Okay. Good morning, everyone. It is my great pleasure to welcome you all to the Annual Investor Day in New York by Tokio Marine Holdings. My name is [Hiro Sugimoto], and I will be serving as your moderator for this meeting today. On behalf of all Tokio Marine representatives, we highly appreciate your attendance today, both physically and via webcast. Please note today's conference will be recorded and will be uploaded on Tokio Marine's website. Now, let me confirm whether everyone has the presentation in front of you titled, Tokio Marine Presents Annual Investor Day in New York. This year, the Tokio Marine leadership team, led by Group CEO, Mr. Masahiro Koike, will provide you with an opportunity to further understand both the domestic Japan P&C business and the International business of Tokio Marine Group.
The first session will be on the Japan P&C and Solutions business, followed by the International business with a short break in between. During the session today, we will have a simultaneous interpretation system. For investors in the meeting room, you can hear Japanese on channel seven and English on channel one. For investors on webcast, you can choose your preferred language as well on the registration site. Regarding today's meeting, we will start off with a summary presentation on the Japanese P&C and Solutions business, followed with key remarks by each of the leadership representatives of the International business, with the Q&A sessions for each of the businesses after each presentation. We intend to conclude by the meeting at 11:30 A.M. today, Eastern Time. Now, please kindly let me introduce the attendees from the Tokio Marine Group.
I am happy to introduce from Tokio Marine Holdings, Mr. Masahiro Koike, President, Group CEO, Group CCO. Via webcast today, Mr. Donald Sherman, President and CEO of Delphi Financial Group, Vice President, Executive Officer, and Group Co-CIO of Tokio Marine Holdings. Mr. Kenji Okada, Vice President Director, Group CFO. Mr. Kichiichiro Yamamoto, Vice President Director, Co-Head of International Business. Ms. Susan Rivera, CEO of HCC Insurance Holdings, Managing Executive Officer, and Group Co-CRSO of Tokio Marine Holdings. Mr. Brad Irick, Managing Executive Officer, Co-Head of International Business. Mr. John Glomb, Jr, President and CEO of Philadelphia Insurance Company, Managing Executive Officer of Tokio Marine Holdings. Last but not least, Mr. Hiroaki Shirota, President and CEO of Tokio Marine & Nichido Fire Insurance, Director of Tokio Marine Holdings.
Without further ado, moving along to our presentation, I would like to hand over to the Group CEO, Mr. Koike, followed by Mr. Shirota, to present on the current status of the Japan P&C business. Mr. Koike, please.
Thank you, [Sugimoto-san]. Good morning, everybody. I'm Masa Koike. Is the mic on, by the way?
It's on.
It is. Okay, great. I'm Masa Koike, Group CEO of Tokio Marine Holdings. On behalf of the entire Tokio Marine Group, I'd like to thank you for joining us today on our Annual Investor Day. We've held these Investor Day meetings here in New York and in London since 2018. I'm pleased to say that this year, we're welcoming a record number of 80 investors and analysts to our event. Again, thank you very much for your participation. Before diving into the details of our operation performance, I'd like to first begin with a brief comment from myself. I took on the CEO role as of end of June. Again, I've always led the group on the fundamental aspect of the uniqueness and strength of Tokio Marine Group lies in the purpose our driven culture and our people that drive our value creation.
If you can take a look at page three , this is meant to describe this exact point. Over the last five months, I spent quite a big portion of my time traveling around the world, both internationally and domestically, engaging directly with our people on the front line. Through town halls and engagements, my key message has always been the same, to pursue sustainability the Tokio Marine way. What this means is that all Tokio Marine Group entities value our employees as a starting point, the core of our value creation, providing high quality service and contributing to solving the issues of our clients and society, and earning their trust and respect.
That is the precise meaning of our purpose, to be there for our customers and society in their times of need, and the very reason why we exist, and what really drives us to continuously enhance our own business model. Through such continuous evolution, the Tokio Marine Group has achieved sustainable growth, which in turn resulted in what we believe to be solid returns to our shareholders and stakeholders. The feedback that I've received from our people has been both encouraging and inspiring. I feel a stronger sense of responsibility together with a little more confidence about our ability to continue our endeavor to evolve our value creation model and carry it forward to our future generations. It goes without saying that it is essential that we tie the strength of our business model to financial performance.
Today, there are two key messages that we'd like to share with you. The first is that our EPS growth continues to be very, very strong and steady. If you can turn to page four. This slide shows a track record of our EPS growth. Over the past five years, we've achieved a strong CAGR of 19.9%, really placing us among our leading global peers. At the same time, as stated on the bottom right, we've maintained one of the lowest levels of EPS growth volatility in the industry, which demonstrates our growth stability. If you can turn to page five, this shows our EPS growth target and its trajectory for the current midterm plan. Our target of +8% or more is fully comparable with our peers and our current progress at a robust +8.9% CAGR shows our steady progress.
If you can turn to page six, I'd like to touch on our ROE, our second key message today. Repeating our explanation at the September IFRS overview, our ROE, now comparable on an apple-to-apple basis with our peers, stands at approximately 13%. We're still in the middle of our journey to further enhance our ROE, and we show here a clear roadmap to achieve this goal. Building on our strong EPS growth, two key initiatives will further drive our ROE. One would be to expand our business in enhancing risk diversification, and M&A will be one means to achieve this. The second being accelerating the growth of our fee-based solutions business. I'd now like to hand the floor over to six of our executives joining me today.
They will provide in-depth analysis of Japan P&C and then later International business, which are the two driving forces behind our key performance goals. We will also touch on our Solutions business within the Japan P&C presentation, where the largest change is taking place. I'd like to reiterate that we really, really place a great importance on maintaining an open and transparent communication with our investor community. Those who have been participating on our investor presentations will appreciate that our presentation material is probably quite detailed and maybe a little too much into detail. It is prepared with the goal of allowing you to have a very sound understanding of the strength and direction of our management and business. We continue to really, really value your honest feedback and constructive feedback. Please feel free to ask any questions following our presentation.
With that, I will turn it over to Shirota-san.
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Okay. Thank you, Shirota-san. Before we move on to the Q&A session, I would like to briefly touch on our Solutions business, which is a newly established business unit which provides safety and securities by means outside of insurance. Hopefully, you will be aware that we welcomed a company called ID&E into our family in May, and this is a significant step forward from that perspective. You might actually think that this suddenly came up as a new business unit for us. But in fact, we have been studying such possibilities for quite a long time. Over the years, it has been more of an in-house R&D initiative. As a major step to promote this, we were able to finally welcome ID&E into our platform.
We feel that this is a significant step forward because it has provided us confidence that our idea about providing a wider set of risk management solutions to our clients is no longer just simply an aspiration of Tokio Marine, but it is something that is attractive enough for ID&E to delist and join our family. We feel that from an aspiration, now this has evolved into more of a challenging, yet an achievable goal. Slide 13 actually demonstrates our commitment to the Solutions business, which we feel is a bit similar to when we took on our journey to expand our International business. On the International business side, our international expansion started roughly around the year 2000 when we established Tokio Marine. It took us two full decades to build up our international portfolio to what it is today.
This took a lot of dedication and effort, and in the same way, we fully intend to expand our Solutions business by long-term perspective and developing into another strong and sustainable growth engine for Tokio Marine. With that, I will pass the mic back to [Sugimoto-san].
Mr. Koike, Mr. Shirota, thank you very much for your presentations. With that, I would like to open the floor to questions. As we would like to provide each investor an opportunity to ask questions, may we ask each investor to have a maximum of two questions per time. Please raise your hand physically or tap the raise hand button for those on webcast. We will start with questions from the room, please. Any initial questions? It is always great to be the first one.
This is just the first.
For the Japan P&C and Solutions business. Yes. Okay. The gentleman.
Hi. Thanks again for the presentation. Just a quick one on the rate increases that you are pushing through, both in auto and fire. What do you think is the long-run sustainable combined ratio that you expect in fire? So, it feels like you need to get to closer to 80% to get to an appropriate return or a cost of equity return. How much more pricing can you take, and do you see sub- 80% combined as something that is realistic to drive something above cost of equity returns? Thanks.
All right. Shirota-san will initially answer, then I will follow up.
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Just to follow up on what Shirota-san just explained. In summary, we have been able to implement significant rate increases, right? This has really pushed certain relationships to the limit. However, we are acutely aware of the need to actually enhance the profitability of these two line of main businesses. For auto, we will aspire for a sub- 95%, maybe to like 92%, 93% level. However, realistically it will probably hover anywhere in between. For our property policies, a sub- 80% combined, whilst aspirational and from an ROR perspective, ideal, it is going to really, really push it. Realistically, I think our goal would be to maintain the combined ratio where it is now. But rest assured that we feel that this is sort of like the appropriate combined ratio where it ought to be.
This will be our long term aspiration to keep it where it is.
Okay. Thank you. Next question. For those on Zoom who would like to ask a question, please tap the Raise Hand button. Any questions from the room? The lady in the front.
Could you talk about your philosophy towards the use of AI in your personal lines business in Japan or even commercial, if it is applicable there as well?
All right. Thank you. I will pass the mic on to Shirota-san.
[Non-English content]
Does that answer your question?
Yes. Thank you.
Next question from the room. Let me take one question that I received prior to this meeting. This question is towards Shirota-san. I will read it out loud. TMNF has experienced its challenges in the last few years, and it now seems the domestic P&C business has turned the corner and poised for a sharp uptick in achieving stronger growth and earnings over the coming years. As the president of the domestic P&C business, how much improvement, both from an earnings and ROE level, do you believe the domestic P&C business will contribute to Tokio Marine in the coming years? What do you believe will be the key differentiation vis-a-vis your peers?
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We are almost at the end of the first part of this session today. Any last questions, either from the room or from the webcast? For those on the webcast, please tap the Raise Hand button. Any questions from the room? Okay. Then, I would like to say this concludes the first part of today's session, Tokio Marine's Japan P&C and Solutions business. We will take a quick 10-minute break and reconvene at 10:20 A.M. For those on Zoom, please do stay on, and see you again in 10 minutes. Thank you. Okay. We are now back, and we will start the second half of today's session, the International business. I will kindly ask Mr. Yamamoto to kick off the second half of today's session, followed by key remarks from the leadership team overseeing the International business. Mr. Yamamoto, please.
Thank you, [Sugimoto-san]. Good morning. I am Kit Yamamoto, Co-Head of International Business. In this section, we, executive team of International business of Tokio Marine Holdings, we will delve deeper into our business, which serves as a key growth driver for the group. I will kick off by giving you an overview of our International business and strong resilient underwriting portfolio in North America. Then John and Susan will cover the updates from Philadelphia and TMHCC, and Don will go through our investment strategy. Lastly, Brad, my fellow Co-Head of International Business, will talk about our group's M&A strategy. Please turn to page 14 and let us review the progress of our current Mid-Term Plan for 2024 - 2026.
Overall progress is slightly behind target, as you can see, but this is mainly due to losses in Asian life insurance caused by lower Singapore dollar interest rates and capital losses in North America related to commercial real estate loans. That said, underwriting profit remains strong, performing above plan and expanding at a CAGR of 9.1% after adjusting for prior year loss reserve movements on an apples-to-apples basis. While we acknowledge softening of the market and other potential challenges ahead, we will continue to execute our growth strategy with disciplined underwriting as a key driver, delivering sustainable performance. Please turn to page 15, where we highlight the strong organic growth capability of our North American business, which accounts for nearly 90% of our International business.
We have been achieving profit growth above our peers, driven primarily by underwriting profit, shown in orange, along with strong performance in asset management, shown in green, led by Delphi. Although we face some impact from market softening and a challenging investment environment, we have revised our full year projections for 2025 fiscal year upward by +2%, excluding foreign exchange effects. Now turning to page 16. Our North American business consists of two segments: Specialty P&C and employee benefits. As you can see on the left side of the slide, both lines reflect top tier presence and competitive strengths in the market. On the right side of the slide, both lines you can see that our portfolio is highly diversified, and this is not something that could be built overnight.
It is a portfolio we have developed over more than two decades while continuously entering into new lines of business, as shown in the earlier part of the presentation explained by Masa Koike. The recent examples of new business line expansions include TMHCC's entry into excess casualty, as well as Philadelphia's introduction of a business owner's policy, BOP. By managing a diverse mix of products, we effectively offset the impact of individual rate cycles. As a result, our overall portfolio is far less exposed to volatility, with about 75% in stable lines. Insurance is inherently cyclical. While we are not immune to rate movements, our track record shows that our underwriting performance is highly resilient against market cycles. Building on this strong foundation, we will continue to achieve underwriting profit growth meaningful to the group and superior to our peers. Next, please turn to page 17.
This slide is provided for reference and shows the comparison between profit growth of our North American business and rate cycles in the North American commercial market. As I mentioned earlier, our business has a proven track record of delivering sustainable and stable growth across rate cycles, driven by the twin engines of disciplined underwriting and investment. Next, please turn to page 18. In the next couple of pages, I will elaborate on our two core lines of business, Specialty P&C and employee benefits. First on Specialty P&C line. This consists of over 100 products which are less susceptible to market cycles and have low risk correlation among themselves. Our core strength lies in disciplined risk selection and strict bottom-line management adapting to the rate environment. In other words, we proactively pursue rate adjustments and continuously review underwriting terms.
When profitability cannot be secured, we are prepared to take necessary actions, including non-renewal of policies. As shown on the slide, we have consistently maintained a low combined ratio while achieving profit growth above peers. Even the impact of the Los Angeles wildfire earlier this year was significantly smaller than our peers. Page 19. This is about our employee benefit business, which consists of insurance products for employees of our customer companies and organizations such as TMHCC's Medical Stop L oss and Delphi's disability insurance products. The key strategy for this line is to achieve stable profit growth by steadily expanding the top line while maintaining a combined ratio of around 95%. In addition, our strength lies in offering specialized, high-quality, nation-leading absence management service bundled with insurance. This has earned us strong customer support and enabled us to deliver consistent profit growth.
Now, last but not least, the strength of our International business lies in the distinctive capabilities of each group company, including those represented here today. These strengths are further amplified through mutual sharing of expertise and collaborative initiatives across the group, creating significant synergies. While the business environment remains as vulnerable and volatile as ever, by leveraging these strengths, I am convinced that we will be able to continue to grow our diversified and resilient portfolio and deliver sustainable and stable profit growth. That concludes my part. Next, I would like to hand it over to John and Susan for updates from Philadelphia and TMHCC respectively. This will be followed by Don on our investment strategy. Finally, Brad will walk you through on our M&A strategies. Let's start with John.
Great. Thank you, Kit. Good morning, everyone. PHLY continues to be a leading specialty insurer focused on niches. In the upper left-hand side, we have the nine segments that we trade in, human service and real estate being the largest at over 50% of our closing on $5 billion in total premium. In the middle column on the top is, first, we made an acquisition on October 31st. We closed on an acquisition of a Collector Vehicle business from Ignyte Insurance, a Carlyle company. I'll talk a little bit more about that on the next slide. Below that are key initiatives for 2025, and these have been consistent with last year's meeting. We continue to focus on rate increases that are above loss costs. Our view is that loss cost is at 6.5% in our 2025 plan, and we've been able to achieve just under 10%.
We've also worked tirelessly over the last five years to reduce our limit profile. The comment there is really the key points are, in 2019, we had 88% of our policies that were $5 million and under, and today that's 97%. So we believe that helps us to fare well in an environment with legal system abuse and social inflation. You can look to page 50 in the appendix if you want to see more detail on that. On the right-hand side, on the top, our renewal ratio has ticked down a little bit over the last two years, 2024 and 2025, as we've taken a very deliberate approach to reducing our exposure to nat cat, specifically severe convective storm, largely in the middle states of the U.S. And so we've seen revenue retention drop into the mid-80s.
I would expect that that is going to go back up to 2020- 2023 levels in 2026 as we will continue to optimize our portfolio, but a lot of the heavy lifting has already been done. We've also seen that certainly versus our competitors, we've retained a lot more on a policy count as well as our revenue because of our strong relationships with our preferred agents, who represent about 70% of our total premium. On the lower left-hand side, strong customer loyalty. That's largely we have a very emphatic focus on customer service and Net Promoter Score. Our Net Promoter Score after tracking now for a little over a decade, that is hovering in the high 60s to low 70s, which has us comparing very favorably to our industry peers.
If you look in the middle section, we have a tiering strategy that Shirota-san has implemented at Tokio Marine TMNF. This is something that we've had at PHLY for over a decade, and really tier three is those products where we are not achieving our hurdle rate of return. In the beginning, that was 20% of our total portfolio, and now is less than 2%. In the lower right-hand corner of the slide is our combined ratio relative to the U.S. P&C market. Let's go to the next slide in a moment on our acquisition of Ignyte's Collector Vehicle business. This was a long time in the making. Philadelphia has been in the collector vehicle space for almost 20 years, having purchased on a renewal rights basis an MGA book in 2006 from the Grundy Agency, and this acquisition has us now owning four additional MGAs.
We have five MGAs. The other largest MGA is Hagerty, a public company that went public in a SPAC a few years ago, that focuses in collector vehicle, will have just under $300 million of total premium. This is a very profitable business. We really like it. It's not auto liability in the true sense of auto. It is auto physical damage. These autos are, by definition, driven less than 2,500 mi a year, and in most cases, less than 1,000 mi a year. The loss ratio is in the low 50s to high 40s. On our experience, the business that we bought was even more profitable than that.
As the baby boomers are retiring, we expect that there's going to be growth as a lot of the collections trade hands to younger generation. We're excited about that, and certainly the last five years in our book of business that we've owned has seen a top-line growth that has outpaced the rest of Philadelphia. We are now, as I said, the number two player in the market. Looking on the right side of the page, if you look at the pie chart, it's as of today, or as of October 31st prior to the transaction, Collector Vehicle was a little less than 2% of our total premium, and now we're looking at 6%. Excited about this. Excited to take any questions when the time comes. With that, I will pass it to Susan to talk about HCC.
Thanks, John. I'm on page 22. As a reminder, Tokio Marine HCC is the specialty underwriting company in the group. We've been writing specialty insurance for over 50 years, and we have built our operation through a lot of bolt-on M&A acquisitions, and we've completed more than 60. When you look to the left and you look at our product composition, we write over $8 billion of gross written premium. When you think about that in the U.S., that's with no commercial auto and no workers' compensation. These are true, very unique specialty niches. We manage our business across three segments. We do North America P&C, we do North America Accident & Health, and then we have our international operations. Each of those are about a third of our business each.
When you look at the product composition, more than 50% of our business is less dependent on the property and casualty pricing cycle that Kit had mentioned. About 49% is in your traditional D&O, property, aviation, energy, and marine lines of business. We think, again, with our ability to be able to deliver market-leading results is really based on all of these different niches that don't move in the same direction and don't experience losses in the same magnitude at the same time. When you look at the current focus in the middle, again, we continue our charge to look at great bolt-on acquisitions for the group. As a reminder, in July of 2023, we purchased Gulf Guaranty, and that provides basically a gap medical plan for small and mid-sized businesses.
Initially, that was really focused in a few states, and we've done a really nice job and are expanding that into additional states. With the recent rise in medical costs, and you're going to see people starting to increase their deductibles, we think there will be an uptake in demand for that product. That bolt-on is performing well for us. Then similar to John, we just announced another bolt-on acquisition that HCC is going to be responsible for managing, called Agrihedge, and I'll go into more on that on the next slide. If you look in the middle at the bottom, when we see the stable profitability, really where you want to be on this chart is as far up and to the right as possible.
You want to have the lowest combined ratio with the lowest volatility, and you can see that's exactly where HCC is relative to our peers. Again, I think that is driven by our diversified product offering and our geographic spread in our portfolio. If you look up and to the right on the results, from 2021 - 2025, we've experienced very nice growth. As you can recall, we talked about really expansion, especially into new specialty areas in our international operation because of the Lloyd's Decile 10 review, when the market in London was in very much disarray because of a lack of profitability. High profitability gives you a lot of opportunity, and we are able to attract some really good teams and take advantage of growing our business lines in the international market.
Then if you look to the bottom right, happy to have the 2020 COVID year off of that chart now. You see a nice, stable, targeted high 80s combined ratio. Based on our mix of business, we target a high 80s combined ratio across the Tokio Marine HCC, and we feel pretty good about being able to hit that in 2025. If you get to the next slide, excited to talk about our acquisition of Agrihedge, known as really trading as CIH, Commodity & Ingredient Hedging Company. It fits very well with the corporate goal to really grow in the Solutions business. The Solutions business isn't foreign to the specialty offerings that we do at Tokio Marine HCC. We offer kidnap and ransom insurance, and we couple that with crisis management services. We provide cyber insurance for small to medium enterprises.
We couple that with vulnerability scanning and monitoring and telling people how to close the vulnerabilities. We do travel insurance, and we combine that with On Call, which is emergency service and evacuation. When you look at this is a nice addition to provide value-added services to our insurance offering of crop business. When we look at Agrihedge, they are a fee-based business, and basically what they do is they provide critical information, tools, skills, and consultation to really help their clients make better risk management decisions. Their clients are largely hog, cattle, dairy, and grain operators. They will provide. You can see their high growth on the left-hand side went from $ 35 million to $ 96 million. Initially, when CIH started, most of what they were doing was technology, risk management services, and hedging.
With the change in a lot of the crop programs, they've been able to now offer dairy as well as livestock revenue protection. Now they're also going to be able to offer MPCI, multi-peril crop insurance. We're very excited to be able to bring this value-added offering to our clients on the crop insurance side, and be able to expand what they can offer to their existing clients, because all of their clients basically are in the crop business as well. They also bought ATI. They did an acquisition mid-year this year, so they actually bought the leading provider of risk management and brokerage services to the grain industry. This is very high touch, very personalized, very consultative risk management services to their insureds.
When you look at the strategic rationale on the right, again, with ability to capture significant growth in fee revenues, we're able to cross-sell not only our agricultural MPCI products, but PHLY can cross-sell their property and casualty insurance products to their clients, as well as PURE cross-selling high- net- worth products to them. If you can recall, MPCI and a lot of the government programs, the pricing is set by the government. The way you really compete and win clients is on value-added products and services. This will allow us to be able to attract additional business by being able to provide the Agrihedge value-added products and services to our clients. With that, I will hand it over now to Don Sherman.
Thank you, Susan, and good morning. You can see on slide 24 the investment results for the North American investment portfolio. The income yield has maintained in the mid 5%, as you can see in the chart on the left-hand side. You can see the growth of AUM in the middle, 9% for the three-year compound average growth rate and 11% for the first half of 2025 compared to the first half of 2024. The investment income gain has a compound growth rate of 20% and it's 3% for the first half of 2025 versus 2024. We are seeing some impact of the Fed rate cuts, and we've also seen in the public securities market, historic low credit spreads. We've been able to offset these with looking for interesting assets. The largest sector that we've added is in the U.S. residential mortgage credit sector.
You can see also on the right-hand side, if you look at that investment income gain, including capital gains, the compound growth rate is 10% and the first half is up 9% versus 2025 versus 2024. We've had some moderately favorable resolutions on our corporate real estate loan portfolio, and that has helped create that trend. If I go to the next page, on page 25, you can see what has been happening at Delphi. We're maintaining our underwriting profitability and continuing to expand on the investment income, leveraging those strengths. On the left-hand side, you can see the employee benefits and retirement services product breakdown. It gives us a diversified portfolio that allows us to continue to have good results. On the lower chart, on the left-hand side, you can see the asset portfolio distribution.
Again, we've been looking for things in the loan space as the credit spreads in the public security space has been very tight. As to our current focus, we're at Safety National, which is the market leader in the excess workers' compensation. They are leveraging their expertise and their brand, and it's a data-driven business operation in which we're incorporating AI and digitalization to improve our operating results as well as our underwriting results. At Reliance Standard, where we write disability insurance, their disciplined underwriting has allowed them to also maintain a good underwriting result. As to the investment environment, I've mentioned the rate cuts and spread contraction. We've been working to develop a flexible portfolio to survive in this environment, and we also control the duration by investing in attractive longer-term bonds, which we still find predominantly in the municipal market sector.
On the right-hand side, you can see the results of our insurance operations, with the combined ratio hovering in the mid-90s. On the bottom, you can see the track record versus our index for investment. Both the investment return and the Sharpe ratio, the volatility, compares favorably to the Barclays U.S. Aggregate. So at this, I will turn it over to Brad.
Very good. Thank you, Don, and good morning, everyone. I see a lot of familiar faces here today and also some familiar names joining us remotely. That tells me, first of all, thank you for your continued interest in the company. But it also tells me that I've done this slide a few times. Now that many of you will have heard, I'm actually proud to say this slide really hasn't changed much in a while. When we talk about a disciplined in/out strategy, and we're talking about M&A, I think it's important to go back to some of the things that Masa said early on about the purpose of the company, that M&A is not a means in and of itself, but it is a means to potentially facilitate delivering on our purpose and delivering more value to our customers.
Also building on a business model that is able to perpetuate that strong profit growth over time, a sustainable profit growth over time. We think that focus that is very deliberate and very, we think, thoughtful, is the reason when you look on the right-hand side, top right-hand side, that the large-scale M&A, and you see the companies, most of which are represented in some way here today, have delivered a 21% return on investment over that time. We are quite proud of that. I think on top of being proud of those numbers themselves, we are proud of the fact that the businesses that we have welcomed into the family have really become part of the Tokio Marine Group and work together to deliver value to customers really around the world.
That is the reason why we have that disciplined focus, starting with the acquisition criteria, and I think these are nicely in order of the way we think about it as a cultural fit. Things like, are we happy to welcome people into the family so that we sit at the table together to work towards building our businesses together, and high profitability, so businesses that are strong and performing. The businesses you see here today that we have acquired, HCC, we just celebrated the 10-year anniversary of the HCC acquisition. That more than doubled over that timeframe from the acquisition in 2015 - 2025. Same with PHLY, Delphi same. So looking for those businesses where we work well together and being part of the Group actually enhances the business model. An already strong business model of those businesses is something that is really important to us.
The hurdle rate there is there. That has not changed as well. Obviously, it is very important to us to have discipline around the financial side of things. So even if things fit on these top three areas, there may not be the right fit from a financial perspective, and so we have to be sure that we can balance all of those considerations. The second bullet here talks about softening cycle. We have heard some discussion about that over the course of our discussion today. That is, I think if you are following the sector, there has been quite a bit of activity over the last 12 - 18 months. We expected that to start in the London market. That has happened quite a bit over the last year. We expect that will continue.
We will keep an eye on those other opportunities that will be coming to market. We expect, over the coming months. But looking for those things really around the world that would fit these criteria that we have so that we can continue to build on our model. I am really speaking up to this point mostly about larger scale M&A. Really happy to have Susan and John talking about some bolt-on M&A. I would say the pipeline for bolt-on M&As is as robust as I have seen it in a few years. So, I expect you will see other transactions around the world. I hope to see us being involved in that as much as possible for things that fit as well. Last comment on the out strategy.
I think it is important when you talk about being disciplined to also be disciplined about exiting where you think that that is necessary. We have listed some of the areas where we have also exited on, I think, a discipline basis as well. That is all I have. Thank you very much.
Thank you very much to each of you for your presentation. Now, I would like to open the floor for questions. Similar to the first half of the session, given we would like to provide each investor an opportunity to ask questions, may we ask each investor to have a maximum of two questions per each time. Please raise your hand physically for people in the room or tap the Raise Hand button for those on webcast. We will start with questions from the room, please.
Hi, thanks. My first question is just building upon the M&A discussion. I am hoping just to get a sense of: A, the capital that you guys see you having on hand for potential transactions. Then, staying on slide 26, when you talk about the softening cycle leading to increased transactions, is that something that you see materializing for you guys over the next 6-12 months? I guess a third one would be, would deals be focused mostly on U.S. specialty or are there other areas you guys are targeting?
Kenji? Oh, sorry.
Okay. So maybe the first one, Kenji, you can answer, and then second and third, I will pass it on to Brad and Kit.
Thank you, Masa. Could you turn to page 29? This is the latest of our capital status, calculating the Economic Solvency Ratio. If you can compare the net asset value versus risk, the gap is what we call excess capital. Excess capital is currently JPY 2.13 trillion, it is like $50 billion. In addition to that, if you turn to page six, the slide regarding the ROE. In the very bottom, we describe the number about the financial leverage on page six. You can see that our financial leverage is much lower than our global peers. In addition to the current excess capital, we will be able to maybe finance deals through hybrid security. Ad ditional JPY 500 billion to up to JPY 2.1 tr illion can be the capacity for the M&A, but we do not set the budget.
This number, which I explained, is the capacity for our future M&A opportunity. Thank you very much.
Okay. So I will try to answer the second question on the transactions. What we are right now seeing is, of course, as Brad mentioned, we are seeing increased numbers of opportunities. I guess this is stemming from the softening of the market. First, there are a lot of properties owned by PE funds, and actually, they are finding potential buyers to sell off their business. Obviously, some of them are in need for liquidity, so that is actually accelerating their activity to sell. Also, there are some insurance companies who foresee the coming softening market, so they want to really focus on their strengths, so they are also willing to divest the business they regard as non-core. Actually, those activities are leading to increased number of opportunities. Those environments will not change our discipline. We will stick to the purchase discipline that Brad mentioned.
But obviously, increased number of opportunities hopefully will lead to increased number of deals done. And actually, I think that was a result that led to the two acquisitions that John and Susan just mentioned. The next question around what are the key areas. North America, of course, being the largest market, will remain for the foreseeable future as our main target. But actually, we are also looking at other parts of the world. So markets like Australia and Canada, where we think we are underrepresented. We want to grow in those countries as well. In emerging markets, especially Asia, will also remain as our target as well. So, for those markets, we will intend to grow, and obviously strategic options like M&A will also be included in our list for what it means to grow.
So with that said, I would like to ask Brad to make a few additional comments.
Yeah. Agree completely with what Yamamoto-san covered. I think one of the questions was around timing. The one thing I know for sure is that you can't force timing and actually be disciplined and everything. However, if you look at, I think it's page 48 of the slides, larger scale M&A has tended to happen for us in a softening market cycle. So the combination of having the capital capability that Kenji talked about, as well as opportunities arising, we feel like we're as well-situated as any company to move quickly as opportunities come up. It is willing buyers and willing sellers in the highest quality businesses, which are typically what we focus on, are ones that they have to be ready to have that conversation. I'd just say there's two points.
One is, I think we're a high-quality buyer that people are attracted to as a buyer because of our history. And also that we can execute well on a transaction, so people like to have us at the table when that time has come up for considering that. The last point I'd say, if it helps much, I think transactions that have happened to date, we've been aware of them. They aren't transactions that we would have wanted to do, and so we still are very focused on the future. We're happy to see the market consolidating some, and we think we'll find our spots.
Next question, the lady in red.
Thank you. Follow-up questions on M&A. In terms of large-scale deals, how willing would you be to do a transaction that is so large you would need to issue shares? How do you think about issuing shares into the U.S. market? What are your thoughts on that? Another question, are there businesses that you would want to avoid in terms of certain product lines where you would have no appetite and that would stop the deal? Just a clarification, I noticed that you did up your share buyback. Does that mean that you are not thinking about doing large-scale transactions near term? Would you, I guess, the share buyback decision and whether or not you are going to do large-scale deals, are those two independent considerations?
Okay. Thank you for the question. For the appetite for large M&As and any areas that we would want to avoid, I will pass it on to Kit and Brad. For our potential to issue stock in the U.S. and the share buyback aspect, I will refer to Kenji. Maybe you want to go first, Brad?
Okay. On the lines of business?
On the line of business—
Yeah.
—and appetite for large scale M&As.
I would say there's clearly an appetite for large scale M&A. I'll let Kenji talk about the capability and share issuance. On the question of areas where we have limited to no appetite, the easiest one to point to would be standard lines or retail and personal lines in the U.S. We do have internationally, where I guess the U.S. is the exception to the rule for the rest of the International business. U.S. is very specialty- focused, commercial, and we have pretty intentionally, other than PURE, which is a specialty personal lines business and high net worth, have really focused on not entering personal lines. I think it can actually tie it back to purpose of that. I think that market is quite well served in the U.S., and it's a very special capability that you need to have with that.
We don't think that we would try to compete in that marketplace. I think that's probably the biggest one that just would be only be a no-go zone for us in the U.S., and maybe I'll leave it there.
Yeah. Thank you, Brad. For the question, f irst of all, with respect to the future deal financing, as I explained in page 29, our current excess capital will be available for the future M&A is JPY 2.1 trillion. Basically, we do not execute a cash deal for non-Japanese M&A opportunity without issuing any common stock because our capital is big enough to execute deals like $15 billion with current status. Having said that, as we issued our hybrid security when we acquired PURE back in 2020, if it is a good financing environment, we may use such kind of hybrid security, but not the common stock. With respect to the relationship with our current decision to increase our share buybacks for 2025, originally it was at JPY 220 billion -JPY 224 billion.
It is basically, as you can see from the ESR from the beginning of the year and the halfway years, our ESR increased due to the divestment of cross -shareh olding. I think this level of share buyback increase will not affect our M&A opportunity or capacity. That is why we decided to increase share buyback in line with our targets to achieve the EPS growth for more than 8%. With that, I would like to use share buybacks to contribute to 1% - 2% of the EPS growth. Since our market capitalization increased to JPY 11 trillion, that is why we decided we change the guideline for 2025. Thank you.
Next question from the floor. The gentleman in red. It is the season.
Thank you for your time. Maybe John and Susan, could you talk about 2026, kind of what is in the plan or what you expect in terms of pricing, and loss trend? Maybe bifurcate between property and casualty.
Sure. As I shared, year -to- date, we're in the high 9s, 9.5%-9.6% on a blended basis. Post-COVID, we've seen an increase in our ability to get rate on property, and we've also been pushing price increase or value increases up as well, resulting in premium increases. Our goal on a property line of business is between value increases in rate to get something in double digits, low double- digits. On umbrella, when we do offer umbrella, and I brought up that point that we've reduced dramatically the number of times that we actually offer umbrella. When we do, we still can get rate, and our goal would be in the low teens.
General liability, because of loss cost inflation, because of the fact that there's not anything to tell us that the abuse of the legal system is not going to continue for the foreseeable future, we are optimistic that we'll get in the high single- digits there. Recently, in GL also includes professional liability and abuse. Then the last line of business, after several years of really moderated rate, auto has recently run a temperature for the industry. We were ahead of the industry on achieving rate. We were ahead of the industry in using telematics to drive down our losses. But right now, opportunistically, that is a line of business that we're able to get more rate than we have over the last few years because of our ability to really follow the market in that area.
Loss cost inflation for 2025, 6.5%, our early read on 2026 is 6.25%. That is not in small part due to our reduced exposure to larger limits.
On the specialty side, we've been holding our own this year. You look at our combined ratio at 88%, there's not a need for rate increase. But we've been holding at excluding surety credit and Medical Stop Loss at about +1% rate increase. I think in general, we're going to see the same for next year. When you look at the U.S., I agree with what John is saying. I think casualty trends are going to continue to increase. We do see SME cyber rates stabilizing and actually going up. We see D&O stabilizing, which is good in the U.S. On the International side, I do think that the Lloyd's products and the Lloyd's market is going to see probably more rate reduction than the U.S. in general, just because they started getting rates sooner, and then they have very easy entry.
They can get a lot more MGAs using their paper and competing on rate much more quickly. Property, I think everyone is saying property rates are going to continue to be challenged, especially because of the lack of hurricane activity this year. Then lastly, on the Medical Stop Loss side, we do think we are going to see significant rate increases next year. We had talked before about the COVID hush was going to be followed by a COVID crush, and that is really what you are seeing. You are seeing medical costs really skyrocketing this year. On Medical Stop Loss, we get to reprice our business every year, which we like. So we have been getting significant rates this year, and we think that will continue into next year as well.
Then just one on M&A, of course. Maybe the opposite of [Heather's] question. Between PHLY and HCC, what lines of business are you potentially missing or would like to scale up in the next mega deal that you do? Thanks.
Again, I think the focus is going to be. I am not sure that there is lines of business that we cannot get into in PHLY and HCC that they would like to get into. Susan has started a couple areas. John has started a couple of areas. So when you talk large scale M&A, I think we would struggle to find a quality company that does not have some overlap and so forth like that. There are areas that we have tended to not be in that I think would potentially be part of a larger scale M&A. The one that comes to mind as I say it is workers' comp, which is something we have not really focused on. HCC is not big in that area, nor is PHLY. So that is an area that has been quite profitable for some companies.
I think it requires a real special expertise, and so you would want to look for that in there. But I would say there is not particular lines that we would be focused on. I think we would be more focused on the quality of the overall business model, how it would fit within the business lines that we already have, and is it something that can grow similar to what we have seen in other transactions and deliver that kind of performance that we have seen in the past.
Next question from the floor and those on webcast, I know we have a large audience. Please do tap the Raise Hand button if you would like to ask a question. Any questions from the floor? Any questions from the webcast? Again, please do touch the Raise Hand button if you would like to ask a question for those who are joining via webcast. Are we okay? Okay. Then, before wrapping up the second part of today's session, I would like to hand over to Mr. Koike for his closing remarks. Mr. Koike, please.
Well, thank you once again for joining us today. I hope we were able to demonstrate, well, A, to explain the status quo of Tokio Marine Group, and again, to demonstrate the strength of our business model, ranging from Japan P&C, International, to the newly established solutions unit. You are probably well aware about our management style of being a federated model, where we actually value the unique business proposition that each business entity brings to the table. I hope you are able to see through the presentation today about the strength of our, what we call, the integrated group management, where we try to extract the strength of each business model into the entire group management. This has been sort of like the secret sauce of success for us as a Group.
As we continue forward under my new leadership, my focus has been to, again, enhance this federated model to extract even more aspirations from the business side to further grow and evolve. We will certainly look forward to delivering further results, and potential evolutions, be it M&A acquisitions or be it organic growth, to all of you in the future. Again, I would reiterate that we really truly value the feedback and the interaction with the investor community. So, any feedback pre and post these events are more than welcome. We truly value your continued engagement and look forward to meeting you again here in New York or elsewhere. Again, thank you very much for your time today.
Thank you, Mr. Koike. On behalf of Tokio Marine Holdings, thank you very much once again for your time today. If you have any further questions, please feel free to contact your Tokio Marine IR representatives. If you wish to engage with any of the Tokio Marine Group management team utilizing this opportunity, they will also be in the room for another several minutes. So please feel free to introduce yourselves directly. Thank you again, and this concludes today's session on Annual Investor Day, New York by Tokio Marine Holdings. Thank you very much.
Thank you.