As it is time, I would like to start the meeting. Thank you for joining us for the Tokio Marine Holdings IR Conference for the first half fiscal year 2024. I will be serving as the moderator. My name is Ishiguro from the Global Communications Department. Today's conference is held in a hybrid format with participants joining both online and offline. Let me explain the officers representing the company. From Tokio Marine Holdings, Group CEO, Mr. Satoru Komiya. Senior Managing Director and Group CFO, Mr. Kenji Okada. Senior Managing Director and Group CSO, Mr. Yoichi Moriwaki. Co-Head of International Business, Mr. Kichiichiro Yamamoto. Senior Managing Executive Officer and Group CDO, Mr. Masashi Namatame. Managing Executive Officer and Group CRO, Mr. Kiyoshi Ajioka. Managing Director and Group COO, Mr. Kiyoshi Wada. Managing Executive Officer and Group CAO, Mr. Shunpei Takizawa. Managing Executive Officer and Group CIO, Mr. Yoshiaki Nakahara.
Executive Officer and Group Sustainability Officer, Ms. Mika Nabeshima. From TMNF, President and CEO, Mr. Hiroaki Shirota. Vice President and Executive Officer, Mr. Kenichi Kitazawa. Senior Managing Executive Officer, Mr. Eiichi Hosojima. Managing Executive Officer, Mr. Hiroshi Sakiyama. From Anshin Life, we have President and CEO, Mr. Tetsufumi Kawamoto joining this conference. Today, we will start with a presentation from Mr. Komiya, Group CEO, President and CEO, Mr. Shirota of TMNF, and Mr. Yamamoto, Co-Head of International Business, using the materials available from our homepage, after which we will open up for questions. We schedule to end at 4:30 P.M. Japan time, but due to questions, we may run 30 minutes overtime. Your understanding is very much appreciated.
Hello, everyone. My name is Komiya. Thank you very much for attending our management strategy meeting today. I would also like to thank you for your continued support to Tokio Marine. On Monday this week, we announced our financial results and held a conference call. I would like to once again thank you, everyone who participated in the conference call. As mentioned in the conference call, our profit plan for fiscal 2024 is JPY 1 trillion, and we are standing in a clearly different place than we have in the past. In addition, we are still on a journey to achieve world top-tier EPS growth and raise ROE to the level of global peers. We are still continuing this journey. We hope you can take a look at the picture on the cover page of the material.
This is an image of where we stand and our commitment to where we want to be. We will be thankful if you from the capital market could see the same view next to us, and if you could have a greater confidence and trust in Tokio Marine. With this in mind, today, I would like to explain our strategy for achieving this goal by deep-diving into the details of each of our businesses. Please turn to page two of the material. As for today's agenda, I will first explain about the group business strategy. Then after that, since this year is the initial year of the Mid-Term Management Plan, I will take a little more time in explaining.
First of all, I ask Mr. Shirota, the newly appointed President and CEO of TMNF, to explain about Japan P&C business, followed by international business by Mr. Yamamoto, our Co-Head of International Business and Senior Managing Director. They will be speaking with the determination and passion. Then after that, I will once again come up to explain our solutions, business strategy, and capital policy. Our presentation will take about 50 minutes in total. After that, we have allocated some time to take your precious questions and comments. Now, please turn to page three. Here, I have summarized three points that I must share with you today. The first one is EPS growth.
EPS growth under the New Mid-Term Management Plan is expected to be 8% or more on a CAGR basis, and 16% or more including gains on sales of business-related equities, both of which will continue to be top tier in the world. The source of this growth will be our world-class profit growth that we will achieve through a strong underwriting portfolio with globally diversified risks, as well as strong asset management income by leveraging the nature of liability. In other words, this growth will be achieved through strong organic growth. As for DPS growth, this will also be consistent with strong EPS growth. In fact, we plan to achieve a delta of +29% in FY 2024. Beyond that, we believe that we will be able to sustain DPS growth as moving average or profit as source of dividend income will increase.
Next, regarding ROE, it is expected to be 14% or higher in FY 2026, and 20% or higher, including gains from the sales of strategic shares. Even in ROE, it is indisputable that world-class profit growth or numerator measures will be the main driver here as well. On top of that, there is a progress towards zero stock holding policy, and we are all aware that all of you are interested in how we use the surplus capital we will create. In fact, we currently hold JPY 3.5 trillion of business-related equities on market value and JPY 0.4 trillion at book value, which we will reduce to zero over the next six years. The milestone over the next three years will be to half the amount. Regardless of the milestone, we intend to sell as much as possible ahead of the schedule.
We will then, as in the past, use the capital we generate for M&A and risk-taking that will contribute to improving our ROE. If we are not blessed with good opportunities to do so, then we will execute share buyback, thereby implementing a disciplined capital policy so that we raise our ROE to the level of global peers. As our current ESR is at a sufficient level of 140%, we have decided to repurchase JPY 200 billion of our own shares in FY 2024, as announced recently. The last of our key messages is to strike the right balance between profit growth and governance at a high level. As we have expanded our businesses globally, issues arose, large and small, in different backgrounds and for various reasons. We have faced these issues right on and implemented core countermeasures one by one.
Based on this, we have steadily enhanced our capabilities of global risk diversification and integrated group management where each region has produced results with their business performance while complementing each other and understanding each other. We believe that this ability to be responsive is one of the elements of our management quality at Tokio Marine. At present, all management and employees at Tokio Marine & Nichido Fire share the same vision of renewing the company, and we are already making steady progress in our efforts towards such a reform. The new President and Group CEO of TMNF, Mr. Shirota, will explain about this later. In the New Mid-Term Management Plan, we will expand the business coverage areas in which we provide value, focusing on the pre and post-insurance arenas and fully develop insurance plus solutions. We will have a full launch start of these solutions.
Especially in Japan, a country bound with issues, we believe that these pre and post-insurance solutions will be a key success factor in the future. As we have been saying before, it will continue to be our key success factor and also a new pillar of profit growth. It may take some time, but we are determined to make steady progress. Those are the key messages I wanted to convey to you. Now I will talk about group management strategy. Please refer to pages four and five. Page four shows our EPS growth target in the New Mid-Term Management Plan, and page five shows a peer comparison of EPS as a track record. We have achieved world-class EPS growth while controlling volatility, and this will not change in the New Mid-Term Management Plan.
The EPS growth target in the New Mid-Term Plan is +8% or more, of which 7% or more will be achieved through profit growth and 1%-2% through share buybacks. Strong base profit from organic growth will be supplemented by gains from sales of business-related equities by additional 8%, resulting in the target, as you can see on the blue box, adding that the target will be 16% or more. The most important driver there will be the profit growth without relying on the equity sales, which will be 7% or more. Please look at page six on this. The pie chart on the left side of the slide shows the contribution to profit growth from each business segment. Since well more than half of our profit is now generated by our international business, the international business will naturally make the largest contribution to our profit growth.
On the right side of the slide shows the profit growth rate of each business. Japan P&C is 5% or more, international is also 5% or more. But on the basis of excluding prior year reserves that are not included in the initial annual plan, it becomes 7% or more. You can see that we have achieved the profit portfolio with a well-diversified risk portfolio in each region. Also, as you can see from the long track record, organic growth is achievable in a continuous and repeatable manner. Now, in order to enhance the visibility of each business, I will ask the top executives of Japan P&C and International Business to introduce their own scope of business. First, I'd like to hand over the microphone to Mr. Shirota, the President and Group CEO of Tokio Marine & Nichido Fire Insurance Company.
Hello, my name is Shirota. It is my pleasure to meet all of you today. I was appointed to be the President and CEO of Tokio Marine & Nichido Fire in April this year, six months ago. At this very IR meeting, we said we will rebuild Tokio Marine & Nichido to become a new company. Leading the way in carrying out this transformation, and as a result, achieving growth is what I believe to be my mission as the CEO, having assumed the position at this critical timing. Not bound by the conventional common sense of the non-life insurance industry or of TMNF to place customers at the starting point of all thinking and to take customer-driven actions so that we become a company that is truly trusted and needed. TMNF is united in our efforts to make Tokio Marine & Nichido a renewed company.
I also hope that everyone in the capital market will stay tuned to our progress of transformation and the resulting profit growth. I look forward to your continued advice and support. Now, I would like to dive into the content. First of all, I will present the vision TMNF aspires to achieve through Re-New initiatives on page seven. The vision is to, first, accurately analyze customers' risks professionally, and two, provide optimum insurance and solutions that go beyond the insurance to hedge those risks. We also aim to, number three, by providing solutions pre and post-incident occurrence to avoid or mitigate damage itself in order to enhance clients' resilience.
Furthermore, number four, if we can reduce the loss cost itself, we can lower insurance premium while maintaining an appropriate margin, which means that for customers, they will be able to purchase insurance with affordable price in a stable manner without high cost burden. In this way, if customers purchase Tokio Marine & Nichido's insurance plus alpha solutions, they will have ways to avoid accidents and damages or mitigate damage even if they do occur, and the cost burden is not too heavy, the number of customers should naturally expand. Distribution with high-quality expertise and a sense of mission will drive this expansion. The more we sweat, the more resilient our customers in Japan will become and the lower the cost to society. Such is the world filled with sense of safety and security that we want to create.
We believe that this world we want to create is unprecedented, and through the realization of such a world, we intend to sustainably increase our own profit and corporate value. Now, I will talk about what needs to be done and what has to change in order to realize this world. Please turn to page eight. The first point is to realize a world in which customers choose an insurance company based on the inherent value it provides. In the past, the amount of business-related stock and cooperation to customers' business has influenced the selection of insurance companies by customers to a certain extent, and we believe that this industry practice has also been a burden on capital and workload for us. However, now that equity holding will be reduced to zero and excessive cooperation to customers' business will be eliminated, an appropriate and efficient competitive environment will be formed.
In this environment, competition will take place over intrinsic value of insurance, and that will be viewed as the true competitive edge of any insurance company. This is the world we originally wanted to be in, and I believe it is one in which we excel. On the right side of the slide are the key success factors for winning in this new environment and explaining whether we have them or not. We have advanced underwriting capabilities that we have developed since our founding. We have product development and coverage provision capabilities where we take advantage of our collaboration with ACC, and solution provisioning capability through an outside partner, through CORE, our disaster prevention and mitigation consortium. We continue to expand our customer base by leveraging such strength. Please turn to page nine.
Once again, it is our duty as an insurance company to sustainably provide appropriate coverages at appropriate rates in a stable manner, corresponding our customers' risks and needs. Second, in order to sustainably fulfill this duty, we will continue to ensure more disciplined underwriting. While we have always emphasized bottom-line growth and executed disciplined underwriting, we may have perhaps been overly conscious over top line and market share. To change this, we have already reviewed our award system and performance evaluation system, which will lead to an emphasis on the top line. We have also introduced a mechanism to eliminate from our targets any revenue loss resulting from profit improvement efforts, sales of business-related equities, and cooperation to customers' business. Please turn to page 10. The third point is about distribution.
In order to deliver the value of insurance plus solutions correctly and efficiently to a large number of customers, we need to establish a strong distribution channel with high level of quality and expertise, trusted and chosen by customers. This is what we will build. As for specific measures, the left side of the slide mainly shows measures for existing channels. We also plan on using more digital technology to improve the sophistication and efficiency of our support extended towards agents. At the same time, we will eliminate the excessive support for agents with poor quality that has existed in the past, the so-called two-tier structure. In addition, we will make a major shift to an agency commission system in accordance with their quality and level of independence, or in other words, the value they provide.
On the right side of the slide, you can see our plan for diversification of distribution channel. One is to build our unique new direct model. Through D2C, direct to consumer, we will create unprecedented customer contact points while building a direct platform that allows customers to complete the entire contract procedures from premium estimation calculation to policy application on the web. We will also create a business process where customers can feel most comfortable by receiving detailed consulting service from agents, including free consultations if they wish. This will be an effort with the aim to increase the number of customers. In terms of points of contact with customers, we will also continue to expand embedded insurance, which is a type of insurance that is fully digitized. Please turn to page 11.
We submitted our business improvement plan to the Financial Services Agency at the end of February, and since then, we have been implementing specific measures in accordance with the plan. This slide summarizes some of the major initiatives included in this plan. These efforts are aimed at preventing inappropriate behavior from ever occurring again, as well as launching reforms to create a new business model. As you can see, we are making steady progress, and we are not only doing this through our initiatives as an individual company, but we are also determined to contribute to the transformation of this industry as a whole by taking the lead and breaking the ice in improving business operations. Please turn to page 12.
Now that I have explained the renewal efforts at TMNF, from here, I would like to explain the KPI targets of the New Mid-Term Management Plan and the measures we will take. First, on business unit profit. We plan to achieve a CAGR of 5% or more in the Japan P&C business, as shown in the waterfall, because sales of equities will get accelerated, and in fact, its balance will be cut to half during the course of the Mid-Term Plan. This means that dividend income, which currently half by about JPY 75 billion, will also shrink accordingly. In addition, budget will be raised to a New Mid-Term Plan. Despite these negative factors, we plan to offset them with rate hikes, expansion of customer base, and strong growth in underwriting profit as a result.
We will achieve a CAGR of 10% or more in underwriting profit, which we believe is highly possible with rate hikes and product revisions. As a result, combined ratio at the end is expected to improve to around 92%. Now, let's take a look at each line of business. Please turn to page 13. First, in automobile insurance, currently loss cost is rising due to inflation and impact of revenge driving and other factors. Combined ratio has deteriorated to 95.7%, the worst level in the past 10 years, as shown on the lower left of the slide. In response, in addition to the assumption of executing constant management efforts, such as reducing business expenses by improving operation efficiency, we will implement rate increase and product revisions in January next year for two years in a row.
As we have seen a major hail damage last month in Hyogo Prefecture, we will continue to monitor loss cost trends, including natural disasters, and implement proactive rate revisions as necessary in order to achieve auto combined ratio target of stably below 95%. Please turn to page 14. Improvement of fire insurance profitability will continue to be a driver of profit growth. We have taken comprehensive measures so far, such as rate and product revisions over the past four years and reinsurance cycle management. As a result of these measures, profitability has improved significantly, and as I have mentioned, we have achieved a profit-making on normalized natural catastrophe basis in FY 2022 and on actual basis in FY 2023. However, fire insurance bears the risk amount of natural disasters, and from our perspective, the current level of profit is still lower than the cost of capital.
In light of the situation, we will revise our premium rates and products in October 2024, and by implementing bottom-focused initiatives as part of Re-New, namely disciplined underwriting for unprofitable policies and improving underwriting terms and conditions. By doing so, we hope to achieve profitability equivalent to the cost of capital by FY 2026, as we have been saying. Please refer to page 15 for more information on specialty insurance. In the three years under the New Mid-Term Plan, we will continue to increase sales of specialty insurance by JPY 100 billion and underwriting profit by JPY 7 billion, as we did in the previous Mid-Term Plan. In Japan, a country bound with various societal issues, such issues are becoming more diversified, complex, and they are expanding. On the other hand, penetration rate of specialty insurance is still low, and the growth potential is undoubtedly large.
Its combined ratio is stable at a low level, making it a very attractive market. In the New Mid-Term Plan, we will focus on the five priority areas such as SME-GX, healthcare, cyber, and newly added resilience, while leveraging our unique strength, as shown in the lower right corner of the slide, to achieve results. Please refer to page 16 for details on improvement of expense ratio. Our current expense ratio is 31.8%. The model we initially depicted three years ago to reduce administrative work through the thorough use of digital technology and using the related labor for expansion of specialty insurance, new businesses, loss control, and loss prevention in order to bring down the overall combined ratio and expense ratio is beginning to take effect.
Going forward, in the New Mid-Term Plan, we will first solidify expense ratio in the 31% range by realizing administrative work reduction projects, utilizing generated AI, and realizing a flexible agency commission scheme relative to the value they provide as a part of the Re-New initiative. By doing so, we would like to see the path towards the expense ratio of 30% or below in the next stage. This concludes my explanation of Japan P&C business. I would like to reiterate that we will definitely realize the transformation of Tokio Marine & Nichido, which is the origin of the group, and the Re-New project. We will also highlight our presence as an important driver in the group's profit growth. I would like to conclude my part of the presentation by conveying the commitment by Tokio Marine & Nichido's management. Thank you for your patience.
Now, we will continue with international business by Mr. Yamamoto, please.
My name is Yamamoto. I am the Co-Head of International Business. As Mr. Komiya mentioned, the international business currently accounts for more than half of the group's total profit, and it comes with much pride and responsibility for driving group's profit growth. I will now explain the growth strategy of the international business in the New Mid-Term Plan, which calls for the strategy to achieve top-class growth in each country and region. I will also explain the reasons why we can achieve this. Please turn to page 17. In the international business, we will achieve a high growth rate of more than 7% or more in CAGR in profit under the New Mid-Term Plan. If you look at the right side of the slide, you can see the well-balanced profit growth between underwriting and investment.
We are also providing, on the bottom of the slide, the breakdown of underwriting profit.
Our combined ratio is already low at 92.3%. Our strategy in the New Mid-Term Plan is to maintain this level while steadily raising the top line through rate increases and business line expansion. In this plan, we have incorporated some softening of the market in the future, but still, we plan to grow mainly in North America's specialty business. Please turn to page 18. We expect underwriting profit of our North American business to grow at a CAGR of about 10%. Unfortunately, we do not have comparable data to compare this level with the top players in North America, and there are some differences in the term covered. That said, vis-à-vis the top North American players with a CAGR of around 8%, I think you can see that the growth of our North American business can be said to be among the best in the region.
Let me elaborate on how such strong growth trajectory can be achieved in the future. First is the profit growth driver, rate increase. Please turn to page 19. On the left side of the slide, you will find a track record of rate increase by TMHCC and PHLY. The crucial point about rate increase is to assess our current and future loss costs and increase rates now to fully meet them. If we can do this, we can continue to maintain adequate margins and steadily grow underwriting profit while controlling the impact of market cycles. In fact, we've been able to achieve rate increases that significantly outperform the market and, as a result, steadily increase our underwriting profit. This is possible through the unique strategies or winning formula, if you will, that our Group companies have refined over the years.
Let me focus on the four Group companies in North America today. Please turn to page 20. First is TMHCC. TMHCC, for 50 years since its founding, has established a solid position as a global leader by underwriting various lines of specialty insurance, rigorously refined the highly specialized underwriting, and claims service expertise. They have executed more than 60 bolt-on M&As and acquired underwriting teams to build a profitable and well-diversified portfolio, as represented in the stable combined ratio with low volatility, highly reproducible regardless of the market environment. This is their strength. Turning to PHLY. PHLY focuses on niche customer segments with high profitability where it can leverage its strength. This has consistently been their strategy. A strong sales network, TEAM PHLY, has been built that enables disciplined underwriting. As evidenced by the high Net Promoter Score, they have won the hearts and minds of customers.
These are not things that can easily be lost, and we are confident that they will continue to support strong growth in the future as a distinct competitive advantage over peers. Please go to page 21. Top of the slide is RSL, Reliance Standard Life, a life insurer under Delphi. Delphi has been contributing to the profit growth of the group with its investment capabilities. More recently, they are focusing to improve insurance underwriting income. Combined ratio in FY 2023 was in the lower 90s. RSL mainly underwrites LTD, long-term disability. Selling as a package with a market-leading absence management product offered by its group company, Matrix, has generated added value and high competitive advantage. Bottom of the slide is PURE. Since our acquisition in 2020, the company has grown steadily.
The company continues to provide products focused on the high-net-worth segment and quality services, has earned high customer loyalty, and has raised its position in the U.S. high-net-worth market from third place at the time of acquisition to second. If you could jump one page and go to page 23. This is just for your reference. The Financial Times recently conducted a survey of risk managers at large corporations, and we recently received the number one customer favorability rating among North American commercial insurers. If this means that the strength I explained earlier were appreciated by our customers, it is a great honor. We will continue to refine our strengths and provide value to our customers. Next, to our unique strength in investment. Let me take you through Delphi Group, DFG's group investment. Please turn to page 24.
Income gains from Delphi Group credit investment is expecting a CAGR of 8%. The driver is long-term and predictable insurance cash flows, or AUM, backed by strong insurance underwriting across the group. Regarding income yield, DFG has achieved a return of about 300 basis points over the benchmark by selecting investments in credit assets with high return relative to risk while appropriately controlling interest rate risks. We believe that even if market interest rates decline in the future, we will be able to secure a stable high yield. In addition, we have secured a certain level of investment capacity to enable us to invest on favorable terms in the event of market turmoil. Please turn to page 25. The right side of the slide shows the total return of the Delphi Group credit investment for the past 20 years or less.
Although we had a significant capital loss at the time of global financial crisis, positive returns were maintained and have consistently outperformed the market average. This is possible by the investment team shown on the left side of the slide, which has gone through numerous market fluctuations and achieved stable returns throughout the cycle, as well as the strong collaboration with external managers enabling formulating and executing investment strategies in an agile manner, in response to changes in the environment. Highly reproducible returns is the strength of Delphi Group Credit Management and will continue to deliver stable returns. That is all for me. Strong underwriting and strong investment are the drivers of our international business. It may not be flashy, but we want to achieve further growth through strong organic growth and to drive the profit growth of the entire group. That is all from me.
Now let me pass the microphone back to Komiya-san.
Mr. Shirota, President and CEO, and Co-Head of International, Mr. Yamamoto, made a very powerful statement of commitment and has taken us through the strategy. From here, I will begin by explaining our solutions business, which is also an important growth strategy from a medium to long-term perspective. Please turn to page 26. At the IR briefing last November, I talked about the new company established in the area of disaster prevention, mitigation and mobility. Since then, both companies have launched solutions. Let me give an example in disaster prevention and mitigation. When the Noto Peninsula earthquake hit in January of this year, damage mitigation solutions for customers affected by liquefaction were offered. Product lineup is expanding.
By leveraging the wealth of real data accumulated in insurance and peripheral businesses and combining with capabilities outside the group, we will continue to create new and unique added values and solutions. Please turn to page 27. Earlier, Mr. Shirota, President and CEO of TMNF, explained the world TMNF intends to realize through Re-New. This slide illustrates value creation focusing on disaster resilience. The green area on the left. In addition to enhancing the function of insurance itself, we will expand our solution offering in business and post-incident. In other words, by enhancing the value chain, loss and damage of our customers are avoided or mitigated, as shown in the orange section in the middle. Resilience across Japan will be elevated and social cost reduced. Large social value can be created.
If such socially meaningful value can be created, moving to the right in blue, we should be able to enjoy appropriate margin from the business. Lower loss ratio in insurance business will enable increase in economic value of the company directly and indirectly. This cycle of value creation, which I might refer to as the Tokio Marine value, is what I envision across different fields such as disaster prevention, mitigation, mobility, healthcare, GX, among others. Now that I have explained strategies focused on each business, let me return to the group wide business strategy. I will start with capital policy. Please turn to page 28. The company has been taking a disciplined approach of allocating generated capital to business investment and risk-taking that contribute to improving ROE. But in the absence of no good opportunities, share buybacks are executed. This is the disciplined capital management.
As a result, we have been seeing increase both in profit and ROE. Regarding reducing business-related equities to zero, certainly with the acceleration of a sell-down, profit will increase for the next six years. However, as you all understand, unrealized gains on the shares are originally included in capital, so no new capital is generated by the sell-down of shares. In other words, sale of business-related equities alone will not lead to an increase in corporate value. The ability to use the amount of risk released by the sell-down to make quality business investments and risk-taking, and the skill with which this is done, will affect the value of the company. In this context, we will continue to execute our capital policy with discipline and enhance our corporate value as we have done in the past.
In the analogy of a mixture of wheat and chaff, or good and bad, we want to be wheat. Page 29 demonstrates our ROE track record, the result of capital policy, and target in the New Mid-Term Plan. The company has been successful in raising ROE through strong profit growth, disciplined capital policy, and executing market-based governance. ROE for FY 2023 will be 15.0%. This is due to the fact that the denominator, adjusted net asset, has increased due to the stock market appreciation and JPY depreciation, while profits have grown, which in itself is not a bad thing. We have always said that we would raise ROE to the level of global peers. ROE target for FY 2026 is 20% or higher, including gains from equity sell-down, using the same definition as before.
Excluding gains from sales of business-related equities only from the numerator, while the denominator still includes after-tax unrealized gains. Therefore, numerator and the denominator are not necessarily apple to apple. In this case, target is 14% or higher. This brings us within the ROE target range of our global peers. We will continue to steadily increase ROE. Please go to page 30. This slide demonstrates how the group's risk portfolio and profit portfolio has changed over time. We have achieved profitable growth by allocating capital to businesses with high ROR and diversified risks through ERM management. Specifically, over the past 10 years, we have expanded our international business, which allows us to achieve high-risk diversification while reducing business-related equities and interest rate risks. This is the reason why we have been able to increase profits without increasing capital needlessly. Going forward, business-related equities will be gone, zero, in six years.
The risk amount for business-related equities is about JPY 1.2 trillion today, will be released. Meanwhile, the profit of the company with the business-related equities will also be reduced to zero. ROR of companies with business-related equities is like this: take JPY 1.2 trillion of risk and make a JPY 449 billion in return. The return will be about 37%, but as I mentioned earlier, gains from sales of equities is only a cash conversion of the unrealized profit already included in net assets. So no new value is being created. Therefore, it is reasonable to recognize only dividend income, which currently accounts for about JPY 60 billion after tax, as return. In that case, ROR will be about 5%. Our ROE is about 15% currently. Therefore, business-related equities is clearly a drag factor.
Reducing business-related equities with low ROR to zero and investing in business with high ROR, as in the case of businesses without business-related equities, this will be the decisive factor for us to win. Please go to page 31. Earlier, I referred to the decisive factor to win. Let me share with you our thinking on where and how to win, and our view of the environment. As illustrated on page 31, the company has executed a disciplined in-out strategy. Our track record is, as you find on the right side of the slide, ROI of large M&As we have executed over the years stand at 21.5%, well above our cost of capital of 7%. Incremental wins have attracted the next M&A opportunity. In other words, it was often the case where entities wanted to join the Tokio Marine Group if they are to be acquired by any party.
I hope to continue to see this virtuous cycle. In terms of our perception of the M&A environment, the current valuation is still high, and we believe that patience will continue to be necessary for large M&As. However, when it comes to bolt-ons, we will seize opportunities and execute them with discipline. Pages 32 and 33 are there for your reference. Please jump to page 34. For your reference, the slide shows market data on the rate cycle in the North American commercial market and M&A activity. A certain correlation can be observed between the two. Attractive M&A opportunities are expanding during the softening phase. I am sure that there are different views on the timing of market softening, but in any case, we intend to continue to work tirelessly as we have in the past.
Make sure that sourcing is thorough, leaving no stones unturned, and that the short list and long list are updated. Tracking must be done right, because fortune favors the prepared mind. Please look at page 35. This is a repost of the conference call held the other day. I have already covered business-related equities sell down, so here I want to mention just one point, which is that we will not merely reclassify business-related equities to pure investments. We will, of course, make necessary investments, including investments related to capital and business alliance, and we do not believe that pure equity investment should be zero.
However, as a way of investing in stocks, which is always a way of hedging against inflation, it is necessary to make the most appropriate decisions amongst individual stocks, indices, or it should be Japanese equities in the first place for that matter, after careful consideration of the objectives. Next is on dividend returns from flow profit. Please go to page 36. Our basic policy to shareholder return is dividends, and we will sustainably increase DPS corresponding with profit growth. Profit plan for FY 2024 is JPY 1 trillion source of dividend or five-year average adjusted net income is up significantly. Based on that, DPS for fiscal year 2024 will be JPY 159, increase of JPY 36 in dividend, a DPS growth of 29%. Going forward, as you know, we will introduce IFRS by the end of FY 2025, and so will ICS. We need to therefore review a number of KPIs and definitions.
Allow us some time to have thorough discussions internally and with our stakeholders before we give you our guidance in the fall of 2025. Again, we will seek to achieve both world top-class EPS growth and DPS growth in line with EPS growth. Let me turn to share buyback returns from capital stock. Please turn to page 37. Our capital policy remains unchanged. This I have already explained. Latest ESR is 140% at a solid level. Taking into consideration our M&A pipeline, business environment, and other factors, we have decided to set our share buyback target for FY 2024 at JPY 200 billion for now. Board resolution was passed for JPY 100 billion in share buyback as a first step this week.
It is common for global peers to execute share buybacks of about 2% of market cap each year, and they disclose the effect of share buybacks as part of their EPS growth targets. We took this perspective into account in making our decision in the share buyback amount for this fiscal year. Please turn to page 38. Earlier, I briefly mentioned the need to revise a number of KPIs and definitions in introducing IFRS and ICS. In fact, peers in Europe that introduced IFRS ahead of us also revised various KPI indicators at the time of introducing IFRS. Having said that, the introduction of IFRS and ICS is a change in appearance and does not change our underlying capabilities, such as our capability to generate profits. What do we mean by profit based on economic value and capital generating capacity?
How do we distribute the economic value we produce, et cetera? We will consider these points so that we can more clearly demonstrate our capabilities and approach while ensuring comparability with our peers. Please go to page 39. Robust profit growth, increase in ROE, aligned with shareholder return that I have covered so far is only possible with quality management. Integrated group management, which is a forte of the company, will be in its ninth year this year. While having more directors and associate directors from overseas, we are further enhancing the quality, confidence, and speed of management decisions as a holding company by gathering the wisdom of the entire group through the enhancement of global committees, among others. Quantitative outcome of this is group synergy, and this is on page 40. $618 million of synergy is generated annually. This will grow further year by year.
It was $580 million six months ago. Hypothetically, if $618 million in profit is to be realized through acquisition, and assuming average PER of a North American P&C to be 12 x, a simple calculation says it is equal to buying a company worth more than JPY 1 trillion. Without additional cost, we are able to realize such a huge value. This is a strength, one of the strengths, for the company that we will seek to sustainably expand. Lastly, let me talk about strengthening group governance. Please turn to page 41. In light of series of incidents, we have set the strengthening of governance as one of the pillars of the New MTP. Measures have already been implemented as explained at the IR briefing in November of last year. With regards to the issues, I would like to take this opportunity to extend our apologies for extending your concerns.
Holdings is taking this gravely, and we would like to look into the root cause together with TMNF and monitor the progress, and we are fully engaged in improving the situation. The slide shows progress to date and future direction. Among these, with regards to the utilization of external perspectives, deliberations at the Group Audit Committee, which was newly established this past April, has begun. Progress is made in bringing in outside experts and their utilization across the group. By implementing these initiatives thoroughly, integrated group management will be brought to the next level to ensure sustainable profit growth. High quality management in the true sense, where growth and governance are balanced to a high degree, will be achieved. That will conclude our presentation.
I will be repeating myself, but growth and governance, we will seek to enhance both and the purpose of our business and strategy, policy of our company, and profit and contribution to stakeholders as a result, these three should be aligned. Your continued cooperation and support is greatly appreciated. Thank you very much for your kind attention.
Thank you very much. We are now going to open the floor for questions. I kindly ask you to stick to two questions per person. I will call on the person in the room, and we will bring the microphone to you. For those participating online, please send us your question from the chat box at the bottom of the screen. To cancel your question, please send us a message using the chat box.
Due to interest and time, we may not be able to respond to all the questions, in which case, Global Communications Department will get back to you at a later date. Your understanding is greatly appreciated. From SMBC Nikko, Ms. Muraki, please.
My name is Muraki from SMBC. Thank you for all the explanations today. I have two questions. My first question is about Japan P&C business regarding distribution. On page 10, you are showing the scheme of how you are planning to change it. I want to know to what extent are you willing to change this. Because unfortunately, right now, the distribution network you have versus the ideal state that you are describing here, there is a big discrepancy. By taking three years, where would you start? How far can you go? As a result, looking at your sales channel, what will be the composition? What will be the level of the level of agency commission? Do you think you can apply some changes to see some significant changes to these, or is it going to become just a negligible change?
Because you are going to be reducing your stocks. How you plan to do that looks very different from one year ago. However, the expense ratio expectation is still around the same level, which makes me wonder how serious you are in touching on this. Also, what KPIs should I use in measuring your progress against the changes you are applying to the distribution channel? My second question is on page 37. After you sell down your equities, risk-wise, you are going to be releasing 1.2. ESR is 140%, and so if you multiply that by 1.4, it becomes about JPY 1.7 trillion that you will be releasing from equity sales, depending how do you plan on using these proceeds.
The easy way is that the TMNF, it is a risk taken by TMNF. I do not know how much you want to hold on to the risk versus how much more you want to be spending for asset management. The rest will be probably the investment for international. If there is no use, then it will be returned to shareholders. Risk base 1.2, capital base, it will be JPY 1.7 trillion. I want to know the use of the released risk or released capital, just any concept that you have at this point in time. Thank you.
First, on the first point from TMNF, Mr. Kitazawa, the Vice President of TMNF, as well as CEO, Mr. Shirota, will answer your question.
We understand the image you have for changes in distribution channel, but how far would you go in changing this, and what changes would that bring? The second point is about the use of the released risk or capital. Any specific images you have, that will be answered by our Group CFO, Mr. Okada, for your second question. First, I would like to ask Mr. Kitazawa to answer the first question.
My name is Kitazawa. Thank you very much for your question. Regarding the distribution channel, I would like to answer your question. At TMNF, there are two keys to changing the distribution channel. The first is that with the existing agencies, we need to see the value provisioning quality and expertise improvement. The second aspect is digitization.
With the agency's quality, in terms of their quality and also expertise, they need to be enhanced, and then they need to become more independent so that they will be able to provide better value. We need to get rid of the two-tier structure so that the two-tier clients, we know what level of quality they will be able to provide to clients, and also depending on their autonomy, we would only pay them relative to what they provide. We are going to be doing some major changes to the agency fee structure. In the current Mid-Term Plan, we are going to be having some dialogue with the agencies, and whether if they are really meeting the standards and qualities expected from the community.
If they are lagging behind that, then, for example, the scope of work and also scope of products they can handle will be eliminated. They might have to cooperate with other agencies and form a tie-up. Understanding where they are through dialogues. From the customer's perspective, we hope to see more agencies moving to an elevated stage, which as a result, will be a better way to meet the expectations from the community, but they will also scale down the size of the agency network. Second, I would like to talk about the digitization. With the diversified needs and also with the different purchasing behaviors, we need to be responding more swiftly. From this fiscal year, we will be introducing a more direct model.
This direct model is going to be targeting the online purchasers. All of the procedures can be done online. It will be better than the comparison sites in terms of search function. It will be more centralized on the website so that to customers, it will become easier to use and more fulfilling in terms of content. On top of that, depending on what they wish, we will be providing more consultation service by the high-quality agencies. This will be a hybrid model, which will also be our strength. Depending on what they wish, we might do the direct soliciting and contract signage procedures. From the customer's point of view, we want to make this more convenient and hope it leads to sales expansion.
On top of the existing agency network, we will be building the direct model on the side so that we will be redesigning the distribution channel. Depending on the environment and also for diverse needs, we still want to be delivering the intrinsic value of insurance policies. In your question, you said, "To what extent do we do this? Also, what are the KPIs?" The agency commission rate is 20.5%. This is -0.2% year-on-year. We want you to look at this number because during the course of the current Mid-Term Plan, as soon as we can, we want to bring this down to 10% level. Also, we want to be bold in taking some measures. That concludes my answer to your question.
Shirota-san, if you have anything to add, can you please add? We have talked about expense ratio. After that, from corporate planning of TMNF, I would like to ask Mr. Sakiyama to also add some words. Shirota-san, can you first add some information to that?
Thank you. To what extent do we plan on doing this? On this, there has been some misconduct that's been reported. There are practices, and there are some fundamental issues, such as a two-tier structure with agents. Those will all get eliminated in the process. During the Mid-Term Plan, we will be executing these already internally. The two-tier structure, we have already reached a consensus to get rid of the two-tier structure, and we have just begun dialogues with agencies. Basically, in three years we will be completing the effort, but in the initial year for the targeted agents, we will be having all the dialogues needed.
Therefore, most agents, I believe, they will understand what we're trying to do. On the other hand, there could be some agents that might take more time. Most of them, I am sure, would understand and agree by the end of this year. Where it's time-consuming, after we have a dialogue and then get rid of the two-tier structure, there will be a review to the split of work and getting rid of the industry practice. After that, whether the agents, in order for them to become more independent, we still need to support them. For the rest of the three years we have, we will be doing that so that we can provide better services, higher quality services to the customers. That's just the point that I wanted to add.
Sakiyama-san, can you talk about the business expense? Thank you.
In the Mid-Term Plan, the expense ratio target, as we have announced, is 31%. This number, you are saying that this number has not changed. As an environment, one thing we need to remind ourselves is that you might recall this at TMNF in 2020, we have booked software cost as a part of the asset. There was change in the accounting treatment of software cost, so the expense ratio went down. But then after that, because of depreciation of the software cost, the depreciation burden got bigger and bigger. There is one element. In the previous Mid-Term Plan, we were planning to launch a software, the open architecture, which did not happen. It is only going to be launched during the current Mid-Term Plan.
Due to those two elements, the specific numbers that I can share with you is that the IT cost alone during the three years from 2023 versus 2026, will increase by JPY 40 billion. Including the non-personal expenses, it will increase by about JPY 50 billion. If you divide that, then this will push up the expense ratio by about 2 points. However, we are still going to be achieving 31%, and that is the target we have for the current Mid-Term Plan. To do so, we are going to be reviewing the agencies, labor cost, non-personnel cost, et cetera. Those are the efforts to reduce the numerator part of the equation. Of course, that will be on top of doing the growth strategy so that the denominator side of the equation also grows.
Although there is an upward pressure to elevate business expenses, we are not going to let it elevate. It is going to stay around 31% level, and that is our target. As Tokio Marine Group, with the existing agency network, educating them and rationalizing them and also improving it is something we will do. We will also create a new channel so that the part of the customers where our value could not really reach with the existing network. Of course, there is E.design , there is TM Life Insurance company. On top of those, we will also be adding a new channel, a digital channel on top of those. Up until now, over 90% of business was done through agents, so we will still be leveraging on the strength of the agencies, and that is important, of course. On the other hand, technology is evolving quickly.
Customer preference is also changing. Against those, we needed to create a new channel and approach them, and that is what Kitazawa-san was saying regarding the digital platform.
On the second point, Mr. Okada, can you please answer your question?
Thank you very much for your question. With regards to risk released and capital released as a result of sell down of equities. With regards to risk, as Masao-san, you correctly pointed out, 40% or so JPY 3 trillion or JPY 1.2 trillion is the risk overall, and it will be reduced over the next six years. Therefore, naturally, that amount will be released over time. JPY 600 billion will be sold this year, which means 40% of that, JPY 200 billion or more will be released. In the meantime, this time around, with the New Mid-Term Plan, which is three-year business plan that has been announced. As was explained by Komiya-san, excluding business-related equity sell-down, CAGR of 7% and profit growth is our goal target.
Whether it be profit, underwriting, or insurance, the policy in the book will be expanded, and we will be taking new risks in that regard. That kind of risk-taking is already factored in in our ESR forecast. With the sales of business-related equities, a risk release amount will not be directly translated as increase in ESR. That is our view. Having said that, ESR is at 135% after share buyback of JPY 200 billion . We do have ample capital buffer, but the use of the capital, as was explained by Komiya-san earlier, our top priority is to make a business investment in order to grow our profit and risk-taking, what is taken into account in the Mid-Term Plan. We want to accelerate that. The second priority is shareholder return. We want to enhance shareholder return.
As for capital, as was mentioned, gains from sales will come to TMNF. In the past, with sales of equities, capital that was generated as a result was allocated to be used for growth strategy across the group, not just for TMNF. Therefore, this liquidity that is generated within the group will be used efficiently. That is all from me. I hope we answered your question.
Yes, thank you very much.
Daiwa, Watanabe-san, please.
I am Watanabe from Daiwa Securities. Thank you very much for your presentations. I have two questions. One question is page 36, dividend payout outlook. Dividend framework in the past, if JPY 1 trillion adjusted net income could be for five years, JPY 500 million in dividend could be paid, but the KPI to be revised in 2026. Would that have a big impact on that dividend period?
I do not think anything is decided at this moment, but please share with us your view. Second is about the pricing strategy of Japan P&C. Fire October and auto January price increase has been announced. What is the extent of price increase that you are anticipating? For fire, how long will it take for the impact of the price increase to earn in? What is the duration of the policy? How short has it become? Those are my two questions.
Yes, thank you very much for your questions. With regards to the first question, I want to ask our CFO, dividend payout outlook. In fall of 2025, we will make an announcement and guidance about what is our view beyond 2026. The second question, Hosojima-san. Pricing strategy, rating strategy for fire and auto, and also duration about fire. Let me start with Mr. Okada.
Yes, thank you very much for your question. Page 36 or page 38 in the slide deck. Profit growth is reflected in our adjusted net income as a KPI, JGAAP that we use in Japan. In terms of comparability with a global peer, there are things that we need to be revised, and therefore we have made various revisions. For a single year dividend payout decisions for P&C, P&L will be impacted by nat cat, and therefore we are using five-year average as a source of dividend payout. As was explained by Komiya-san earlier, 2025 end IFRS will be introduced, and we are currently doing analysis of what impact would that have, and also having discussions on how to define profit. Also for shareholder return, how to normalize and level.
Those are things that we're currently considering internally, and we also seek inputs from the capital market stakeholders like yourselves. What I want to mention today is with regards to shareholder return policy. In the New Mid-Term Plan, we said that EPS growth is our KPI, and beyond 2026, EPS growth world top class will be maintained. DPS growth that is in line with that EPS growth is what we want to realize as part of our shareholder return. So payout ratio will also be taken into account as part of that. Thank you. That is all from me.
For the group, from our shareholders, the attractiveness of the group compared to where we are today or compared to our peers, we will make sure that our attractiveness will not dim compared to today or compared to our peers.
Various KPIs and definitions will have to be revised as a result of the introduction of ICS and IFRS, and we want to engage with you to come up with a good KPI and definitions. Of course, we are mindful of where our global peers are, but we are still on our way, on our journey towards growth. We are aiming still for continued growth rate. Business growth is necessary during this journey. There are a couple of things in the pipeline. We need time to be able to consider that. Of course, we will not spend too much time in considering. What is key is that we don't intend to needlessly accumulate capital, and market-based governance has to be executed in a disciplined manner. That has always been our approach. So those are some things that we have in mind in considering our way going forward.
Over to you, Hosojima-san.
Thank you for the question regarding auto and fire. I am going to be answering this separately. First, for auto insurance for January of 2025, this is only a plan, and we do not know how much of a rate hike this will be. However, as you can see in the presentation material, most recently, more than what we had imagined, the loss ratio situation is not as good. There are two reasons. One is that after COVID, with the reopening of the economy, there is expansion of logistics and other moves in society. Peak was last year in the first half. It is on a declining trend, but it is not coming down as much as we had expected. The second reason is because of the repair cost, the parts cost, the wages, et cetera. The inflation is occurring in those two, and there is wage increase too.
More so than we had expected, the loss ratio is not as good as what we wanted to see. Compared to before, the combined ratio, of course, we want to set the combined ratio to be 95% or less in a stable manner. That is the policy for the auto insurance, and that is what we are still aiming for. To do so, we need to be hiking rates. Of course, we will do the results measures, and we will also be doing preventive measures against fraudulent claims, et cetera, to provide better services for the customers. On the topic of fire insurance, in October 2024, we will be executing the rate hike. Last year, it is based on the advisory rate that was issued last year. As for the level of the rate hike, it is different policy by policy.
I will not be able to disclose the specific numbers. In the advisory rate for houses, residential houses, the advisory rate called for 13% increase, and it will adhere to that. It will be a significant rate hike. As you can see on this presentation material, in the last year of the Mid-Term Plan, we want to be achieving the cost of capital. We need to be creating profit, and combined ratio should be the first half of the 80% level, lower 80% level in a stable manner. For duration, I do not have the exact number with me, but for October 2022, we have shrunk the term of insurance to be five years maximum, and we are seeing the penetration of the shortened term of insurance, which means the duration should be shrinking.
In this fall season rate hike, when does it go into surface?
Within FY 2025, 30%, within FY 2026, 50% of the impacts coming from this year's rate hike will surface.
I thought the duration was seven years or so. Is that the right image? I know you don't have the number.
I really don't have the number with me today. We apologize, we don't have the exact number for you.
Understood very well. Thank you.
Sato-san from JP Morgan?
My name is Sato from JP Morgan. I have two questions. My first question is about Japan P&C business. Last year, the price fixing, corporate insurance, top line visibility, top line forecast. Recently, as you have explained, the situation with the stock holding and also cooperation to customers' business, those were in your mind as you were underwriting before, but all that will get eliminated with the change of practice. In other words, a more intensified competition is going to come, and there could be more utilization of insurance brokers in the Japan market, too. Also for the evaluation, the target-setting system is also going to be adjusted. I'm sure those will contribute to more bottom-line-focused approach. From that perspective, in this current Mid-Term Plan, for any reduction in top line, what have you factored in?
Can you please explain to me how much of it you have factored in? Looking at page 14, this is the fire line page. CAGR is 4%. This year alone, I believe you are seeing about 10% type of CAGR, and it is only going to grow by 1% per year after that. I am still looking at this number, but what was your assumption with the changes in the top line going forward? That is my first question. My second question is to do with the current stock price, your stock price, and what is the implied cost of capital that is factored into the current stock price?
Because if you go to page 30, you can see that for the business-related equities, if you exclude those, you will see JPY 551 billion, but your market cap is about JPY 10 trillion right now, and unrealized gain from stocks is a little over JPY 2 trillion on after-tax basis. If you exclude that, your market cap is going to be about JPY 8 trillion, but it is JPY 551 billion against that. I am sure there are some technical accounting matters, but the gain yield should be about 7%, and that is equivalent to your hurdle rate. From that perspective, what is the rationale in investing in Tokio Marine? Is it correct to understand that there is rationale? Because I know that if there is no M&A opportunities, you will be adjusting the capital.
The implied cost of capital and the hurdle rate, how would you relate those numbers?
To answer your first question, corporate insurance, what would happen to the corporate insurance business? Maybe from the product perspective, Hosojima-san, and somebody who is looking at the market and having a dialogue, Kitazawa-san, in charge of sales, should answer your first question. Perhaps I will also turn to Sakiyama-san for additional information. On the second point, our Group CFO, Mr. Okada, will answer your second question.
On the first question, thank you for your question. Regarding fire insurance, as it was mentioned, overall, we will continue to see improvement in fire insurance. We are still midway from our goal. We still need to be improving the profitability further with fire line of insurance. Of course, with the October rate hike.
Other than that, there are some low profitability policies which need to be looked at and reviewed. With the business improvement plan, we do mention stringent profitability management as part of that effort for personal as well as for corporate sectors. We need to be making sure that we make profit so that in case some incidents occur, we will be able to pay the claims. So stable and firm profitability with fire insurance is needed. Going forward in the New Mid-Term Plan, we will be putting a lot of effort into doing this profitability improvement. In the last Mid-Term Plan last year for fire insurance, we had about JPY 4 billion of profitability improvement just with fire. Looking at each policy, we need to be explaining the appropriate premium rate and what values we can offer, and ask them to agree to price hikes.
There will be a diligent effort to be continued. So far, we have been able to hike rates. We have not seen any drastic drop in the number of policies we underwrite. In other words, we are able to maintain the top line. Top line is also going up due to rate hikes, and that is contributing to profitability improvement. The CAGR being low is what you mentioned, I believe. On net basis, the reinsurance cost is increasing because we are expecting some hardened cycle to continue, so that has been factored into this number. That concludes my answer to your question . From sales, Kitazawa-san, if you have anything to add, please.
My name is Kitazawa. Thank you for your question. First of all, with the corporate market, as you mentioned, there is globalization, there is digitization, and also rationalization to businesses. The competition is becoming more intensified.
On the other hand, with the business improvement plan, as we mentioned in there are excessive business cooperation that was done and also the issue of corporate agents. By resolving those issues, we should see a market where the competition takes place over a pure value of insurance policies. This is something that we will excel at. We just compete with the value of insurance we can offer. For the most recent numbers, as the materials show from this year, we will now be allocating the target from the headquarters, but then we will have each office create their own target numbers because there are bound policies, non-profitable policies. There are some corporations where their performance is deteriorating. By reviewing those, that should get reflected into the target.
As of April and May so far, on managerial accounting basis, compared to the business plan, we are better by about 1 percentage point. As long as those efforts continue to be accepted, then numbers, especially the profitability, should benefit from this, and we would like to thoroughly monitor the situation as we move forward. As we have said, this is the duty that we need to serve, and it is only going to get strengthened. It will never get weakened. So far we are not seeing much impact to the top line. By having a dialogue with customers, if they still do not agree, then I guess that will be the part of the top line that we might lose, and that we have to accept.
Regarding the cost of capital, can we have Mr. Okada answer the question?
Thank you for your question. This is on page 30. It is a big paradigm shift to reduce business-related equities to zero. About JPY 100 billion in sales of business-related equity was just done every year, and it was seen as part of adjusted net income. IFRS is going to be introduced, so how profit will be defined is quite crucial. Against this backdrop, in terms of corporate value of the company-
I'm very careful to say that share prices are achieving record highs, but we need to think about the intrinsic value of the company. With regards to businesses that we execute, we do not think that the capital market fully appreciate the value that we have. Therefore, we believe that we have a higher intrinsic value than what you appreciate, and PBR is close to 2 x. Share buyback to be conducted as a part of shareholder return policy, I think is reasonable. Therefore, for the market to come closer to our intrinsic value, we want to maintain close communication with you. I'm exactly on the same page as that.
Further questions? Let's go to Sakamaki-san from Mizuho.
Sakamaki is my name from Mizuho Securities. I have two questions. My first question is kind of broad. Achieving ROE close to global peers. You've been saying that for the past few years. The higher you go in your ROE, global peers will also go up, and therefore, the gap is not being narrowed down. In the New Mid-Term Plan, since it has just been launched, how do you think you'll be able to approach ROE close to global peer level? Is there anything that you have been able to accelerate in the past? If there's anything that you can update, I would very much appreciate. Second, about underwriting profit in the international business.
At TMNF in Japan, risk capital is going to be released, and the group companies in the international business, the risk capital is released in Japan to be fully leveraged in the international business. Do you have that kind of scheme in place to make that possible? Not just in capital, but in terms of teams and also in terms of distribution capacity, underwriting capacity. Do you think you have sufficient capabilities? So, please elaborate the underwriting profit for the international business.
Okay, thank you very much for your questions. Talking about ROE, first point. Moving target to raise to global peer level, and referring to that definition, we have come to a point where we're seeing the back. It's approachable, but external environment is changing.
But we think that we are able to see the backs of the global peers, and we want to be able to achieve that through raising the denominator in the calculation. I want to ask Mr. Okada, our CFO. The second question will be responded by Yamamoto. Mr. Yamamoto.
Yes. Thank you very much. If you could, please, I think you were referring to page 29. Before 2020, our ROE level was this. In the past five years, we have come to the range of our global peers. But in the meantime, global peers have also announced their Mid-Term Plans, and their range are also going up. The hard market profitability is improving in the U.S. market. In the meantime, we still have a large amount of business-related equities, and therefore, there is a lot of fluctuation in the net asset, the denominator.
But after six years, our capital structure is going to be transformed. The capital that is released with the sales of business-related equities, as was asked by Masao-san earlier, capital is going to be generated in this way, which is only occurring to us amongst the global peers. Therefore, making good business investment will become possible. It might not lead to big profit growth in the near term, but it will lead to low capital businesses like solutions business that Mr. Komiya alluded to in his presentation, so that our ROE will come closer to our global peers. We should be able to achieve that. That is all for me.
Regarding the expansion of underwriting in the international market, including what was mentioned in your question, can you please elaborate on that point from Mr. Yamamoto?
Hello, my name is Yamamoto. I am the Co-Head of International Business. Thank you for your question. Regarding the expansion of underwriting profit in the international business, how do we do about the risk-taking, further risk-taking? In the expansion of underwriting profit, we need to be taking more risk. For risk-taking, at each group company, we will expect to see some organic growth. Each company has got their own forte, PHLY, TMHCC, et cetera. All of them have got a forte to achieve organic growth, expansion of business lines, bolt-on M&A, expanding into new lines of business, acquiring underwriting teams. These will be done at each company. Of course, depending on the capital situation and depending on the reinsurance situation, they will be doing that. On the other hand, as group overall, what do we do? If you go to page 39.
In insurance underwriting, if you look at the third line from the top, Global Retention Strategy Committee is in place. For the group overall, this is where we talk about the underwriting and cession versus retention strategy in this committee. For example-
As a group, in order to do risk-taking, what will be the right policy, natural catastrophes, cyber for these lines of business, what will be the underwriting know-how that we need? How do we utilize capital? These are all discussed in this committee. On group basis, whatever is underwritten by each group company, how do we integrate that as group reinsurance scheme? That is also discussed. There are things to be done at each company. There are other things to be done on the group level, and the two are always tandem to each other. That concludes my answer to your question. At GRSC and also there is ERM committee, the underwriting risk we take, the asset management risk we take, we talk about the impact to the ROR, what will be the volatility, will it amplify volatility, et cetera. We are always monitoring those in those committees.
We will talk about what are the risks that we need to be taking in order to achieve organic growth. I hope that answered your question.
Yes, thank you.
Other questions? Majima-san from Tokai Tokyo Securities.
From Tokai Tokyo Intelligence Lab . My name is Majima. On the business-related equities, how you think about this? At TMNF, on book value basis, you have about JPY 3.5 trillion of stocks, and if you sell down, then you will have a portfolio with zero equity holdings in about six years' time. For yen-based institutional investors, you will become a company with a portfolio with zero stock holding. Wouldn't that pose investment risk for the institutional investors?
For those names which were invested for business purpose, of course, there are some names which you should have invested anyways for portfolio investment purpose.
Just because they were originally for business-related purpose, you do not really need to be selling them. If you sell them, then you might want to repurchase them afterwards because it is a good name for portfolio investment. If that is going to happen, then you can just relabel them as portfolio investment and just hold on to some stocks. It is just a question I have. Related to that, but slightly different, a few years back, the pension scheme was reviewed and renewed. For the retirement benefit, the portfolio, do you have any stocks? Are those stocks also the subject of stock reduction, the zero holding policy? That was my first question. My second question is that if you go to page 11, you said eliminating the excessive cooperation to customers' business.
As of April, those companies where you extended cooperation to their business, have you already informed them that the rule changed? As of April this year, under a new rule, have you refreshed your relationship with those corporations, or would you need more time to gradually penetrate this new system where you abolish cooperation to customers' business? Thank you for your questions. First, on the topic of business-related equities, it was mentioned a little bit in the presentation about our thinking of portfolio investment. There is also a time frame involved. Do we need to wait until it reaches zero?
The basic policy is as we have explained, but Mr. Okada, our CFO, will first answer your question. About the retirement benefit account and the stock holding, that will also be answered by our CFO, Mr. Okada.
The second point about the cooperation to customers' business, what is the progress so far? Whereabouts are you standing currently? That will be answered by Kitazawa-san. First, from Mr. Okada, please.
About the sell-down of equities, in the presentation material, we have mentioned that, also from Mr. Komiya, we will simply not be relabeling the stocks as a pure portfolio investment. Among the stocks we hold, there are some stocks that could be part of our asset management, but we are not really thinking of relabeling them. As you mentioned, in some cases, by the end of 2029, other than where we have the capital alliance, the Japanese equities is to reach zero, that will be on the balance sheet on the TMNF and whether if that is appropriate or not.
Also from the global asset management and diversified investment perspective, that is an important issue that we need to talk about, how to handle equities. By the last year of the current Mid-Term Plan, it is going to be halved, which means that the balance will be JPY 1.8 trillion. What timing do we create a pure portfolio investment stocks? That is another issue. As a result of holding business-related equities, we did not do any pure stock investment, but that could potentially become a source of investment income going forward. On the second point about the retirement benefit for the public corporate workers' pension account, we did have some equities before, but basically, we are now doing ALM based on the yen-denominated bonds. That is the current situation.
Let me ask Mr. Kitazawa to respond to the second part of the question.
Yes. Thank you very much for your question. For customers and agent to rectify our relationship, excessive cooperation and customers business to be eliminated. The policy was announced beginning of April. We will make sure that this instills down. In terms of substance, there are various things. Regardless of requests from our counterpart, things that could trigger policies, for example, rental business, rental cars, or also copy paper, papers that are used for copying in our company, or individual purchases of various things that our customers handle. When those requests are made, we have already communicated our new policy. But there are certain companies where we are having difficulties.
We are making sure that there will be thorough discussions and dialogue, and this dialogue is to be completed by the end of the first half of this year, therefore end of September. I hope we answered your question.
Yes. Thank you very much.
Are there any other questions? Niwa-san from Citi, please.
Niwa from Citi. I have two questions. First, about business-related equities, and second, about succession. Regarding business-related equities, a kind of overlap with other people have asked, but I have one or two questions. Once again, why were you able to set that timeline to reduce the business-related equities to zero? I still do not understand. For the past six months or so, what were the kind of discussions you had internally, maybe positives and negatives? Please elaborate on that. Related question is negative corporate value as a result of acceleration of sell down.
Is that something that we should be taking into account? JPY 100 billion or so we thought was something that will not have negative impact on the corporate value. But by accelerating the process, what will be the negative impact on the corporate value? My first question. The second question is more qualitative about succession. Komiya-san, you will continue to lead the company. I am confident about that. But with regards to succession candidate of your next CEO, what are some discussions that are taking place? In the integrated report, there are some discussions. But looking at the face page, the goal is so high and therefore it sounds like you have to rebuild the company. So it is going to be qualitative, but if you could please share your ideas on succession.
So succession for Group CEO, is that your question?
Yes.
Thank you very much.
Allow me to respond to the second question from me. The first question, which is related to business-related equities, the timeline setting, what were the discussions that took place. Sakiyama-san, who is responsible for corporate planning and TMNF, JPY 600 billion and more than JPY 150 billion every year, that has been decided. So Mr. Sakiyama is going to share the discussions that we had internally.
This is Sakiyama speaking, and thank you very much for your question. In the previous Mid-Term Plan in FY 2021, JPY 100 billion a year for three years. That was the plan. But in 2022, at the beginning of 2022, for business-related equities, we said that we are going to change. We are going to accelerate. Instead of just holding on to the business-related equities, but gradually sell. But in FY 2022, we said that we are going to reduce. That has been the policy.
We have changed that policy internally. The sell down pace has been accelerated JPY 600 billion in four years. So in a staged way, we have accelerated, changed over time. But already from FY 2022, we have had that policy. The managers and so forth, we have had a lot of meetings with people in the field, and we made sure that we have good communication and dialogue with our customers. In addition to the accelerated sell down, we had this incident that we had to address, and the business environment has changed. Our customers' mindset perception towards the business-related equities have also changed significantly. In the past two years, we have had dialogues with our customers and as a result of that, JPY 600 billion in 2024, we have made that announcement.
We feel that taking into account where we are in terms of our dialogue, selling everything within three years might not be possible. But gradually reducing in an accelerated way in the next six years should be possible. This was along the extension of what we have discussed with our customers in the past. But JPY 150 billion was referred to as a level that was sufficient to maintain a reliable relationship with our customer. That was true in the past. But as I said, things have changed and we are gaining more understanding on the part of our customers, and they are more receptive of the sell-down. Therefore, as a result, the figures that we have come up with, this is not something that we are forcing. It is more on an accumulated basis, and we feel that it is realizable. That is all from me. I hope I answered your question.
I think, are there any negatives by accelerating sales of business-related equities? Are there any negatives on the corporate value?
Well, to minimize the negative impact on corporate value, we have been maintaining our policy over the years. Under the new policy, that position has not changed. As was mentioned earlier, for example, in order to improve our top-line growth of our fires, dialogue with our customers is extremely crucial, and therefore maintaining relationship of trust, dialogue will be maintained, and this level of sell-down, we believe, is feasible. That is all from me.
On the second point about my succession plan about the Group CEO, of course, nothing has been decided so far. In 2019, I became the CEO, and from that year in the nomination committee and also in the BOD, people have already started to discuss about who should be, what kind of people should become my successor from the timing of appointment. Of course, since then, a lot has occurred. But my thinking at this point in time, personally, integrity, somebody healthy, of course, those are the assumptions. But on top of that, we are approaching a tipping point that is once in a century, not just the insurance industry, but the whole world is at a tipping point. I have a sense of crisis.
Against this backdrop, for the Tokio Marine Group overall, it has to be somebody who can do the broad transformation of the group, somebody who can realize transformation. Also at Tokio Marine Group, one of the uniqueness we have is that we have a risk diversification strategy. How can we evolve that is one important point, and also integrated group management, because these are the two major pillars of the group management. So somebody who can achieve transformation, integrated management, including all the employees and senior executive, and a leader who can do all that is somebody who should become the successor, and we are continuing to have that discussion on those criteria.
Thank you.
Thank you. Via telephone, we have some questions from Sasaki-san of Nomura and from SBI, Otsuka-san. First, Sasaki-san from Nomura Securities, I would like to receive your question.
My name is Sasaki. Can you hear me?
Yes.
Thank you. Two things I would like to ask you. The first is about on page 29, the ROE improvement. I will be asking while looking at this page in 2026, towards 2026, excluding equity sales, you have said 14% or more. As a message, the organic EPS growth is 7%, ROE is 45%, and if you are going to return half of that, then ROE should not go up so much. You are entering such a phase. Is that the right way to understand it? If that is the case, then in order to further enhance ROE, you will need to do some significant size of inorganic growth. More so than what you have done, would you be accumulating capital and wait for a bigger prey to come around? Or is that the plan of the management?
On the second point about business-related equities. For those where you have already gained agreement, how much of that do you have in balance if they have not agreed? But then, in order to meet your current plan, would you still continue to sell down even without agreement? Those are my two questions.
Thank you for your questions. Those two questions, I guess they should be answered by Group CFO, Mr. Okada. ROE, excluding equity sales, is 14%. The rationale behind this 14%, and can you further enhance this? The second point about equity sales. From Mr. Okada, please.
Thank you for the question. As you mentioned, on page 29, excluding equity sales in fiscal 2026, it should be 14% or higher. Separately, we also showed you that within the EPS, there is adjusted net income improvement, and this number should be in tandem with that. Unlike the last Mid-Term Plan, regarding ROE, we are saying ROE should be a certain percentage or higher, not around a certain percent, and that is because there will be the equity sales and the proceeds that we receive. As Komiya-san mentioned, for large-scale M&A, we still need to be patient, and that is needed. Then, in this large market change within disciplined investment, if any companies come across to look attractive, then we would like to seek that opportunity.
Within this 14% or higher, anything that is inorganic that is not included here might be added on, and that would only enhance our ROE to get us closer to the global peers. That will be the mindset that we have within this three-year plan. In the latter question about getting agreement for the equity sell-down, every day at TMNF, we are talking to our customers. The general direction, we also talk about the specific value, et cetera. We continue to negotiate. I cannot really say what percent has been agreed on already, but as Sakiyama-san mentioned earlier,
Basically, over the course of six years, we have that timeframe, and that is because so far what we have discussed with them, where we have gotten the agreements. For each customer, we make sure that we do gain their consent. We want to raise the agreement ratio, and we want to meet the milestone, which is to have the equity holdings in the three years. I hope that answered your question.
Thank you. Sasaki-san, did that answer your question?
Yes, you did. Thank you.
Thank you very much. Next question is Otsuka-san from SBI Securities.
Otsuka from SBI Securities. Thank you for taking my question. I have two questions, if you could answer one by one. I am on page 12, and my question is about investment, et cetera. According to Komiya-san's presentation, dividend reduction, after tax, there is a JPY 60 billion negative impact.
If you apply that to this slide, in this box, in this waterfall chart, JPY 47 billion in positive and minus JPY 12 billion, and investment minus JPY 60 billion. There are no gains. In this et cetera, there must be some amount, a big amount that we need to take into account, if you could explain about that.
Okay. For investment, et cetera, Sakiyama-san, I think, is responsible for corporate planning in TMNF.
This is Sakiyama speaking. Thank you very much for your question. In the presentation earlier, Mr. Komiya referred to JPY 60 billion. When all the business-related equities are completely gone, when the dividend that we are receiving from business-related equities are completely gone. Page 12 in the waterfall chart, on page 12, this is the three-year in the current Mid-Term Plan, because JPY 60 billion in dividend will not be gone just over the past three years.
Negative impact from that, let's say JPY 20 billion or a little bit more than that kind of negative impact is factored in. But there are also foreign equities and private equity funds and so forth, returns are expected to increase, which is offsetting that. It is not clearly mentioned here, but maybe I would say the minus is about JPY 10 billion or so. That's how you should interpret.
Okay. Thank you very much. That's my first question, I understand. My second question is on page eight. I'm on page eight, about Re-New. Originally, Re-New, the background to you coming up with Re-New is the need of external view, and the external view and perspective and internal perspective, there was a gap between the two. I think that gap led you to create Re-New. But in you coming up with the Mid-Term Plan, this external perception, how was this factored into your New Mid-Term Plan?
As is stated here, intrinsic value of insurance, like underwriting, I do fully understand the forte that you have. But increasing capital just because of your strength, intrinsic value is your view. It doesn't incorporate any external perceptions. Net Promoter Score and so forth could have also been taken into account. So I was wondering what discussions you had internally.
Thank you very much for that question. The Mid-Term Plan for TMNF and the Group's MTP, are we truly customer-oriented and taking various issues into account? External feedback should be taken into account. These are common thread of themes that we have. So I want to, first of all, start with TMNF, how to leverage the external expertise. Mr. Sakiyama will explain.
Also for the Group Mid-Term Plan, we will be incorporate that and therefore our Group CFO, Mr. Okada, will cover that part of the question.
This is Mr. Sakiyama speaking. Thank you very much for your question. The series of incidents that we had, the root cause of that was the custom that we had in the P&C industry in Japan and various rules in this industry. Compared to our customers' common sense or the society's common sense, there was a big gap, and therefore it was a conduct risk coming into reality. Therefore, it's not only about making price fixing and pricing insurance products, but it was something that was associated to various rules and mechanisms across the company. Therefore, we revisited from a customer-oriented perspective to revise the structure. That's the entry point of the recurrence prevention measure.
From the April of this year, in the Board of Directors meeting, Customer-Oriented Promotion Committee has been launched at the TMNF. In this committee, various structures and schemes, and especially mid-career hires and also young employees, when they feel something is not right, we are gathering that feedback, collecting that feedback to revisit the structure. We have that committee up and running from April of this year. We also have external committee, which consists of outside experts, so that we will take external perspectives into account in determining our way forward. NPS, that you briefly mentioned.
On a trial basis, we have utilized NPS, but from the New Mid-Term Plan, we will utilize on a full scale, and the NPS scores that we are getting from our customers, and also the voice from our agents and customers, we will have a system where we will be able to look at it in real-time basis. It has been in place on a full scale from February. We have a closed-loop structure, which will start from this fiscal year.
For the Tokio Marine Group as a whole, let me ask our Group CFO, Mr. Okada, to respond.
On page 41 in the slide deck, or page 87 in the appendix, from April, Internal Control Committee has been revised to a Group Audit Committee. Bottom right, you will find specific themes. This week, the first committee has been held after the launch in April.
The three bullet points, the bottom two is about governance, when governance issues arise, and the one at the top, review of the gap from the common sense of the society, re-inspection of our common sense. Checking the business process or culture that is found within our group companies. Matsuyama-san is an outside director of Holdings, and we also have another external director, a member of the committee. We are looking at it at the holding level. If needed, we will give instructions and guidance to our group companies. TMNF initiative, and there is also a group-wide initiative at the group level. Both are aligned, working hand in hand to ensure that our initiatives are implemented in a feasible manner.
As was mentioned by Mr. Sakiyama and Mr. Okada, we need to get to the bottom of the issues.
These are things that arose as a result of that root cause analysis. At TMNF, we are making sure that outside feedback and views are taken into account. This is not only related to governance. Business models of our group companies are directly associated to this topic. The Mid-Term Plan has started from April, but the Mid-Term Plan that started from April was also a fruit of input from external directors. If anything has to be revised or added or changed, it should be changed or added as we go along. I hope that answered your question.
Yes. With regards to NPS, I understood very well. It was not mentioned in the slide deck, so I wanted to definitely ask that question. Thank you very much for your response.
Now, some closing remarks from Mr. Komiya before we finish.
I am sorry that we have extended today's meeting, but it was a critical timing, and it was a turning point, and we are now seeing a New Mid-Term Management Plan. I took longer in explaining to you thoroughly about what we are about to do. Thank you for listening, and I hope that you will continue to extend your support and understanding to Tokio Marine in order to realize the purpose of the business, and also in executing the plans and the strategies we have, and also to show the performance and the results, and also to contribute to the stakeholders. We make sure that these three elements are all aligned. We hope that we continue to receive any guidance and advice from you, and I thank you once again for your precious time and attention to Tokio Marine this afternoon.
That concludes the Tokio Marine Group business strategy meeting for the first half of FY 2024. Thank you once again for your patience. This is the end of the meeting.