FY2016 Results Conference Call Summary of Q&A

Described below is the summary of Q&A session with institutional investors and securities analysts at the FY2016 results conference call held on May 19, 2017.

Q1I would like to ask about TMHCC’s net premiums written YoY in FY2016 excluding FX effects. Also, net premiums written of 3 group companies in North America (Philadelphia, Delphi, and TMHCC) is projected to be +3% growth in FY2017 excluding FX effects. This seems to be slowdown in growth. What are reasons?

TMHCC steadily increased profit YoY in FY2016.
(Supplemental information: Increased by 6% YoY on local basis.)
Although 3 group companies’ growth slows down in FY2017 due to challenging market environment including the continuing soft market, we understand that they are steadily growing compared with other competitors.

Q2At TMNL, net income exceeded 10 billion yen in the first half of FY2016 and FY2016 full-year projections was revised upward to 16.9 billion yen. I would like to ask about reasons for a decrease to 8.7 billion yen from the original projection at TMNL. Also, what are reasons for projecting an increase in FY2017?

Net income decreased from the original projections mainly because of an increase in provision for underwriting reserves due to an increase in new policies of term insurance owing to last minute demand before the revision of the standard interest rate in April 2017. For FY2017, We project an increase in net income due to a decrease in provision for underwriting reserves associated with new policies, despite a decrease in new policies due to rate revision associated with the revision of the standard interest rate.

Q3In FY2017, you project an increase in amount taken down from catastrophe loss reserves in line with an increase in W/P loss ratio in auto. What are reasons for worsening the loss ratio? How much do you actually project to take down?
How do you project underwriting profit/loss excluding the impact of catastrophe loss reserves?

W/P loss ratio in auto in FY2016 was low due to mild winter in FY2015, however, we project the W/P loss ratio to increase in FY2017 due to excluding the effect of mild winter.
Underwriting profit/loss excluding the impact of catastrophe loss reserves is assumed to be offset by a decrease in net incurred losses relating to natural catastrophes (upside factor) and the reversal effect of large losses in marine and other lines which were relatively low in FY2016 (downside factor).

Q4I would like to ask about changes in definitions in measurement method of MCEV (market consistent embedded value).

We decided to change assumptions and model considering the trend of international capital regulation and accumulation of actual data, etc. on the occasion of one year after the introduction of MCEV in FY2015. Specifically, we reviewed surrender risk and cancer payment risk, etc. As a result of the changes in definitions, MCEV increased by 223 billion yen. There is no change in both details and amount after the Interim IR Conference held in November 2016.

Q5I would like to ask about net incurred losses relating to natural catastrophes in international insurance business in FY2016 and FY2017.

Net incurred losses relating to natural catastrophes before tax in international insurance business was 35.4 billion yen in FY2016. That figure in FY2017 is projected to be 47 billion yen.

Q6Adjusted Net Income in FY2017 is projected to be 382 billion yen which is below the projection of 400 billion yen in the mid-term business plan despite very little FX effect from FY2016. What are reasons?

In comparison with FY2016, there are a couple of factors: the stronger yen which appreciated by 4 yen against the US dollar from December 2016 (at the time of calculating results for FY2016 in international insurance business) to March 2017 (at the time of calculating projections for FY2017), and the effect of FX gains including USD/GBP. Moreover, the difference in the amount of sales of business-related equities is also the factor. We sold business-related equities at a little less than 120 billion yen in FY2016, and project to sell business-related equities at 100 billion yen in FY2017.

Q7I would like to ask about Philadelphia’s and Delphi’s results in FY2016. Excluding FX effects, net premiums written increased, but business unit profits didn’t increase so much. What are reasons?

Regarding Philadelphia, the main factor is an increase YoY in net incurred losses relating to natural catastrophes.
Regarding Delphi, the main reason is that, in the aspect of underwriting profit, loss ratio worsened due to higher competitive market in medical insurance for corporate (medical stop-loss) and insurance with covering inability-to-work, etc. despite an increase in investment income. However, we are implementing measures to improve profitability including maintaining underwriting discipline.

Q8Domestic life seems to contribute to consolidated operating profit by 21.2 billion yen in FY2017. How much is the impact of product revision associated with the revision of the standard interest rate?

We can’t disclose detailed figures, however you may suppose 20-30% contribution due to a decrease in provision for underwriting reserves due to product revision and 20-30% contribution also comes from the effect of an increase in in-force policies. Continuous sales promotion of protection-type products contributes to an increase in in-force policies.

Q8(2)Which product causes the decrease in provision for underwriting reserves due to product revisions?

We project a decrease in provision for underwriting reserves in term insurance.

Q9Have you projected the impact of future rate revisions in auto into the combined ratio in FY2017 which you presented this time?

In the projections of combined ratio in FY2017 which we presented this time, we factored certain items into our projections. One of the items is discount for ASV (advanced safety vehicle) that we are considering to introduce in January 2018. We cannot comment on the details because we have made no decision at present about whether or not to implement them.

Q10You have decided a share buy-back of 25 billion yen this time. What are reasons for this amount? I would like to know about relation to the level of ESR which exceeded target range of 100-130% at the end of March 2017.

As we decide share buy-back based on comprehensive assessment of market conditions, our capital levels, business investment opportunities, and other relevant factors, we decided this amount of 25 billion yen based on this concept. Even if the ESR exceeds 130%, it does not mean that we will automatically conduct a share buy-back.

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.