Thank you very much for taking the time out of your busy schedules to attend Tokio Marine Holdings FY 2026 first half IR briefing. I am Ishiguro, Deputy CFO, and will be moderating today's session. Thank you very much. First, we have a hybrid format today to accommodate for both in-person and online participation. Next, let me introduce the executives participating today. First, Masahiro Koike, President and Group CEO of Tokio Marine Holdings. Next, Kichiichiro Yamamoto, Vice President, Director, and Co-head of International Business. Next, Hiroaki Shirota, who oversees our Japan operations and also serves as the President and CEO of Tokio Marine & Nichido Fire Insurance. Akira Nakanishi, Managing Director. Hiroshi Sakiyama, Senior Managing Executive Officer and Head of Solutions business. From the corporate side, Yoshinari Endo, Managing Executive Officer and Group CFO. Mika Nabeshima, Managing Executive Officer and Group CSUO.
First, Group CEO, Mr. Koike, will do the presentation using the material posted on our website today. After that, we will welcome your questions. Today's session is scheduled to conclude at 2:30 P.M. Mr. Koike, the floor is yours.
Hello, everyone. Thank you very much for joining us today at Tokio Marine Group's business strategy meeting. I would also like to express my sincere gratitude for your continued support to Tokio Marine. I will now spend approximately 30 minutes explaining our management and business operations following the table of contents on page two of the material you must have in front of you. After that, I would like to take your questions and comments for as long as time allows. It has been nearly a year since I assumed the role of Group CEO. During this time, I have made every effort to meet directly and engage in dialogues with as many stakeholders as possible, including domestic and international investors and analysts, as well as our customers, business partners, and employees.
I did so because I believe it is essential to explain management's intentions regarding the source of our unique strength and our ongoing efforts to evolve our business model, while leveraging those strengths and concurrently incorporating feedback from each stakeholder to refine our approach. Through these dialogues, I feel that our unique strength, which can be described as the source of our value creation, have become deeply ingrained, particularly among our employees as well as among our customers and business partners who know us well. Please turn to slide three. The first key strength is purpose-driven evolution. Since our founding, we have always been driven by our purpose of, to be there for our customers and society in times of need. We have consistently pioneered new value and grown as an industry frontrunner, establishing a leading position in Japan.
Since 2000, we have accelerated our global expansion, broadening the scope of our value delivery worldwide as we evolved into a global insurance group originating in Japan. Now, as shown in the green section on the right of the slide, we are entering a phase of transformation. Building on our strengthened competitive advantage as an insurance company, we are evolving into a solution partner that delivers comprehensive security and safety, going beyond insurance to include risk mitigation and prevention. In this context, we have formulated Aspiration 2035 as a guidepost for our future direction, articulating how we intend to evolve over the next decade. I will explain the specific details of this later. Please move on to page four. Alongside our purpose-driven evolution, another major strength that has helped create our value is our unique approach to group management. It is our federated model.
When examining approaches to group management, many companies tend to be either centralized, emphasizing synergies, or decentralized, aiming to foster speed at the operational level. In our case, over the past 11 years, we have continuously refined integrated group management approach that successfully balances decentralization and collaboration. In other words, the management team of each group company, driven by passion and backed by their track record, exercise ownership and accountability to autonomously strengthen their business model and pursue growth within their own respective domains and markets. At the same time, while establishing group-wide guardrails for governance and risk management, we promote dialogue and exchange among group companies. By mutually leveraging group's capital, expertise, and networks, and working as one in areas of collaboration, each company achieves further growth. In fact, group synergies based on collaboration have now accumulated to approximately $460 million annually.
Under our unique federated model, each group company that has joined us through M&A has achieved profit growth that exceeds that of peers, as shown on the right-hand of the slide. Please move on to page five. In the following sections, we will explain our current position and where we stand, which we have built upon our strength. First, regarding the approach to value creation that we treasure our model. The starting point and driving force behind all of our value creation is each and every employee who shares our purpose of to be there for our customers and society in times of need. Our employees work with a sense of fulfillment and enthusiasm, engaging partners such as agencies and brokers to solve customer challenges and by extension, contribute to the development of local communities.
As a result, we achieve sustainable growth and return the profits we generate to our shareholders. We will continue to evolve and pass on this business model into the future. Within this value creation model, we would like to introduce where we stand regarding the value we provide to each of our stakeholders. Please open up pages six and seven together. First, let's look at employees who are the driving force behind value creation. Tokio Marine employees around the world are actively engaged in value creation within each environment that allows them to work with a sense of fulfillment and pride. In fact, as shown on the left side of the slide, our employee engagement scores are generally high.
In group companies where these scores are particularly high, this has led to a high external recognition, such as the Best Place to Work Award shown on the right side of the slide. Furthermore, as shown on page seven, our initiatives to help solve our customers' challenges have also been highly praised. The line graph illustrates that our Net Promoter Score, or NPS, which represents support from customers, has consistently exceeded the industry average over the past five years. As shown in the bar graphs, this support from customers has led to profit growth that outperforms the market in each region. Please turn to page eight. As a result of our cumulative value creation to date, our corporate value has steadily increased, and returns to our shareholders have also grown.
As shown in the top and middle sections on the left, both our EPS and DPS have achieved world-class growth, and our ROE, shown in the lower section, has also steadily improved. Against this backdrop, TSR, shown on the right, is growing at a rate that significantly outperforms our global peers. So far, I have explained our value creation model and track record up to this point. Now, we will move on to a detailed overview of each business. Please turn to page nine. We have established clear competitive advantages tailored to the characteristics of each market, primarily Japan, North America, Europe, and Brazil. First on the left is Japan. We have honed our strength, including our underwriting capabilities and high-quality distribution channels. As the market leader in a stable market, we are steadily and continuously enhancing our profitability. Moving to the top right is North America.
In the world's largest insurance market, we have achieved both high growth and profitability that outpaced the market by leveraging our deep expertise in specialty market with a well-diversified portfolio, a highly specialized and loyal distribution network and our asset management capabilities. In Brazil, we continue to achieve significantly higher than market growth through agile premium rate adjustment driven by data analysis and efficient business operations enabled by digital transformation and IT. In this manner, by identifying the winning strategies for each region and continuously refining our strength, we have ultimately achieved profit growth that significantly outperforms the market. Now, let's take a closer look at each business segment. Please turn to page 10. First is North America. Our underwriting in North America has achieved growth that outperforms our peers in both soft and hard market conditions.
If you look at the line graph in the lower left, you can see that number one, our underwriting profit shown by the orange line has expanded 5.4x bigger over the past decade, significantly outperforming our peers shown in purple, which grew 3.6x . This growth is particularly pronounced during the soft market phase. This is supported by the strength I explained earlier. First strength is high expertise in specialty business and distribution channel with high expertise and loyalty. We have accurately screened risks, flexibly revised underwriting conditions and rates as needed, and thoroughly implemented a disciplined underwriting strategy, what is known as the bottom line focus approach, while also engaging in timely dialogue with our distribution partners, thereby achieving both profitability and growth. The second strength is our well-diversified portfolio.
As shown in the pie chart on the right, we have mitigated earnings volatility by constructing a portfolio comprising over 100 types of risks with low correlation. Of course, our portfolio is not entirely immune to the impact of the rate cycle, but backed by the strength, we aim to achieve profit growth that outperforms our peers, even amid the softening phase currently emerging. Please turn to page 11. Here, we will explain the relationship between premium rate cycles and M&A opportunities. Generally, when insurance rate cycle softens, M&A activity tends to pick up across the market. We also executed a series of bolt-on M&A deals, approximately JPY 100 billion in size in FY 2025, including Ignyte and Agrihedge. We are currently seeing signs of increased activity in the market, particularly in bolt-on deals. In this environment, we believe it is more important than ever to remain committed to quality.
Regardless of the market cycle, we consistently adhere to strict acquisition discipline. Please turn to page 12. This slide shows our M&A track record. Leveraging our strong business model, we have welcomed companies into our group through M&A that are good companies, those that contribute to enhancing our competitive advantage and contribute to increasing our corporate value, but also share our management philosophy. The ROI of 27.3% shown here serves as evidence that this policy is leading to value creation. M&A requires patience, and we must wait patiently until the right opportunity arises. While keeping a close eye on the market trends, we will always be prepared and will do our best to bring you good news. Next, I will explain our asset management strategy in our North American operations. Please turn to page 13.
By utilizing long-term predictable insurance liabilities as our investment capital and leveraging Delphi's expertise in credit investing, we have consistently achieved stable high returns. Here, we break down income gain into AUM and yield. First, the AUM at the center has grown at a CAGR of 10% due to strong underwriting income. Furthermore, on the right side of the slide regarding income yield, backed by Delphi's credit investment expertise, we have consistently achieved levels that generally outperform the market by 1%-2%. While investment environment requires caution, we will continue to carefully monitor market trends and steadily capture investment opportunities. Next, I will explain the status quo of Japan P&C business. Please turn to page 14. The Japan P&C insurance market is characterized by stable profitability, with the three major companies accounting for approximately 90% of the market share. Within this market, Tokio Marine has achieved superior profitability.
Regarding growth potential, as shown on the right side of the slide, the market is growing steadily. Currently, while Europe and the U.S. are moving towards a softening rate cycle, Japan is conversely entering a hardening phase driven by natural disasters and inflation. Furthermore, against a backdrop of increasingly sophisticated corporate activities and diversifying risks, we believe that demand for specialty insurance and related solutions will continue to rise, and we see significant room for growth. Please turn to page 15. In the Japanese market going forward, the true capabilities of insurance will be more important than ever in determining competitiveness. Regarding underwriting, which is a key factor, we hold superior capabilities over Japanese P&C companies in both the commercial and personal areas. We will achieve further profit growth by refining these capabilities.
Specifically, in the commercial line on the upper left, our strength lies in our ability to design appropriate insurance terms and make underwriting decisions, even for risks requiring specialized expertise backed by underwriting know-how cultivated globally. This underwriting capability is driving growth in the specialty area on top right, which has significant growth potential and is also leading to improved profitability, including fire insurance. In the personal line shown in the middle left, we are leveraging the strong customer relationships held by our agents to implement flexible rate adjustments in the current inflationary environment, and developing and providing competitive products leveraging advanced technology and data. Going forward, in addition to these, we will leverage our sustained and stable underwriting capacity through our partnership with Berkshire Hathaway to pursue disciplined risk-taking in new areas and growth sectors. Distribution also remains important. Please turn to page 16.
Last November at this event, I explained the establishment of an appropriate division of roles between the agency and ourselves and the strengthening of the direct channel brand. Moving forward, we will thoroughly strengthen our system to ensure that the most suitable distributor for each customer segment provides high-quality services that leverage their respective strengths. By further refining the strengths of each distributor, we will increase productivity and expand the value we provide to our customers. Next, I'd like to discuss the use of AI, which will play a crucial role in further enhancing our strength and competitive advantage, both domestically and internationally. Please turn to page 17. We are increasingly focusing on using AI as a foundation to improve efficiency while enhancing the competitive advantage of our business.
On the left side, there are examples overseas of AI being used in areas such as claims handling and underwriting, which is actually leading to improvements in the loss ratio. Furthermore, in Japan, where we operate a large-scale retail business, we are focusing our investments on agent support and customer service to improve the customer experience and our expense ratio, as shown in the center of the slide. In this way, we position AI as an enabler and to further refine our competitive advantage through applications tailored to the characteristics of each market and business. We have established AI hubs in Tokyo and New York to promote the widespread adoption of best practices and promote various R&D activities. Next, based on our characteristics and competitive advantage explained so far, I will talk about our goals and the direction our company's evolution is headed. Please turn to page 18.
As explained at the beginning, we have achieved steady growth and evolution based on value creation model that starts with our employees. Our value proposition is expanding beyond the realm of insurance. In this phase of evolution, Aspiration 2035 is a re-articulation of our desired future state from a medium to long-term perspective of around 10 years. Building on the unwavering foundation of our long-term orientation and stakeholder focus values nurtured in Japan and refined with our global partners who have joined the group, we will further enhance our competitive advantage in insurance underwriting and asset management over the next 10 years, expand our Solutions business, and diversify our business portfolio to contribute to the happiness of our customers, society, and future generations. This is our Aspiration 2035.
As a quantitative guidepost on this journey, we aim for adjusted net income to approximately double the current level and adjusted ROE to be among the top tier in the global insurance group. These figures translate to JPY 1.7 trillion and 17% respectively. Please turn to page 19. This slide shows the level set forth in Aspiration 2035 in comparison to our global peers. Doubling adjusted net income by FY 2035 translates to CAGR of over 7%. As shown in the bar graph on the left, this is a global top-tier level. What we want to emphasize here is that while responding to market conditions such as rate cycles and interest rate situations in the short term, we will strive to create and deliver value in the medium to long term.
As a result, we want and will achieve global top-tier profit growth and want to be that kind of a company. Additionally, the right side shows our position vis-a-vis our global peers in terms of ROE. We aim to achieve profit growth that outpaces capital requirement through our strategic partnership with Berkshire Hathaway and other means, and with a target of a five percentage point increase from a current level and raising ROE to the level of global peers, which is 17% or more. Please turn to page 20. How exactly will we achieve these goals? The first driver for realizing Aspiration 2035 is the expansion of our business domains and further risk diversification as a result. We have consistently taken on new risks by expanding our business domains and building a diversified portfolio. Going forward, we will further accelerate this initiative.
Leveraging our strategic partnership with Berkshire Hathaway and with M&A in mind, we will further incorporate insurance businesses that offer high geographic and product diversification effect, as shown on the right side. In addition, by expanding Solutions business, which has different risk characteristics from insurance, we will further increase diversification effect and achieve profit growth and improved ROE. Please turn to page 21. The second driver for realizing Aspiration 2035 is our Solutions business, which starting this April, will be one of the three business divisions alongside domestic and international operations. Our goal is to create a unique business model for Tokio Marine, which integrates insurance and solutions into a single service. Insurance is an extremely important social infrastructure that provides financial compensation after accidents and disasters occur.
On the other hand, as risks become larger and more complex, in order to truly serve our customers and society, it is becoming important to provide value not only in the area of insurance, but also in pre and post-incident, namely accident prevention, loss mitigation, early recovery after accidents occur, and robust rebuild. We achieve this by providing insurance and solutions as an integrated service. In this way, we will provide our customers with greater safety and security while diversifying our business and improving the profitability of our insurance business. Furthermore, it enables us to keep premiums relatively low, which further increases customer stickiness and evolves our business model to healthier and more resilient. Furthermore, Solutions business has a lower capital requirement compared to the insurance business, which will also contribute to the group wide ROE improvement. Please turn to page 22. Next, the third driver is enhancing investment returns.
In addition to insurance underwriting, we will leverage group-wide expertise in asset management to further strengthen our profitability. As shown on the upper right side, holdings will serve as the hub to deploy the asset management expertise of group companies, including Delphi, across the group. Based on this, we will plan and execute optimal asset management tailored to the characteristics of each region and business. As part of this initiative, we will utilize the investment capacity created by reducing our business-related equity holdings and Anshin Life block seeding and expand the proportion of our risk-taking investment to a certain extent, as shown in the pie chart on the left. At present, we estimate it to be around several hundred billion yen in the next few years. In any case, we will further increase investment returns with appropriate risk-taking. Please turn to page 23.
Now, let me briefly touch on our strategic partnership with Berkshire Hathaway Group. This partnership consists of three pillars: strategic equity investment in TMHD, collaboration in reinsurance, and strategic collaboration in M&A and global investment opportunities. By leveraging long-term and strategic collaborative relationship with a partner who shares very similar values, a long-term orientation, decentralized management, and capital discipline, we can further enhance our medium to long-term value creation and accelerate our growth strategy as a booster for Aspiration 2035. At the company's annual general meeting held earlier this month, Greg Abel, CEO, described this partnership as an eternal commitment. Mr. Ajit Jain, Vice Chairman of Insurance Operations, also expressed his expectation that the M&A collaboration will be a springboard for both companies.
Having received such high praise for us, described as first-class business in a first-class way, we are committed to meeting these expectations and continuing to evolve as a group. With that resolve, we will steadily bring Aspiration 2035 to fruition. Please turn to page 24. Finally, I will explain our capital policy. To reiterate, our fundamental principle of shareholder return is dividends, and our policy of sustainably increasing our DPS in line with profit growth remains unchanged. Our company transitioned to IFRS from FY 2026, and dividends will be based on the three-year average of IFRS-adjusted net income. We have stated that we would consider the payout ratio in light of the IFRS transition and have decided to maintain 50% as the general principle, as we explained last week.
On the other hand, for FY 2026, we believe it is important to ensure continuity with the previous policy, taking into account that FY 2026 is a transition period for changes in accounting standards and KPI definitions. As a result, DPS will be JPY 245 , an increase of JPY 27 or 12.4% growth year-on-year. We will continue to achieve DPS growth in line with top-tier EPS growth. Please turn to page 25. Starting in FY 2026, we have implemented ICS and revised the definition of ESR, which has increased comparability and transparency with global peers. Our current ESR remains strong at 268%.
Within this context, share buybacks for FY 2026 is planned at JPY 400 billion throughout the year, taking into account not only the existing factors such as a level that will boost DPS growth by 2%, M&A pipeline, and business environment, but also enhanced capital policy flexibility through the strategic partnership with Berkshire and other factors. Our priority in the use of capital remains on growth investments. While exploring such opportunities, we will continue to implement a disciplined and flexible capital policy, including share buybacks, if no profitable or promising investment opportunities are foreseeable. Finally, let me express my sincere gratitude to our shareholders, investors, and all other stakeholders for their support who have enabled us to continue our business and achieve further growth. Thank you very much.
As explained today, Tokio Marine Holdings has expanded its value proposition from our founding purpose to Japan Insurance, International Insurance, and Solutions business. Now, with Aspiration 2035 as our goal, we are seriously embarking on further evolution in phase three. In this context, we have come to realize that the expectations placed upon us by investors and analysts have grown significantly since our strategic partnership with Berkshire Hathaway. At the same time, these expectations also represent the weight of the responsibility we must fulfill. We take these expectations and responsibilities at heart and promise to steadily advance our progress toward realizing Aspiration 2035 through the reliable execution of value creation that is unique to Tokio Marine. We would greatly appreciate your continued support. That concludes my explanation. Thank you.
Thank you for the presentation. Now we would like to open the floor for Q&A. When you ask a question, please limit the number of question to be one question per person at a time. When you raise your hand, I will point to you. Please wait until a microphone comes around before you speak. For the overseas participants, if you have a question, please write down your question in the chat box at the bottom of your screen.
If you want to cancel your question, please write so, once again, in the chat box. Due to the time constraints, we may not have time to answer all of the question. In which case, Capital Strategy Department will get back to you and will respond to your question at a later date after this event. Please wait until the first question comes out. The floor is open. SMBC Nikko, Muraki-san, please.
My name is Muraki from SMBC Nikko. I am looking at page 18 regarding your Aspiration 2035. Once you have set this target, I believe you have established this through dialogues with your employees. How did you come up with this number, and how do you plan on achieving them? Regarding ROE, if ESR is down to 210, then 13% would become 17%. So it's not necessarily a big jump in that sense. On the other hand, what is aspirational is the profit level, which is JPY 1.7 trillion. That would make you to be within top five globally. When you set this target, how did you talk to your employees and how did you set this number? Also looking at the left and right, comparing the bars and also the size of bubbles, including Berkshire, how do you plan on utilizing M&A in order to achieve these targets?
Thank you for the question. Regarding Aspiration 2035, I would like to share with you some background as to how we created this plan. Originally, this was something for our employees. It was a message from the senior management to the employees to show our value creation. We wanted to have our North Star, that is purpose. Most recently, we have a three-year business plan.
Right now, as we enter phase III, what we need to do is that we need to have some aspiration for the next 5- 10 years, and what value creation do we do in that timeframe. While I was thinking of that, we need to continue to be purpose-driven. We need to be creating value centering around employees, and we need to continue to extend security and safety to employees, and we wanted to expand our scope of business. All that leads to value creation. The size of the value is shown by profit, and we wanted to double that. Doubling value creation is not simply drawing a line that goes up and saying, "Okay, twice as big." We looked at international business, Japan business, solution business, each businesses we have. We also considered what kind of growth could be achieved.
We listened to the employees. I wanted to have a challenging target. As a result, we wanted to, of course, outperform the global peers by showing these aspirational targets. When we measure the amount of the value to be created, and the value alone doesn't accompany quality. Therefore, at the same time, we also wanted to look at the quality aspect. The size of the growth should have been robust enough that we could give adequate remuneration to shareholders. We believe there are three ways for us to do that. One is that we need to have a further diversification, both by business lines and also geographically. The second is that in value creation, the amount of the value, we wanted to utilize adequate synergy, and we wanted to enhance the value. That is organic growth, and even more robust organic growth.
The third is capital strategy, more flexible application of capital strategy. By using these three levers, we wanted to be creating value, and so that we could double profit. At the same time, we could have an ROE that is tantamount to the global top tier level. It was aspirational enough for us. As a result, we are about to get into the top 10 globally now. We want to enhance that so that we will be within top five, and that is our current target. M&A, how do we utilize M&A? Was your question. The level of profit, doubling it just with organic growth, realistically is quite difficult. Therefore, we would have to consider some M&A towards that goal, and that is part of the plan we have in the next 10 years.
As you questioned, we have this strategic alliance with Berkshire and others, so that is an option so that we will see some contribution coming from the M&A aspect of the strategy. Thank you. That concludes my answer.
Thank you very much.
Any other questions? BofA, Tsujino-san, please. Yes, please wait for the microphone.
Thank you very much. I have one question. ESR this time is 268%, and it is coming close to 300%. It has come down. The bolt-on impact is 10% and interest rate is rising, and credit spread is inching up. But it is coming down. The interest rate sensitivity is fairly high. This in itself, will it impact the management activity or actions you take?
Thank you for the question. Your question is the ESR sensitivity to various factors, how that impact our management decision?
Yes. For M&A, will you be a little reluctant to M&A? Does it have that kind of impact? You mentioned you will have more risk-taking assets. Any impact on your stance?
First of all, Group CFO Yoshinari Endo will answer that question.
Thank you for the question. As you mentioned, in FY 2025, ESR declined because of the increase in the goodwill due to the bolt-on acquisitions. On the other hand, the additional risk-taking or the credit spread increase in the U.S. and the market price increase of the business-related equities, those were pushing down the ESR. How does this impact on our business strategy? ESR's original plan was referred to think of our shareholder return. As Koike-san just mentioned, and as explained in the first half presentation, we think there is a big profit opportunity we can capture. First of all, from the effective utilization of capital, that will be the first priority. That is our basic stance. For example, with the softening market, M&A activity will increase, as shown on page 11.
In Berkshire strategic partnership, the flexibility, agility of capital will rise. We will utilize these growth elements. Unfortunately, if there is no promising M&A opportunity, we will return to shareholders and do share buybacks. This is our basic policy. No change in our stance there.
Thank you. If I could add a little more. Of course, the absolute level of ESR is something that our management closely watches at all times. With the fluctuation, we will think of the flexible capital policy, and that remains unchanged. As mentioned earlier, from the medium to long-term perspective, we built Aspiration 2035, and the underlying thought is while we execute in the short-term, we need to increase and solidify our ecosystem in the medium to long-term. That is our message. That and the ESR's level at each point in time will be considered comprehensively and take our capital policy accordingly.
Thank you.
Watanabe-san from Daiwa, please.
My name is Watanabe from Daiwa Securities. I am looking at page 18 of your material. Aspiration 2035, EPS growth rate. I want to know the assumption behind this. If you want to grow your profit by 7% per annum, including the buyback effect, is 9% going to be the realistic level? Also, the top-class EPS growth is what you have always said, but then you are always saying adjusted net income expansion. Do you have any different views on growing the EPS versus your profit growth? We are saying 7% or more of adjusted net income CAGR. What would that mean, EPS-wise?
This is from CFO, Mr. Endo. We will continue to attach much focus on EPS growth. That remains unchanged. However, as Koike-san mentioned, in Aspiration 2035, in setting this target as a quantitative strategy, this is not a sum of the parts. We did not add up all the potential M&As and all the business plans. This is not a business plan, in a way. This is what we aspire in 2035 as a value creation, and it is only a guide post. Including M&A and including all other options available, we will consider them. Please remember, this is not a sum of the parts or adding these plans together.
Let me add something to that answer. What we show here, for the next 10 years, this is what we want to have as our guide post. In terms of EPS growth, it will be shown for every three years in form of a medium-term management plan. That will come out once again in May next year. In the next mid-term plan, we will be explaining about how we plan to grow for the next three years in the mid-term plan. EPS growth rate is going to be one of the KPIs in the next mid-term plan. Yes, it will be considered.
Thank you very much.
Thank you. JP Morgan, Sato-san, please.
Thank you. This is Sato from JPMorgan Securities Japan Co., Ltd. Again, on page 18, your thinking behind. In the capital aspect, I have a question. JPY 1.7 trillion adjusted net income, adjusted ROE 17% and above for both. If you calculate backwards, about net asset of JPY 10 trillion. Right now, JPY 7 trillion. In the next 10 years, JPY 3 trillion increase towards JPY 10 trillion. I just calculated roughly, so if I am wrong, I am sorry. The net asset increase before the return will be over JPY 10 trillion in 10 years. If there is 70%-80% capital adjustment, including dividend, you have to be restrictive. The ROE will not reach 17% even if you achieve the profit target. Is my line of thinking right or not? Thank you very much.
Thank you. JPY 1.7 trillion profit and ROE 17%, and you calculate it backwards on the net asset and the relationship with that and the adjusted net income. Endo, CFO, will explain again.
Adjusted net income JPY 1.7 trillion or above. We are aiming for above, over JPY 1.7 trillion. As you just said, adjusted net income JPY 1.7 trillion and the denominator JPY 10 trillion and 17% ROE. It is not that. First of all, we are focusing on doubling the profit. That is the starting point of our Aspiration 2035. 10 years from now, the pathway that we want to trend is not rigid. It is not fixed. We have 10 years period, so maybe the business environment or the investment M&A opportunity will be captured and be flexible. Related to what I said earlier, the capital strategy stance remains unchanged.
First is growth investment, and if there is no opportunity, shareholder return. We will maintain this priority, and we think this is a realizable target in 10 years. It is not intending for the change in the capital strategy. Also related to Muraki-san's question, when we think of 10-year span, M&A opportunities will be there, we think. We take a comprehensive view, and the capital strategy will be shown appropriately, accordingly.
Sakamaki-san from Mizuho, please.
My name is Sakamaki from Mizuho Securities. I have a question. Aspiration 2035, so you are shaping it, and one year ago when you had been appointed, any changes with expectations you have towards any business, utilization of capital, allocation of capital, any views you have on those that changed since you were appointed? For example, Solutions business, you want to make it 10 times to the Solutions business. Do you feel that you can be more aggressive in doing that? Or in the insurance business, it looks like you want to grow your European business. Do you have any tangible potential inquiries that will lead to such growth of the insurance business? Thank you very much.
I guess I should be answering your question. Since before I was appointed versus since I was appointed, it is not that my level of expectation had changed. As Tokio Marine, towards Solutions business, we have ever more enhanced the commitment to Solutions business. Right before I was appointed, last year in May, ID&E officially joined the Tokio Marine Group, and since then we have been doing PMI. Through which we have discovered much more potential, affirmed potential in doing value creation together.
To Solutions business, we have a very clear commitment now, and 10 folds or bigger is also another guidepost we have as a part of Aspiration 2035. Other than that, for insurance business expansion, around when I was appointed, geopolitical risks have changed a lot. Therefore, geographical diversification has to be done even more, and I feel stronger than ever that we need to be diversified geographically. That means not really a business opportunity expansion, but we had always studied this theme, but I feel an urgent need to be implementing what we had been thinking of doing. That gets reflected to capital allocation. If you look at it that way, yes, you can say that, but it is not that we have a different view on our own businesses.
Thank you.
Morgan Stanley, Atsuro-san, please.
Takemura from Morgan Stanley MUFG. Thank you very much. I have a question on M&A. You're thinking on M&A. My question is your strategic partnership with Berkshire. How can your M&A view change? How can it possibly change? In addition to your conventional criteria, will there be anything that you will take into account additionally, and the way you use balance sheet? Excluding the smaller bolt-on M&A, you will use balance sheet jointly. Including all these points, if you could give us an image of your M&A. Thank you very much.
Thank you for the question. First, Koike-san will explain.
Our thinking on M&A will not change with the strategic partnership with Berkshire. Our M&A discipline that we have had, which is strong business model and track record and strong culture fit. We are not excluding eliminating these elements. As I mentioned in my presentation, when this M&A becomes active, it is all the more important to focus on quality. We need to keep up with the market speed, but also be patient and tenacious in ascertaining the good deals. That is the foundation of our successful M&As so far. That said, with this strategic partnership, the options will become broader, of course, and the financial options will become wider and bigger.
But we do not have any specific target companies or the specific way of collaboration yet. When these opportunities arise, we will discuss with Berkshire in an agile manner and execute our plan. Our philosophy will not change, although the option will be broader. Thank you very much.
Thank you very much.
Tokai Tokyo Securities, Majima-san, please.
My name is Majima from Tokai Tokyo Securities. It is not something that came up today, but I have some questions regarding your auto insurance. In 2026, in October, you are going to be hiking the premium rate again. Already, there was another P&C company that held their management meeting, and it seems like they do not really need to be hiking their rate as aggressive as you. That seems to be their strategy. In their IR meeting, they said that if they keep on hiking the premium rate and that causes concern to the customers, that might not be good. They have longer-term contracts, and so they want to further discern the impact of such policies, and they also want to diversify and classify risks even into finer categories so that they will not be across the board price hike.
That is what they said. That is very different from what you are saying. In your case, is your stance that you will continue to hike premium rate for auto, leading this industry in terms of premium hike cycle, and also longer-term contracts? Even if you raise the premium now, it will take some time before that emerges. You have been hiking rates multiple times, and every time the longer-term policies come to maturity, then it will come into effect at the timing of renewal. So eventually, they will have positive impact. But why is it that you are so aggressive in hiking the premium rates?
Thank you for your question. This was regarding our auto insurance. This is part of Japan P&C Auto Insurance, our thinking about the premium rate hike for auto. I would like Nakanishi-san to answer your question.
Thank you very much. Regarding our auto insurance, of course, it is not that we are just simply and one-sidedly hiking premium rate. Obviously, we are exerting our best effort, but if it is needed to pass through to the customers in form of higher premium, that is what we are doing. Having said that, looking at the unit claim cost versus frequency, it is in a tough situation. Unit claim is going up more so than CPI, and frequency decline is not really happening. It is flattish. The unit cost hike is expected to continue going into the future. We do not think the current level is going to be flat going forward. We believe it is going to further hike, and we need to be pricing in accordance with the claim cost hike.
For the long-term contracts, as you said, it is not that every contract is a short-term contract. We have some long-term contracts, and we have a lower ratio of longer-term contracts at Tokio Marine. Therefore, we have to factor that in and calculate the most appropriate pricing. In the midterm plan, we will target combined ratio of 95% level. That will be our immediate goal. Going forward, we have to look at the claim cost versus the frequency and do the pricing accordingly. You will continue to pass through. When you hit the threshold of 95% and if needed, you will be hiking price once again? Well, depending on the situation. It is not that we have decided on doing so or not doing so. Thank you very much.
Any other questions? UBS, Niwa-san, please. Please wait for the microphone.
UBS, Niwa speaking. Your self-evaluation in the insurance community is my question. Recently, with the strategic partnership with Berkshire, have the professionals, the peers' view on you changed or not? Or because it is between professionals, it is not much change? You explained the feedback from the investors, but one point is now you are 10 and you want to be fifth in the industry. As far as I see, the other peers may not be seeing you as a peer, and I feel frustrated and unfortunate about that. Your gut feeling is fine. What is your view?
In the global insurance community, how do we position ourselves? How do we evaluate ourselves? It is difficult for us to explain that. A short answer is, we think we are gradually rising, but we need to evolve further. That is where we are. From the year 2000, we started the global expansion. The series of M&As are now accounting for 65% of our profit. In the insurance market, I think we are drawing a certain level of attention. Looking at where we currently stand, of the 65% profit, 85%-90% is from the U.S. market. Compared to our global peers, we need further business diversification. We think we have room for growth in that sense. The companies that we have welcomed through M&A, there are talents who are now contributing to the global management, group management.
The global management is now becoming global, truly global. We want to make further progress there so that Japan and international members and Solutions business members, diversity will mix and fuse going forward. I meet with many people in the group day- by- day, and I feel that more attention is being given to us from the world. I don't think we are at a high position yet. To repeat myself, I think we still have more room for evolution. Thank you very much.
With the participants who are participating through telephone, we have some questions. Sasaki-san from Nomura Securities, please.
My name is Sasaki from Nomura Securities. I am looking at page 23 of the presentation material. With this strategic partnership with Berkshire in the collaboration in reinsurance and also collaboration in M&A. In these two areas, do you feel that new value, or when would you feel that the value has been created? Would you be able to feel that in one year time, five year time, 10 year time? Timeline-wise, when do you think you will realize that the value creation has surfaced in these two areas? Especially for reinsurance area collaboration, Berkshire has stable capacity, and then you want to be putting your capital to new areas and growth areas.
Is there anything you can do but other can't? For example, any businesses that will lead to financial or insurance business, for example, data center related risk that you might be able to take that others can't. Autonomous driving is going to be deployed sooner or later. Any opportunity for you to monopolize that market in terms of risk-taking? Any unique businesses that Tokio Marine might be able to do that others can't.
Thank you for your question. I will answer your question. Starting from the latter half of your question, anything other peers cannot do but we can in terms of risk taking. Through the strategic partnership, from the very beginning of this partnership, that is something that we had always tabled and discussed, and we will continue to have more discussions on what we could potentially do together. With our product development department, they are considering that more specifically. This is not something that we will do just because we have this partnership with Berkshire. It's always something that we have thought of even before the Berkshire partnership. It only gives us better execution capability. I said this will be a booster of value creation.
Stable reinsurance capacity being provided would only give us a wider array of opportunities, and therefore it's a booster. When do we realize such value being created? When is it going to surface? Is the first half of your question. Regarding reinsurance, because we have long-term stable capacity to be provided by Berkshire, we are already seeing the actual value come out of this M&A. Of course, this is more future-oriented, depending on when we do it, but additional risk-taking could also happen. Value creation, the specific ways in which we create value has to be communicated to you.
The term of this collaboration, the partnership has been announced. Within this given time, for now, we need to be showing you some good track record of what we could do together. With much sense of urgency, we are doing our best in structuring our value creation through this partnership. Thank you very much.
Thank you very much. Wataru Otsuka-san, please.
Otsuka from SBI Securities, can you hear me?
Yes.
Thank you for this opportunity. On page 18, Tokio Marine unique evolution. My question is on Solutions. My question is by 2035, target. It says JPY 100 billion in solutions. My question is on the size. You will use the next 10 years to increase the profit by 10 times. It is a big profit jump. I cannot think of any appropriate peer, but Nomura Research Institute, JPY 120 billion, Recruit, JPY 600 billion. Compared to that, this JPY 100 billion is quite sizable.
The intent of my question is, comparing this with JPY 170 billion, how do you see this JPY 100 billion? JPY 170 billion or above. That will be 6% or so. 6% business coming from Solutions from the global perspective is a unique Tokio Marine evolution. I cannot think it is very unique, so that is what I want to hear your views on.
Thank you for the question. Solutions, JPY 100 billion. Is this significant in the total pie, total size? What is our view on how we grow this business? First, Solutions. Hiroshi Sakiyama will explain the aspiration on our Solutions business, and then I will also talk about the group-wide perspective.
Yes. Hiroshi Sakiyama speaking. Thank you very much for the question. First, 10 years down the road. This is an aspiration for 10 years. Solutions business is currently JPY 10 billion or a bit smaller than that now, and we are trying to scale it. This position is truly aspirational. My big message this time is, as Tokio Marine Group, the underwriting and investment, this is going to be the true third pillar. We want to fully establish this as our third pillar. That is what we wanted to strongly set out as a message. We are not just saying JPY 100 billion without any basis. It is still a vague roadmap, but we already have the disaster prevention and mitigation, which has a solid foundation now, which we want to grow profit, and a large M&A base.
In pursuing this disaster prevention and mitigation, if we need more capability, we will think of bolt-on M&A to increase our capability. Combining these elements, we want to make this disaster prevention and mitigation as the big pillar of solution, and another business that can become a big foundation for the solution business going forward. You mentioned compared to our competitors. We did not have much foundation, but JPY 100 billion in 10 years is a quite difficult challenge. But construction and consulting industry, large players in U.S. and Canada are around JPY 100 billion in terms of profit. There are multiple players like that. We want to keep that in mind and increase our profit going forward.
That was the aspiration from the Solutions business side, as Sakiyama said. As Sakiyama-san said, this JPY 100 billion, its size is important, but as a group, we want a significant, meaningful contribution. That is why we are sending out this message. Insurance business growth is also aspirational. So 6% of total may make you wonder how much impact it has. I understand your point. But on the other hand, under the long-term commitment, we want to build the business solidly, thoroughly. As an aspirational number, we think this will be the number, the size from the management's viewpoint.
In the November material last year, the international insurance business evolution and Solutions business evolution were compared. We said that this is our long-term commitment. Once again, the international insurance Tokio Millennium Re was established in year 2000, and then the next large M&A was 2007. Then in 2020, Pure Group, using 20 years, we established this structure. In that sense, we want to solidly build and develop this business into a meaningful sizable business. Thank you very much for the question.
Thank you very much. Any other questions? Natsumu-san? Natsumu-san of BofA.
I know this is very narrow-sighted, but the JPY 400 billion of buyback, you announced that. In that explanation, JPY 280 billion, you have always done it because it was 2% of your market cap. Other than that, you have additional JPY 120 billion of share buyback, and then next year, you will think about it once again next year. So JPY 120 billion. When you decided on this, ESR was slightly coming down. How much of that impacted your decision-making in doing JPY 120 billion? Also next year, you will be working hard. You will be working hard this year, but if you could not do a major scale M&A, then how would you think about share buyback next year?
The question was regarding our share buyback. So JPY 280 billion is 2% of EPS. What about the rest? Also, if we are not blessed with M&A opportunities next year, how will we do it? That will be answered by Mr. Endo, our CFO.
Out of the JPY 400 billion of share buyback, as I reiterate, basically for share buyback, we only do this in a flexible manner. That is our basic policy. As it was explained in the current midterm plan, EPS growth, 1%-2% of EPS growth will be achieved by share buyback, and the reference is about 2% of the market cap. We have done so, yes. On the other hand, in March, because we have announced our strategic partnership with Berkshire Hathaway, there will be some flexibility, in the capital strategy, that was part of the consideration. As Tsujino-san said, the ESR level, we did consider the ESR level. Also 2% of the conventional market cap is JPY 280 billion.
What is the delta between that and JPY 400 billion, which is about JPY 120 billion? How did we decide on that? Within the Berkshire partnership, how much of the capital flexibility we will gain cannot be confirmed yet definitively. Therefore, this is not any rigid sum of the parts calculation that led us to come up with JPY 120 billion. By considering various factors, we came to the total number of JPY 400 billion. Next year, if we do not do M&A and ESR level continues to be high, then in the order that I have disclosed, we will be acting accordingly. So stable dividend payment and then the risk-taking or business investment. If we do not have such opportunity, then we will do share buyback in order to remunerate shareholders. That order in action hasn't changed, and we will stick to that policy also next year.
Thank you. Any other questions? Daiwa. Daiwa, Watanabe-san? Thank you.
Thank you. Page 24 of your material, your dividend policy. So JPY 245 DPS. You considered the continuity from the past. JGAAP-based, if the adjusted net income is an upside, will EPS level go up next year compared to EPS growth rate? If DPS growth rate seems weaker, will that be an opportunity for you to think of higher dividend increase?
From this fiscal year and onward, as I mentioned in the presentation, is the three-year average on the IFRS base and 50% of that. As I mentioned earlier, JPY 245 for FY 2026. We are in a transitional period, so taking that into account and taking continuity into account. JGAAP's past five year average, it is 50% of the old definition. We are not going to change the definition. So from this year onward, we will have IFRS-based three-year average 50%. 50% payout ratio.
This was discussed heavily internally, whether to raise or not. Global peer, I think, are around 60%. So we discussed the need to raise it up to towards 60%. But there are two elements. One is, as mentioned in today's presentation, the market softening may become full scale, which means the attractive large M&A opportunities will arise. That is one. Second, with the strategic partnership with Berkshire, our options will be broader. So we want to capture the important opportunities. So we want to keep this payout ratio at 50%.
Thank you. This year's DPS. What are the conditions for this DPS this year to be revised upward? What will need to happen for this JPY 245 to go up?
We will have DPS and EPS growth in a consistent manner. One is EPS growth. That will impact the DPS growth.
Thank you.
Other questions? Seems like no more questions. Lastly, there will be a final comment from Koike-san.
Everyone, thank you very much for your precious time. You might have noticed, but if you look at the back of the room to the left, we do have somebody from Berkshire, Mr. Ajit Jain. He happens to be on business trip to Japan. From investors and analysts, he wanted to know what kind of questions will be asked towards Tokio Marine. He was much interested, so he decided to come and join us in this meeting. Ajit, I just introduced you to the crowd. Just based on what you just heard, would you have any comments, immediate response?
No, it's a real pleasure being here. We spent a lot of time on the transaction, and to hear it firsthand from Masa and the rest of the group. We are delighted. It further reinforces our assumptions of why we got into the transaction. Obviously, there's a lot of work to be done as we move forward, and I'm sure we're looking forward to the partnership with you people. Hopefully, it'll be of mutual benefit to both of us. We will leave no stone unturned to try and realize the benefits of what we expect to achieve. Thank you very much.
Thank you, Ajit. As Ajit just briefly spoke, both sides will work together very hard towards value creation. We will be looking into all sorts of opportunities. We continue with the dialogue, and we make sure that we share the process in form of value creation to shareholders. You have asked several questions about Berkshire Hathaway. We will remember your questions, and we will continue to work hard on value creation with Berkshire as an entire senior management team going forward. We look forward to your continued support and guidance. Thank you very much.
That concludes the fiscal 2026 first half of the year IR meeting. Thank you very much for your attendance despite your busy schedule. This is the end of the meeting. Thank you.