Enterprise Risk Management

We promote Enterprise Risk Management (ERM) as the platform on which we advance the mid-term business plan. Specifically, we remain constantly aware of the relationship between risks, capital, and profits to achieve both capital adequacy and profitability relative to risk and thereby realize ongoing improvements in corporate value. In regard to capital adequacy, we are targeting a capital level that will maintain an AA credit rating. As for profitability, we aim to realize capital efficiency that exceeds cost of capital* (7%), and we intend to target return on equity (ROE) of approximately 12% in the future.
The following framework was produced by organizing the mid-term business plan in accordance with an ERM-based perspective. Looking ahead, we will work to achieve sustainable profit growth through the enhancement of our business structure and the fostering of Group synergies. The profits and capital generated in this manner will be dedicated to the efficient deployment of capital, which will entail maintaining financial soundness while further diversifying the portfolio and enhancing shareholder return, for example, as we seek to create the foundations for future growth.

  • *
    Cost of capital is the profit margin investors expect from investees. Tokio Marine Group calculates cost of capital based on the capital asset pricing model (CAPM) and uses this figure to determine growth indicators and make business investment decisions.
Based on ERM, realize profit growth while maintaining financial soundness and strategically allocating capital[Enterprise Risk Management (ERM)][Sustainable profit growth]Domestic non-life insurance business Achieve sustainable growth as the Group’s core business Change our portfolio through sales expansion of specialty insurance / Domestic life insurance business Expand corporate value based on economic value as a growth driver contributing to the long-term profits of the Group Increase sales of protection-type products / International insurance business Realize high organic growth and implement new business investment as a growth driver of the Group / Overall Group Generate further synergy effects Appropriately control business expenses[Generate profits][Efficient deployment of capital]Investment for growth Invest in new businesses with diversification effects Make prior investment to establish future profit base (new products/new technology)/ Risk reduction/control Continue sales of business-related equities, control risks of natural catastrophe losses and interest rates / Shareholder return Raise level of shareholder dividend Adjust to the appropriate level of capital via flexible share repurchases, etc.[Strategic capital allocation]→Profit growth+Enhancement of shareholder return+Maintain financial soundness

Tokio Marine Group goes beyond conventional risk management, which only aims at preventing and mitigating risks, to perform the quantitative and qualitative monitoring of risks in order to appropriately control risks, capital, and profits Groupwide through the effective utilization of risk information.

Qualitative Risk Management

In qualitative risk management, we have a process to comprehensively assess and report every kind of risk, including emerging risks that result from changes in our business environment. The risks faced by the Group are discussed with top management when necessary.
Furthermore, through this process we assess not only quantitative elements of the risks identified, such as economic loss and frequency, but also qualitative elements such as business continuity and reputation. Those risks that seriously impact the financial soundness, business continuity, and other aspects of Tokio Marine Group are identified as "material risks."

Material Risks (FY2019)1. Global financial crisis 2. Japanese government bond risk 3. Earthquake 4. Wind and flood 5. Volcanic eruption 6. Cyber risk 7. Industry structure changes from disruptive new technologies 8. Terrorism/Riot 9. Pandemic 10. Conduct risk*1 11. Breach of regulations
  • *1
    Risk of damage to corporate value as a result of misconduct, inappropriate response or gap between industry/company practice and common sense, which negatively impact the protection of customer rights, market integrity, effective competition, the public interest, etc.

Quantitative Risk Management

In quantitative risk management, Tokio Marine Group aims to maintain its solid credit ratings and prevent defaults by verifying if the capital is sufficient relative to risks through multifaceted verification.
Specifically, we quantify potential risks using a statistical measure called "Value at Risk (VaR)" on a 99.95% confidence level, which corresponds to an AA credit rating, and verify capital adequacy based on the economic solvency ratio (ESR) arrived at by dividing net asset value*2 by risk capital.
Tokio Marine Group has set a target range for ESR of 150%–210%. On March 31, 2019, the ESR was 174%, indicating that the Group's level of capital was adequate.

  • *2 Net asset value:
    Consolidated net asset on a financial accounting basis + Catastrophe loss reserves, price fluctuation reserves, value of life insurance policies in-force, etc. – Planned distribution to shareholders, goodwill, etc.
[Economic Solvency Ratio]As of March 31, 2019 : Risk capital 2.6 Trillions of yen / Net asset value 4.6 Trillions of yen /ESR 174%/Note: Risk capital is calculated using a capital model based on 99.95% VaR (equivalent to AA credit rating)[Capital Management Based on ESR]210%~ESR/ Implementation of:Business investment, and/or Additional risk-taking, and/or Shareholder return /150%~210% Strategic consideration of:Business investment, and/or Additional risk-taking, and/or Shareholder return /100%~150% Aiming to recover the capital level through accumulation of profits Control of risk level by reducing risk-taking activities /0%~100% De-risking Consideration of capital increase Review of shareholder return policy