Tokio Marine FY2023 Results & New Mid-Term Plan

Tokio Marine Holdings (TMHD) released its financial performance in fiscal year 2023 on May 20, 2024, including projections for FY2024, and unveiling a new Mid-Term Plan (MTP) with key performance indicator (KPI) targets. TMHD emphasizes its strong performance in FY2023, driven by international business growth and one-off benefits, and its commitment to continued profitability and shareholder returns.

Key Highlights

• Strong FY2023 Results: Adjusted net income reached JPY711.6 billion, surpassing the February projections by JPY21.6 billion and demonstrating a significant year-on-year (YoY) increase of 60%. This growth was attributed to lower winter storm losses, increased capital gains from the sale of business-related equities, and strong performance in international businesses.
• Robust FY2024 Projections: TMHD projects an adjusted net income of JPY1 trillion in FY2024, reflecting a YoY growth of 46%. This projection is underpinned by enhanced underlying capabilities and an accelerated sale of business-related equities. Excluding the impact of the sale, normalized adjusted net income is expected to grow by 2% YoY.
• New MTP KPI Targets: The new MTP aims to achieve earnings per share (EPS) growth of 8% or more (3-year compound annual growth rate [CAGR]) and an adjusted return on equity (ROE) of 14% or higher in FY2026.
• Shareholder Returns: TMHD plans to continue increasing dividends in line with profit growth. FY2023 DPS will be JPY123, and FY2024 DPS is projected at JPY159. The company also plans a JPY200 billion share buyback throughout FY2024, which will further enhance shareholder returns.
• Sale of Business-related Equities: TMHD is committed to reducing its business-related equities holdings, aiming to reach “zero” in six years. A 50% reduction in the portfolio is planned within the next three years, with an expected sale of JPY600 billion in market value in FY2024.
• Nat Cats Management: While net incurred losses related to natural catastrophes (Nat Cats) decreased in FY2023, TMHD is increasing annual Nat Cats budgets in the new MTP to incorporate rising secondary perils and exposure.
• Focus on International Business: International business continues to be a key driver of TMHD’s growth, with projected increases in both premiums and profit in FY2024.
• Transition to IFRS: TMHD plans to transition to International Financial Reporting Standards (IFRS) by the end of FY2025, with a review of various indicators and definitions planned for FY2026.

Detailed Breakdown of Key Areas

Japan P&C:

• FY2023 Results: Business unit profit decreased by JPY7.9 billion YoY due to factors such as the deterioration of loss ratios in auto insurance, the depreciation of the Japanese yen, and increased hedging costs. However, rate increases in fire insurance and a rise in investment income partially offset these negative impacts.
• FY2024 Projections: Business unit profits are expected to increase by 4% YoY, driven by favorable foreign exchange effects, improved profitability in fire insurance from rate/products revisions, and growth in specialty lines, despite an increase in Nat Cats budget including the impact of the Hyogo hail damage.

Japan Life:

• FY2023 Results: Business unit profit increased by JPY4.7 billion YoY, driven by lower initial costs due to a decrease in top-line sales, increased in-force policies, and investment income. However, increased hedging costs partially offset these gains.
• FY2024 Projections: Business unit profits are expected to increase by 2% YoY, driven by accumulation of in-force policies and a reversal of derivatives expenses. However, increases in business expenses are expected to partially offset these gains.

International:

• FY2023 Results: Business unit profit rose significantly by JPY218.3 billion YoY, driven by strong performance by key entities, JPY depreciation, and the reversal of negative impacts from the Taiwan COVID-19 outbreak and the Russia/Ukraine war in the previous year. These gains were partially offset by an increase in provisions for Current Expected Credit Losses (CECL).
• FY2024 Projections: Business unit profits are expected to increase by 1% YoY, with strong performance expected from key entities. However, this growth will be impacted by an increase in Nat Cats budget and the favorable prior year loss reserves development in the previous year.

Specific Performance Breakdown of Key International Entities

North America:

• FY2023 Results: All three major entities in North America (PHLY, DFG, and TMHCC) achieved record profits for the third consecutive year.
• PHLY: Strong rate increases, favorable prior year loss reserves development, and robust investment income contributed to its record profit.
• DFG: Strong investment income and underwriting, coupled with favorable prior year loss reserves development, led to significant profit growth despite the impact of CECL capital losses.
• TMHCC: Continued profit growth was supported by controlled combined ratios and strong investment income.
• FY2024 Projections: All three entities are expected to continue expanding income gains and improving capital gains/losses while maintaining combined ratios at a low level.

Europe:

• FY2023 Results: Steady profit growth was achieved with controlled combined ratios and a reversal of losses due to rising interest rates in 2022.
• FY2024 Projections: Continued profit growth is expected through sustained high profitability in underwriting.

South & Central America:

• FY2023 Results: Steady profit growth was achieved, primarily driven by strong underwriting and asset management in the first half of the year. However, intensified competition in auto insurance in the second half and the impact of torrential rain in the fourth quarter led to some profit erosion.
• FY2024 Projections: Profits are expected to decrease from the 2023 levels due to intensified competition in auto insurance, but the company aims to maintain low combined ratios.

Asia & Oceania:

• FY2023 Results: Steady profit growth was achieved, driven by strong auto underwriting performance in Thailand and Indonesia and the reversal of COVID-19 losses in Taiwan.
• FY2024 Projections: Profits are projected to decrease due to the favorable prior year loss reserves development related to the COVID-19 outbreak in Taiwan in 2023.

Key Considerations for the New MTP

• Nat Cats Management: TMHD is increasing its annual Nat Cats budgets in the new MTP to reflect rising secondary perils and exposure. This reflects a proactive approach to managing emerging risks.
• Shareholder Returns: TMHD is committed to maximizing shareholder returns, emphasizing a balanced approach of dividend growth and share buybacks. This commitment is reflected in the projected DPS increases and the planned JPY200 billion share buyback for FY2024.
• IFRS Transition: The transition to IFRS by the end of FY2025 represents a significant step in aligning with global accounting standards and enhancing transparency for investors.
• Sustainable Business Practices: The focus on disciplined underwriting, responsible investment practices, and managing Nat Cats effectively demonstrates TMHD’s commitment to long-term sustainability.

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