Since it is time, we would like to start the meeting. Thank you for coming to Tokio Marine Holdings Fiscal 2023 First Half IR Business Strategy Meeting. We thank you for your attendance. I will be serving as the emcee for this meeting from Global Communications of Tokio Marine Holdings. My name is Ishiguro. Very nice meeting all of you. Before starting this meeting, on top of the venue we have here today, there are some people attending via online, so this is a hybrid method that we are taking. Next, we would like to introduce our senior management members on stage. From Tokio Marine Holdings, Group CEO Satoru Komiya. Senior Managing Director and Group CFO, Kenji Okada. Senior Managing Director and Senior Managing Executive Officer, Yoichi Moriwaki. Senior Managing Executive Officer, Kichiichiro Yamamoto. Managing Executive Officer, Yoshinari Endo. Managing Executive Officer, Masashi Namatame. Managing Executive Officer, Kiyoshi Ajioka.
Managing Executive Officer, Kiyoshi Wada, and Executive Officer, Mika Nabeshima. And the independent director on board, Mr. Shinya Katanozaka. From Tokio Marine & Nichido Fire, Representative Director and CEO, Shinichi Hirose. Managing Executive Officer, Eiichi Hosojima. Managing Executive Officer, Hiroshi Sakiyama. From Tokio Marine & Nichido Life Insurance Company, CEO Tetsufumi Kawamoto. As for how we proceed with the meeting today, Group CEO, Mr. Komiya, will be giving you a brief presentation using the material that is displayed on our website, and we would like to have a Q&A session afterwards. We plan to finish by 4:30 P.M., but depending on how the Q&A will proceed, we might extend the meeting a maximum 30 minutes. Mr. Komiya, can you please start your presentation?
Hello, everyone. My name is Komiya. Thank you very much for attending our business strategy meeting today.
I would also like to thank you for your continuous support to Tokio Marine. Last week, we announced our financial results and held an earnings call. For those who were in that call, I would like to thank you for your attendance. During the earnings call, I explained our current business environment, the financial earnings summary, which reflect that environment, and about shareholder return consistent with financial performance. Today, I would like to explain our business a little more in depth, including topics about our current position and actions to improve EPS growth and ROE, our strategies against the current issues, and the strategy of our domestic P&C business, a topic which we have been receiving an increasing number of questions from market participants recently. We hope this forum today will help to deepen your confidence in our ability to expand our corporate value.
First, can you please turn to page two. We have once again stipulated Tokio Marine Group's purpose. We are committed to protecting our customers and society in times of need. Since our founding, we have worked to solve societal issues at the center of our core business, and have continued to grow and increase our corporate value by providing security and safety to society. No matter how the world may change in the future, we will not deviate from the central axis. I would like to take this opportunity to express my determination on this point. Please look at page three of the presentation. As you can see, there are four parts to today's presentation. First, I will be speaking for a little over 40 minutes, after which I would like to invite your questions and comments as much as time permits. I do look forward to today's forum.
Please turn to page four. Here are three key messages that I would like to share with you as an overall message from the group. First, on the point of EPS growth, in 2023, we plan to achieve organic growth of 9%, or 8% excluding foreign exchange factor. We believe that the angle of EPS growth or growth trajectory will continue to be world's top class. On the other hand, looking at the turmoil in the financial market since the collapse of Silicon Valley Bank, the current business environment is volatile and not an easy ride. In this environment, as we have always done in the past, by taking appropriate measures to address each issue, we will be able to realize our plans with a high level of confidence. As for DPS growth, which is backed by strong EPS growth, is scheduled to grow by 21% in fiscal 2023.
Beyond that, we will continue to realize DPS growth with high level of both angle and confidence. Next, I would like to talk about ROE enhancement. The adjusted ROE for fiscal 2022 was 15.1%, a level that aims global peers within reach. However, we recognize that this ROE of Tokio Marine, as well as that of the peers, should be considered as tailwind reference record. Meaning tailwind being decreased in net asset due to rise in interest rate. Therefore, we are not convinced with our current ROE level, and we intend to raise ROE substantially. While our main driver will be world's top-class EPS growth, we will also accelerate the sales of business-related equities. Specifically, we will be selling more than JPY 600 billion of equities over the next four years, starting from fiscal 2023, and we will redeploy the capital we generate through equity sales with discipline.
As for share repurchase, our current TSR is 124%, which we think is ample. As we announced last week, while our current plan is to spend JPY 100 billion to be spent for the full year, we have already approved for the repurchase of JPY 50 billion as the first step. The last part of the message is to execute high-quality management. As I mentioned at the beginning of this message, as a purpose, in addition to the sustainability management, which we have been pursuing since our founding, our unique globally integrated group management style, now in its eighth year, serve as the foundation of our enterprise management. We are also working hard to develop the next generation of management talent and succession planning so that these efforts will be carried on.
One of the components of our management quality is the ability to overcome difficult challenges or ability to be responsive. We have overcome many challenges in the past, such as with Tokio Marine Kiln and Tokio Marine Seguradora in Brazil. We are now further enhancing our ERM, including small, medium, and minority investment entities. We hope to exercise management capability to balance growth and risk management on a higher level and to avoid any surprise. I will explain these in more details. First, please turn to page six for the explanation of world-class EPS growth. Here, I will show you the track record of adjusted net income on normalized basis, which reflect our underlying capability. In fiscal 2022, we are looking at 22% profit growth, and over the past 10 years, a CAGR of 12% growth, reflecting the steady profit enhancement.
In fiscal 2023, we plan to achieve organic growth of 9%, or 8% excluding foreign exchange, which is another strong profit growth plan. As for the JPY 670 billion of forecasting profit for 2023, our management's view is that this is only a passing point, similar to the ongoing continuous equity sales. It is a mere milestone as we continue to realize world-class profit growth. We are committed to keep on implementing measures to achieve further growth. Please turn to page seven. This slide shows a peer comparison of EPS growth. Since this is a comparison against the peers, the figures are on an actual basis, including one-off factors. As a result of global risk diversification we have been implementing, you can see that on the left, we have achieved high EPS growth compared to peers, and on the right, that we have achieved t his while containing volatility.
Next, please look at pages eight and nine. The current business environment is indeed very volatile. This section summarizes the issues we are facing, the measures we are taking, and the impact on business performance. Page eight is regarding underwriting. Natural disasters are becoming more severe, inflation is prominent in Japan and overseas, and as a result, reinsurance costs on the rise are all impacting loss cost. In this environment, based on our globally diversified, robust business model, and by through implementing strategies such as proactive rate hikes, we believe that we can further and sustainably increase underwriting profit, which is the backbone of an insurance company. For example, we have continued to implement cycle management, which is our forte in the reinsurance renewal in April for the domestic market risk.
By doing so, we have been able to procure the necessary cover while maintaining cost increases to a reasonable level. On page nine, it summarizes asset management side of the business. Indeed, the financial market is moving rapidly, and there is an increasing level of uncertainty. Of course, we have been, and will continue to be impacted by these moves. So there is no change to our stance in monitoring the situation carefully and cautiously. However, because we have strength in credit management, backed by actual insurance liabilities as we speak with Don and other investment members. Because we have our strength in credit management, the situation is fully manageable. Expanding stable stream of investment income is even possible despite the market condition. Specifically, what are the concerns that the market has? What is our situation, and how do we respond to those concerns?
Let me give you some explanation on those points. Specifically, regarding interest rate hikes, we are implementing risk control through ALM. Regarding FX hedge cost, for example, we expect the foreign exchange hedge cost to increase by JPY 45 billion year-on-year in fiscal 2023. But this will be offset by increase of JPY 110 billion in income return from credit and variable interest bearing asset. Also, on recent concerns about bank defaults, we have limited direct exposure to U.S. regional banks. Regarding other concerns, such as changes in banks lending attitude or the economy slipping into recession, can impose stress on real estate and securitized products. We conduct careful stress testing and make investment decisions based on test results. For example, on the right in the middle, this is a situation concerning our CRE loans. We will discuss this in more details later.
We have even confirmed that under the stress equivalent to 2008 global financial crisis, the impairment loss with our CRE loans can be recovered within six months from the income brought by CRE loans. Regarding CLOs, we have confirmed that CLOs will not suffer any loss, even if the same stress level continues for three years. Rather, if the market is further disrupted, resulting in a dump sales of assets below their intrinsic value, then this is rather an opportunity for us because we have some level of dry powder, and we can invest in quality asset at a discount. Next, we would like to explain our unique business model. Please turn to page 10. The essence of Tokio Marine's ability to manage volatile business environment is global risk diversification.
For more than 15 years, we have been allocating proceeds generated from business-related equity sales to overseas M&A, so that by shifting to international insurance risks that have little correlation with domestic P&C insurance, it mitigates risk while achieving profit growth. In fact, in fiscal 2022, we were impacted by COVID and large-scale natural catastrophes, but we were able to reduce the profit impact to be less than 30%. However, as I always say, we are not satisfied with the 30% figure. We are currently at 47% diversification effect, and we would like to continue our efforts to further amplify diversification effect so that we can further enhance ROE, and we want to pursue more opportunities for more business investments. Please turn to page 11.
The source of strength of our business model is strong local presence, which enables us to achieve profitable growth over and above the market growth rate in those attractive markets. The strong local businesses come together to diversify risks. This is the essence of a global company, and this is what underpins our EPS growth. In fact, the 10 year CAGR of international business profit is positive 12%. In Japan, we have realized without any shrinkage, have been achieving 6% growth. Due to differences in base growth rates and M&A opportunities, more than half of our current profit is generated from overseas, but we would like to aspire to grow both domestic and international businesses. Now, I would like to supplement more content to these businesses. First, please refer to page 12 so that I can explain more about domestic P&C insurance business.
We have achieved number one growth in the domestic P&C insurance market with superior profitability relative to the market. As we will explain in more details later, compared to Europe and United States, the fact that we have established a strong position in the domestic P&C insurance market where we can generate stable earnings in a sustained way, is our unique strength among global insurance companies. Please turn to page 13. Our North American business is more than 80% of international profit, and it is a growth driver that possesses both growth potential profitability.
While we have a heightened geopolitical risk, it is an attractive market, and as Mr. Buffett says, "Even when the economy may slow down, the U.S. economy is likely to continue to grow." Especially because we are a top player in the specialty market, and we have a specialty portfolio with less correlations between the two, and it is relatively insulated from loss cost increase due to inflation. Our policy continues to be bottom focused, and this feature is well illustrated in the lower half of the slide. We will continue to achieve profit growth well above the market level. Next, I would like to explain about Delphi's credit investment, which is our unique strength in asset management. Please turn to page 14. Page 14 shows the track record of intel income return by different factors.
Both by means of expansion of AUM backed by strong underwriting and Delphi's ability to consistently outperform the index regardless of market conditions, are synergetically leading to favorable results achieved. We will also take a closer look at CRE loans, which have been the focus of much attention these days. Please turn to page 15. To begin with, what is the nature of market concern over CRE loans? Rising vacancy rates and rising interest rates are increasing the risk of declining property value and default on interest payments. Stricter bank lending at the time of maturity is also increasing the risk of default. I believe these are broadly the main concerns held by the market.
In contrast to such concerns, the main focus of Delphi CRE loans is not so much the property itself, but rather the business plan or business model that will improve the value of the property through renovation to increase the property value. In other words, it becomes a property favored by tenants, making it easier for refinancing, and such loan is for a period of a few years. Therefore, the quality of the property and tenants are important, but also the experience and qualification of a sponsor, as well as financial soundness of the property sponsor, must be strictly evaluated. To do so requires a dedicated and seasoned team of experienced professionals who have lived through several market cycles and still manage to generate stable returns. As a result, 99% of the portfolio is now paying interest on time and without problems.
Second, majority of Delphi's portfolio is held as a single lender, which means that in case some unusual event occurs, Delphi can flexibly respond to it at its own discretion without coordinating with other lenders, to take measures ranging from refinancing to foreclosures. In addition, as explained earlier, Delphi's source of investment money is insurance liabilities, which are long-term money and predictable, allowing them to wait and hold the position until the real estate market recovers. This puts Delphi in a unique and different standing from other financial institutions. As for stress testing, as explained earlier and shown in the lower part of the slide, even if another financial crisis were to occur again, the impact on the Tokio Marine's P&L will be limited.
We are also planning to hold a presentation focusing on Delphi Group unique with these features next month in late June, so we hope you will be able to attend that meeting as well. Please look at page 16. We do this usually, but it is rare to see a company disclose the actual synergy amount. This is something very important to Tokio Marine Group. Revenue, investment capital, and cost are the four areas of synergy, and we are currently generating $470 million in synergy annually. This is the highest level of synergy in our history. If we were to realize $470 million of profit through acquisition, a simple calculation using the average P/E ratio among the P&C companies in North America to be 14x , and would require a company worth JPY 900 billion.
Looking at synergy in this manner, we can say that the Group Companies have realized significant value at no additional cost by voluntarily holding discussions. There is CEO meeting, there is a global top management meeting, so they are very voluntary in doing this and creating synergy. I am truly encouraged by such self-born effort among Group Companies. Next, I would like to explain about dividend as a way to return flow profit. Please turn to page 17. Once again, the basis of our shareholder return is dividend payment, and we will continuously increase DPS in line with profit growth. In other words, in tandem with the world's top class DPS growth, we will raise both trajectory and confidence of DPS growth to a higher level.
Against this backdrop, in fiscal 2023, supported by strong profit growth, we are expanding source of dividend payment, and we are raising the dividend payout ratio to 50% as planned. This would make DPS to be JPY 121, an increase of JPY 21 versus last year, and growth by 21%. This will be the 12th consecutive year of dividend increase, and we will continue to increase source of dividend by moving average, rolling forward to achieve high DPS growth. Next, on page 18, we are showing the trend of adjusted ROE and how it looks vis-a-vis global peers. Through strong profit growth and disciplined capital management, our ROE is now at 15.1%, a level that has global peers within reach. However, both Tokio Marine and peers recognize that these ROE figures are more or less due to decrease in net asset from rising interest rate, resulting in technically inflated ROE.
Therefore, we will continue to raise ROE more fundamentally, and we believe that the peers will do the same. In that sense, although peers will be moving targets, we would like to be in line with them. As for the path to ROE enhancement, we are not aiming for a so-called shrinking equilibrium, so expansion of numerator or world-class EPS growth will be the main focus of our effort. On the other hand, as measures for denominator side of the equation, we will work to reduce business-related equities with sense of urgency. Please turn to page 19. We have over 20 years, been reducing business-related equities. Last year, we announced to accelerate the sales. This time, we have decided a further acceleration of sales by selling more than JPY 600 billion in four years till fiscal year 2026.
The company will transition to IFRS at the end of FY 2025. Through accelerated sales, business-related equities held on an IFRS-based net assets as of end of FY 2026 is expected to be around 30%, although subject to fluctuations in share prices. We will continue to sell, therefore, business-related equities accounting for 20% of net asset is just a passing point. This effort will enable us to replace capital with more capital efficient ones and be able to enhance ROE. This is the substance, the crust, of our management. Please turn to page 20. This slide shows our track record of acquisitions and divestments. For us, M&A is a means to an end to diversify risk and achieve profit growth. M&A is not our objective.
M&A has been executed by carefully selecting and identifying what we call good companies that we can demonstrate synergy with and achieve high ROI. Having said that, current valuations of large M&A deals are still high. Patience is therefore still needed. Our plan in the meantime will be to make sure we seize bolt-on opportunities while taking a disciplined approach in executing our divestment strategies. Page 21 illustrates our capital policy. Recent ESR is 124%, which is within our range and solid. First priority of use of the generated capital is to invest in business to further enhance ROE. If, however, there is no opportunity to invest internationally or in Japan, we will execute share buyback as the company has no intention to accumulate unnecessary surplus capital.
For FY 2023, I've referred to this very briefly already, but JPY 100 billion in share buyback is planned for the year and at this moment, and as a first step, execution of JPY 50 billion share buybacks were approved. We will be using capital into new business investments, and if there are no such opportunities, we will invest-- we will do execute share buyback. This is a disciplined approach that we are taking, and we would like to pursue the relevance of being a global company. Let me throw light on the high-quality management of the business, which is a foundation to realize profit growth and ROE improvement. Please jump to page 23.
As I mentioned at the outset, the company has been practicing sustainability management since its founding. I intend to make sure this permeates globally, and to pursue further evolution. The slide illustrates numerous initiatives from around the world, and at the center of our business. Initiatives are accelerating, and working on it with simple honesty will serve as a driving force to growth sustainably for 100 years and beyond. I truly believe in this. Please turn to page 24. High level of expertise and knowledge acquired through M&A, among others, will be leveraged across the group strategy. Such global integrated group management unique to the company has entered its eighth year, and still evolving. I believe so. Decisions on important management issues are now made and implemented by combining our global knowledge and expertise. This structure will not end with the so-called first generation.
Nurturing next-generation management talents and passing the baton to them are extremely crucial. Various measures are also being taken. For example, the left side of page 25 covers TLI, Tokio Marine Group Leadership Institute, launched in April, that will offer leadership programs to talents across the group globally. TLI will be used as a gateway to success for next-generation management talent, similar to GE's Crotonville, widely known globally. We will work on talent development and succession by linking TLI with our global talent management initiative since 2019. Next on the capabilities of high quality management, please turn to page 26. At Tokio Marine, we have a track record of overcoming challenging times. We have the ability to be responsive. Tokio Marine Seguradora in Brazil has grown to reach more than JPY 10 billion in bottom line, experienced severe rate competition in the market.
Tokio Marine Kiln suffered a sluggish profit until five to six years ago. Management leadership was persistent throughout, and executed the right strategy by working together with the field to overcome the challenges. This ability to be responsive is particularly relevant at a time when the business environment is ever more volatile and uncertain. Strengthening intelligence, accumulating intelligence, I intend to bring our ability to the next level. Please turn to page 27. As our business domain grow and expand globally, we need to strengthen ERM, including small, medium, and minority investments on a global scale. It is necessary to balance growth and risk management at a high level. Loss from COVID in Taiwan last year was a market event, but I don't want to see another loss like that.
Immediately after, emergency review was implemented on minority investments, and as you see on the right-hand side, in terms of enhancing individual entities in Taiwan, we decided to take majority stake. Chairman of the board and CRO was dispatched to enhance the level of ERM. This time around, a competent president has been newly appointed from outside the company. In the meantime, if you turn to the left-hand side, at the group level, a new Chief Audit Officer was appointed in April, and an officer responsible for the governance of international business was appointed. Efforts are made to strengthen the framework. That is all I have for the management strategy for the entire group. Let me now focus on the domestic non-life business. Please turn to page 28.
In fiscal year 2022, I had the pleasure of engaging in dialogue with many institutional investors and analysts in Japan and abroad. Corporate value of the business is often discussed in the engagements, and questions on the value of our domestic business are often raised. I want to take a moment to elaborate on the domestic non-life insurance business. There are basically two key messages from me. One is stable growth of our core insurance business. I sense that, in general, investors take a hard look at the overall growth of the Japan market. The company, however, has a different view. The non-life insurance business is a profit growth driver, and much more bottom-focused than ever. Second point, the company has been taking on the challenge of transforming into a new business model in Japan, where we have numerous societal challenges. Actual business operation is about to start.
There is room to grow in the area of capital-light business in Japan. Let me give some color. Please go to page 29. The slide shows the change in combined ratio over the past 10 years to compare profitability of the P&C market in Japan and the U.S. 2018 was an exception with multiple large nat cats, but the combined ratio in Japan has always been lower than North America by 2 to 3 points. At TMNF, it is even lower by another 2 to 3 points. This is because of quit rate and product revision against deteriorating profitability. We will continue to achieve stable combined ratio. Next, on page 30. Please find the growth rate of underwriting profit of Tokio Marine. It is shown on a normalized basis to eliminate transient noise, such as natural catastrophes. CAGR is +13% for the past 10 years.
For fiscal year 2023, we will achieve +7% growth by focusing on bottom line, and there are numerous profit growth drivers. Let me talk about these drivers on page 31. First of all, auto insurance, which accounts for about half of our premiums at TMNF, loss cost is on a growing trend, primarily from revenge driving and inflation. For fiscal year 2023, combined ratio is expected to be in the high 94% range. We will offset the increase in loss cost by improving loss prevention and by executing rates and product revisions next January. Going forward, the number of vehicles in the market is expected to decrease over time. We will further enhance our policy volume measures and unit price measures, as shown on the right, to maintain stable profit. Page 32.
This is an illustration of profit improvement in fire, which is the largest profit growth driver. In addition to the rate increase and product revisions implemented over four years, comprehensive measures have been put in place, such as disciplined underwriting, reinsurance cycle management, to name a few. With these measures, underwriting profit on a normalized basis for fiscal year 2022, as you see in the middle, turned around to +JPY 3.6 billion, and combined ratio finally dropped to below 100%. For fiscal year 2023, while falling below expectations from six months ago due to rise in reinsurance cost, among others, underwriting profit is expected to be up JPY 27.1 billion and combined ratio to reach 92.8%. However, trends in natural catastrophes and reinsurance costs in the future do not allow optimism. They are unpredictable.
While continuing with bottom-focused initiatives, needless to say, second and third arrows, such as additional rate and product revisions in the next midterm plan and taking loss prevention measures are taken into account. We will be implementing additional revisions all in an effort to ensure profitability that is commensurate to capital cost. Please turn to page 33 on specialty insurance. Our current midterm plan envisions increase in income from specialty insurance by more than JPY 100 billion. We are producing good results in the four priority areas of healthcare, SMEs, GX, and cyber, and the target is achievable. As shown on the right, penetration of specialty insurance in the Japanese market is still low. Therefore, there is plenty of room to grow. For us, working on addressing societal issues over the years, it is a very challenging field to work on to create a market and to open up the future.
We will make sure to deliver results. Next is on the foundation of profitability of domestic P&C. Please turn to page 34 for lean structure and reallocation of resource. On the very far left, by making full use of digital, administrative work will be reduced by 20%-30% by the end of FY 2026. I have been saying this, and our progress to date is a minus of 9% or 9% reduction. In the middle, dimension equilibrium is not contemplated. Workforce will be reallocated to achieve top-line growth in specialty insurance and improving loss ratio in fire. In FY 2023, each will make about JPY 20 billion in profit contribution. As a result, combined ratio in FY 2023 is expected to be 92.5% at the bottom. In FY 2026, real or tangible reduction impact of administrative cost is expected to lead to further results.
During this time, generative AI and other disruptive technologies will be put in place and leveraged. Lastly, on the second key message on the domestic P&C business, transformation to a new business model. Let me elaborate on page 35. Currently, we are expanding the conventional insurance business of insurance payout shown in the center vertically and horizontally. In other words, expanding into preparation and recovery, which is a horizontal expansion of the business, and expanding the function of the insurance business by underwriting new risks and adding new services, which is a vertical expansion. Our role is growing quite significantly, and let me give you some examples. Please open both pages 36 and 37. Let me start on page 36. The slide describes our initiatives on disaster risk reduction in Japan as an example of vertical expansion or horizontal expansion into pre- and post-incident of the insurance business.
Japan is a country prone to natural catastrophes. The base of this business domain or the value chain is broad. For example, the market size of the disaster risk reduction solution business is said to be JPY 1.2 trillion. This is how much room we have to grow. In 2021, we launched CoDR, Consortium for Disaster Prevention, and have been working with member companies and have now grown to approximately 100 companies. We are finally entering the monetization phase. The two cases shown on the right, real-time hazard and disaster loss simulation, both contribute to improved disaster resilience. They will be rolled out to many local municipalities from summer this year. These services do not take up much capital. It's capital light. Scaling the business will lead to improved ROE. Our plan is to create such cases one after the other. Turning to page 37.
These are examples of the vertical expansion or functional expansion of insurance. Key is the group's core data company, Tokio Marine dR, or TDR for short. Enormous data gathered at TDR and the sophisticated digital capabilities of the group will be leveraged to underwrite using advanced data analysis methods or to offer new data solutions. Data-driven products are developed and released in succession. Our capabilities, including TDR, will be enhanced through collaboration with outside partners to come up with unprecedented value-added solutions that address societal issues. Lastly, please turn to page 38. New business expansion leveraging our claim service capability. On the left is the fee business through collaboration with Zenrosai, and on the right is fee business using satellite data. These businesses have a broad base. We will improve such capabilities, upgrade our capabilities so that it will lead to much bigger outcome.
As explained today, our domestic P&C business offers us a foundation for the insurance business by ensuring stable growth and an opportunity to create new business models as a new income source by addressing societal issues in Japan. As we are ahead of the curve, such businesses could be rolled down to other parts of the world. It is a promising market and business domain. We have the capability to deliver, and we must deliver. Building new pillars of the business is something that I will continue to work on and continue to communicate with you. That is all I have to share with you. Once again, Tokio Marine will achieve world's top class EPS growth in Japan and abroad, as well as ROE in line with global peers by realizing high-quality management globally. Also realize high shareholder return.
We will do our utmost to do an even better job, and we will work together as a global group. Your continued support is very much appreciated. Thank you very much for your kind attention.
Thank you. Now, we would like to take questions. Please stick to two questions per person. Those of you who are joining us in the hall, I will call you, so please wait in your seats until our staff brings a microphone to you. If you are joining us online, please use the chat box at the bottom of the page and enter your question. If you intend to cancel your question, please state so using the chat box. Due to interest in time, please understand that we may not be able to respond to all of your questions.
In such a case, the IR/SR Group will take your questions and will get back to you at a later date. Your understanding is very much appreciated. Let me see if there are any questions. Muraki-san from SMBC Nikko, please.
Please wait until the microphone comes to you.
My name is Muraki from SMBC. I have two questions. The first is that one of the major themes as you presented is the top-line growth of your domestic P&C business. If you go to page 33, there are some specialty insurance that you plan to grow, and you want to grow the top line by JPY 100 billion by selling specialty insurance. That is how I read it. It is JPY 100 billion for top line. There is about JPY 17 billion expected for profit. Also the four areas in the first half of the midterm plan versus the plan, I believe you were lagging behind the plan.
But as you focus more on specialty insurance in the next midterm plan, you plan to grow this by JPY 100 billion a year. How do you specifically plan to grow the specialty for different lines of business? That is my first question. My second question, since we have an independent director, Mr. Katanozaka, with us in this meeting today. At the board level, I want to know what was discussed in your board meetings last year. Just as a case study, regarding Taiwan, I know that there was a loss by JPY 100 billion, and you have added additional capital to your entity, which I imagine must have been a difficult decision. The way you have invested in that company, there were a lot of discussions over that in the market.
According to the law of capital, the Yulon Group, perhaps they should bear the unlimited liability. Tokio Marine was a minority shareholder. To what extent should Tokio Marine support the business is the gist of discussion. Also, the function of the board on the local entity level, what did they discuss and what were the opinions that they have reached?
On the first point about the profit growth expectation, especially for specialty insurance for domestic P&C business, I would like to answer that first. From Tokio Marine & Nichido, Mr. Sakiyama, in charge of strategy planning, please answer the question.
Muraki-san, thank you for the question. About the specialty insurance growth, I believe you are looking at slide number 33.
In this current midterm plan, we have announced JPY 100 billion, but as you can see on the left, it is now within our reach during the current midterm plan. As a result of that, the bottom line contribution is actually on page 34 in the middle. It says JPY 100 billion of growth and JPY 17 billion of profit contribution. These are pretty much in line with what you mentioned earlier. This is the profit level that we expect to see. What would happen in the next midterm plan, weren't we lagging behind? Was your question. Let's go back to page 33 once again. Last year, actually two years ago in fiscal 2021, we started the midterm plan. The first year was JPY 15.6 billion of growth, and second year it was JPY 64.5 billion.
In the second year, we have achieved JPY 48.9 billion of profit growth. Those four areas, healthcare, SME, GX, and cyber are the four areas of priority. If you were a frontline salesperson, these were not necessarily the areas that they were focusing on, but we wanted to support them in focusing more on these areas, and these were the societal areas. We have established new divisions to take care of these topics. Of course, it requires some time for these topics to sit in with them. That is why probably the first year looked low key. However, gradually it's now more penetrated, and now there's more collaboration within the headquarters. As you can see with the second year number, we have seen the growth.
At this point in time, the market penetration of these lines of business is still low, so there is much more room to grow. In the next midterm plan, we continue to focus on specialty line of insurance. Of course, we need to consider details, but that topic is still within consideration. By the end of 2026 as profit contribution, we are thinking over JPY 17 billion for the current plan and towards fiscal 2026. We have stipulated here JPY 30 billion, but specifically how we plan to achieve that number, the details will be considered from this point onwards.
On the second point, a question to Katanozaka-san regarding Taiwan COVID. What were the discussions that took place on the board of directors meeting as much as you can disclose?
Muraki-san, thank you for your question.
First of all, the overall board of directors meeting, I have been serving this for about three years, and we have outside board members, and we have auditors who are very proactive in speaking out, and they give some strict, serious comments in the meeting. The chairman also puts effort in trying to draw out voices from various members. As you mentioned, regarding the Tokio Marine Newa issue, the level of the loss that we have been hit is large, and there was an impact by JPY 100 billion to the fiscal earnings of 2022. I believe the gist of your question is, as an outside board member, what kind of discussions took place on the board level? As you mentioned, we were a minority shareholder, so one option was for us not to pay for the claims. There was an option.
There might have been an option for us to simply withdraw. However, as we had a discussion, not to do any additional capital investment and to withdraw from the business. You mentioned purpose management. As an insurance group, it was going to impair our brand, and also it was going to create the reputation risk, driving away customers on a global level. As Komiya-san mentioned, we thought it was better to take a majority share and do the capital increase, and to fully take care of the losses. That was discussed on the board level, and that was the conclusion that was reached on the board level. Also, you said that there were some comments made about how we additionally invest the capital. In the capital investment, it was done over several courses.
When we were doing that, there was a loss that we had to fulfill for liability over asset, and also the growth potential in Taiwan, and we made a decision to reignite the growth in Taiwan. In order to secure continuity, we had to meet the solvency requirement. We did the capital injection over the course of three times. Once again, the Taiwan market, the combined ratio is around 95% or below. It was a stable market. Due to COVID and sudden surge in the number of COVID patients, the entire insurance industry suffered. On the board level, some detailed facts, numbers, and data, we looked at them and were convinced that the Tokio Marine Newa could continue to grow.
Based on our past M&A that we had done, this decision had an economic rationale tantamount to and no less than other M&A deals. I said that in Southeast Asia, it is a mosaic and it is a complicated situation. Mr. Komiya used the word intelligence. But intelligence, gathering information from wider areas beyond the insurance was necessary. To this, we had to strengthen the structure of the Taiwan entity, which I will not get into details here. This time, what we discussed on the board is that we have to leverage on the lessons learned. Especially in the international market where we are focused on, including the minority stakeholding entities, we need to be exercising our global efforts.
We will make the final decision over the course of next three years, but as a board of directors, we will continue to receive status report, and we will continue to fulfill its supervisory role. That is my intent.
I got it. Thank you very much.
Thank you for your question.
Let me proceed to the next question. Tsujino-san from Mitsubishi UFJ Morgan Stanley Securities.
Thank you for taking my question. My first question, it is kind of a follow-up question to the specialty insurance question. Low penetration was mentioned. For the priority areas, those companies that are buying insurance products in these priority areas, there could be potential companies that could be buying more. Is there maybe 10 times in the market? 20 times more in the market? Could you give a sense of the size of the market, potential customers in the priority areas? If you have a sense of that, please share it with me. My second question is on page 34, reducing work administration cost is also referred to. At Tokio Marine, within this industry, you have been ahead of the curve under Mr. Sumi's time.
You have introduced new systems, introduced efficiency, and you have reallocated people. You have been working on it over the years, I understand and appreciate, but you are still working on it. In other words, people who were more involved in simple tasks, should I say, needs to be reallocated to new tasks. Will they be able to adapt to those new tasks? That is one area of question. The age of retirement is being postponed, but yet at the same time, we need people to work. So I am assuming that there are many other companies out there that are facing more challenging situations. I understand that. My question is for you, how does Tokio Marine, in light of the labor conditions in Japan, how do you intend to work forward?
Thank you very much, Tsujino-san, for your questions.
With regards to your first question on the slide on specialty insurance, penetration rate is still very low, so we will be focusing on the four priority areas. But how much room do we have for growth in this market? I think that was your first question. Let me ask Sakiyama-san to first respond to this question and ask Hosojima-san to respond, to supplement, or it could be the other way around.
Tsujino-san, thank you very much for your question. It is kind of difficult. Statistics, I think, is limited. You might be referring to page 33. On the right-hand side, in terms of room for growth, you can see, and there is a legend at the bottom. Healthcare, I think, is still a lot of room for growth. Whereas SMEs, the current penetration rate is like 20%-30%, is still very low.
The SME market, they could be very diverse in size, but 3.6 million companies, SMEs, are in Japan. With our capabilities, with our manpower, we have not been able to cover all, therefore, there is plenty of room to grow in SME. Cyber insurance, compared to Europe or the United States, the penetration rate in Japan is less than 10%, therefore, I believe that there is plenty of room for growth. Bottom right, if you look at the comparison with the U.S. and Europe in GDP. Europe and the United States is six times or eight times that of Japan, therefore, I believe that there is plenty of room for growth. Hosojima-san, anything to add from the product side?
Yes, this is Hosojima speaking. Let me supplement slightly. Specialty insurance is different from auto, fire, those traditional products, therefore it would include a diverse area.
There are medical insurance and injury insurance that have been in place for quite some time, but the penetration rate could be high already. But the medical capabilities, the technologies, will expand going forward, therefore, there is still room for growth in that area by having different new products. In SME, as was already mentioned, the penetration rate is still at 20%-30%. There is plenty of room for us to grow. Even for large enterprises, specialty insurance, new products that will be introduced will all be included as a specialty insurance. Cyber, from an old data, 10% for large enterprises and only 5% among SMBs have cyber insurance coverage. These are completely new areas in specialty insurance where there is big room for growth. Although within the same specialty insurance, I think there are levels of possibilities for growth.
The more resources that we put into this area, we have stronger confidence in this market.
The second part of your question, let me ask Sakiyama-san and Hirose-san to please respond. The second part of the question was about more efficiency in administration. We have been focusing on Mirai project, and IT and technology has been upgrading over the years. Even after implementing a drastic reform, there is still room for seeking further efficiency. It is not that we are going to think about restructuring of our staff. We want to shift these existing staff into areas where we want to focus on. What is the level of liquidity and what kind of educational opportunities that we have, like recurrent training and so forth? Of course, we have such opportunities. What are our ideas on the resource shift within the company?
I think that was the second part of the question. Let me ask Sakiyama-san to first respond, and followed up by Hirose-san.
This is Sakiyama speaking. This is also another very difficult question. I think you briefly mentioned in your question, from the latter half of the year 2000, we called for drastic reform and made big system investments in order to improve or renovate our administration. About 30% of workload, administrative work, have been reduced. In 2010, the business ratio was 5.1%, but now it is 32.1%, from 35.1 to 31.1. Insurance income has increased by 1.1x . It is growing. As you see on page 34, on the left-hand side, additional investment in order to enhance the business efficiency. We have stepped up our effort in order to explore the capabilities of additional investments.
Mr. Komiya alluded to this very simply, that we are not going to do restructuring of our staff. We are going to reallocate the freed-up workforce into new areas like specialty insurance or to improve profitability of fire line of the business. You can see the fruit of our initiatives on the right-hand side. Going forward, when we explore these opportunities, what happens? For example, in terms of expense, administration cost or expense ratio, 31%. We want to achieve that level in the next midterm plan. We want to reach below 30% sometime in the near term. We want to take steady steps in that direction. What will be the role of our employees? Of course, that will change over time. Simple tasks that Tsujino-san mentioned in your question, over time will shift to digital or AI.
The role that will be taken over by employees will become more difficult, more challenging areas, or will be areas that only human beings can deliver. In order to shift into those areas, reskilling will be a must. The freed-up capabilities will be combined with reskilling, so that employees will be trained to be able to support the company in heading towards the direction that we want to achieve, which is embedded in our purpose of addressing societal issues. Therefore, being able to assume a different role in addressing the societal challenges. It is not to say that there is a particular program that we have in place to make that possible, but that will be for the next generation.
Komiya speaking. We have four frees, and we want to reallocate the capabilities into new areas.
I want to ask Hirose-san to make some supplementary comments on that point.
Tsujino-san, thank you very much for your questions. The Mirai project that we are working on has been started with the effort that we have been putting in place over the years. Administrative cost has been reduced quite significantly. As a result, the people who have been allocated to administrative work has been reduced quite significantly over time. The people who have been only involved in simple tasks has been reduced, and therefore shifted to sales activities, for example. Two main pillars of the initiative consists of paperless, and a lot of the paper-related work has been reduced. Evidence materials or documents that will be issued or published by hospitals have been simplified. It is not entirely paperless, but it has largely become paperless.
We want to move ahead in that regard. That is one thing. The second area is, in insurance, there are many lines, and it is very complicated. Therefore, the customers will speak to the agents, and the customers will ask questions to the sales. When the salespeople are not sure about it, will have to refer to the headquarters. That referral work was sort of a leftover of our initiatives, and we had to work hard on that. We use IVR, give numbers to some typical questions that will be addressed in the back office at the center. Telephone referrals will be replaced by emails and chatbots. AI will be utilized so that more AI could be used in this area. With those effort, I believe that we can further reduce the administrative cost and work.
As was mentioned by Sakiyama-san earlier, we will be addressing more diversified risks and pre- and post-incident disaster risk reduction and healthcare, and also reducing the impact of disasters and so forth. We want to offer more value to our customers. This is how we want to grow our business and to grow our fee business. Our human capital will be shifting into those new areas. It will be our manpower, our talent, our people who will be executing that. Therefore, we will make sure to invest in our people. Two years ago, myTalent incentive, which is a part of a benefit that has been introduced, and we are promoting our employees to educate themselves. We call it four frees, gender, and mid-career hires, and age free, the seniors, the juniors.
Taking away those walls so that people will be able to grow themselves in order to contribute to the success of the company. That is all for me. We are bringing all these efforts in order to work on this. I hope we answered your question. Thank you.
Watanabe-san from Daiwa Securities, it is your turn.
My name is Watanabe from Daiwa. I have two questions. My first question is on page 15 of your material. The CRE loan that you hold in the U.S. market due to renovation, that you want to be improving the property value, is what you said. What is the investment period, average investment period? I believe there is an office sector which you are cautious of, and how do you treat those cautious sectors? How much provision do you have against those cautious sectors? What is the level or adequacy of provisions? My second question is to outside director, Mr. Katanozaka. I have a question about the business-related equities. Tokio Marine has ANA shares.
As Tokio Marine accelerates sales of equities, as an outside director of Tokio Marine, how do you evaluate their effort, and what kind of proposals are you making in them accelerating their sell down of shares?
On the first point about CRE loans, Endo-san will answer the question. It is CRE loans, but we have the properties, the purpose of investment, some uniqueness of the loans we hold, and so Endo-san will give you the details.
Thank you for your question. First of all, on the first part about the average investment period, as Komiya-san mentioned, regarding CRE loans, we have some meticulous underwriting. We look at each investment case by case. We discern them, we differentiate them in making decisions because CRE loans or real estate sector has uniqueness attached to each property.
It is not a simple classification difference or area difference or structure difference, so we cannot really make any overarching general comment because each is unique. Regarding the investment period, for the commercial real estate, we want to be investing in a stably operated loan, and we want to do a long-term fixed interest loan over those properties. But we do something a little different than that. For the transitional properties, renovation and also restoring work being done, the properties we like, and so we do a lot of variable interest rate, and the investment period is a few years. It is relatively shorter than the market average. For each property, how do we discern them, differentiate them? Since 2020, since we got into COVID, hotel sector, we were rather cautious in hotels, and work from home has become common these days.
Office sector, we are slightly cautious. We have these stances towards different sectors. On the other hand, as I said, each property is very unique. They have strong uniqueness. So even after COVID, if you move by airline and require lodging, or if you move by car and require lodging, or if you go to a resort hotel, or if you go on a business trip and need lodging, depending on the use and purpose, the vacancy, the average transaction value varies from type to type. Therefore, for the hotel sector, we look at how it is used, and we make investment decisions case by case, one by one. For provisioning, for fiscal 2023, the accounting change took place in the U.S. So CECL, current expected credit loss, CECL, is now mandatory for non-listed companies as well.
Delphi, from January 2023, Delphi has been provisioning according to CECL. At the end of 2022, the balance for the group was $180 million on pre-tax basis. For CRE loans, it is within this number. As the provision percentage, it is about 1%. That concludes my answer to your question.
Thank you. Now going on to the second point about the business-related equities. Katanozaka-san, can you provide your comment?
Watanabe-san, thank you for your question. As you said, there is a contradictory position that I hold as ANA. Actually, I am the representative director and chairman of ANA Holdings, and its subsidiary is ANA. Tokio Marine & Nichido Fire and ANA have some business relationship with aviation insurance. I think that is what you are referring to.
As for me, I am not on the board of ANA, and it is a subsidiary, and so I do have some responsibility over the business of ANA. As for Tokio Marine sell down of equity shares, it was explained well in the presentation. Originally, from 2002, for over the course of 20 years, it has been reducing business-related equities. Last year, there was a revision to the policy. There was strengthening of the policy to continue to sell shares. Then in May this year, as it was announced, we have announced that from 2023, the pace of sell down is going to get accelerated. Specifically, the plan is to JPY 600 billion of sales in four years. So on the board level, we support their decision on this. You said that there are some contradictory stances I hold.
Of course, aviation insurance is purchased from Tokio Marine as well as from other insurance companies. There is a competitive relationship among insurance companies in this area. My stance is that I am an independent board member, and as for the policy of equity sell-down, I have no objections whatsoever. I am all supportive of their decision to do so. Looking at ANA Holdings, from financial institutions, the Corporate Governance Code had been introduced, but even before that, unwinding of the cross-shareholding had become a general trend in Japan. Going forward in managing a company, I believe this is one major theme which all Japanese companies will be aiming to do the same. So I have no objections whatsoever.
Therefore, reducing the shares, as you mentioned, whether if we can accelerate the pace of sell-down, also what thorough discussions and explanations we can have with the share issuers. From the execution side of the business, they have committed to talk to those share issuers thoroughly. As I was monitoring their internal meeting to the sales offices and what they do, the headquarter senior management was thanking them for talking to the share issuers thoroughly, which made me feel that they are having really a good discussion with the share issuers and doing this meticulously. Tokio Marine & Nichido Fire, and also with ANA and the aviation insurance, as well as the topic on the share sell-down, they are talking on various aspects, and I am content with that. I understood very well. Thank you.
JPMorgan, Sato-san, over to you.
Thank you for taking my question. I am Sato from JP Morgan Securities. Separate from the theme that you emphasized today, which is about the international business. For example, on page 61 of the slide, you have the profit growth diagram. The first question that I want to ask is very simple. In the current cycle, where do you position yourself? Where are you in the current cycle? What kind of growth trajectory could we anticipate? My view is that, at the time of the midterm plan, 9% CAGR was the target. This time, 5% growth excluding foreign exchange, and JPY 40 billion is from expansion of investment income. Looking at the numbers only, underwriting profit did not contribute to the growth, at least looking at the numbers. Interest rate environment is a little bit in favor, but going forward, underwriting profit should contribute.
Will underwriting profit stably contribute to the growth? This is something that I am watching very closely. So if you could please elaborate on how much growth potential and room for growth you have for the international business going forward. My second question is also on international business. Sorry, this is on page 10. Every year, this is something, the risk volume and diversification effect that you show every year. I have been watching this every year, thankfully. The risk amount of international has grown by about JPY 500 billion, and diversification effect is not working as much as it did. So in relation to the first question, if the growth of the international business is going to enter into a more difficult cycle for growth, then the setting aside of risk volume for the international business, will that change over time? Those are my two questions.
Thank you very much for those questions. Thank you very much for your two questions. The first question was about the international business. I want to ask Yamamoto-san, overseeing the international business, to respond to that question. There is a microcycle, the rate environment, where are we in the growth trajectory? Going forward, what is the room for growth of the international business? So what are our ideas and the extent of possible growth? Underwriting profit and investment profit, what will be the balance between the two? So that was the first question. I want to ask Yamamoto-san to please respond to that question. Then on the risk diversification, the effect of diversification. Maybe we are slowing down on that diversification effect. What are the risk diversification strategy we have internationally and our thinking on risk volume? I want to ask Yamamoto-san first and then Okada-san, CFO, to respond.
Yamamoto-san, if you could please respond to the first question.
Yes. I am Yamamoto, overseeing the international business, and I want to thank Koki-san for your question. About the cycle, where are we in the cycle? This is actually crucial because it is the basis of our plan. The basis of the plan, in terms of the cycle, is the hardening of the market will slow down, broadly speaking. This is our outlook. The extent of the slowdown will differ by line. For example, the reinsurance business that will cover nat cats and properties that will be related to that. There is still an ongoing hardening of the market. It is quite an unprecedented hardening of the market. In the meantime, for certain lines, for example, D&O for large corporates, end of March, in the earnings call of insurers in the U.S., there is a rate free fall, we could refer to it.
Overall, the situation is quite patchy. Broadly speaking, we will say that there is a slowdown in the hardening of the market, and therefore that needs to be factored in. In the meantime, for underwriting profit, reinsurance cost is soaring. This has put a dent on the profit growth. That is factored into our plan. For underwriting profit, it is actually the way in which we have factored into the plan. For example, when we came up with a plan for 2023, 2022, there was a reserve release. In 2023, it is not factored in except for certain entities. That is why the underwriting profit in 2023 looks smaller than in 2022. In addition, cat fund for natural catastrophes. From 2022 to 2023, we have increased provisions for nat cats because of the increase in natural catastrophes.
All those factors in 2023, underwriting profit seems to show a sluggish growth compared to 2022. Taking all those factors into consideration, and looking at 2022 to 2023, underwriting profit, very roughly speaking, about 7%, still growing year-over-year. In light of the current market environment, underwriting profit is growing in a disciplined manner.
Going forward, how will we be able to enjoy the growth trajectory, underwriting profit and investment profit on both sides?
For underwriting profit, the specialty Group Companies in the U.S., their underwriting capabilities is quite robust. For investment profit, Delphi's capability, they are our strengths. We will be growing on both sides of the wheel. There are, of course, favorable times and not so favorable times, so maybe there are times in which they will complement one another.
For 2023, overall, the slowdown or the hardening of the market is expected. For the finance market, interest rate is rising, therefore we can expect a rise in income from investment income. So investment income is expected to grow. Over the long term, this cycle will change over time, and bolt-ons that we have been working on over the years will continue. We will seek opportunities for any bolt-on acquisitions. So over the long term, I believe that we can grow both sides. I hope I answered your first question.
Komiya speaking. If we are to do an apple-to-apple comparison, there are some technical aspects that was just shared by Yamamoto-san. For investment income, investment income is underpinned by underwriting profit. I want to have some supplementary comments on investment income. There is credit risk and underwriting profit and investment profit.
Can I ask our CFO, Okada-san, to make some supplementary comments on that?
Yes, this is Okada speaking. As was explained by credit risk, our allocation vis-à-vis credit risk in 2022 or in 2023 plan, investment profit is the driver of the profit growth for the entire group. That is true. As a matter of fact, the expansion of underwriting profit has worked quite successfully, especially in North America. As a result, the balance for investment profit growth is growing. That is the first factor. The second point is with the rising interest rate at Delphi, they have more than 40% of variable interest rates, therefore, return is growing. That is the kind of economic environment that we have been investing in.
The slide at page 10 that you just referred to, in the international business, the risk volume is 27% before diversification, and that includes hurricanes in the U.S. and other risks in North America, and credit risk will be included as part of that. ERM framework, if I could make some supplementary comments on that. Natural catastrophes in and outside of Japan and therefore credit risk. We have a midterm plan, where we come up with a risk strategy, which is renewed every three years. It is not disclosed, but the growth of net assets, the diversification effect, and stress test is taken into account. We set numerical targets. This year is the final year, and we are able to take and control credit risk within that limit.
Therefore, at the end of the day, underwriting profit or investment profit is growing, but this is thanks to the expansion of underwriting profit. If I could go back to the question of diversification effect, 50% or so has been achieved in the past few years. If you look at 10 years, international business has been growing, and that has contributed quite significantly to the growth of the diversification effect. I strongly believe that we feel have that diversification effect. This is not something that we have achieved through diversification, because investment risk diversification will have a role to play. Therefore, as for now, international insurance business with the balance in the insurance business growing, this is where we are. 50%-ish level of diversification effect is still maintained. I hope that answered your first question and also part of your second question.
Thank you very much.
It's 4:30 now, but we would like to extend this meeting a little more. Okara-san from UBS.
My name is Okara from UBS. I have two questions. My first question is on page 16, the group synergy and expansion of group synergy. On annual basis, six months ago, I believe you said JPY 400 million, and within six months, you have increased this by JPY 70 million. What brings this expansion? What are the factors? Also for the profit synergy, can we expect more synergy to be created going forward, especially because interest rate is hiking? Within the group using Delphi, what more upside do you expect to come from the use of Delphi? That's my first question. My second question is on page 27. Chief Audit Officer and the people in charge of governance for the international business.
When you appoint them, it hasn't been long, but what specific roles will these people play? Looking at Greensill, Taiwan incident, et cetera, in order to prevent such events from occurring again, what are the additional things that they are doing in order to prevent these accidents to occur again?
Thank you. First on the expansion of synergy, what are the areas where the synergy is being additionally brought? I guess that can come from Yamamoto-san. For investment synergy, I guess will there be more consignment to Delphi within the group? I guess that can be answered from Yamamoto-san. Yes. On the second point. Chief Audit Officer was appointed and also in the international businesses, there are some people to be in charge of governance.
Perhaps CFO should answer that. Starting with Yamamoto-san, please.
Okara-san, thank you for your question. Your first question about group synergy. It grew from JPY 400 million to JPY 470 million. One year ago, it was something like JPY 370 million. Now it is JPY 470 million. We issued it back in November. Indeed, this number is increasing. Looking into what brings synergy, several factors. The biggest one is the use of Delphi. You mentioned it, but it is the leveraging of Delphi and leveraging their investment capability within this financial market. We see more assets managed by Delphi, and they made the biggest contribution to synergy. Going forward, the investment synergy, further leveraging of Delphi will continue to take place. Another area that we are focusing on now is other areas of synergy. For example, in revenue synergy, we are working on this, and I expect more to come from revenue synergy.
Specifically, among U.S. companies, there is a CEO meeting that they hold, and they talk about how they can further create synergy among the CEOs. This is happening more voluntarily now. CEOs are stepping forward and collaborating and creating more and more synergy. To each broker, there is a consorted approach to the same brokers. As Tokio Marine Group, this is the type of a product or services we have. If you need this, please approach the group and utilize any of these products or services. This is a broker approach that they are taking on a consorted manner, cross-selling all products held by different Group Companies, et cetera. It is happening. This kind of effort should continue. By doing so, group synergy to come from Delphi in the area of investment, but elsewhere as well. We are expecting expansion of group synergy going forward.
I hope that concludes an answer to your question. Synergy, investment synergy is large, but there is revenue synergy and there is IT-related synergy, joint procurement and cost synergy is also significant. Also with digital effort, this digital roundtable is being held and also with GX, there is GX roundtable being held. There is an expansion of synergy taking place at these venues as well. We are expecting strengthening of group synergy going forward. Also among the Group Companies, Hosojima-san can add more if you need to. For U.S. and Europe synergies, it is large. Japan versus Western nations or Asia and Western nations, of course it is there, but there is more room to create synergy across different parts of the globe.
Being led by international business division and collaborating with the Japan side of the business, we are trying to expand synergy even more. Hosojima-san, do you have more to add?
This is Hosojima speaking. Japan versus overseas, and collaboration between the two. Tokio Marine Group, we have a lot of specialty companies that we have acquired, and in Japan, specialty insurance is not really penetrated here in Japan, and so we should seek for more effort in this area. For example, D&O insurance, cyber insurance. Among Japanese corporations, when they do business globally, they want to also be purchasing insurance globally, so they get support from Japan as well as in the global front. In those global programs, we have a strong position in providing global insurance to corporations.
Also purchasing of reinsurance arrangement because we have Group Companies who are doing business on a global scale. For example, event cancellation insurance and also gathering the panel reinsurers, group collaboration is contributing a lot in this effort. As Komiya mentioned, GX is very much a forward-looking topic. There are various risks, and how do we underwrite those different types of risks, and what kind of know-how can we gather on global scale? We are sharing information and trying to collaborate more for those new frontiers. On the second point about the CAO, as well as within the international division, those people in charge of governance of the overseas entities, what is happening in these areas.
This is Okada speaking.
If you go to slide 27, enhancement of ERM, as it was presented by Komiya in the past few years, based on what we have experienced in the past few years, we want to get rid of surprise, so we want to be enhancing ERM. That means that we need to be enhancing governance overall. From April, on the hard side and soft side, there are approaches from both ends. On the hard side, there is Chief Audit Officer, so this is a person who oversees the internal auditors overall for the entire group that was appointed in April. As you can see here, there are senior management in charge of governance of the overseas entities, so they should be first line. From, as a business division, they will be appointed to do governance of the overseas entities.
Those are the hard side. On the soft side, we need to be enriching the risk culture. The message from the top, message from each CEO is important. Group CEO and Group CRO will be communicating more about risk culture to overseas entities. Also, there has to be more dialogue among the top management of the overseas entities so that there is sharing of information and sharing of case studies. It may take time, but we want to be persistent in developing a better risk culture, including smaller entities. That is what we are doing on the soft side. As it was explained, when we appointed a CAO, there are audit officers for each Group Company.
To secure neutrality of those auditors, they are now independent, and CAO is now overseeing each region and also each Group Company and is talking to the internal auditors of each entity, and he has a very neutral position in doing this. Also with the CEOs of each entity, he is also talking to them in pursuing this effort. For the overseas entities, the executive in charge of governance for the overseas businesses, as it was explained, for each Group Company, when we look at different functions, they have strengths and weaknesses. We create a dashboard of those strengths and weaknesses. Each Group Company or maybe Tokio Marine Asia as an interim holding company, and also Tokio Marine must all be looking at the same sets of facts so that we enhance governance in the front line, in the first line.
There is a PDCA that is being rotated according to this framework. I hope that answered your question.
Let me pause here and see if there are any other questions.
Is it Mashima-san?
Yes. This is Tokai Tokyo Research Center. Mashima is my name. With regards to TM NF, Link and Motivation Cloud, it is an index to measure motivation. TM NF ranks number 2 in terms of a company that has employees with high motivation, where non-life insurance companies is such a big company, and I am sure there are people who are dispatched to various locations against their will. How do you maintain that high motivation? Looking at past trend, is there a correlation between performance and motivation? Are you prepared to publish this outside? My second question is also very simple. From April, the repair cost, I think it has been increased by JPY 2.5. Can I understand that the insurance cost will be increased by JPY 2.5 from April this year? What will be the impact of that increase?
It will not have an impact on the bottom line, I assume. Those are my two questions.
Engagement within TM NF Motivation Cloud is being utilized, it is being monitored, and it is sort of used as a medical checkup of the organization. What do we sense about that, and is there any correlation with the business performance? Who should I ask? Hirose-san, could you please respond to that question?
Yes. Thank you very much for your question. In terms of engagement score of our employees, it is truly the source of our growth, and it is something that we treasure very much. It is very relevant for the company. Motivation Cloud conducts an engagement survey. Amongst other companies, we score very high. I believe that there is much more that we can do. I want to further improve the engagement.
In the HR planning department, there is an engagement design office that was newly put in place in order to work on further improvement of engagement. Again, I believe that there is more that we can do, but there could be several factors that will lead to high engagement. We have that very open culture of exchanging views in a candid manner. That, I think, is the foundation of a corporate culture free and vibrant. We have a project request system, which is like having assigned business inside the company. People will volunteer to, for example, people in the rural part of Japan to participate in a project at the headquarters, where we will have very vibrant exchanges of views to improve the business. I think those are some initiatives that lead to improved engagement. Another thing is about the sustainability strategy.
The company is willing to grow by contributing to addressing societal issues. That is the perspective in which we will seek challenges in the community, in our customers, and in the society. The fact that we are working in that way might be creating the joy of working for the company, although there are instances where it does not work very well. Through specialty insurance and various other products that we have, we strive to become a company that can contribute to the society.
Komiya speaking. That, I think, was a comprehensive view of replying to the first question. We are planning to do a comprehensive change of the HR system. Within Tokio Marine Group, what do each and every employee want to realize by working for the group? After April, we are using it, the word aspiration, in dealing with that.
In order to be as productive as possible and what will be the way in which people will feel fulfilling and rewarding at work. That is reflected in the four frees that I or we have been referring to today. Those are the areas that we want to be working on. I assume that in June, and this is something that was discussed at the board meeting earlier, human capital report will be compiled. Within Tokio Marine Group, what are our initiatives towards human capital or talent? What are our plans going forward? It will be published as a report, and I am hoping to engage in further discussions with you in the market so that we can bring our policies for HR to a next level. The second part of your question was with regards to the repair cost revision.
How is it related with loss ratio? Hosojima, please.
This is Hosojima speaking. Allow me to respond to your question. This was about unit cost of repair. This repair cost, repair price, is actually determined by the arrangement that is put in place. Therefore, if the repair cost 2.5% rise in CPI, what kind of impact will that have on our performance? It would translate to JPY 2.5 billion. So JPY 2.5 rise in repair cost will have an impact of JPY 2.5 billion. It might appear small from the premium income, but Mashima-san, as you said, it is the auto insurance for vehicles. Not everything will be repaired as a result. Actually, half is repair cost and the remainder will be parts cost. It is not just a repair cost, but the parts cost component is also on the rise because of the inflation.
Of course, it is already factored into our plan, but 95% or less is the sustainable target for auto insurance. We are approaching that target range. We need to proactively reflect our outlook of inflation into our prices, creating a scheme where there is less accidents and anything that cannot be covered by that, will be addressed through a rate increase. I hope we answered your question. Thank you very much.
Do we have any more questions? Niwa-san from Citi?
My name is Niwa from Citigroup. I am looking at page 90, and I have one big question, but it should be separated into two sub-questions. On the right-hand side, I am interested in knowing further growth investment. In the past three years, just by looking at the result, you did not do any major M&A, and you said because it was too expensive. Can we get more color to that? Can you summarize what you have done in the past? It also depends on lines of business and also in terms of areas of business, have you been able to expand your coverage adequately in the past? The second question, in the life insurance business outside of Japan, what is your view, especially Asia and also in U.S. blocks?
I am interested in those areas. What is your business appetite over that business, whether to do it or not do it? What merits or demerits do you see in doing this or not doing this? My interest in asking this is that I do not think you will be overtaking risks, but then for the longer-term growth, I do not know if you have gathered enough momentum to achieve longer-term growth. Do you think you have enough momentum now?
Thank you for your question. Two questions. Yamamoto-san will answer the first part of the question, and then CFO will add anything to it. The first part was about M&A, the size of M&A, large M&A, or sustainable profit growth, et cetera. What is the situation now? How do we see it? The second is about overseas life insurance business within our portfolio.
What is our position? What philosophy do you have for overseas life business? If there is anything to add, CFO should be adding later.
Niwa-san, thank you for your question. On the first part of your question about the lack of large M&A in the past three years, but summarizing what we have done in the past three years. First, as Komiya-san mentioned, for M&A, it is only a means to achieve sustainable profit growth and making the capital use more efficiency, and also to achieve further diversification of the portfolio. It is only the means and not the target per se, and we still stick to that point. The past three years, we did not do any large M&A. As you mentioned, price was too high. Looking at PBR among U.S. insurance companies in the past 40 years, we are probably at the most expensive point.
Against our purpose of doing so, there are three rules in M&A, there are certain areas where we do hold the capability, and if we encounter any prime asset, we will look at it. We have some selective selection criteria, and against that criteria, we could not find any lucrative targets. Those are the reasons why we were lacking large scale M&A in the past few years. Going forward, obviously, it depends on the market. The market will change. We continue to pursue after growth, both in terms of organic growth and additional risk-taking. We will continue doing both of that. For M&A, we want to look at what assets become available. For different regions and different lines of business, we will see whether if we can expand into those new areas. We continue to consider them.
If there is an opportunity, we are ready to react. It depends on the market, it depends on the counterpart, et cetera. It is really difficult for me to say when we will do what.
That concludes my answer to your first question.
Up to this point, does CFO have anything to add?
This is Okada speaking. About the overseas M&A opportunities, as Yamamoto-san just explained, on your point about medium to longer term growth potential for domestic P&C, there is pre and post-insurance areas and the loss services that we can expand. These are also medium to longer term. For Tokio Marine Group's business portfolio, we want to be doing more of this fee business where it is highly capital efficient. We want to be seeking for more of this fee business, that is part of the medium to longer term aspiration that we have. In order to create the new pillars of business, I have just shared with you some of the initiatives we are undergoing now.
It may take some time, but for domestic as well as for overseas, we want to be creating a new pillar of business. Of course, we want to be able to monetize it. That is what we are convinced to be the new room for growth. Within international business, we did not do M&A, but over the medium to longer term, we have taken a step into Canada. We started a new local entity because we know that market is going to grow. As I always say, the three principles we have for M&A are still there, we have to discern the risk versus return. We should not deviate from these basic policies.
We look at the short list, we look at the long list, and if there are good opportunities, we will take a look at any of them, as long as they meet the criteria. We have these policies to keep always. On the second point about the international life business, can you answer that question? Yes. To your second point about the international life business, as Niwa-san mentioned about Asia, but other than Asia, within the international business, we have life business in a wider definition. Delphi has employee benefit business. Also in Brazil and Mexico, the size is not that large, but we have some group life insurance businesses. Within the international life businesses, we have such businesses already existing.
Our strategy going forward for a while is that, as I mentioned as part of the M&A strategy, we hold capability or strength in certain areas, and we want to stick to those areas. The current business arena will be remained, and profitability as well as enhancement of capital efficiency should be considered in seeing in what way it can contribute to group profit. On the primary underwriting side, we want to be talking to our customers, and we will be providing products and providing services. That's the typical life business that we are thinking of. As an example, the block trading that you mentioned, that's a little bit different from what we are interested in doing. That concludes my answer to your question. Thank you.
Let me see if there are any other questions. No further questions? In which case, I would like to ask Mr. Komiya to say a few words in closing.
Once again, thank you very much for coming today. These briefing sessions are very important for me, and I would like to treasure these opportunities. I am looking forward to receiving your inputs, which we will receive through these meetings. Your feedback will be reflected in our policies. Thank you once again for coming today.
With this, I would like to conclude the IR briefing for the first half fiscal year 2023. Thank you very much for your interest in spite of your busy schedules.