Described below is the summary of Q&A session with institutional investors and securities analysts at the FY2024 results conference call held on May 20, 2025.
- Q1I would like to know about the impacts of inflation. Loss reserves for liability insurance have increased in North America, and unit costs of auto repair in Japan is higher than originally planned. Can you tell us about your evaluation on your response to inflation and the future possibilities of expanded inflation risk?
- A1
First, let me answer your question about the impacts of inflation on liability insurance in North America. Generally, the impacts of inflation differ in the timing of appearance between the primary policy and the excess policy. TMNF mainly underwrites excess policies for large global Japanese-affiliated companies. Since the accumulation of case reserves has spread to the excess policy due to the impacts of recent social inflation advancements, TMNF implemented loss reserve development. Regarding the primary policy, PHLY and other entities have taken appropriate responses, including increasing their reserves to respond to an increase in loss cost.
The following is about auto insurance in Japan. The unit price of auto insurance has continued to increase due to advancements in automobile performance and other reasons, but due to the impacts of the recent inflation, this tendency has further intensified. As a result of this tendency further strengthened in the latter half of FY2024, the unit price increased by +7% year on year, although it was expected to increase by +4% at the beginning of FY2024. In FY2025 guidance, we expect an increase of +6%, considering the fact that the Bank of Japan forecast slowdown in CPI to a certain extent. Since highly uncertain situations are expected to continue, we will keep a close eye on developments and take necessary measures in a timely manner. - Q2Loss reserves takedowns by overseas entities have decreased. Are the reserves enough for future takedowns?
- A2
Currently, we think we have secured an adequate level of reserves.
- Q3Regarding CRE loans on page 44, please explain (1) the reasons for a significant decline in income in FY2025 and (2) the workouts you are conducting as well as the achievements made so far.
- A3
(1) The reasons for a decrease in income are that CRE loan exposure is projected to decrease from USD11.0bn to USD9.0bn during the period from the end of FY2024 to the end of FY2025, incorporating factors such as a decline in interest rates. (2) The current status of workouts remains unchanged overall from that in last autumn, although there are some differences in individuality depending on cases. We are endeavoring to maintain investment performance through workouts, such as a postponement of maturity and foreclosure, by taking advantage of the fact single lender cases are the main source of income.
- Q3(2)There seems to be many cases in which maturity was postponed during the COVID-19 pandemic. What consequences will the second postponement of maturity have?
- A3(2)
Borrowers face two problems: (1) fewer people go to the office and (2) interest rates remain high. The establishment of a work-from-home culture involves a structural issue, and dramatic recovery cannot be expected. As for interest rates, it is necessary to consult with borrowers, readjust their business plans to the extent that they can pay interest, and wait for market recovery. There are some cases in which interest payment burdens are reduced. Instead, when the market recovers and real property is sold at a good price, we obtain some of the profits. Through such a workout, we seek to maximize our recovery value.
- Q3(3)Do you mean that provisions are sufficient?
- A3(3)
In the FY2025 guidance, we have incorporated capital losses of USD230.0mn. Considering the present market conditions, we believe provisions are sufficient. In fact, 1Q FY2025 flash reports by key entities show that capital and other investment gains have exceeded those originally planned by their entities, and there is no sign of a deteriorating trend.
- Q4Regarding the plans to reduce business-related equities on page 10, specific plans to sell shares of Mitsubishi Corp. and Suzuki Motor Corp. have been announced. What will be their progress in FY2025?
- A4
Business-related equities will be reduced by 40% in book value by FY2025. Toward the target of halving the equities by the end of FY2026, the plan is well under way. In the plan to sell JPY600.0bn worth of business-related equities during this fiscal year, calculations are made based on specific stock names to be sold, enabling us to implement the plan with a high degree of certainty. In FY2024, we started with the plan to sell JPY600.0bn worth of equities, and while gaining consent as to additional sales during the term, we achieved final sales of more than JPY900.0bn. We will respond to this issue steadily this year as well.
- Q5Regarding investment performance by North American entities on page 43, there are three questions. (1) In FY2025, CRE loan income is projected to decrease by -USD260.0mn, while income of North American entities is expected to increase by +USD120.0mn. In what asset class, do you expect an increase in income? (2) What is a prerequisite for capital loss? (3) What do you pay particular attention to in specific asset classes?
- A5
(1) The AUM of CRE loans is expected to decrease due to maturities, etc. Against a background of strong underwriting, AUM of North American entities is expected to continue to increase, based on which we predict increase income. (2) Following an increase in real properties requiring workouts in CRE loans in FY2024, HD and local entities worked together to conduct detailed examination. As a result, expected capital losses were increased in 2Q. Based on this, we raised expected capital losses and assumed a certain level of loss in FY2025 guidance. (3) At present, there are no assets with major concerns, but we keep a close eye on CLO and high-yield private loans. To check whether there is any deteriorating trend, we conduct monitoring and stress tests on a daily basis. In fact, credit spread widened immediately after the announcement of Trump's tariffs in early April. However, it came back later, and at present, there are no major concerns.
- Q6Is there any impact from the downgrading of US government bonds by Moody's?
- A6
We understand that this has been anticipated in the market, so there is no change in our investment behavior.
- Q7I would like to know about the assumption of Nat Cats. When considering the impacts of LA wildfires, the Nat Cats budgets for FY2025 in the international business seem to be small. Please explain your budgets for FY2025.
- A7
For Japan, we set the present MTP annual budget of JPY74.0bn (after tax), taking into consideration the increase in disasters in secondary peril events. For FY2025, increases in exposure have been incorporated, and the budget was set at JPY76.0bn (after tax), up JPY2.0bn from FY2024. As for the international business, budgets were calculated based on the risk situations of each entity. The budget for FY2025 was set at JPY73.0bn (after tax), an increase of JPY4.0bn from FY2024. As of this point in time, we believe costs, including those for LA wildfires, will be within the annual budget. We will continue to work to reduce Nat Cats risks and further improve profitability through review of contract terms and non-renewal of contracts.
- Q8Have the impacts of Trump's tariffs been incorporated in FY2025 guidance for the international business?
- A8
It cannot be denied that the impacts of Trump's tariffs will bring about a certain level of uncertainty, but they have not been incorporated explicitly in FY2025 guidance. For instance, the economic inflation, or the inflation of goods and services, increases loss costs in general, but the North American business, which is the main source of the international business, deals with mainly underwriting of specialty insurances, and there are relatively few that are subject to the impacts of economic inflation. So, we consider its impacts to be limited. If there are a certain level of impacts, we will respond appropriately, for example, through rate increases that match loss cost increases.
- Q9Regarding business unit profits for the international business on page 39, please explain the reason why in the plans for some regions, decreases in profits are projected, exclusive of FX impacts.
- A9
In South & Central America, nearly record-high profits were achieved in FY2024, as in FY2023, when record-high profits were achieved. Considering today's increasingly competitive environment, we think the profits will return to normal levels in FY2025, but we continue to plan C/R at a favorable level of about 90% to 95%.
The forecast for a decrease in profits in Asia and Oceania is similar. For Malaysia, Singapore, Indonesia, and other countries that achieved record-high profits in FY2024, we expect a return to more normal levels in FY2025.
- Q10What is the reason for significant increase in profits in FY2025 guidance for overseas life insurance?
- A10
In reaction to a sharp decline in profits due to the impact of interest rate reduction, etc. in FY2024, profits are expected to increase year on year in FY2025.
- Q11Toward realizing M&As, what action did you take during the past year? In addition to organic performance growth, can further growth be expected after the effects of the sales of business-related equities wear off?
- A11
We have continued considering M&As based on the three principles of M&As. In this context, we are considering bolt-on M&As in the short term since valuation is believed to remain high for large M&As. We are planning to pursue further growth mainly in North American specialty business through a combination of organic growth and bolt-on M&As. Expected profits from M&As are not included in FY2025 guidance. If any M&A is realized, it will contribute to profit increases.
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.