As it is time, I would like to start the session. Thank you for joining us for the Tokio Marine Holdings IR Briefing for the First Half FY 2025 in spite of your busy schedules. As always, I will be serving as the moderator. I am Ishiguro, Head of Global Communications. Today's session is held in a hybrid format, where participants are joining both in person and online. The moderator is currently giving announcements for the Japanese audience. [Non-English content] Let me introduce the participants from the company side. From Tokio Marine Holdings, Group CEO Satoru Komiya. Vice President, Executive Officer, Group CFO, Kenji Okada. Vice President, Executive Officer, Co-head of International Business, Kichiichiro Yamamoto. Senior Managing Executive Officer, Head of Solution Business, Yoichi Moriwaki. Senior Managing Executive Officer, Group CDO, Masashi Namatame. Senior Managing Executive Officer, Head of Japan-based Business, Kiyoshi Wada. Managing Executive Officer, Group CRO, Kiyoshi Ajioka.
Managing Executive Officer, Group CAO, Shumpei Takizawa. Managing Executive Officer, Masahiro Koike. Managing Executive Officer, Group CIO, Yoshiaki Nakahara. Managing Executive Officer, Group CSUO, Mika Nabeshima. Next from TMNF, President and Chief Executive Officer, Hiroaki Shirota. Vice President, Executive Officer, Kenichi Kitazawa. Senior Managing Executive Officer, Eiichi Hosojima. Senior Managing Executive Officer, Hiroshi Sakiyama. From Anshin Life , we have the President, Shuji Asano, joining us today. We will start with an opening presentation by our Group CEO, Mr. Komiya, using materials posted on our homepage, after which we will open the floor for questions. We are scheduled to end at 2:30 P.M. Japan time, at maximum 3:00 P.M. Over to you, Mr. Komiya.
[Non-English content]
Hello, everyone. My name is Komiya. I thank you very much for attending Tokio Marine Group's business strategy briefing today. We would also like to express our gratitude for your ongoing support to Tokio Marine Group. The details of our financial results are as I discussed with you during earnings conference call last week on May 20th. Specifically, our adjusted net income for fiscal 2024 stands at JPY 1.2 trillion, helped by gains from the sales of business-related equities. We have consistently revised our projections upwards at the time of earnings announcement. For fiscal 2025, we are guiding for adjusted net income to exceed JPY 1 trillion. We are indeed standing in a place clearly different from where we were before. Yet, we still consider us to be in a middle of our growth journey.
While the current global environment is challenging, with various issues arising, it is indeed not an easy environment to be doing business in. However, we will continue to demonstrate resilience, and even in such circumstances, we will accelerate our transformational efforts to achieve further growth. To this end, we will also ensure a smooth transition to the next generation. We have incorporated this determination into the cover of this presentation material. Today, I would like to give the new CEO, Mr. Koike, a few words at the end. Let's move on to the content. Please turn on to page two of the material. As indicated in the table of contents, I will first provide a 30-minute overview of Tokio Marine's management and business operations. Following that, we will open the floor for questions and comments from the audience as time permits.
We hope this briefing session will serve as an opportunity for you to gain a deeper conviction over ongoing expansion of our corporate value. Please turn to page three. Here are three key messages I would like to share with you today. First is the upper box. Our EPS growth has achieved a CAGR of 19.9% over the past five years, placing us at the top tier in the world.
Additionally, our DPS growth is also top tier, in line with strong EPS growth. For FY 2025, we plan to set the DPS at JPY 210, which will be 22% increase compared to FY 2024, marking 14 consecutive years of dividend increase. Furthermore, we will adopt IFRS starting from FY 2026. There will be no change to the policy of continuously raising DPS growth, with both angle of growth and level of confidence at high levels, backed by strong EPS growth even after the introduction of IFRS. Next, in the middle box. The middle section is raise ROE to the level of global peers. Our current ROE stands at 12.6% and at 19.8%, including gains from the sales of business-related equities. We are among the top in Japan's financial sector. However, we recognize that there is still a gap between us and global peers.
In addition to continuing to achieve world-class EPS growth, we will be releasing capital held in business-related equities and reinvesting it into the core business. We will be doing the low capital intensive solutions business to further narrow the gap with our peers. We are determined to do this, and we believe this is a unique growth opportunity, that we have this capital gains from equity sales and starting this solutions business that will set us apart from global peers. Regarding share buyback, as previously announced, taking into account the positive impact of EPS growth, M&A pipeline, and other factors, we will execute JPY 220 billion this year. As a first step, we have already voted to spend JPY 110 billion initially. The final key message is strengthening group governance. We had established group audit committee in April last year and have been implementing various initiatives that leverages external perspectives.
Additionally, at Tokio Marine & Nichido Fire, following the receipt of business improvement order in December two years ago, we have been advancing reforms to break away from industry-rooted practices, such as holding of shares, core business corporations, secondment of employees to agents under the Re-New initiative. Quantitative results are already emerging, positively contributing to our corporate value. We will continue to strive for further enhancement of corporate value by maintaining a balance between profit growth and governance at a high level. That much are the key messages. We will now move on to details. Please refer to pages four and five. Page four shows the progress of EPS growth under the current midterm plan, and page five shows the track record for the past five years, including comparison with peers. Our EPS growth is world top class in terms of both target and progress.
As shown on page five, you can see that this is driven by our robust organic growth. Please turn to page six. Our goal is to grow EPS at a high angle while managing volatility. The horizontal axis of the slide shows the growth rate of EPS, and the vertical axis shows its volatility. The upper right quadrant represents the ideal state. As shown in the track record, we have high chance of replicating this in the future. As we put more focus on solutions business centered on fee-based services in the future, we believe that our position will shift further towards the upper right, enabling further reduction in volatility. From here, we will delve deeper into the international business and Japan P&C business, which form the backbone of achieving world-class EPS growth. Please turn to page seven.
First, let's evaluate the progress of the current medium-term plan for the international business. The overall progress rate is low due to a conservative upward revision of expected capital loss related to CRE loans. But insurance underwriting is performing well on the right in brown. It's growing by 10.2% in profit with prior year loss reserves adjusted on apple-to-apple basis. Now please refer to page eight for the organic growth potential of North American business, which accounts for approximately 80% of international business profit. As shown on the left side of the slide, our North American business continues to achieve high profit growth through the two pillars of insurance underwriting in orange and asset management in green. In insurance underwriting, we have two lines of business, specialty P&C and employee benefits. As shown in the upper right, we have a top-tier presence in the U.S.
We are completely bottom-line focused, and our combined ratio is, as you can see on the bottom of the bar chart, it is currently slightly over 90%. In asset management, shown on the lower right of the slide, we have consistently achieved returns significantly exceeding the market by leveraging Delphi's strength in credit management. For FY 2025, we anticipate a slight decline in returns due to current market conditions and uncertainties. But we will continue to deliver performance that significantly outperforms the market. Let's take a closer look at our North American business. Please turn to page nine.
As mentioned earlier, one of the two lines is specialty P&C line. As you can see on the lower right at the very bottom, it consists over 100 products, including excess workers' comp and surety, all with low-risk correlations to each other, thus enabling us to achieve insurance underwriting portfolio that is less impacted by market cycles. We have established a price leader's position and a strong sales network across all product lines, achieving profit growth outperforming the peers, as shown on the left side of the slide. It's below CAGR of 14%. Peers, as you can see, is 5%, but we are outperforming the peers in terms of profit growth. The source of that is the disciplined underwriting strategy that is bottom-line focused. As you can see on the lower right, the combined ratio is slightly over 90%, and it is stable at a low level. Please turn to page 10.
For the employee benefit line, this refers to the employee welfare business line, such as disability insurance offered by Delphi and medical stop loss offered by Tokio Marine HCC. By offering highly specialized absence management service and employee benefits, as you can see on the upper right, in a bundle with insurance policy, we are able to leverage our competitive advantage and maintain high top-line growth of positive 10% growth. Additionally, by setting rates and selecting risks based on loss costs, we have stabilized the combined ratio at around 95%, despite fierce competition, and have achieved a steady profit growth. To steadily increase insurance underwriting profit in these two lines, it is essential to control the impact of inflation, and we still remain resilient. Please turn to page 11. The slide shows the reserve ratio by inflation type for our North American business.
First, regarding inflation related to goods and services, our North American business is centered on specialty insurance. Thus, proportion of property and auto insurance has always been low, making the business structure relatively less susceptible to the impact of inflation. Regarding social inflation in the middle, we have been closely monitoring this area and taking proactive measures for some time. Specifically, we proactively increased reserves in 2019, advanced the settlements, and over 90% of high-limit policies that easily become the target of litigation had their limits reduced to $5 million or less. As a result, we have been taking down reserves for the past few years, attesting that the current reserve level is sufficient and appropriate. Finally, the medical and wages category on the right, which accounts for more than half of our reserves, is related to medical stop loss and excess workers' comp.
We are controlling the impact of their proactive rate increases and raising the self-insured retention by policyholders. Please go to page 12. Page 12 shows the impacts of L.A. wildfire that occurred in January this year. We have already strictly controlled our exposure to natural catastrophes and leveraged our risk selection expertise, meaning that we do not accept the risks that do not offer commensurate return. As a result, you can see that we have been able to keep the impact on combined ratio low compared to other players. Please turn to page 13. This section discusses our unique strength in asset management at North American operations. First, regarding AUM, as shown in the upper right, it has grown in line with the expansion of insurance underwriting and is expected to exceed $70 billion this fiscal year in AUM.
The source of this capital is sticky insurance liability, enabling us to invest without being swayed by short-term market fluctuations and allows us to execute a hold-till-maturity investment strategy. As a result, our track record in terms of yield, shown in the bottom right, demonstrates that we consistently achieve high yields relative to the market, and that these yields are highly reproducible. Left of the slide shows trend in income gain, demonstrating our conviction that we can achieve steady growth also in asset management. Please turn to page 14. Our international business is not limited to North America. Brazil is a prime example of how we can capture high growth in emerging markets and achieving strong profit growth. Our Brazilian business has gained strong support from customers and brokers.
Market share of our flagship product, automobile insurance, has more than doubled over the past 10 years and size has grown significantly to be in excess of JPY 300 billion with premium income. We are also continuing to reform our processes using DX and IT technologies, achieving industry-leading cost efficiency and profitability. Please turn to page 15. So far, we have explained our overseas organic growth strategy. Now, I would like to touch on our M&A strategy. Since the acquisition of Kiln in 2008, we have continued a virtuous cycle in which one successful M&A attracts the next high-quality opportunity, resulting in ROI of over 20%, as indicated on the upper right. This significantly exceeds our cost of capital, and this also contributes in pushing up the ROE of entire business portfolio. We are always searching for opportunities. We are well-prepared and have sufficient capital for acquisitions.
While valuations remain high, if the market softens, then I'm sure more prime opportunities will rise. Bolt-on type of acquisitions will continue to happen, but I'm sure larger M&A opportunities will emerge not so far away in the future. That is my gut feeling. Sales of business-related equities will generate excess capital, but we will not rush into acquisitions just because of that. Instead, we have been persevering so far, and we will continue to adhere to the acquisition discipline outlined on the left of the slide, as we have always done in the past, and we will constantly look for opportunities. Next, I will explain about Japan P&C business. Please turn to page 16. First is the progress of profit to current MTP in Japan P&C business. Due to the deterioration of loss ratio in the automobile insurance business, we are behind the plan.
But as I have always said, we will take measures such as rate increases, so we expect to achieve the profit target of the current medium-term plan. I will give a more detailed explanation. Please turn to page 17. As shown in the lower left of the slide, the combined ratio of the three companies are trending downwards. But our profitability is favorable compared to peers. We will maintain this relatively advantageous profitability while we are aiming for double-digit percentage growth in the current midterm plan. The source of the organic growth that form the basis for this growth are the three points shown on the lower right of the slide.
If the traditional non-insurance competition, such as holding of stocks, business cooperation, and human resource support is eliminated and competition becomes a true test of insurance strength, we believe that the Re-New initiative will allow us to advance and accelerate the profit improvement and strengthen also the foundation of growth even further. So please turn to page 18. First is the advantage we have in underwriting. Upper left of the slide shows the trend in loss ratio for fire insurance, where the differences in underwriting capability show up clearly. As you can see, our loss ratio is approximately 10 percentage points lower than that of the peers. As promised, in the last midterm plan, we achieved combined ratio of below 100% and within the current midterm plan, or rather within even the fiscal year, we will be able to beat the cost of capital.
This strong underwriting capability stems from our global standard underwriting strategy, where domestic and international personnel with extensive expertise and experience collaborate to ensure global coordination in underwriting operations, reinsurance arrangements, and product supply. Additionally, the field level underwriting capability, or the judgment skills of the frontline staff, is crucial for strategic execution. Our underwriters are disciplined in their approach while leveraging the insights from overseas group companies. The lower left of the slide shows one of the initiatives under the Re-New project we presented last November, namely efforts to improve profitability. The approach of tiering policies according to profitability and implementing measures tailored to each tier, for example, tier two, tier three, is a method that Philadelphia Insurance Companies has traditionally used, and we have adopted it at Tokio Marine & Nichido Fire Insurance. By thoroughly implementing this initiative, we aim to achieve even lower loss ratios.
Going forward, we will continue to raise underwriting excellence through group integrated management. Please turn to page 19. Looking at the global rate cycle, while some lines are beginning to show signs of softening, Japan is moving in the opposite direction with its main lines continuing to harden. First, on the left of the slide for auto insurance, the combined ratio has risen to nearly 100% due primarily to inflation, marking the worst performance in the past decade or even longer. Despite continuous rate increases over the past two years, we have not caught up yet at all, and we will implement a significant rate increase in 2025 in an advanced manner. This will enable us to achieve the target combined ratio for auto insurance of below 95% level by FY 2026 as promised.
On the right side, for fire insurance, as you know, we have implemented rate increases almost every year since I became the CEO in 2019. We have also done product revisions. As a result, the combined ratio for FY 2024 improved to 80% range. We expect to achieve ROR of 7% or higher, equivalent to cost of capital in FY 2025. However, this is not the end of the journey. This is still insufficient when compared to company-wide ROR, so we will continue to work on this in an unwavering manner. We are also constantly working to transform our insurance underwriting portfolio. This is page 20. On the left-hand side, there are five markets in Japan with much opportunity for growth. While Japan is a leading country in addressing societal challenges, the penetration rate of specialty insurance is by no means high.
As shown on the right on page 20, our specialty insurance has been showing top line growth every year as planned, and we believe that there are large untapped opportunities. Going forward, we will continue to provide products by fully introducing and leveraging the knowledge of our overseas group companies, which have strength in highly specialized insurance products and will grow Japanese style specialty insurance with low and stable combined ratios, mainly in the SME market. Please turn to page 21. Through the implementation of Re-New, we will realize a customer-oriented, high quality, and independent distribution channel. As shown on the right, we have recently formulated a quality evaluation system for agents and have already started to review the agency commission system from a quality-based perspective to make it more balanced based on quality.
For agents that struggle to operate independently, we are taking measures such as division of operations and are leading the industry in structural reform.
As shown on the left-hand side in the graph, our expense ratio has consistently been two to three points lower than peers. By carrying out our structural reforms of distribution from customers' perspective, both admin expenses and agency commissions will be reduced. After completion, agency commissions will be in the 18% range, and expense ratio will be below 30%. We are committed to executing the reform. Let me now turn to the solution business that will drive new growth and take our company's growth to the next level. Please refer to pages 22 and 23. Page 22, as shown in the pie chart on the slide, the world's economic losses are expanding dramatically. I think it is fair to say that our core business, the insurance business, is a growth industry in this context.
Coupled with the widening protection gap, there are huge growth opportunities for the solutions business that reduces loss and risk. Tokio Marine has been preparing for this for some time. I believe that our group's attempt to capture growth opportunities in both the insurance and solutions businesses is unique to us and rarely found amongst our global peers. Page 23 shows an example of the unique values we offer in disaster resilience. Measures to be taken when the risk of flood damage caused by a typhoon occurs. This year, ID&E, which includes Nippon Koei, the number one engineering consulting firm in Japan, joined our group. By combining their high-level engineering technology with our vast risk information and insurance payment data, we can offer highly effective recurrence prevention measures.
This means that if a similar typhoon hits again, the chances of suffering the same kind of damage will be reduced or eliminated. Meaning that our business and services will enable us and the society to build back better. Please turn to pages 24 and 25. Page 24 illustrates the world we aim to create through build back better. Unfortunately, the reality is that there are not many customers and business partners who are fully prepared with disaster prevention and mitigation measures. Therefore, in the model case, we start from the point where a disaster occurs and our customer is affected. If a customer policyholder is affected by a disaster, we will pay claims.
If we use a portion of this insurance claim for disaster prevention and mitigation solutions, implement measures to build back better and improve resilience, we will be able to mitigate and prevent the next damage, in addition to restoration. If we can create such a world, our insurance underwriting portfolio will also become more resilient, and we will be able to keep the insurance premiums we receive from customers at a stable and relatively low level. We will, as a group, work hard to achieve this. Let me briefly touch on the future growth potential in disaster resilience, so please turn to page 25. Disaster prevention and mitigation is a very broad concept, but the current market size for the engineering consulting market alone is JPY 0.8 trillion. Breakdown in the diagram on the left shows public works accounting for the majority.
This is where ID&E Holdings has the largest share in Japan. Since Japan is a country prone to natural disasters, the need for engineering consulting related to disaster prevention and mitigation is expected to continue to increase. But as shown in green in the diagram in the middle, there is room for growth in private disaster prevention. In particular, total market size is expected to soon reach JPY 1.5 trillion. In order to capture this private sector potential growth, contact with customers as well as opportunities to stimulate needs are necessary. Previously, ID&E Holdings has hardly engaged in private sector disaster prevention and mitigation. But in a sense, Tokio Marine has a great opportunity in the form of insurance claim payment.
Therefore, now that ID&E Holdings has joined our group, has become an important member of our group, we will be able to capture a wide range of restoration demand, and I believe that is our role. Please refer to page 26. The foundation to ensure we deliver our business strategies I have discussed so far is our globally integrated group management, which is now in its 10th year. Quality of our management and business has been improving over time by placing the excellent talent acquired through M&A in the right positions across countries and regions. Important management issues, challenges, are decided through discussion by gathering highly specialized talent and wisdom. This means that we have established a system that allows us to always take good risks.
For example, Don Sherman, shown in the upper right corner, has extensive experience in asset management, having served as CEO of one of the largest unlisted mortgage companies in the U.S., and has made a significant contribution to the expansion of the group's investment income since joining the group in 2012. Next to him, Susan Rivera, has won the APIW Insurance Woman of the Year Award this year that recognized outstanding women in the insurance industry. She is making contribution on a global basis to the sophistication of underwriting, which is the foundation of our business, by leveraging her extensive network of contacts. Please turn to page 27. These results are actually having a positive impact on our business performance. As you see on the left, in the four areas of revenue, investment, capital, and cost, we are currently generating annual synergies of $604 million.
Direct premiums written through revenue synergies are approaching $1 billion. If we were to realize the $604 million in profits through an acquisition, the necessary acquisition price would be $8.8 billion. Without having to make a large-scale acquisition exceeding JPY 1 trillion, group companies are able to generate synergies at no additional cost through spontaneous discussions between one another. This is one of our unique strengths. Please turn to page 28. Our current ROE of 19.8% is among the best in the Japanese financial sector, but as shown in the slide, we recognize that we have not yet caught up with our global peers. In addition to continuing our world-class EPS growth, we will steadily bring our ROE closer to the level of global peers through our current business portfolio transformation.
Which is to say, redirecting surplus capital created by selling business-related equities to the insurance business with higher ROR, and expanding the solutions business with lower capital requirement. These are two unique drivers that global peers do not have. Let me give some color on business portfolio transformation. Please go to page 29. The slide shows our progress towards achieving zero business-related equities. The amount sold in FY 2024 was JPY 922 billion, well above the initial plan of JPY 600 billion. In fiscal 2025, sales of business-related equities are set at JPY 600 billion, but we are now more likely than ever to achieve our goal of reducing business-related equities to zero by the end of FY 2029, as well as our target of achieving approximately 20% of IFRS net assets by the end of fiscal 2026. Please turn to page 30. ROE.
ROE is calculated by dividing ROR and ESR, and business-related equities are a major factor in raising ROE. Currently, our ROR, excluding gains on sales of business-related equities, is 17.9%, which is composed of 20.4% ROR from our main business and 6% ROR from business-related equities. In other words, it is clear that business-related equities are a drag factor for our ROR. As I mentioned earlier, we will advance sales as much as possible and reallocate the surplus capital generated to our main business with a higher ROR. If we are not blessed with opportunities for good M&A or risk-taking, we will buy back our own shares. This is the market-based governance, which is also our true value, and we will raise our overall ROE through disciplined capital management. Next is on dividend. Please turn to page 31.
Once again, the basis of our shareholder return is dividends, and we will continue to increase DPS in line with profit growth. As our profits for fiscal 2024, JPY 1.2 trillion, have exceeded our forecast, we will increase dividends by JPY 10 compared to the figure announced in November last year. As our profit target for fiscal 2025 will also exceed JPY 1 trillion, the five-year average of adjusted net income, which is our source of dividend, will also increase. Taking this into account, we have forecasted a DPS of JPY 210 for fiscal 2025, an increase of JPY 38, and a DPS growth of 22%. This will be the 14th consecutive year of dividend increase. As you all know, we will introduce IFRS and ICS from fiscal 2026, and will review our KPIs accordingly.
We are currently considering this, including studying European peers who have already introduced the standards, and plan to provide an update in November of this year. Regardless of the circumstances, our intention to achieve world-class EPS growth and consistent DPS growth remains unchanged. Next, please turn to page 32 for information on share buyback. Our current ESR is at a satisfactory level of 149%. In light of this, we have decided to execute share buyback for FY 2025 at a level that will boost EPS growth by 2%, taking into consideration the M&A pipeline, business environment, and other factors. The current plan for FY 2025 share buybacks is JPY 220 billion for the full year, and as a first step, JPY 110 billion share buyback has been approved. Please turn to page 33. Our efforts to strengthen governance in light of the series of incidents are progressing steadily.
The slide at the top half shows the activities of the group audit committee, which was established in April last year. By making full use of external perspectives, we will strengthen governance, increase corporate value, and ensure we realize high-quality management. That is all for me. We will continue to seek a healthy balance between growth and governance, and manage our business in a way that directly links our business purpose and strategy with the resulting profits and contribution to stakeholders. I look forward to your continued support. Thank you very much for your kind attention.
Thank you very much, Mr. Komiya. We will now open the floor for questions. We kindly ask one question per person at a time. I will call on you among those who have raised your hand, who are participating in person, and our staff will bring a microphone to you.
There is an explanation given to the Japanese audience. Please use the chat box below for questions. To cancel your question, please let us know using the chat box. Due to interest and time, we may not be able to take all your questions, in which case, the IR group or the global communication group will get back to you at a later date. Your understanding is very much appreciated. From SMBC Nikko, Mr. Muraki, please.
From SMBC Nikko, my name is Muraki. I have a question to Mr. Komiya. On page 28, I am asking you this question. In 2019, you were appointed to be the CEO and it was 7% type of ROE, and then adjusted net income was about JPY 280 billion, and the dividend payment was about JPY 130 billion. Adjusted net income, of course, including the gains, it is in excess of JPY 1 trillion, and you have a plan to increase dividend. Financially, it looks like you have no worries. However, every year, we have seen many incidents surface, and I have asked you some questions on those incidents in the past, I recall. In the past six years, Tokio Marine Group, six years ago, compared to what you had imagined six years ago, has it become what you wanted to achieve?
You continue to say that you are still in the middle of a journey, but then there must be some issues that must be passed down to Mr. Koike to continue to work on. What are those issues?
Thank you for your question. At the end of June, there will be an AGM, and until my last moment, I am exerting all my efforts as a CEO. In terms of the look back, thank you for the question to allow me to do some look back. Since I became the CEO in 2019, since then, in Japan, we have seen unprecedented level of typhoon, we had COVID, and then we had social inflation and other types of inflation, and globally, we have seen wars taking place. Internally, we have had many incidents, such as the Taiwan shock, and there was also a turnaround of some group entities such as Tokio Marine Kiln. I feel like we were able to overcome them. But then again, in Japan, the governance issues rose, which we continue to work on right now in an ongoing manner.
Since I was appointed
I am saying that we are at a tipping point once in a century, and I kept on saying that as I have executed various reforms regarding TMNF. If they do not do it now, when are they going to do it? If you do not do it now, who is going to do it? That is the kind of a spirit we have in reforming the company, and we are trying to change not just this entity, but the entire industry. What I have been saying is that we have a bigger portfolio. Anything can happen to any part of our portfolio. Indeed, we have seen many things happen. But in order to overcome those difficulties and also by experiencing them and resolving issues, it has made us tougher, and that is part of the characteristics of Tokio Marine Group, but we have been tenacious.
We have always been working hard in order to achieve a risk diversification and also integrated group management on global scale. When I was appointed, I said resilient and robust company. That is the type of a company I want to make. Robust and agile company is what I wanted to create. I am not sure if it was agile, but there is mutual respect, there is mutual cooperation, collaboration, there is a better sense of ownership among each entities. Overall capability of the group has been enhanced. If there is one issue in one corner of the group and they are suffering, there are other group companies that come over and help. Performance-wise, because we are all augmenting each other, some weaker parts are there, but some stronger parts are also there.
On group-wide basis, I am sure I can say that we have become resilient and responsive, and perhaps we are even tougher and more robust now. In Japan, the important thing is that we can compete on global scale and create entities that can compete on global scale. The past six years, I do not know how far I was able to come, but integrating the intelligence from different corners of the world in order to come problems, that capability we have gained. When I became the CEO, the decision-makers who participated from the global side, there were only two people, but 30% of executive management today is overseas personnel, and they are the source of our group capability. The second point, something that we said we must do, is redefining insurance, and that is about solutions business.
This is not just a disaster prevention and mitigation, but in solutions business, we have to develop that to become a major pillar of business. We have to arouse momentum and pave the new way for further growth. Perhaps we were able to do that. When we try to create new value, when we try to create new business, at the same time, we need to make sure that we need to be developing talent and creating good culture so that it gets passed down to the next generation and more generations to come later. That was my important duty as CEO. On global basis, we need to have more personnel from domestic and international who can manage this group on global scale. Tokio Marine Leadership Institute, TLI, was established two years ago in order to develop talent.
I have tried very hard, and perhaps one year ago, before we accelerated sales of business-related equities in terms of performance, market cap, et cetera. Of course, we have more ways to go. We have more room for improvement, but I have seen what we have achieved so far. The landscape that I am seeing in front of my eyes has changed over the past six years. As Muraki-san said, this 45 degrees angle of growth in ROE and also EPS growth, the journey along these two lines will continue. If you were reading a book, we are about to turn a page into a next chapter. Perhaps I was able to turn a page and facilitate people to go on to the next chapter.
As it was written in the report yesterday and the day before, in and out strategy, execution of the strategy, enhancement of ROE, capital usage had to be data. Therefore, unprofitable contracts, we have to stop writing them. We need to make sure customers are convinced that when we offer our business, the high cost structure had to be slashed and had to be changed. Not only on individual company level, but the more transparent, more rational businesses. That is what we have to have so that we become more attractive, we become more attractive in market and more attractive industry. That is what we want to change into. Lastly, the time that I spent with the stakeholders, I value this time the most of all the time I had as CEO and in the journey along the way.
To all of the analysts and also investors who are even attending here today, the time that I have as the time that we are having today, I value the most. Every time I was very serious in talking to you, communicating. While I did that, there were good news, bad news, suffering times, good times and bad times. But every time whatever happened from the market, you have encouraged me. Other times you have reprimanded me with some comments. You have always given me hints and suggestions for me to move forward. I took your voices into review and also reestablish our strategies. Your voices were very much at the center of how I manage the group. Everyone in the market, and everyone on the Tokio Marine side, including myself, we have together developed this business.
You were like a coach, a co-runner who was always running along my side. I wanted to thank you for that. Including insurance, but there will be further risk diversification. We will be more global. There will be more integrated group management. We will be polishing up ourselves so that we become a solution provider in solving societal issues. We want to further express Tokio Marine as a global brand. That is what I expect to see. I will still stay on to support the rest of the members, develop Tokio Marine and upgrade Tokio Marine to that higher level. Thank you for your question.
The six years, I was able to hear how much effort you have exerted into serving as CEO, so thank you.
Tsujino-san, BofA. We will bring a microphone to you.
You will be introducing IFRS for next fiscal year, and you have not elaborated or given some color, much color on that. Excluding gains from business-related equities, adjusted net income, profit in IFRS, how will that grow or how much will there be an increase? If the increase in adjusted income under IFRS will include life insurance, but in life insurance, depending on how you calculate risk asset, the amount that will be released will differ. What will be your thinking towards shareholder return? How much will be the profit for IFRS? When were you going to come up with adjusted IFRS? What is going to be adjusted?
Sorry, these are very detailed questions, one after the other, but if you could give us some color on that's very much appreciated.
Thank you for your question. I would like to ask Mr. Okada, our Group CFO, to respond to that question. As I said earlier, we will provide guidance by fall of this year. Through summer, I think they will have enough time for us to engage in discussions with you on how to think about KPI and shareholder return, and also about life insurance. I'm hoping to have more discussions before we release our guidelines in fall. Let me ask Okada-san to respond to this question.
This is page 40 in the slide deck. This is not new. Under JGAAP, it's adjusted under adjusted net income, and we have adjusted ROE and also dividend payout ratio. This KPI definition will shift to a new definition from FY 2026. As was mentioned by Komiya-san, we're having discussions internally. We would like to reflect input and feedback from outside people like yourself. By transferring to IFRS, there will be improved comparability with our global peers, and so whether to call it adjusted IFRS, we're still considering it, but we want to focus on the comparability with our global peers, able to compare apple to apple. Unfortunately, we have not decided on our definition yet.
It is going to be on a trial calculation basis, but unrealized losses will have an impact of JPY 20 billion or so, and for domestic life from JGAAP to IFRS, JPY 30 billion, and goodwill, so several billions of JPY will be factored in. In the meantime, under IFRS, sales of business-related equities are not reflected in JGAAP, but whether that will be included in profit assets or not is still undecided at this moment. As for definition of a profit that will be used to decide on our dividend, we're currently using five-year average, but whether that will continue to be used is still being deliberated.
As was mentioned earlier, the introduction is going to be officially from FY 2026, but with our investors and analysts, we want to make sure we have good understanding of you. Therefore, in fall of this year, details of the KPI and definition after introduction of IFRS and the shareholder return beyond FY 2026 will be explained. As was mentioned by Komiya-san earlier, shareholder return policy, when we are to create this, EPS growth world's highest, and DPS growth in line with that EPS growth will be maintained. We would like to take a comprehensive approach in coming up with our policy going forward. That is all for me.
Now with regards to shareholder return I have had engagements with our investors and analysts, and I have been saying over time that before and after introduction of IFRS and ICS, Tokio Marine before and after, and if you compare Tokio Marine with the other peers, we do not want to disappoint our investors and analysts. I have been saying that many times. We want to engage you and get your feedback before we come up with any announcements on this. Thank you.
Watanabe-san from Daiwa, please.
My name is Watanabe from Daiwa Securities. I have a question regarding the Japan P&C about the pricing strategy on page 19. Regarding auto insurance, within 2025, you will be hiking rates.
Usually, you would do so in January of 2026, but when are you going to be hiking the rate, and also by how much of a price increase would you do for your auto this year? Also for fire, you said that still it is inadequate, so you are undercharging, and so any possibilities of a further price increase and any more profitability improvement you are expecting for fire?
CRSO, Hosojima-san, will give you the details regarding the domestic P&C auto as well as fire insurance plans, including the potential price hike. Hosojima-san, please.
My name is Hosojima. Thank you for your question. In auto insurance, last time in the IR session, the unit claim has gone up and also frequency, the decline is only a lenient decline that we are seeing. So compared to the expectation we had, the profitability is deteriorating.
In the first half of this year, it was in line with our expectation. But in the second half, the CPI expectation by Bank of Japan has gone up. The unit claim payment, compared to CPI, it has gone up a lot more than the average CPI because of auto parts, advancement of auto parts, et cetera. More so than the CPI growth, the unit claim cost is going up even more, and it is because of parts and because of labor, et cetera. The labor cost increase had to be passed on, and that is social norms that has been practiced in the industry. So I believe you asked that question based on the backdrop. Conventionally, we will do the price hike in January of 2026. That will be the timing for the regular price hike.
However, the profitability environment being so tough for us, without waiting for January, we would do the price hike and also a bigger price hike earlier than January of 2026. Nothing has been decided at this point. For the rate of increase and also which month we will be doing the price hike, once we make the final decision, we would like to make the announcement. That was regarding auto insurance. Regarding fire insurance, compared to the past, the profitability had improved, and finally it is now covering the cost of the capital in terms of profitability. We have thus so far, or we are almost there, because in 2026, the plan was to cover the cost of the capital. That was the original plan.
Due to rate increases and also measures taken for the fire insurance results and also more disciplined underwriting, it looks like we will be achieving this target in terms of our profitability within this fiscal year of FY 2025. That's one year early. Going forward, the price hikes that have taken place, once the long-term contracts come to maturity, the price hike impact will surface, and there will be a continued improvement. Also considering the burden on the customer side, we need to make fire insurance a sustainable scheme. To do so, we have to be able to pay when customers are really in need or in trouble. To some extent, they will have to burden a part of the cost, or when the damage is small, they need to burden the cost.
We want to mitigate the price increase to some extent so that the scheme becomes sustainable. While we do that, we believe fire insurance will have improved profitability. As for the rate of auto increase, when you say that it's higher than the usual, are you speaking about it compared to last time it was 3.5%? Is it going to be bigger than that? The recent price hike this time is going to be a bigger price hike than the previous hikes we have done. In any case, in auto, in fire, we have to look at the economic rationale. We have to also consider affordability by policy holders. By looking at both sides, we will be managing them.
For fire, we have done series of price hikes, but also how we underwrite, how we design products, et cetera, there will be some issues or revisions that we might have to do. Thank you for your question.
JPMorgan, Sato-san.
Koki from JP Morgan. Page 32 in the slide deck, ESR target page and adjustment of capital. I asked this question six months ago, and sorry I am repeating the same question. Looking back on your explanation in the past, one year ago, ESR was 140%, market cap of 2%, EPS growth 2% contributing to that, therefore adjustment of JPY 200 billion was announced. six months ago, when it was 147%, in the first half, business-related equities was more heavily sold in the first half, therefore the level is too high, is overshooting. That was your explanation. This time, with 149%, it is above the target range of 140%, yet there was an explanation that remains unchanged with regards to capital level adjustment. Why was this explanation not changed?
Because of the M&A pipeline, which is not very tangible or visible, or with the introduction of ICS, you are having a better visibility in terms of the impact of that. Compared to a year ago, explanation has not changed. What is the reason?
I see. Thank you very much for your question. I would like to ask Mr. Okada, our Group CFO, to explain. I would also like to say that we have been trying to be transparent as much as possible and be sharing what we can at every point in time. As you said, ESR is an important element in order to measure how sound we are, it is also an important factor that the market is watching, and we are trying to be able to communicate in a transparent way what we can communicate to you. Let me ask Okada-san to respond.
Yes, thank you very much for that. My comments might overlap with what was mentioned, but with regards to share buyback, ESR and capital level adjustment, we are also looking at the business market environment and investment opportunities, also impact on EPS growth. This is also taken into account from this fiscal year. It is not just that we will decide on the amount of share buyback by looking at the ESR level alone. In looking at the current business environment, as was mentioned earlier, there is impact of Trump tariffs policies and there are uncertainties in the market. For us, in terms of new business investment or additional risk-taking opportunity could arise. It is 147%-149%, which is a 2% increase. As you see on page 32, the risk volume, risk amount, has not changed over the past six months.
In this context, our current assumption is that we are taking into account the impact of EPS growth, therefore JPY 220 billion for the full year seem to be relevant. We will also take a fresh look at the interim. There is, therefore, a possibility that we could revise the full-year share buyback amount.
If I may, with the introduction of ICS, your way of thinking towards target range, like say the broad breadth of target range, could that change?
You are talking about the range of target range? Currently, it is 100%-140%. Will our thinking change with the introduction of ICS? This is kind of an overlap with Tsujino-san's question, and it is on page 40. With the introduction of IFRS, ICS is scheduled to be introduced in FY 2026, and the definition of ESR and the target range for ESR is currently being deliberated.
We would like to seek your input and feedback as well. We are hoping to share with us our guideline in fall of this year. Thank you very much. The points that were just raised by Sato-san just now, we are hoping to find time to get your feedback from our investors and analysts. Thank you.
Naruhiko Sakamaki-san from Mizuho Securities, please.
My name is Naruhiko from Mizuho. I have a question. On page 25, regarding the solutions business, you have more pages allocated for solutions business and talking about the expected future. You have the public spending, you have some room for growth in the private sector, and what you expect the market to be. In relationship to ID&E Holdings and how much of a market share expansion do you expect? Your market share according to this material is 10%, but what is the speed of market share expansion, and also how large do you want your business in this market to be? Also, if you go to page 28, for the ROE solutions business contribution to enhance ROE in the next midterm plan, what aspirations do you have in terms of ROE with solutions business in place?
Thank you for your question. Regarding disaster prevention and mitigation, can I answer your question surrounding that area? Yes. On that p oint, I would like to appoint Masashi Namatame-san to talk about it.
My name is Masashi Namatame. Thank you for your question. In the solutions business, as Satoru Komiya-san mentioned, for the next generation, we want to expand and enhance our capabilities, and this is one of the most important areas that we will be working on within that. Yoichi Moriwaki-san in charge of solutions business. Together, we have been telling you that the disaster prevention and mitigation and also healthcare, decarbonization, mobility and pet are the important areas where we want to expand our business areas, and there are some special initiatives.
ID&E within that was more leading in the effort because in disaster prevention and mitigation, in order to materialize it as business, our capability, our economic result had to be there with ID&E. That is why we have decided to acquire ID&E on November 19th, and we have integrated the two businesses. Now it has become a wholly owned subsidiary as of May this year. ID&E, together with them, what kind of businesses we want to be doing together, as Mr. Komiya mentioned, let me add some words to that. First with ID&E, this is a business company. They have Nippon Koei. They have construction consulting, disaster mitigation, prevention services available, and their market share. They have a leading market share with the distant second and below. Overseas, they have ODA projects, and they have been developing various social infrastructures.
Also in private sector, they have been building intelligent buildings, V-city, V development with disaster prevention and mitigation perspectives, city building, urban planning, et cetera, are their areas of forte. Their expertise in both domestic and international is extremely at a high level. With that backdrop, as we integrated the two businesses, two sides had to come together to create new businesses, and we have had some long time having discussion over what we could do together. Those discussions continue as of today, and we are trying to materialize them. What we have been doing so far at ID&E, they have the public area, which has been their strength, and the government is facilitating making Japan a stronger land. There will be further growth to be expected to come from this project.
On top of that, most recently in the Noto Peninsula earthquake we had last year, natural disasters in Japan are becoming larger in scale. The situation is exacerbating. Recovery and rebuilding and also preventing further disasters to bring us damage are some of the areas where we expect the business to grow. Already at Noto Peninsula on January 1st, the earthquake occurred. From the 2nd of January, we have closed the area, and then from the most difficult areas, the work had started towards disaster mitigation and prevention. That is what they do as an example. What we want to further work on is the private sector disaster mitigation prevention. For example, there are various government-led initiatives, also voices from the stakeholders. In the private sector, there is a heightened awareness over the need of disaster prevention and mitigation.
The voice is only getting bigger day by day, as you may know. We still have a lot more to go. We have not gotten enough input from the private sector. Therefore, through insurance, we have been working to protect policy holders through insurance. On top of that, we can also provide them disaster mitigation prevention advices. For example, at data centers or intelligent facilities or where disaster prevention requirement is so high, there are various projects taking place, and we are thinking about where we can intervene and provide value. There are some redevelopment or reuse of land held by private sector companies, a facility that could be used as disaster prevention mitigation, also as a commercial facility. Those projects, there are various projects underway in this area. We want to be preemptive.
In other words, because we have ID&E, we want to be utilizing the capabilities held by ID&E so that we will be able to create new businesses and also allows us to grow even further. Thank you.
Today, on the slide, we have talked about flood damage from typhoon as an example. Specifically, what kind of services we can offer, we will make a more clear list and share that with you. There are basically two things we want to do. The first is that because they have not really done private sector work, they were public spending centered. Whatever they have, we can just move that or transform that to be in private sector, and then we can offer that through Tokio Marine on its customer base so that this is just a fight of time before the next one hits.
We need to be penetrating this as quickly as possible. Their profit is about JPY 10 billion. By expanding into the private area, how quickly they can expand is a key. Another area is that the bundle sales or merged sales of insurance and disaster prevention mitigation is unprecedented, the new product that will become available. Lastly, if I may add, the ID&E will be, of course, disaster prevention mitigation. They also have urban development and energy business. In every area they have, it is all related to the solutions business, healthcare, mobility, decarbonization. There is a lot of overlap between the two. The third point is the new synergy to be created from the areas that overlap already. As Namatame-san explained, mostly it will be the two major points, and so existing services, how quickly can we expand that into the private sector business?
For new services and products in May, we have just integrated with them, and there is PMI, there is a strategy meeting co-participated by the ID&E side and Tokio Marine side. I hope to be able to share with you more specific stories in the near future. Thank you very much.
Thank you.
Miwa-san from Citi.
Miwa from Citi. Page 28. Long-term ROE, your message, business model. Those are some questions I would like to ask. Six months ago, when we look at this slide, the 20% ROE target, I think that was the end of the graph. Of course, you have been always calling for a 20% or higher. How is the ROE expectations going up? I would like you to comment for three aspects. You are becoming a company that can generate ROE of 20%, and how can you achieve that? What are some risks associated to that? If you look at your global peers, ROE in insurance business is about 20%. That is my understanding. If possible, use leverage or change the mix, or going beyond insurance could be your options. What are some ideas that you have in updating this slide on page 28?
Thank you for your question. Again, I would like to ask our CFO to respond to this question. At this point in time, becoming comparable to our global peers and increase our ROE and our drag factor, which has been, as you know, there are multiple factors that we have been sharing with you, and we want to make sure that we have the right initiatives in place and new added values, new businesses have been launched, and our organic capabilities have been enhanced. Now there is a particular goal. It's not that there is a particular goal that we're aiming for, but there is a long way to go.
It's kind of a regret to say that, but in order for us to catch up with our global peers, we need to deliver on what we need to do and also envision what we need to aim for. Let me ask Mr. Okada, our CFO, to respond to your question.
Thank you for your question. Page 28 has been updated from a previous slide, and you might have interpreted as we've changed our target. At the time we started our MTP of 20% or higher ROE, basically, as you see on page 30, business-related equity sales will be executed over six years, and what will be released out of that will first be used for conventional insurance business. Therefore, 20% ROE, including business-rated equities, or excluding business-rated equities, 16%. What we have been expecting to include under or higher portion is inorganic growth. Capital released after sales of business-related equities, if that's going to be used for M&A, we could achieve a ROE of 20% or higher.
When we announced this in fall of last year, our acquisition of ID&E Holdings was not announced, but it's a capital-light business that has now become a part of our group, and therefore, there is a high likelihood that we will be able to achieve 20% or higher in ROE. That's reflected in this updated page. As was mentioned in terms of leverage, and I am kind of repeating myself, but on page 48. Not page 48. When we acquired PURE Group, we used capitalized securities, and therefore, using this is page 84. When it comes to large M&As, we will use hybrid securities and revisit our security makeup. As we have been saying, are we going to use recapitalization to increase the ROE? No. ROE is going to increase as a result of our improved growth.
Coming back to page 48, we are not expecting any leverage reflected in this, but organic growth and M&A should contribute to this growth in ROE. If there is fee business with low capital requirement that will add to it, that will improve the ROE.
Incremental growth. That is what we mean. That is all from me. Thank you.
Thank you very much.
Thank you for that. Time is limited, but Takemura-san from Morgan Stanley, Majima-san from Tokai Tokyo, and on telephone from Sasaki-san, Otsuka-san, and from GIC, we have three questions through chat. We will cover that much before we close. Takemura-san, please, from Morgan Stanley.
From Morgan Stanley MUFG, my name is Takemura. I have some questions about the insurance underwriting market share related question. This time, your business practice is changing a lot, and for market share, whatever is happening, they might have worked favorable to you, but then when you start to see these changes, are you seeing any changes on the market share? Is your market share going up or going down because of these changes? Also your unit premium for auto, if it is going up, you might lose some customers.
But can you say that that is not going to happen and why?
Thank you for your question. Share meaning market share. Can I clarify your question?
Yes.
So, so far, based on the Re-New initiative, has it brought any changes or what do we expect to happen to market changes? What is happening with the market share situation now? I believe that was your question. So let me give that to Kitazawa-san, please.
Kitazawa-san in charge of sales will answer your question. Thank you for the question. So first of all, the status quo is that with the sales of business-related equities and also because of the merger of MS&AD, I believe that our business coverage area is even getting bigger because there are some companies who we could not even talk to are asking for inquiries, and we have also concluded contracts with those untapped customers.
Market share, like the past, each company, we do not really exchange market share, so this is only a ballpark figure. But at the end of FY 2024, so this is as of the end of March, what we have analyzed as market share is that we have shown the biggest growth in terms of market share within the P&C sector. The market is now becoming more liquid and there is inherent value with insurance and also the plus alpha value brought by solutions will have bigger roles to play. And so as we go through this change, we want to provide them with higher value.
Thank you. From Shirota-san, the President of TMNF will add some comments.
Thank you. So as Kitazawa-san said, in terms of the competitive landscape, I think your question asking what is happening to the landscape.
So first of all, as Kitazawa-san said, with the sell-down of equities, et cetera, are impacted by the shareholdings, there is competition and there is no business cooperation, et cetera. And so there is no offering of convenience to customers, whether you belong to Zaibatsu or others. We are doing sales in a very flexible manner. At the same time, what we have protected, they may not stay with us anymore. However, in the healthy competitive environment, while we provide value, there is true competition taking place. And to us, this is what we wanted. However, we still need to be chosen within this competitive environment. And so that is how the market had already changed in this past one year. In that environment, we will be providing insurance plus alpha and so P&C life and solutions.
These are three types of services we can offer to one and the same client, and that is our forte. And so that is defined. And with human power, we have the expertise to deliver those services, and that is what we will continue to do. That was about the wholesale business. In the retail market, similar thing is happening. In the retail market, on top of what I have said, the purchasing behavior is changing now in retail. So it is not just face-to-face and it is not just direct, but there is a good mixture of human power and digital technology where people are expecting to see, and that becomes bigger value. So the market had expanded with that in more demand, and we need to be capturing the needs and requirements of the customers, provide value, provide them with better value. And can we do that or not?
That is where we are competing on. The competition is shifting to those areas.
Thank you for your answer.
Thank you. Majima-san from Tokai Tokyo.
This is Tatsuo speaking. Page 35, EPS growth target is shown and 8% or more announced in May of 2024 is the current target and share buyback of 1% to 2% I think it was the assumption back then. Now 1.2% of share buyback, I think it is more like 2% already. So more than 8% or the share buyback range has been raised, therefore raising to 9%. You were saying that you do not want to disappoint the market. What I expect from you is EPS growth of maybe 10%. Do you believe that you will be able to seek EPS growth of 10%? Because 10% growth or 8% growth in the capital market will give a very different impression, therefore 10% growth in EPS growth, is that possible? That is my question.
Well, I gave you an answer in my presentation, so I would like to ask Mr. Okada, our CFO, to respond to this question.
Tatsuo-san, thank you very much for your question. If you could please turn to page 4. Excluding business-related equities, CAGR of more than 8%, and for the two years, the second year, this is still in progress, but 10.5% is the plan towards the plan for FY 2026. TMNF is going to improve its underwriting profit. Therefore, we want to achieve more than 8% or achieve 8%, and to what extent we will be able to achieve 8% or more in the final year of 2026 will be in question. We are still in the second year, and with regards to the plan that will start from FY 2027, it has not started yet, but we want to achieve at a higher range than above +8%. We would like to strive for that. Thank you very much.
Now we would like to receive some questions over telephone from Futoshi-san of Nomura Securities. It is your turn.
My name is Futoshi from Nomura. I have a question. Business-related equity sales, when you finish, what will be the level of profit? This year, adjusted net income is JPY 1.1 trillion. That is your plan for this fiscal year. After four or five years, when you have finished selling business-related equities, this JPY 1.1 trillion for 2025, where will that go up to? Do you think that it should be above that number? For example, excluding the capital gain from sales, is it going to be the JPY 700 billion that you are looking at? Do you also expect this number to grow excluding equity sales after you have finished selling?
Okada-san, our CFO will answer.
Thank you for the question. After we have finished selling the equities, last year, as we have said, we will finish selling by 2029, and by the end of fiscal 2026, we will be halving the amount as a milestone. These we have committed, and I will be executing the sell-down accordingly. As for the level of profit as a result, as Natsumu-san questioned, once we move to IFRS, based on IFRS accounting, what are the profit indicators that we will use in indicating profit? That is something that is under consideration. In the fall season, we will be announcing the definitions of the profit indicators and also about the absolute level or what we want to achieve according to the new indicators.
As I repeat, in the fall season, together with the definitions of KPIs, we would like to share with you which level of target we will aim for. Thank you very much.
Thank you. Also online, we have Otsuka-san from SBI.
Otsuka from SBI Securities. Thank you for taking my question. Digressing from today's topic, Mr. Koike, I understand is attending as the next CEO. Tokio Marine Group's challenges, what are some issues that you consider as challenges for the group? What do you think needs to be changed? Changed immediately, what can be changed immediately or needs to be changed over time? I would appreciate it if Mr. Koike would give some color on that.
Thank you for the question. Let me turn to Mr. Koike.
This is Koike speaking. Thank you for your question. What are the challenges the group is facing, and how do I plan to change? In terms of the direction of the business strategy, I do not plan to change at all in any significant way. When it comes to execution, I have a strong sense that we need to focus on execution in order to improve our competitive advantage and also to develop into new domains beyond insurance. The organizational setup and globally integrated group management will have to be brought to a new level, and we will need to continue to invest in talent, which is going to be a driving force for transformation. I think we need to double down to take further initiatives on those fronts.
The direction or when it comes to execution of a strategy, I would like to present my ideas with you when the time is right. Thank you.
I wanted to get a better understanding. When you say execution, is that ability to execute? Is that what you mean?
I am sorry. The audio is very poor.
Could you elaborate what you mean by execution? Is that a capability to be able to execute?
Yes, you are exactly right. Yes, I use the word execution, meaning the ability to put things in place to be able to execute.
On chat from Mr. Tan of GIC, we have received a question. I am going to be translating the question. Given the group's high ESR sensitivity to credit spreads, do you have any concern around spikes in credit spread in the event of This is on page 83.
If it moves by 50 basis points, ESR moves by 8 points. He thinks this sensitivity is quite high. While we have this highly sensible index, there are some concerns over U.S. recession. If the credit spread expands, do we have any concerns in case of a U.S. recession scenario taking place?
On that question, we would like to ask our CFO, Mr. Okada, to answer. If you have anything to add, Nakahara-san, CIO, will add anything to it.
If you look at page 83, the credit spread, it is expanding, and that is because in the asset management, as Komiya-san explained earlier, in North America, because underwriting profit is expanding, we have bigger AUM. Because of bigger AUM, there is more risk-taking. That is a very healthy way to expand investment income.
ESR is calculated in JPY terms, and so in 2024, JPY will depreciate, and then that is one factor. In North America, asset management risk has also to be diversified, and we are also monitoring it closely. The current ESR situation and also the taking of credit risk in North America, we have no concerns over the status quo so far. Nakahara-san, would you like to add anything?
Thank you for the question. From the asset management point of view, I'd like to add a few words. As you mentioned, right now the market is uncertain. On the other hand, regarding the credit spread in terms of the level of spread, once the Trump tariffs was announced, the credit spread widened, but then it had come back to the normal level. We are in a situation prior to the announcement of Trump tariffs.
However, going forward, things are uncertain and therefore it could widen once again, who knows? We are also considering that scenario and what is the investment activities required and how much of that has been factored into this fiscal year's plan. This time, CRE loan situation has been disclosed. The balance is going to come down, and investment income will still going to grow, but we are not excessively expanding credit risk. When the credit spread widens, we want to secure still some room to make further investment. That cushion will still be there. If there is an opportunity, we might capture new opportunities as a way to see upside in investment income. That concludes my answer to your question.
Thank you very much. I think we have been able to respond to all the questions that were raised.
We heard from Komiya-san as an opening presentation, but now we would like to turn to Mr. Koike as the successor to Mr. Komiya to say a few words before we close.
Hello, this is Koike. Today is the first time for me to stand on the stage at this business strategy briefing, and I was able to see firsthand how our management is refined through dialogue with analysts and investors like yourselves. I feel truly invigorated, and I would like to express my sincere gratitude for your support. I will be taking over as CEO from Komiya-san at the general shareholders meeting next month, but our business strategy and the broad direction we have discussed today will remain unchanged. By steadily implementing our business strategy, we will continue to achieve world-class EPS growth and realize an ROE on par with our global peers. What is expected of me is to make this progress even more solid and to not slow down the pace of the transformations we are currently working on, including TMNF Re-New, but to further accelerate it as necessary.
Mr. Komiya has always said, "There is nothing that must not change other than the purpose that has been with us since our company's founding." I have always thought the same. Komiya-san's achievements and successes that have increased our company's corporate value will be inherited as organizational knowledge. I will continue to develop the good parts, but I will also review strategies and methods in response to future changes in the business environment and will not hesitate to make flexible challenges. Let me give some color. As was explained today, we have built a strong business model both in Japan and overseas, and strong talent to support it. These competitive advantages will be further refined.
At the same time, the solutions business, which is a business area I feel attached to, as I have given much deliberation during my time at the corporate planning department, I will take the bull by the horn, if you will, to further enhance the range of services we provide beyond insurance. To achieve this, I also recognize that we must raise the quality of our management to another level. While continuing to refine our unique globally integrated group management, the company will evolve into a true global company with origins in Japan and continuously improve our corporate value. I would like to take this opportunity to express my determination to you all.
I am currently preparing a message to our employees as CEO in June and have decided to tell our employees, approximately 50,000 of them around the world, that integrity, accountability, and ownership are three points to always be strongly aware of in value. With each employee doing the right thing, sincerely fulfilling promises, and taking on the challenge of change with a sense of ownership. Accumulating evolution that starts with our employees will be an essential driving force in refining our business model and increasing our corporate value. As CEO, I will lead by example and embody this in every situation, both inside and outside the company. I will also engage with the capital market in a transparent and sincere manner.
I welcome tough feedback from you, and through such healthy dialogue, I will work with the management team gathered here today to improve the quality of our management and our corporate value. Your continued support is very much appreciated. Thank you very much for today.
Thank you, Koike-san. Let me pass to Mr. Komiya for closing remarks.
This is Komiya again. It has been a long afternoon today. Thank you for your participation. As I said in the very beginning, this kind of opportunity to have a dialogue and receiving various suggestions and instructions and many other voices from you, I would like to take them all in and reflect them for a strategy and move forward. I continue to ask for your support and guidance. That concludes my final remarks and once again, thank you very much for your participation.
That concludes the FY 2025 first half IR small meeting. This is the end of the meeting. Thank you.