IFRS and ICS Implementation Overview

FY2026 dividends will be determined using a 3Y average IFRS adjusted net income from FY2024 to FY2026. Considering that the IFRS adjusted net income is c. JPY805bn (FY2024 results) and c. JPY840bn (FY2025 projection), the source of dividends for FY2026 is expected to increase from FY2025. Furthermore, we believe we can achieve top-tier EPS growth following the IFRS implementation, and DPS growth aligned with top-tier EPS growth can be maintained. Specific amount of dividends for FY2026 will be determined based on the FY2025 results and FY2026 profit plan. We intend to conduct a comprehensive review, including the payout ratio, and make an announcement in May 2026.

Starting from FY2026, dividends will be determined based on adjusted net income derived from the core insurance business profits, excluding gains from sales of business-related equities. Conversely, the sales of business-related equities will lead to the expansion of surplus capital by reducing risk. We will keep our capital policy to prioritize allocating surplus capital toward M&A and risk-taking activities that boost profit growth and ROE. If favorable investment opportunities are lacking, gains from the sales of business-related equities may lead to the enhancement of shareholder return in the form of a share buyback. We also plan to continue disclosing the “ESR reflecting the risk-taking expansion in existing businesses based on business plans” mentioned on page 7. 

As you pointed out, while the IFRS implementation will have an impact due to the recognition of unrealized losses on the balance sheet, for example, TMNF is currently revising the auto rates, which will contribute to profit growth after the IFRS implementation and lead to steady improvement in ROE. We want to raise ROE to the level of global peers by maintaining top-tier EPS Growth and disciplined capital policy. The IFRS Adjusted ROE Plan for FY2026 is to be disclosed in May 2026. 

Pricing has been determined by analyzing the appropriate rate levels for future underwriting, and the change in C/R level due to the revised definition will not impact pricing. Progress toward the target C/R under the current MTP will continue to be evaluated using the current definition. We plan to present the new target based on IFRS in the next MTP starting in FY2027. 

The ESR increased due to changes in the definitions of risk volume and net asset value. However, we maintain our position of holding AA-rated capital. As we are in the process of generating surplus capital through the accelerated sales of business-related equities, our ESR is higher than that of our global peers. Nevertheless, we have no intention of holding unnecessary capital without reason. We see this as an interim stage to determine how best to use the capital to support profit growth and ROE improvement, and we will act accordingly. 

We are currently generating surplus capital through the accelerated sales of business-related equities. To achieve top-tier EPS growth and elevate ROE to levels comparable with global peers, we believe it is important to carefully evaluate whether the use of capital truly contributes to ROE improvement, rather than just setting the policy based on ESR exceeding the upper limit of the target range. Therefore, we decided that removing the upper limit for the ESR target range was appropriate. Regarding current investment opportunities, we mentioned on page 7 that JPY0.3tn is included in our business plan as part of risk-taking for organic growth of existing businesses. For inorganic growth opportunities, we are exploring several projects, including bolt-on M&A. Since these cannot be disclosed in advance, we kindly ask you to refer to our track record. 

As we have been applying an economic value-based approach to our ERM and ALM, the implementation of IFRS and ICS will not impact our business strategy and operations centered on ERM and ALM. For ESR, the sensitivity range will increase due to the revision of the confidence level for risk calculation from 99.95% VAR to 99.5% VAR. However, we maintain our approach of maximizing ROR while preserving AA-rated capital. 

The main areas of interest were whether we can achieve our goal of DPS growth consistent with top-tier EPS growth, as the change in accounting standards will lead to a change in profit levels. Regarding the 3Y average for adjusted net income used as the source of dividends, we reflected the opinion that the averaging period could decrease, since single-year profit volatility will decrease with the exclusion of capital gains/losses from adjusted net income. Regarding the change in definitions, we believe our focus on comparability and consistency with global peers and the new economic value-based solvency regulations for the definition of KPI and ESR has been appreciated. 

Our FY2025 shareholder return includes a DPS of JPY210 and a share buyback of JPY220bn. Single-year return ratio to the average adjusted net income exceeds 70%. Our current higher ESR results from short-term capital release due to the accelerated sales of business-related equities, which is not seen among European peers. We believe that the continued, disciplined use of surplus capital for measures that promote future profit growth and ROE improvement remains essential. 

We paid special dividends in the past to adjust our capital level, but fluctuating dividend levels through special payouts is not ideal, as it can sometimes be seen as a decrease in dividends. Therefore, our main method for adjusting capital is through share buybacks. 

KPIs and ESR based on the new definitions presented today will be implemented starting at the end of FY2025. Dividends and capital policy during FY2025 will be determined according to the current definitions. 

As you mentioned, FX effects of foreign currency-denominated financial assets will be recognized in P&L under IFRS. Regarding FX sensitivity, the impact of a 1-yen depreciation of JPY against USD, based on the current definition in the FY2025 plan, is: Japan -JPY2.7bn, international +JPY3.1bn, and Group total +JPY0.4bn. Because JGAAP does not permit hedge accounting for certain derivatives held for hedging currency risks of foreign currency-denominated financial assets, this sensitivity reflects the separate recognition of FX effects for the underlying foreign currency assets and the derivatives used for hedging on the balance sheet and the P&L.
Under IFRS, both the underlying foreign currency-denominated financial assets and derivatives used for hedging are recognized and offset on the P&L. Due to difference in accounting treatment under IFRS, FX sensitivity for Japan business will change: a 1-yen depreciation of JPY against USD would result in Japan -JPY1.7bn, international +JPY3.1bn, and Group total +JPY1.4bn.