Described below is the summary of Q&A session with institutional investors and securities analysts at the FY2014 2Q results conference call held on November 19, 2014.
- Q1Whereas the E/I loss ratio for auto at TMNF improved to 60.0% in the first half, its projections for the full year FY2014 are set to be 63.1%. Please explain the reasons behind the rise of the E/I loss ratio in the second half and your views going forward.
There are five reasons behind the rise of the loss ratio for auto in the second half.
- 1.Second half tends to experience an increase in claims compared to the first half due to snow fall, etc.
- 2.Projecting a certain level of losses from heavy snow fall in the second half reflecting the recent climate trend
- 3.Projecting an increase in unit repair cost
- 4.E/I loss ratio for the first half was pushed downward due to taking down of reserves relating to the snowstorms in Feb. 2014
- 5.Factoring in an increase in provision for outstanding claims reserves in the second half based on the premise of a consumption tax hike in Oct. 2015
- Q1（2）Given the fact that the E/I loss ratio marked a low level in the first half, how do you view the current level of premium rates?
Reasons behind the low level of E/I loss ratio in the first half include a decrease in claims paid, which is associated with a decrease in traffic volume due to an increase in gasoline price and highway tolls, as well as the effect of the revision of the Grade Rating System. However, the effect of a decrease in claims paid associated with the revision of the Grade Rating System has already faded out and will not work as a factor for profitability improvement continuously in and after the second half. On the contrary, we expect that its negative impact on profit will show up gradually in the form of a decrease in premiums income. In addition, we do not think the decrease in accident frequency is continuous, since the future trend in gasoline price, etc. is unknown. In addition, considering the fact that an increase in unit repair cost is continuing, we cannot be too optimistic on the underwriting results.
- Q2What were the reasons for the share repurchases announced today? Also, in the past, the Company used to announce share repurchases of 50 billion yen in the first half and another 50 billion yen in the second half. Is my understanding correct that the announcement made today was for the share repurchases for the first half?
As we have been indicating in the current Mid-term Business Plan, our primary means of shareholder returns is dividends, which we plan to increase in line with profit growth and we intend to conduct share repurchases in a flexible manner as a mean of capital adjustment, based on a comprehensive assessment of market conditions, our capital levels, business investment opportunities, and other relevant factors. In the past, there was a period in which we used to set a capital strategy budget, and announce share repurchases for each half of the year, however, our current policy is to conduct share repurchases in a flexible manner as I have mentioned earlier.
- Q3According to your explanation, the full year projections for FY2014 are based on the premise of a consumption tax hike in Oct. 2015. If the consumption tax hike is postponed, how much would it push up the profit?
Approximately 2 billion yen (before tax).
- Q3（2）Is it due to the changes in outstanding claims reserves?
Yes, it is.
- Q4FY2014 full year projections for adjusted earnings were also revised upward. Taking this revision into consideration, how much is the average adjusted earnings (excluding EV), which is set as the denominator for calculating dividend payout?
Average adjusted earnings (excluding EV) were revised upwards from the original projections of 140 billion yen to 145 billion yen.
- Q5How much are the net incurred losses for typhoons occurred during the period, namely typhoon 8, 11, 18, and 19 in total?
We estimate the loss to be approximately 12 billion yen in total. (Note added at the time of website release: Net incurred losses for typhoon 8 and 11, which were included in 2Q results, are estimated to be approximately 7 billion yen.)
- Q6You mentioned that purpose of the share repurchases announced today is to implement flexible capital policies. Were there any specific factors that triggered the decision of share repurchases, such as increasing expectations from the market, trend of peers, ESR level, etc.?
As I have explained earlier, our primary means of shareholder returns is dividends, which we plan to increase in line with profit growth and we intend to conduct share repurchases in a flexible manner as a mean of capital adjustment, based on a comprehensive assessment of market conditions, our capital levels, business investment opportunities, and other relevant factors. In the past few years, due to large scale natural catastrophes such as the Great East Japan Earthquake and Thai Flood, as well as the acquisition of Delphi, we have not conducted share repurchases. However, comprehensively considering various conditions, we have decided to conduct share repurchases. This will be the first share repurchases in the current Mid-term Business Plan.
- Q6（2）Is my understanding correct that there are no changes in policy and appetite for business investments?
That is correct.
- Q7FY2014 full year projections of net income at TMNF were revised upward due in part to a decrease in valuation allowance associated with a determination of liquidation of a securities subsidiary. How much was this impact?
The impact was approximately 11.4 billion yen.
- Q8FY2014 full year projections of underwriting profit at TMNF were revised downward due in part to revision of net incurred losses occurred in the past years in fire, other lines, etc. Can you explain the details and the amount?
We cannot comment on the details of individual claims, but we revised the net incurred losses occurred in the past years for a number of claims and the total amount of impact due to this revision was several billion yen.
- Q8（2）Underwriting profit is revised downward by 17 billion yen. Is the largest impact coming from the increase in provision for reserves for foreign currency denominated outstanding claims due to the depreciation of the yen?
The impact of the increase in provision for reserves for foreign currency denominated outstanding claims due to the depreciation of the yen is approximately 5.5 billion yen. Other factors of the downward revision of underwriting profit include a decrease in net premiums earned reflecting the recent trend.
- Q9Does the decrease in corporate tax at TMNF due to a decrease in valuation allowance associated with a determination of liquidation of a securities subsidiary have an impact to the adjusted earnings too? What kind of factors are subject to "Other extraordinary profit/losses and valuation reserves, net of taxes" which are excluded from the adjusted earrings calculation?
The decrease in valuation allowance associated with a determination of liquidation of a securities subsidiary was excluded in calculating adjusted earnings since it comes under "Other extraordinary profit/losses and valuation reserves, net of taxes". Other exclusions are dividends from overseas subsidiaries, etc.
- Q10As the yen is depreciating, what is the sensitivity of FX rate change for Tokio Marine Group?
The impact in the event of 1 yen depreciation is as follows.
- (i) Increase in profit from overseas subsidiaries converted into yen; approx. 1 billion yen
- (ii) Decrease in profit due to an increase in provision for reserves for foreign currency denominated outstanding claims and changes in gains on FX derivatives at TMNF; approx. 1.1 billion yen
- Q10（2）At this point, the depreciation of the yen has a slight negative impact to the Group total. Is it correct to say that as your international insurance business expands, the depreciation of the yen will have a positive impact to the Group total?
Your understanding is correct.
- Q11Regarding the FY2014 full year projections for TMNF, what are the projections for net provision for catastrophe loss reserves and the E/I loss ratio excluding natural catastrophes?
Net provision for catastrophe loss reserves is 4 billion yen and the E/I loss ratio on a private insurance basis excluding natural catastrophes is 58.6%.
- Q12If we look at the underwriting profit at TMNF excluding the impact of catastrophes loss reserves, natural catastrophes, and FX, the second half projections seem conservative compared to the favorable results of the first half. Please explain the reasons behind this.
Because the revised projections are full year based, it is difficult to comment on just the second half factors. However, I can say that we do factor in other lines such as liability insurance in which the claims are difficult to project. Also, in auto, the improvement seen in the first half is factored in, however, there are several factors in the second half which are uncertain. Therefore our projections are slightly conservative.
- Q12（2）Is my understanding correct that in the other lines, the first half did not experience any major accidents which would exceed the projections, therefore you did not change the projections for the full year reflecting the first half results?
Your understanding is correct.
- Q13The FY2014 2Q results for international insurance saw a decrease in adjusted earnings due to the impact of natural catastrophes. As the number of natural catastrophes worldwide is low this year so far, what kind of natural catastrophes had an impact to your adjusted earnings?
In addition to the reversal effect of the low level of natural catastrophes last year, the record breaking winter cold storm hit North America in January and February which had an impact of approximately 6 billion yen, as well as the storms and hail, etc. in the US and Europe had an impact to the adjusted earnings.
- Q13（2）Please explain the details of the increase in reserves for claims occurred in the previous years in reinsurance.
The increase in reserves is related to the New Zealand earthquake occurred in the past.
- Q14In the FY2014 full year projections for TMNF, how much impact is coming from the depreciation of the yen relating to the reserves for foreign currency denominated outstanding claims?
The impact in the first half is approximately 5.5 billion yen. Regarding the full year, the impact is also approximately 5.5 billion yen, as the FX rate used in the full year projections is the same as the FX rate used for 2Q results.
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.