FY2017 3Q Results Conference Call Summary of Q&A

Described below is the summary of Q&A session with institutional investors and securities analysts at the FY2017 3Q results conference call held on February 14, 2018.

Q1Please tell me about the renewal status of reinsurance in January 2018 and the impact on international insurance business (North America and European subsidiary) revenue growth.

We are currently gathering information about the impact. It is difficult to grasp the whole because the situation depends on whether the contract is damaged or not, or whether it’s a direct underwriting or reinsurance, etc. However, reinsurance policies rate seems to have shown a low single-digit increase and direct underwriting policies rate, mainly properties of developed countries, seems to have shown a low single-digit to middle single-digit range increase. In view of excessive third-party capital inflows to the market so far, we do not think it turned into a certain level of hardening as we initially projected.

Q2If the cut in tax rate associated with the U.S. tax reform (35% to 21%) is applied straight to the three U.S. subsidiaries, the profit of overseas subsidiaries will be boosted by 27 billion yen. On the other hand, I think that you are investing in U.S. municipal bonds etc. that are tax exempt bonds and will also be affected by the introduction of Base Erosion Anti-abuse Tax (BEAT). How much will the actual impact be?

In the case of estimation based on taxable income in FY2016, we project the impact of the U.S. corporate tax cut after FY2018 to be 18 billion yen of reduction. Regarding BEAT, despite the ceded insurance from U.S. subsidiaries to the Group companies outside U.S., it is lower than the standard amount, so we believe there will be no impact.

Q3E/I loss ratio excluding natural catastrophes at TMNF has worsened YoY. Reflecting the conditions that worsened by approx. 40 billion yen YoY in 1H and approx. 47 billion yen YoY in 3Q excluding the impact of catastrophe loss reserves, natural catastrophes and FX effects, does it mean that the worsening in 1H affected directly to 3Q?

E/I loss ratio excluding natural catastrophes at TMNF has worsened due to an increase in large and medium-sized losses YoY. Although there were certain levels of losses from Oct. to Dec., the main factor of deterioration was the impact of events that occurred in 1H.

Q4Regarding the increase in net incurred losses, did the losses caused by underwriting special insurance frequently occur? Or can I consider they were temporary.

It seems to have worsened YoY because the level of loss ratio in FY2016 was especially low. We consider there are no cause-and-effect relation with each large loss and that this increase resulted from a temporary factor.

Q5Did technical factors such as provision for underwriting result in the first year and unearned premiums affect the underwriting profit in 3Q?

The simplified method considering current results is applied up to 3Q, so the impact is little. Considering FY2017 results, because loss ratio worsened this year YoY, we think there is a high possibility of a decrease in net provision for underwriting result in the first year.

Q6I think that natural catastrophes that incurred at overseas by the end of Sep. are included in this 3Q. How about the impact of wildfire in California since Oct.?

We are currently gathering the figure of the impact, but we believe they will both remain in the range of several billion yen.

Q7You explained that the impact of U.S. tax reform to adjusted net income is approx. 10 billion yen. Will the full year projections of 315 billion yen released in Nov. increase to 325 billion yen? And will this impact appear in 4Q?

Although the revised net income on financial accounting basis reflects only the impact of U.S. tax reform, the impact to adjusted net income is as explained in the conference call. We did not revise the projection of adjusted net income because the impact is little.
The timing to recognize the impact of U.S. tax reform to adjusted net income will be in 4Q.

Q8I would like to know about the natural catastrophe losses that incurred at overseas in 3Q.

Net incurred losses relating to natural catastrophes in 3Q increased by 42.5 billion yen YoY to 62 billion yen (before tax, excluding losses of TMNF) on financial accounting basis.

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.