 30 yen as we announced at the beginning of the year. We will continue to aim for stable dividends in line with profit growth.

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.