Okay. Hello, everyone. Thank you very much for your patience who joined by Zoom. It is great pleasure to welcome you all to this special IR meeting by Tokio Marine Holdings. My name is Hiro Sugimoto, and I will be serving as your moderator for this meeting today. All Tokio Marine representatives were highly looking forward to meeting you in London, and we are very pleased to be able to welcome you today in person, and also connecting via Zoom. As I understand, the special IR meeting provides a unique and ideal opportunity for the Tokio Marine senior management and investors to interact with each other, and we will address a range of timely and important issues in this meeting. Please note, today's conference will be recorded and is scheduled to be uploaded on Tokio Marine's website.
Now, let me confirm whether everyone has the presentation in front of you titled, Tokio Marine Presents Special IR Meeting. We will share the same material on your display during the presentation. We also have a simultaneous interpretation system. For investors in the meeting room, you can hear Japanese on channel one and English on channel two. For investors on Zoom, you can choose your preferred language on your monitor by pushing the interpretation button. For English speakers, please choose English. For Japanese speakers, please choose Japanese. As a kind reminder for video meetings, we will appreciate to mute yourself when you are not speaking so as the meeting can be conducted seamlessly.
Regarding today's meeting, we will start off with a 30 minute presentation from the Tokio Marine Group senior management team, followed by a Q&A session. We intend to conclude the meeting at around 3:30 P.M. London time today. Now, please kindly let me introduce the attendees from the Tokio Marine Group. First of all, I am happy to introduce President, Group Chief Executive Officer, and Group Chief Culture Officer, Mr. Satoru Komiya.
Hello. Thank you for having me.
Vice President, Executive Officer, Group Co-Chief Investment Officer, President, and Chief Executive Officer of Delphi Financial Group, Mr. Donald Sherman.
Hello. Thank you for coming.
Vice President, Executive Officer, Co-Head of International Business, Group Co-Chief Retention Strategy Officer, Mr. Christopher Williams.
Hello.
Senior Managing Executive Officer, Group Chief Financial Officer, Mr. Kenji Okada.
Hello. Thank you for coming.
Senior Managing Executive Officer, Co-Head of International Business, Mr. Kichiichiro Yamamoto.
Hello. Nice to meet you.
Executive Officer, Chief Executive Officer of HCC Insurance Holdings, Ms. Susan Rivera.
Hello. Nice to meet you.
Executive Officer, Chief Executive Officer of Tokio Marine Kiln Group, Mr. Brad Irick.
Nice to meet you.
Last but not least, Executive Officer, President, and CEO of Philadelphia Insurance Company, Mr. John Glomb.
Hello, everybody.
Without further ado, moving along to our presentation, I would like to hand over to the Group CEO, Mr. Komiya. Mr. Komiya, please.
Okay. Thank you. Hello, everyone. I'm Satoru Komiya, Group CEO of Tokio Marine Holdings. Thank you for joining this special IR meeting focused on our international business. Last year, we were forced to switch to remote, at the last minute, due to COVID. It has been four years since we last held this meeting in London. I'm very thankful for this opportunity to exchange thoughts with our valued investors. Firstly, many of you may have seen media reports on an incident about the Tokio Marine & Nichido Fire Insurance employee who inappropriately acted to control rates on coinsurance policies of a corporate account. Tokio Marine Holdings takes this matter very seriously, and I apologize for any concerns you may have regarding this issue. Let me just highlight that as holdings, we have zero tolerance regarding such issues.
We will take all actions necessary and make sure that this does not happen again. I also want to be clear that this incident will not affect our financial results, nor our share buyback policy, and this will not stop our effort to improve profitability of property insurance in Japan. With that being said, please allow me to discuss about our business. This May, we announced our earnings along with this year's projection. Based upon our underlying strengths to grow, we set our profit target to JPY 617 billion for fiscal year 2023. This, on a normalized base, is 9% increase year-on-year, and I believe this continues to be a world-class growth. On the backdrop of this strong EPS growth, we expect 21% increase in DPS, and I am very pleased to be able to share this outlook with you.
This is only a checkpoint in our journey to deliver sustainable growth. Despite volatile business environment coming from inflation, interest rate movement, and increased nat cats, we will be responsive and enhance our existing business and nurture new pillars of business, and manage our earnings volatility to achieve our world-class EPS growth and further improve ROE. In this context, today, we will deep dive into our non-Japanese business, which continues to be our growth engine and driver. First, I will have our co-heads of international business, Christopher and Kichiichiro, to give the overview. They will be followed by the CEOs of Philadelphia Insurance, Delphi Financial Group, TMHCC, and TMK. John, Donald, Susan, and Brad respectively will explain each group company in detail. Lastly, we will wrap up with approximately 15 minutes of Q&A session. As you know, our management team and myself have always valued discussion with our investors.
We would like you to better understand our robust management and sound business, and our equity story for Tokio Marine's future. At the same time, we would like to better understand your views as investors and your advices and feedbacks for us to further strengthen our management and business. Therefore, I welcome any questions about our business, strategy or vision. Please do challenge us with difficult questions and give us your candid feedback. Through this meeting, we aim to convey our high-quality franchise, our views of what lies ahead, and our commitment to sustainably increase shareholder values. Thank you. Let me pass the mic to Kichiichiro.
Yeah. Thank you very much, Satoru-san. I will cover the first three slides, which are intended to give you an overview of our international business. Starting with slide three, this shows the historical growth of our international business. 10-year CAGR of 14% between 2012 and 2022 is on normalized basis, which means that this excludes factors such as the impact of COVID-19 and other one-off items. This growth rate surpasses our global peers as shown in the left side of the slide. The main driver of this growth has been the series of successful M&As in Lloyd's in North America. Around year 2000, when we started this journey of expansion of international business, international business only accounted for about 3% of our group profit.
After the series of international M&As, and if we achieve the 2023 business plan target, international will now account for 57% of our group's total profit. This 2023 business plan target of JPY 376 billion, is actually when we started this current midterm plan in 2021, we were expecting a number which was much less than that. Actually, this JPY 376 billion is over 30% above the initial target, which we set for the midterm plan back in 2021. Let's turn to slide four, which shows the overview of our North American business, which is the core of our international book, accounting for over 80% of the total profit. I will leave the details of each company to be explained by respective CEOs later.
But one thing I want to say here is that our North American book as a whole is a combination of different specialty business run by each company with excellent skills and expertise, particularly in underwriting concerning their business. This means that this is a very well-diversified book of business with low correlation among the business, which results in high degree of diversification, low volatility of the entire book, and stability of the profit stream. Let me touch on emerging markets, turning to page five. In addition to North America, our group also tapped into promising high-growth markets and established firm foothold in such countries noted in this slide, accomplishing the growth higher than the overall market. As you can see, our group companies are leaders in many of the key countries in the emerging markets.
I would like to just touch on a couple of markets from this slide. First one is Brazil, TMSR, which is now the biggest contributor to our group's profit among the emerging market entities. Market share is number four, but its bottom line is one of the best in the country. The second one is Thailand. Here, we had a long history, and we had an entity mainly focusing on Japanese commercial-related business since the 1960s. But in 2018, we acquired a company named Safety, which was then owned by an Australian company, IAG, which has a strength in motor and other local business, and then subsequently merged the two companies. This enabled us to build a very big size and a very well-balanced portfolio comprising of Japanese commercial business and good local business.
The merged entity is now number four in terms of market share, with very good combined ratio and bottom line. Actually, it is the largest foreign-owned insurer in Thailand. We aim to create the next pillars in the emerging markets, which will allow us to have more diversity. As I said when I spoke about North America, we are very comfortable about the diversity we have in North America, because it is a combination of different specialty companies. Ideally, we would like to have further geographical diversity by expanding the non-American business as well. Next, I would like to pass it over to Christopher to talk about our M&A strategy. Christopher?
Thank you, Kichiichiro, and it is nice to see some familiar faces here. I think it is ironic that I jump off with M&A, because I am sure that will be about 57% of the questions. What I would like to highlight is that we have actually, I think, maintained terrific discipline through this period. There have certainly been opportunities that have been out there, but I think the terms and conditions that have been going recently are not something that we are particularly comfortable with. I would highlight the fact that we have seen just about everything that has gone across the transom, and I think we are quite happy with where we are at. Those of you that have been to this presentation before will recall the three principles of our M&A, the cultural fit being at the very top of that list.
We have always spent considerable time on that, getting to know the management, getting to know how the business is run. We are looking for highly profitable business. Not surprisingly, you will hear from all of my colleagues here today who are running terrific businesses that are highly profitable. Obviously, a sound business model. The metric that we look is to clear our cost of capital, which is at 7%, plus the risk premium, and then obviously, the country's interest rate spread. You will see as I get into this deck further, that we have exceeded that quite significantly. As Kichiichiro mentioned, we were contributing 3% of the profits through the international business a mere 20 years ago. As he said, that is now climbed to 57%. I am not going to touch on all of the businesses that are here, because people will talk about those.
I think it is important that you know that just because we have a business on the books, does not necessarily mean it will be there forever. I think what we have demonstrated is a good ability to be flexible, to get out of businesses if the market changes against us, or if circumstances warrant us not continuing it. If you could turn to the next slide, please. I think this is a great snapshot of where we are at. I think last year, four of our group companies had record earnings in the history of those companies. You could say one or two of them was lucky. I think when you are getting four or five of them, obviously we are doing something right. I think our focus on the bottom line is where we really put our attention.
The top line's interesting, but we are far more interested in the bottom line. If you look at the ROI that we've achieved with these businesses here at 17.2, we're obviously considering exceeding our cost of capital at 7%. Page five gives a more detailed breakdown of some of these bolt-ons that we've been doing. When I mentioned that we've been quite patient in terms of major acquisitions, I think that's right. We have, however, been doing some smaller bolt-ons. Our friends at Safety took on a book of business in 2021. We've had a number of other businesses that we've added. Likewise, as I said, some of them we've exited, Bio, USA, LifeTrak, and the construction business from Highland.
I think one of the advantages we have is that we have group specialists within each of our group companies, and chances are that some line of business will fit within one of our group companies. As a result, we do see most of the things that become available. As I said, some of them we've simply elected to take a pass on recently because of pricing and terms and conditions. But as we all know, markets change, and there will be a time when that's a little bit different. Turning to page nine, I think one of the things that we are very proud of is the synergies that we're achieving. That profit number was JPY 470 million in 2022, up from JPY 390 million the prior year.
In quite a lot of these areas where our group companies, quite frankly, are just getting more comfortable working together with each other. On the revenue side, there are areas that some group companies may have a specialty in that others don't, so they can lend their services there. On the investment side, Donald and his team at Delphi have done an outstanding job with our group companies, and I think have been a real engine for a lot of those profits. Costs, obviously, we were able to eke out some costs. Then, obviously, with the balance sheet that we've got, we're able to maximize our reinsurance. Just as an example, we have established a reinsurance center of excellence here in London.
We've moved three people over from the U.K., headed up by one of our terrific business leaders who runs HCC International, and I think that's giving us a much better lens to what's going on in the reinsurance world. So the cross-selling and the items are all listed there, where we're having these successes. As I said, they are things that when we start an acquisition and when we look at a business, we don't necessarily factor in a number for synergies, but it's something that we expect to develop over the years, and that's certainly happened. With that, I'll turn it over to John, who can tell you all about Philadelphia.
Great. Thanks, Christopher. It's great to be here. I'm going to talk about Philly. Philly is a niche writer. The circle, the pie chart shows that we are in six segments. We like, we're committed to the niche. We hire specialists. We enjoy pricing power, terms, and conditions in those niches. Our largest niche is human services, and then the other segment is broken up. There's six segments that are shown, and the other is made up of E&S, environmental, farm and ag, as well as surety, which are newer product segments that we've added over the last number of years. Every year, we lay out very clear initiatives to all of our team because we expect a high level of execution. This is an example, and many of those in a hard market that we've enjoyed now for the last several years.
These have been consistent year over year, but rate increases, we obviously target rate increases that are well above loss cost inflation. We always focus on continuous improvement of our underwriting book of business and try to churn more underwriting profit out of the book of business. We did that by curing our products using the old 80/20 rule, where 20% of the products weren't achieving the target rate of return that we want, underwriting rate of return. We've also been very focused on reducing our capacity because of the nuclear verdicts that we've been exposed to in the United States And we've executed at a very high level, and that showed up in favorable reinsurance terms in a very difficult reinsurance market.
During the early days of COVID, our claims team took the initiative to identify about 1,500 claims and work to really settle those claims while the courthouses were closed for net savings of about $75 million on reserves that were already up against several hundred million dollars. That's something that's a gift that we will continue to recognize. Then in 2019, as we saw signs of social inflation, we took a significant action and boosted our results, our reserves rather, by $273 million on primarily accident years 2017 through 2019. On the bottom of the page is just one example of something that we're also trying to, while it's a once in a generation property market, really try to protect ourselves against winter weather losses, pipe bursts.
Something that's happened in Uri with Elliott as well, is to partner with an outside third party for weather or for water monitoring devices so that we can get people into the locations, if it's a school, a daycare, a nonprofit, and prevent something that could otherwise be much worse. On the right side, the results do speak for themselves. The rates have exceeded the market rates. Our revenue retention, even during, as we've continued over these last four years to push rate, we've continued to retain more of the business. You show that our, with the exception of 2019, which I've already spoken to with the combined ratio and the action that we took by boosting our reserves by $273 million, our combined ratio continues to come down. Let's go to the next slide 11.
Again, that progression of rate increases and the desire to exceed loss cost inflation, which we evaluate with our actuaries every year based on trends. We're enabled, though, to do that, if you look in the middle, our strength. We trade with our preferred agents, and our preferred agents are those that have the ability to receive a profit share. When we were acquired by Tokio Marine in 2008, they represented a mere 35% of our premiums. Now they're close to 60% of our premiums. We pride ourselves on delivering, especially in this market, difficult messages very far in advance so that we have an opportunity, a better opportunity to retain, but also can get buy-in by our trading partners. If you continue to go to the right, it showed we track, we're fanatical about tracking our feedback from our agents.
Whether you had a claim, whether you're an agent, we always want feedback so we can continue to improve and very proud of the Net Promoter Score that we've been able to achieve at just under 70%. Let's go to the next slide. I talked a little bit about the tiering, but this is just a visual of the tiering. When we started tiering our products now seven, eight years ago, again, 20% was in the third tier. Tier one being the best and the most profitable, the ones that were generating the most underwriting profit. Tier two, next most, and then tier three, let's try to have a corrective action plan.
All of our products have a strategy. Those that are most profitable, how can we write more? How can we really get more submission growth? Those that are the least profitable, that have the lowest returns, how can we squeeze a little bit more return? Sometimes that means we have to be a little bit more comfortable with letting that business go, even if it is a profitable segment overall. With that, I will look forward to questions, and I will pass it to Donald.
Thank you, John. If you look at page 14, you can see in the chart on the upper left the breakdown of the products that we write at Delphi. It's both life, predominantly employee benefits, which are led by the group life insurance and group disability, both long and short-term. The right-hand side gives you a feel for the product breakdown in our non-life business, which is led by Excess Workers' Compensation. Our company, Safety National, has the number one market share in Excess Workers' Comp in the U.S. The other non-life are large deductible workers' comp and auto and general liabilities that we package together. Many of the customers in that non-life business are very large, multi-location corporations, a number of the Fortune 500.
The last time we counted through the various product forms, Safety National writes the workers' compensation insurance mostly on an excess override basis, but writes the workers' compensation insurance for about 9% of the U.S. labor force. If you look at the chart on the bottom left side, it gives you the breakdown of the investment portfolio, and you can see it's led by our loan allocations. We run the insurance businesses we run because we think they offer us very long-duration liabilities. While there is some underwriting volatility in those product lines, like all insurance lines, there are risks, the cash flow patterns are actually highly predictable. Even if it's in a poor year, it bleeds out cash over long periods of time.
That gives us the ability to run an investment portfolio that focuses on where we think we get the best return for long-term credit risk and an ability to carry a higher than peer average of liquidity or illiquidity risk. That's a major component in what drives what we're doing. I might point out that chart focuses on the Delphi-only portfolio. As it says in the footnotes, we're also managing U.S. dollar assets for other group companies. If you look at it at that aggregate level, the 43% of loans is closer to 30%, as we've got the other group companies focused in somewhat more traditional asset classes. The current focus for us is to enhance our underwriting and to respond to changes in the environment due to rising interest rates.
On the underwriting side, we've had success in increasing both the rate and the insurance or the deductible amount, if you want to think about it that way, the self-insurance retention for our Excess Workers' Compensation business. We've been able to focus in this market turmoil of finding opportunities in the investment market. The last few years when we thought the Fed was behind the eight ball, we thought owning variable rate assets was a very attractive thing to do. That still has some opportunity to run yet as we've seen the curve price out the cuts that everybody expected. But we think we're now late in that transition, and we're moving toward other asset classes, much driven by investments we're finding in the residential mortgage in the U.S., among other things. You can see on the bottom of that slide something that we work very hard at maintaining.
On a commercial basis, we're not just an investment shop. We also run a set of underwriting businesses, and we've had some success in driving those businesses forward. We had a little bit of setback in 2020 and 2021 because of COVID, predominantly out of our group life business. Created some very high claims rates, much higher than you expect over the long term. We've seen a little bit of benefit in 2022 as COVID impacts. You might flatten that line out in your mind's eye, 2020 and 2021 are elevated, and 2022 might actually be slightly benefited. But we definitely think the trend without COVID is going in the right direction. You can see in the bottom chart on the right the profit growth that that has created.
On page 15, you can see the business expansion from 2012 to 2022, both measured in income and AUM. The far right-hand chart shows the higher than index income return. We have the track record of both in terms of total return volatility and Sharpe ratio down at the bottom of the page, both 5-year and the 2007 to 2022, the 15-year time period. We focus very strongly on looking at the right long-term results, but we also worry obviously about total return on a year-by-year basis. The focus is actually bilateral. That is a very quick tour through Delphi and look forward to your questions. With that, I will turn it over to Susan.
Thank you, Donald. At Tokio Marine HCC, we are a specialty insurance underwriter, very focused on the bottom line, and we truly are a global leader. About two-thirds of our business is underwritten in the U.S. and about 1/3 outside of the United States. When you look at our portfolio of specialty products, we basically built our portfolio through acquisitions, a lot of merger and acquisitions, as well as greenfield. Our portfolio, really we are not overweight in any one line of business, so that diversification gives us stability in our results. We are underweight in nat cat. When you look at our product composition on the left-hand side there, about half of our portfolio is less dependent on the traditional P&C marketplace. Again, that gives us less cyclicality and more predictability of results.
The good news about the 51% as well is medical stop-loss, crop, and surety are very short tail, so we know the ultimate outcomes on those lines of business, again, very predictable, and we can modify our pricing very quickly on those. When you look at our current focus, we are going to continue our current focus to look for bolt-on acquisitions. Our product mix is very diversified and very complete right now. When you look at the last group of M&A that we have done, two of them, the GCube and the NAS, which are in renewable energy and cyber, are really good, significant growth opportunities when we look at it. We are very happy to be able to add those specialty niches and acumen to our product mix. We also did a small bolt-on for our crop business.
Similar to John Glomb, we look to get rate increases in excess of our loss cost trend. We are now in our sixth year of positive rate environment. We are very happy with where rates are trending this year. Hopefully, that will continue to come through in the results. When you look at the results on the upper right-hand side, we have a track record of stable profitability, and that is really driven by our diversified portfolio. Really where you want to be is in the upper right-hand side of the quadrant, where basically we enjoy one of the lowest combined ratios with the lowest volatility. Again, that is driven by our product mix and also driven by the fact that half of our business is in really short-tail lines of business. When you look at the bottom right, we have enjoyed a favorable combined ratio.
John had his blip in 2019. We had our blip in our results in 2020. That was really driven by COVID, where we are a market leader in event cancellation, and event cancellation was one of the lines of business that was hardest hit by COVID, and that added six points to our combined ratio in that year. Excluding that, we would've been at an 87% combined ratio, basically in line with our target. If you go to the next slide 17, again, you can see how our rate increases have been compounding to be above loss cost trends and hopefully above our peers. Really what our strength is our long-tenured management team that has deep technical expertise. So they're very specialized, and we are consistent players in the market. We know the niches. We know them well.
We've seen the good, the bad, and the ugly. So we're a consistent player that's being really continuously looked to. Most of the places where we'll play is going to be in the primary or first layer excess, where they're looking to our underwriting expertise, but they're also looking to our claims expertise. They trust us that we'll be a great partner with them and be able to get the best outcome for them. With that, I would like to hand it over to Brad Irick, who will give you a brief introduction into Kiln. Brad?
Thank you, Susan. TMK is in its 61st year of operation and is one of the largest managing agents in Lloyd's, with over GBP 2 billion in gross premiums in 2022 and over GBP 2.2 billion expected in 2023. Since our acquisition in 2018, TMK has been both a profitable business for the group, but also a key access point for innovation within the TM group through our Lloyd's presence. We expect that access to innovative new products will deepen in importance as the world transitions away from carbon and new companies and technologies are developed. We are a leader within the Lloyd's Innovation Lab, which seeks to identify new products and bring them to market.
We access business through our desks on the Lloyd's open market as well as the cover holders, which are managing general agencies primarily in the U.S., Canada, and Australia, including our wholly owned U.S. MGA, Tokio Marine Highland. These two access points both represent roughly 50% of our premiums. TMK, like HCC and Philly, is a specialty business with nearly 65% of our business in North America, of which 18% is in Canada. We have a growing book of diversified business in Asia through our Lloyd's branch in Singapore. Since 2019, TMK has been focused on building a portfolio of businesses that are consistently profitable and diversified. The best indication of our progress in this area relates to our largest line of business property. Currently, roughly 35% of our business is property coverage in the U.S., and that's down from just over 50% just three years ago.
While the property book has continued to grow in absolute terms over this time, the reduction in the percentage of the portfolio was intentional. We invested in and grown diversifying lines, including non-U.S. liability, aviation, and cyber. The strategy of diversification has been core to reducing the overall volatility of our business, and we target a consistent low 90s combined ratio and ROE greater than 10%, which we have achieved for the last three years, excluding COVID in 2020. Over that same three-year period, we have also taken action to remediate certain lines that were not performing, with a keen focus on data and analytics to inform our decisions. In fact, I believe TMK punches well above its weight in the quality and granularity of our analytics, which is a crucial area for the future that we continue to invest in.
I am pleased to say, with our exit of the Highland U.S. construction business and the runoff of our treaty reinsurance business, remediation efforts are complete. With a hard market and/or rate sufficiency in virtually all lines, we expect to continue profitable growth going forward. I should add that with a changing portfolio, we have also strengthened our reinsurance program to better manage volatility and retain more of our most profitable lines. As you can see from the graph on the right-hand of the page, TMK has consistently outperformed the Lloyd's market, and in recent years, has returned to the position of a top performer in the London market. That performance, combined with strong supporting operations, has earned us outperforming status with Lloyd's. This status allows us the flexibility needed to grow in a market that we believe has many attractive opportunities currently.
I would like to end with a focus on culture. Any presentation at TMK begins with a reflection on our purpose and our values, which are fully aligned with Tokio Marine's powerful good company principles. We must be grounded in the value we provide for our customers and our people through our purpose, and know that how we achieve success is as important as the success itself. It is no surprise that our intense focus on culture is directly tied to our improved financial performance. With a highly motivated team at TMK with a clear focus on purpose and who we are as a company, I have great confidence in our ongoing performance. Thank you.
Mr. Komiya and the Tokio Marine senior management team, thank you very much for your presentation. Now, I would like to open the floor to questions. Tokio Marine would like to have an open two-way dialogue with you today, and we intend to candidly respond to as many questions that are on your minds. As we have a sizable audience today, we would like to provide an investor an opportunity to ask questions. May we ask each investor to have a maximum of two questions per time.
Now, for the investors with questions, if you can raise your hand physically, or for those on Zoom, if you can push the Raise Hand button, it would be very much highly appreciated. To avoid the traffic jam between the in-person and Zoom participants, we will ask for the questions from the people in person first, followed by the Zoom participants. Any questions from the floor? A microphone will be passed on, so if you can speak into the microphone.
Two questions, as that is what I am allowed. The first one, you have got this chart on page 30 with the breakdown of the inflation for the American business. Is that 30% all Philadelphia, or does it sit elsewhere within the group? Can you sort of explain what actions you have taken outside Philadelphia? The second question is just one on M&A to keep Christopher happy.
Thank you.
Agricultural obviously has been consolidating in the U.S. You have become quite small. Is there sort of a timeframe to resolve that, or are you happy where you are? Thanks.
Okay. Well, let me tackle the easier one first on the agriculture. That's a line of business that we would like to continue to grow. You will have recently seen that the IAG book changed hands for what we felt was a very full and fair price, to put it mildly. That's a book of business that had made money, one out of the last 10 years, and I think our pricing expectations were considerably apart from theirs. Our intention is very much to continue to grow that business, but it's got to make economic sense.
The crop business is driven by a couple of components, and one of them is commodity prices. Not surprisingly, commodity prices were through the roof last year for all the reasons we know. Our expectation is that when those commodity prices return to perhaps a more realistic level, the economics of that may not make as much sense. Yes, we like the business, but that one wasn't a fit for us. In regard to the inflation question, I'm not sure who wants to tackle that one, but
I'd be happy to.
Okay.
It is not just Philly. This is a combination of all the U.S. operations. So it is working from the bottom, the cost of goods sold, the medical inflation and social inflation. We look at the trend lines. Most of Philly's business is general liability, but we also do have about JPY 900 million of property, and property has significant social inflation, I'll say. So in the case of a building that burns down
Replacing that building now costs much more than it did five short years ago. We've seen inflation across all lines of business, general liability. The actions that we're taking to actually address that are, I spoke to the reduction in limits. Just an example, in 2019, we had roughly 1,500 policies that were greater than $10 million in limit. We now have 57 policies that have greater than $10 million in total limit. Right now, for our 23 plan, our expected total inflation with all of these components at Philly is 6%. We endeavor to get as high above that as possible.
Kenji, do you have any comment to add?
No, actually, there is the mix of all U.S. companies. Each company has its own line of business affected by these three types of inflation.
Next question.
Thank you very much. Just two very quick questions. First, as a difficult FSA, the fixing of the premium, that FSA regulation, the rulings, what do you think are the impact on your business? Second, is the rate increase in Japan, assuming BOJ change or 10-year government bonds, how will it affect your fundamentals of your business? Thank you.
I really hope that you are okay with me speaking in Japanese. [Non-English content] Yes. Let me answer your second question about the JGB. First, our domestic P&C business is very short tail, so there is no impact by any interest rate fluctuation in Japan. For our domestic life business, we have long duration liabilities from the wholesale product, but we have conducted very strict asset liability management. Currently, our duration of assets, mostly we are holding the JGBs. Long-term JGB are matched with duration liability. So any fluctuation with respect to the 10-year or beyond longer JGB will not affect our business or economic solvency, and that's why we don't need to change our pricing for life business. Thank you very much.
Hi, thanks. Just going back to page 30. I was wondering for the U.S. business, you said you're expecting 6% total inflation this year. Are you seeing that slowing, or what are your projections beyond this year? Do you have any thoughts? Are there any parts of the market where you think hardening or rate hikes will sort of become tougher to pass on or not?
I'll answer for Philly. Our expectation is that we see it only going up. So 6% 2022, or sorry, 2023. 2024, I would expect that it would only increase. Property, Susan and I were talking about this before. I think we both share the feeling that we can always be part of property, and given the way the reinsurers are pushing on us, we have to do a better job. I think we can be doing a better job.
We're getting more rate on the property line of business than any other line of business. But that is for certain. In terms of what our indications show, general liability would be where our actuaries say we need the most rate increase, not property. That's most competitive, and I know Susan shares that opinion. We write together. We really do service the entire directors and officers liability market. But we go out of our way not to compete against one another.
Susan, do you want to touch on the medical inflation around the medical stop-loss? I think that would be of interest.
Medical stop-loss, again, the pricing every year trends really based on the leverage trend. We've been getting actually 2% higher rate in medical stop-loss this year than the prior year, because there was really a lull for two years given COVID, where people really weren't getting treatment done. But now we see treatment going back to normal and the rise in the frequency of severe claims coming back. I do think the rate environment there is strong, and it's going to continue to get stronger as the severity of losses demand it.
I agree with John that D&O is a competitive environment. Cyber has also come down from the peak we're at. The good news about cyber, it's short tail. As people see ransomware frequency come back to normal, then you can modify your pricing again pretty quickly on that. I do think liability, property is super hard. Liability can be hard. And then I would say the other main street line of business, I still think positive, but not as positive as last year. But in the low.
Yeah. At our Safety National Excess Workers' Comp business, we are seeing a similar trend in the severe losses. Our policies typically have $1 million. The cost incurred on a workers' comp case have to get to $1 million to get to our layer typically, which means we are on the most grievous kinds of injuries. We are seeing the peaks into that happening less, but the severe cases seem to be happening more.
We are driving that off of raising the self-insured retention and raising rates. The other reason why I brought it up is it is another example of synergies among the group. Susan's group on medical stop-loss and the group at our Safety National company will value in sharing information and sources around who is best at treating, how can we lower the claims. Every day it seems like we find another opportunity where there is some synergy being part of the group.
The only thing I would add is our liability business, unlike Philly and, or partially unlike them anyway, is Canadian based. Most of it is in Canada. That is where we are seeing good profitability, rising rates for a long time. That is where you see a little bit, I would not call it a soft market, but certainly slowing down in the Canadian market.
I should just add one brief thing about Canada there. We have obviously got a great representation in Canada through some of our group companies. We have capitalized our own company in Canada. We have been in the Canadian market since 1956, but we took the view that we wanted to establish our own company there. It is getting going. It is quite early days, but we are very excited about that. We have hired a very seasoned CEO, and I think there is some terrific potential for not only North American or U.S. clients that have need for paper in Canada, but indeed just to grow in the Canadian market, which is a terrific one. I should have mentioned that in my M&A part. It was not an M&A, it was an expansion.
Sorry, just one follow-up. Reinsurance has obviously seen higher rate hikes than almost everywhere else. Is your group policy in terms of managing your own risk versus using reinsurance changing at all in reaction to that?
Yeah, I am happy to jump in on that one. The answer is very tough. April 1 renewal this year. Fortunately, the Japanese market over the last couple of years has had fairly benign experience. We did see some pricing increase. I do think it is a competitive advantage to have a company that is as well capitalized as Tokio Marine. We are seeing some very early signs of some of the smaller companies that have been relying on reinsurers' capital that is now drying up, that may now become potential M&A opportunities for us.
Again, provided they get some reality about the pricing. Our retentions went up a bit, our pricing went up a bit, but it was within what we had budgeted, I guess is how I would answer the question. But I do not think all of the companies would be able to make that statement, because I think some of them have been going through a significant amount of pain at the moment, because as you know, prices have doubled in certain situations and more.
Me? I will have a comment to add. I will speak in Japanese, please. I am sorry. [Non-English content]
No one's going to correct the CEO.
It was right.
It was right. Yeah.
Satoru, I will add, we are a specialty underwriter. We do not really write a lot of nat cat. We are the pretty girl at the dance. A lot of reinsurers have pulled out of property CAT, so they are looking to basically grow in the specialty line. They have a lot of interest in the Tokio Marine HCC portfolio. For us, with a long-term track record of profitability, we see a lot more interest in our reinsurance programs.
Okay. Let us jump to some questions for the participants on the Zoom.
Hello. Thanks for doing the meeting. Good to see you all. My question is on M&A. Could you talk more about areas of interest, so what products, lines, or geographies you would be the most interested in? Then conversely, areas that you would like to avoid going forward. Then if you could also talk about maximum potential deal size, would you be willing to do anything larger scale?
I will answer the first two, which I think you asked these questions to me a couple of years ago, so I am trying to remember what I said.
Yeah. Exactly. Just looking for the update.
Our area of interest, to be serious for a second, has not changed appreciably. A perfect world for us are bolt-ons, where we have already the expertise in the business and we can attract those. I would expect that you will see some of those this coming year. The last acquisition that we did, which was kind of a variation or an entry into a new line of business, was Pure. That was a high net worth business that provides homeowners and auto insurance for high net worth clients. That business has grown very nicely since we have taken that over. So, in North America, that is almost the only personal lines business we do. It would be very unlikely to see us delving into becoming a big personal lines carrier competing with The Travelers and Chubbs of the world.
I think that is a path that we are unlikely to go down. But as I think you have heard from the group here, we have got considerable expertise in multiple lines of business, and if we could bolt it on, that would be great. If it is an area that we are going to get the appropriate return, we would certainly look at it. But I think it is unlikely to see us going down the personal lines path in North America. Kenji, I will let you answer the maximum deal size question.
Yes. Christopher, thank you very much. Could you look at page 29? This shows our ESR, Economic Solvency Ratio. The gap between net asset and risk is JPY 1 trillion. This is a base for our M&A capacity. In addition to that, when we acquired Pure, we issued hybrid securities. Compared to our global peer, I think we have a capacity to issue hybrid security around JPY 500 billion. So in total, JPY 1.5 trillion will be the current capacity for M&A transaction. Thank you.
Got it. Thank you.
Do you want to ask another one?
Yes. If no one else has any other questions right now. In commercial lines in North America, particularly on the property side, we've seen tremendous rate hardening. Has that changed your appetite at all for property?
I think the answer is we are very comfortable with the book we've got. As you will remember, Heather, we exited the reinsurance business in 2018 or 2019?
2018.
2019. Our thesis at the time was that we were just not getting rewarded for the capital that we were deploying. I think up until this year, that was a very good decision. I still think it was a good decision. There was a lot of blood on the streets up until this last increasing that has occurred. I think where we need to be cautious is to make sure that we are able to pass on the pricing increases that we are getting as a result of increased reinsurance costs.
I think for the most part, we have been able to do that. It varies a little bit around the world, but I think for the most part, we have been able to pass that on. We have a very small reinsurance account that we still write, which is a legacy business, but it is all primary. The majority of our business is primary. So it is a good time to be a property writer. I think the market is expecting, certainly in North America, everyone is expecting significant rate increases, and we are able to pass those on.
Got it. Thank you.
Thank you.
I'm going to switch back and forth here between the Zoom and in-person. Any questions from the room? Up.
A couple on Delphi. Can you just talk us through, obviously there's some economic sensitivity with workers' comp and employee benefits. What's the plan if those businesses roll over, particularly workers' comp is seeming to get less profitable. It's been super profitable, it's getting less profitable. How does that come through to the excess business you do? Then secondly, can you just talk us through how you manage the tail risk of the social inflation? How do you buy your insurance? How does it work? Is there some limit you're clear to offer? Thanks.
On the workers' comp side of the business, the trend that you're discussing about how workers' comp had been profitable and is diminishing is the first dollar primary market, which is very much incidence driven. Our business, because we're at the excess level, is very much severity driven. The trend of the declining incidence that seems to be reversing, that's sort of driven what's in the primary market hasn't had that much impact on us. What we have seen, as I mentioned earlier when we were talking about catastrophic medical, is we have seen the basic claims that get to our level come in at a lower incidence, even for us. But the level of catastrophic claims, once they're on, the size has gone up.
We've been doing some on rate, but mostly trying to drive the self-insured retention as that's what the policy holder has to take before it gets to us. We think the combination of rate, but predominantly on the self-insured retention, is giving us somewhere between 4% and 8% of additional cushion. And we're starting from what's been a very good book. The book has a good profitability in it, so we feel like it's in good shape. The other element that makes a difference in both of our employee benefits business, whether you're talking about the Excess Workers' Compensation or the disability and life business, they're all payroll driven. And we've had a long period of time in the States where payroll increases have been behind fundamental inflation rates.
We're finally on the good side of that equation from our point of view, because as the wages go up, our premiums go up as a matter of course. We don't have to change the price. It just comes with the wage increase. That's created some favorable momentum in both of those lines of business in the last year or so. We feel like the book is actually in pretty good shape right now. If you saw a major recession, what typically would happen in our businesses is we'd see the Excess Workers' Compensation business pretty stable because those short term, even if it's a significant recession, doesn't really change catastrophic workplace accidents that much. It does change the claim and what you might call soft claims. If we had a big recession, we'd probably see some uptick in our long-term disability loss rates.
Right now, that book is at very high profitability. We have some room to absorb some negative trend. We don't see the current recession potential as being large enough to really change the profitability of that business in a dynamic way. We're thinking more soft to moderate as opposed to a very large recession. I hope that answers your question.
Thank you. Maybe this is kind of just a question to anyone. We've heard a lot about AI in different industries this year. Does AI influence or change the kind of analytics of underwriting at all for you guys? Is it a leveling event or do you have proprietary data where you can actually utilize that and it's a strengthening kind of factor for you? Just generally for anyone who wants to take it.
Well, I'll jump in being the least qualified so it's probably the best way to start answering. We've put together a group within Tokio Marine of our tech experts that have already been meeting to determine the effect of AI on their businesses. I think the answer is it's going to be very different depending on the line of business, and there are clearly some areas that as AI develops, one would assume that we can become more efficient as to how we are underwriting or adjudicating claims. I think the answer is yes. It's clearly going to impact our business and I think probably more so depending on lines of business. Perhaps start with Susan or John to just say where you see the potential opportunities, changes, whatever.
Yeah, no, we're excited about it. We've been pretty analytical up to date. But we think the ability to accelerate the use of third-party data in our underwriting workbench and our analytics will just arm our underwriters with more information so they're spending their time thinking about the risk rather than gathering the data. We think underwriting workbench is going to be big.
As Christopher said, processing efficiencies. When I think about our crop business, and I'm sure when John thinks about ISO, where we have to go through all of the manual updates, code them into our system, back test them, make sure it's correct to be able to use AI to be able to do all that processing efficiency. I think really what you're going to see is more time on the intellectual side, less time on the processing side, which will drive down expense ratio and hopefully improve loss ratio. We're pretty excited about it and we have a couple of proof of concepts underway right now.
Yeah, and I'll add on the Philly slide, I pointed out Net Promoter Score. I think there's a huge opportunity for all of us to make it easier for our trading partners to do business with us, because we can answer a lot of the information, a lot of the questions that are in long-form applications that they've always complained about, where we can answer the questions for them, and it makes it a lot easier to turn things around and qualify or disqualify certain opportunities quicker.
Brad.
Sorry. No, I just agree with all that. I think it's more opportunity than anything. We're really focused on gathering more data so that we can improve analytics both through AI and otherwise. The other thing I'd say is looking across the whole value chain of the insurance company at operations, AI is going to be something that we'd look at there as well. But agree with all that Susan and John said.
Kenji?
Yes. This AI or generic AI is a kind of worldwide initiative. Not only each group company. We have our intergroup meeting called Digital Roundtable. At the Digital Roundtable, every company from Japan and U.S. and U.K. get together and sharing the best practice and roll out the proof of concept of the experiments. In Japan case, we think there's a huge potential for the exchange in Japanese P&C business. In Japan, Tokio Marine & Nichido Fire Insurance started this company-wide proof of concept initiative in Japan as well. But we always share any finding in each group company to share the group-wide strengths for our utilization of generic AI. Thank you.
Hi. Thank you so much for the session. A quick one on the domestic non-life insurance business. In the midterm plan, you have JPY 100 billion in sales in different areas, in SME, cyber insurance, and so on. Just wanted to see where do you see the biggest pocket of opportunity in these new areas?
Yes. Let me answer. We have a plan to the JPY 100 billion sales increase for this mid-term plan, as you pointed out. The biggest element is our SME market. It's a small to medium-sized market. It's a broad range of product, including not only for the casualty, it's more like a product property. The second area is healthcare. This is the area where the domestic specialty business has a very huge potential. Beyond this year, the next mid-term plan starting 2024, this specialty business in Japan will be the next, again, to continue to be the pillar for our profit growth in the P&C business. Thank you.
I think it may be a good opportunity to shift gears a bit. Actually, before starting this meeting, Mr. Komiya actually asked me to pick him as part of this Q&A session. I am guessing or believing he may have wanted to put himself in your shoes and ask some tough questions to the Tokio Marine senior management. Mr. Komiya, please.
Be nice to us.
Yeah.
Okay.
I am sorry. I will speak in Japanese [Non-English content]
As Satoru said, I have been a part of the Tokio Marine Group since 2012, and before I look forward, I am going to at least spend a half a minute looking backward. There have been some real significant advantages Tokio Marine brought to our company, Delphi, as it existed when we folded in with Tokio Marine. The capital strength is important, but the standing in the insurance and the global financial community was also important. We have a couple of large-ticket businesses. I mentioned our Excess Workers' Compensation business is significantly focused on large employers as self-insurance workers' comp that we write the excess over appeals to very complex organizations. And as a standalone company, some of our larger partners were concerned about
Did Delphi have the standing to be writing claims that have a potential to run for 70 years? Despite the fact that we have the longest track record in that industry of Excess Workers' Compensation, they worried about it. We also have a retirement services business that offers annuity products. Particularly those two segments of our business, the standing and stature of Tokio Marine were a big driver for us. The other thing I would mention is we thought we ran a very powerfully managed, well-organized business, and Tokio Marine brought their risk management system that helped us think about risk in a more integrated way. I feel like we have both a better opportunity set and a better risk management set of tools as a part of being a part of Tokio Marine.
When I think about Tokio Marine and how I would evaluate it, those attributes that I saw in the past, I think are still the pillars that we'll want to build on. We have a company of great strength, real standing in the community, and a real interest in helping people, whether it's our employees and my group of people that I brought with Delphi. There's sincere interest by all of our colleagues at Tokio Marine about how we're building careers for our people, how we're handling the business issues of our stakeholders. That sort of standing and combine that with the risk sort of culture they had, how do you manage risks, I think are elements that will continue to be very strong drivers for our growth.
People have this stereotypical image of a Japanese company being very thorough, very well organized, but not being able to make decisions. There are days I would tell you I have the same concern. But when I think about it objectively, if I made a list of the 10 things I most wanted to get done in the 10 years I've been at Tokio Marine, I think we've gotten all of them done. When it really matters, we get to the right answer in the right way and with the benefit of that standing and risk control. Satoru, that would be my assessment. There are some days I wish for slightly shorter meetings. But I would stand on the overall assessment.
There was a talk at one-
Thank you, everybody.
There was a talk at one stage of changing our name to the Tokio Meeting Company rather than Marine. Being serious for a second, I echo what Donald said. We are a company that has been around for closing on 145 years. That would tell me they have been doing some things right for sure. I think it was a very bold decision in the early 2000s to undertake the international expansion that we have had. As Satoru said, that number today is at 57%. My guess is that number will get bigger over a period of time, not smaller. With that occurring, does that mean that we need to look at our business as to how we are doing it and where we are doing it? We will clearly always be a Japanese company with a Japanese culture, but I would make a couple of observations too.
I have been involved since 2015, and Satoru constantly reminds us that you cannot communicate too much. What I would say is post-COVID, the communication within our company has never been better. It was a strange phenomena because I think everyone is normally off in their offices doing whatever they need to do. When COVID occurred, we wanted to make sure that we were consistent in terms of our approach to claims and how we are dealing with people and officers and all the rest of it. I think that communication has opened up significantly. I think the other thing that was started with Nick Nagano by Satoru's predecessor, and Satoru has continued it, is that there are now several non-Japanese people in very senior positions within our group. I often joked with Satoru that we were a domestic Japanese company with some interesting international business.
I think we have truly evolved into an international insurance company, and I think that is quite important. I think you can only achieve that by bringing in not just Japanese views. There is nothing wrong with the Japanese views, but it is a much more inclusive environment. In my opinion, that bodes very well for our future. I do not know if that answered your question, but that is-
Yeah.
That's how I feel. I wish you'd given me a heads up.
Thank you so much. Thank you so much for your feedback.
Christopher, Donald, thank you very much. Any further tougher questions from the floor?
Could your successor be non-Japanese?
How about that?
I am considering about that, but I did not decide that. But I think it will be possible. Thank you.
That gets the award for the tough question of the day.
Yeah.
Yeah, that was a good question.
Any other questions from either through Zoom or in person? We are starting to run out of time, but happy to floor further questions. If not, maybe if we can take a few minutes of your time, it is a good opportunity to directly address the Group CEO and senior management on your views towards Tokio Marine. We have just heard Christopher and Donald on their candid evaluation of Tokio Marine Group. If I may, I would appreciate any comments or ideas on Tokio Marine's business strategy, operations, stock price performance, or any other areas that the management team should focus on going forward, to increase your ownership in Tokio Marine. Anyone who would like to share initial thoughts or feedbacks? By the way, all messages informed today will be received constructively by the Tokio Marine senior management, so please feel free to speak freely as you wish.
Or you can send an anonymous email.
Yeah.
They do not want to give away their secret sauce here.
I think we have got the Zoom.
Hi, can you hear me?
We can hear you well.
Okay. My question is just back on the M&A kind of area. I guess my question is more about the U.S. P&C industry. Do you see further consolidation as inevitable in the near term on the commercial side? Then maybe just more going back to Heather's question about potential M&A for you guys specifically. You mentioned not really much interest in pursuing personal lines further. I guess on the commercial side, what might be some areas of interest that would be a good fit for you, for your portfolio, and you see as potentially attractive in the near term? Thanks.
Well, that would be our secret sauce there, wouldn't it? First of all, in regards to the consolidation, I do think that that's likely to continue. I mean, we're in a business that goes through cycles. When it's soft, you get a bunch of MGAs and MGUs started because there's an abundance of reinsurance support. They go out, they write business like crazy. Some of them make money, the majority of them don't. Reinsurers pull back as they are at the moment, and I think that may be our greatest area of opportunity at the moment, where you've got MGAs, MGUs that have been reliant on insurance companies' paper, and that paper's disappeared, or, and more likely, the reinsurance that sat behind that paper has disappeared. I think we watch that space.
We have a very active list that we monitor for our different group companies, depending on the lines of business. As I mentioned earlier, personal lines x, what we're doing in the high net worth area is probably not something that's on the top of our hit parade. But there's plenty of other specialty areas that we can poke around the edges of. I think Susan and [inaudible] have done an outstanding job in the cyber market.
I think you'll see some fallout there, because I think there's going to be some reinsurers probably stepping back from some of those MGUs that they've supported. I think that's the more likely scenario than rather having some game-changing acquisition that comes about tomorrow. But as we know, we're in a strange world and things happen, and all of a sudden, a property that you may not have thought would be available, all of a sudden becomes available. As Kenji mentioned, we've got some firepower to do that if and when that comes along. Thank you.
Yeah, my apologies, I didn't catch your question earlier. I knew you were raising your hand. Thank you very much to everyone in person and on the Zoom. Understanding you may have further thoughts and comments to Tokio Marine, please feel free to provide your comments to your Tokio Marine representatives, Mr. Ishiguro, Mr. Sakurai, or Mr. Okajima directly. Tokio Marine will happily welcome constructive comments and ideas that lead you to further invest into them. Thank you for your participation today. Before concluding today's meeting, I would like to hand over to the group CEO, Mr. Komiya again, for his closing remarks.
Yes, thank you. Let me make a quick final remark. Thank you so much again for joining today's session. Over the last couple of years, we were faced with various challenges, including COVID, large nat cats, war in Ukraine. However, I believe that we were able to firmly and diligently overcome those ordeals, evidencing our underlying capabilities to deliver the results. As discussed, we will execute on our strategy and achieve world-class EPS growth and improve ROE while controlling for volatility to match global peers.
This is how we aim to meet shareholder expectation and mandates. Business environment continues to be volatile and unpredictable, but we have the track record to be responsive and management confidence to deliver on our commitment. I kindly ask for your continued support to our business. We will take back all of the comments and insights you have given us today, and I'd like to host such interaction from time to time, and I look forward to returning to London with strong results and a future strategy. Thank you so much.
Thank you, Mr. Komiya, for your strong statement. On behalf of Tokio Marine Holdings, thank you very much once again for your time today. If you have any further questions, please feel free to contact your Tokio Marine IR representatives, who are also here in the room today. If you wish to engage with any of the Tokio Marine group management team utilizing this opportunity, they will also be in the room for the next several minutes. Please feel free to introduce yourselves directly. Thank you again, and we hope today's meetings have given you a further understanding of Tokio Marine Holdings. Thank you very much.