Thank you for coming to Tokio Marine Holdings fiscal 2022 first half IR meeting. I will be your MC today. I am from the IR group. My name is Ishiguro. First of all, the way we are going to have this meeting is, due to COVID-19 and its impact, on top of having people here in the venue, we also have people participating online. This will be a hybrid meeting. Within the venue, we have a minimal amount of staff so that we could prevent the spread of COVID. For the presenters, so that the audio can be easy to hear, they will not be wearing masks. For those who are participating online, due to the communications environment, there might be a time lag between the actual live streaming and the audio you hear.
Therefore, if you would like to ask a question, please connect to the phone conference, and mute the live streaming video. All of the audio can be listened to the teleconference, including the presentation. Now let me introduce who is here with us from our side. From Tokio Marine Holdings, Group CEO, Satoru Komiya. Co-Head of International Business, Akira Harashima. Group CFO, Kenji Okada. Group CSO, Yoichi Moriwaki. Yoshinari Endo, Group CIO. Masashi Namatame, Group CDO. Kiyoshi Ajioka, Group CRO. Outside Director, Takashi Mitachi. From Tokio Marine & Nichido Fire, President and CEO, Shinichi Hirose. Managing Director, Kiyoshi Wada. Managing Executive Officer, Eiichi Hosojima. From Tokio Marine & Nichido Life, we have Tetsufumi Kawamoto, President and CEO. The way we are going to proceed today is first, Mr. Komiya, our Group CEO, will be presenting based off the material that has been updated on our website today.
After, we would like to take any questions that you may have. We plan to end at 5:30 P.M. Japan time. Depending on the Q&A session, we might extend by at most 30 minutes. Now over to you, Mr. Komiya.
Hello, everyone. My name is Komiya. Thank you very much for participating in the business strategy meeting of Tokio Marine Holdings today. I also wanted to appreciate your continuous understanding and support to Tokio Marine Group. It was last Friday when we announced our financial earnings for fiscal 2021, and also held a telephone conference on that occasion. Thank you for those of you who participated in the conference call last week as well. Last Friday's conference call, we talked about the recent business conditions, outline of our financial performance, reflecting such business environment, the shareholder return consistent with our financial performance. Today, we are going to be talking about some specific measures that we will execute in order to achieve global top-tier profit growth, management strategy to underpin such measures, and direction that we want to pursue over the mid to long term.
We will be giving some in-depth explanation on those topics, and hope that will help you deepen your understanding of Tokio Marine. By the way, because the Tokio Marine Holdings building is under construction for a rebuilding project, we are using this venue, Shibusawa Hall, to welcome you and to talk to you. It so happens that we are doing this just at the timing of returning to our business partners to aim for a new stage. I cannot help but feel serendipitous about holding this event in a hall named after Mr. Shibusawa. Without further ado, we would like to get started, please turn to page two. My presentation will be three parts, and I will be talking for about 30 - 40 minutes. After that, as usual, we would like to do Q&A and receive comments from the floor as much as time allows.
That's how we will be proceeding with the meeting today. Please turn to page three. Here, I am listing three points that I wanted to convey to the equity market participants today. First is about accelerated profit growth and confidence. In fiscal 2021, we recorded record high profit. EPS growth in 2021 was 47%. Even after excluding one-off factors for normalized basis, it was 15% growth, reflecting the fact that we are surely leveraging on the enhanced competencies. In 2022, by pushing forward the necessary measures, we want to achieve organic growth in profit of 9%. Excluding FX factors, we are planning to achieve 5% profit growth. Just by looking at these numbers, these are top-of-class profit growth, even from a global perspective. We will top that with inorganic growth opportunity.
We are often asked with the question about the recent M&A environment. For high quality and large scale M&As, we are still in a situation that requires much patience. On the other hand, we still see some bolt-on M&A opportunities or small scale M&A opportunities, which in a way is an organic growth opportunity. This is our strength, so we will be grabbing opportunities over those to facilitate profit growth even more. Next is the angle and the confidence of dividend growth with disciplined capital policy. I have been saying that profit growth through business expansion and return to shareholders should be compatible. With a strong profit growth in the backdrop, actual DPS growth in fiscal 2021 was 28%. In 2022, we are planning for 18% DPS growth.
Beyond that, because source of dividend payment will get bigger because it is the moving average profit, both angle and confidence of profit growth will be high, and that means that should allow us to continue achieving DPS growth. As for capital level adjustment, there is no change to our policy of disciplined capital management. If we identify M&A opportunities or risk-taking opportunities which would lead to enhancing corporate value and ROE, we will be reviewing such opportunities without hesitation. In case we do not see much opportunities available, then we believe share buyback is also a viable option as ESR is at a fulfilling level of 128%. In that sense, in fiscal 2022, the plan is to spend, as we have announced last Friday, spend JPY 100 billion throughout the fiscal year in a flexible manner.
In fact, last week as a first step, we have already made a decision to spend JPY 50 billion of share buyback. My final key message is to realize high quality management that will serve as the foundation of achieving what I have said so far, which is achieving angle and confidence of profit growth. This year will be the seventh year since we started our unique way of integrated group management on global scale. Towards the mid to long-term target of adjusted net income of JPY 500 billion or more, or adjusted ROE of around 12% and also beyond that, we will continuously improve and evolve integrated group management. Through global risk diversification and portfolio management, including entry and exit of businesses, we will be achieving global top-tier level organic growth and expansion of synergy.
By capturing inorganic growth opportunities such as M&A, we want to further expand our corporate value. What we will become beyond JPY 500 billion and 12% is still under consideration right now. We are thinking of what we want to become with humility. However, what we can say as of today is that some of the center pillars to that new stage will be to achieve global top level EPS growth and improving ROE, and expand equity spread through disciplined capital management and further reduction of business-related equities. In thinking about the future state of Tokio Marine, how we respond to social issues such as climate change is an important point. At Tokio Marine, as we have always been, we have to be purpose-driven, proactively addressing social issues, being of help to multi-stakeholders, and serving our responsibility so that through those initiatives, we have a chance to enhance our corporate value.
On each of these three key points I have mentioned, I'm going to dive into more details. So let us move on to Chapter 1, Accelerated Profit Growth with Confidence. Please turn to page five. On this slide, we are showing the EPS growth with comparison to the peers. On the left is comparison to fiscal 2020, and on the right is a comparison to fiscal 2019 in order to exclude the noise of COVID impact in 2020. They were as high as 47% growth and 37% growth respectively. However, fiscal 2021 profit does include one-off factors such as benign natural catastrophes and lower loss ratio for auto insurance due to COVID-19, as well as capital gain in North America. Therefore, we think it's only fair to evaluate these by looking at the normalized numbers.
If we do that, then as you can see on the upper side of the slide, an equivalent DPS growth would be year-on-year 15% growth. Compared to pre-COVID times, it would be 18% growth. These levels of growth in EPS were achieved as a result of profit growth and disciplined capital management. Nevertheless, we will continue to do our best to achieve the global top class EPS growth. Next, I'd like to talk about growth drivers for fiscal 2021, and what the ROE situation was like. Please turn to page six and seven. On the left side of page six, we are showing the breakdown of adjusted net income by different business segments. It is obvious that domestic non-life and international businesses were the growth drivers for the chart. Mid to long-term target of over JPY 500 billion of profit was already achieved even on normalized basis.
On the right, we are showing the trend of adjusted ROE. By improving the ROE year by year, we have achieved mid to long-term target, even on the normalized basis already in 2021. For domestic non-life and international businesses, both of which experienced significant profit growth in 2021, we would like to share with you the sustainability of their profit on page seven. We have a waterfall chart on page seven to show you the movement of factors from 2020 to 2021. If you look inside the profit growth drivers, it was thanks to domestic fire line and rate increases and disciplined underwriting in international businesses. It was also helped by the revival of Philly and TMK, who were struggling a little, but they have turned around.
Such expansion of insurance underwriting profit and bigger earnings generating competence from underwriting activities is exactly what we were planning to do within the current midterm plan. In that sense, our underlying competency has been enhanced and is also sustainable. We will share with you some more details on growth drivers in the international business. Please turn to page eight. We are taking advantage of the current hard market and are expanding and strengthening our business lines that meet our profit objectives, mainly in Europe and the U.S., and taking on additional risk. The left side of the slide shows an example of TMHCC, but you can see that we are expanding and strengthening our business in various ways in marine energy, including renewable energy and professional lines. In addition to expanding our business lines, we are also implementing rate increases on our existing lines.
What is important in rate increases is to determine the loss cost in a forward-looking manner and increasing the rates sufficiently to meet it and not to drop the sales volume. On the right side of the slide are the rate increases results of TMHCC and Philly. Although the business lines involved are different, I think you can see that both companies have achieved rate increases that have exceeded the market. This is because each group company is working together with a strong bottom-focused mindset, and each group company is also collaborating with the other group companies to address its own market. In light of the current situation, we expect the firm rate increase environment to continue at least through fiscal year 2022. Next, please turn to page nine. Although U.S. is currently experiencing economic inflation, social inflation may accelerate again as the economy picks up from COVID-19.
As you may recall, Philly has been proactive in addressing social inflation over the course of the past three years. Specifically, in 2019, we were one of the first to significantly increase reserves, and we feel that reserves have really strengthened at this moment. In addition to the rate increases I just described, by pushing forward with strengthening underwriting discipline and promoting settlements, our resistance to social inflation has grown stronger. On top of that, Philly achieved record profits in fiscal 2021, and under a new management structure in place, it may have returned to a sustainable profit growth trajectory. Please now turn to page 10. As for TMK, since fiscal 2017, like the other Lloyd's market players, it had suffered from market softening, severe natural catastrophes or the subsequent COVID-19.
TMK has been working to transform its portfolio by significantly reducing catastrophe risk and focusing on the lines of business where it has strengths, rigorously managing unprofitable lines, including exiting them, and strengthening its reinsurance program to reduce volatility. Furthermore, transforming its culture to create sustainable fundamental value. It took us indeed three years to achieve this, and it was not easy, but under Chris' as well as Brad's leadership, we persevered and made sure we took the right steps. It was not easy, but as a result, we finally achieved a turnaround in FY 2021. I was actually seconded to NHK in the past and was in charge of TMK or Kiln in 2017 and 2018, and I was saying internally in our company that the TMK reform would be Project X, and I believe that this has been the case.
I am very happy and proud to be able to share with you today the revival of TMK. What I wanted to say is that through the courage of each individual company and the collective strength of the group, we were able to overcome one major challenge after another and acquired the ability to generate sustainable profits. Next, please turn to page 12 regarding our plans for FY 2022. Here, from the left, we show EPS growth, adjusted net income, and adjusted ROE and the plans for FY 2022.
Organic growth alone, we expect growth of +9% and +5%, excluding the impact of foreign exchange rates, achieving world-class growth. Furthermore, for adjusted ROE, it will also be slightly lower at 12.5%, mainly due to the impact of the weaker yen on net assets, but will continue to be above 12%. Next, on page 13. We have included a waterfall of profit increases or decreases to confirm the certainty of this profit growth. The growth drivers remain largely unchanged from FY 2021. Rate increases and disciplined underwriting expansion in domestic fire and international markets. In addition to growth in a number of these new business opportunities, such as the JV with Caixa in Brazil, as well as PURE in the U.S. And we are also expecting income growth driven by the resulting increase in assets under management.
Now, let me explain a little bit more about some of the domestic and international growth drivers. Please turn to pages 14 and 15. First, we will turn around our domestic fire insurance business, which is in a constant loss position. Following October 2019 and January 2021, we will increase rates and revise our products in October of this year. At the same time, in addition to working on disciplined underwriting, we will also upgrade our reinsurance strategy. Specifically, there is a cycle in reinsurance rates. Therefore, we would like to ensure that we have good cover, but we will manage earnings coverage based on more economic rationality, to further improve profitability. For our customers, it is better to have no accidents whatsoever, and if there are, they should be minimized.
We will focus on this area, and as a new innovation, we would like to provide solid value, both directly and indirectly, in the fields of disaster prevention and mitigation. Through these highly assured efforts, we hope to achieve a steady return to profitability, although natural catastrophes are variable. I have been saying that we would achieve positive underwriting profit by the middle of a medium-term plan and ROR two or three years from now. However, when we look at the ROR base, we cannot meet the cost of capital by this alone due to the large nat cat risk that fire insurance faces. Therefore, we also recognize that at least one more rate increase is necessary beyond this October.
In any case, as I've been saying since I took office, we will work hard to make fire insurance sustainable, which is very important for Japan, a country with great natural catastrophe risk, by providing thorough explanations to our customers so they can be persuaded. Turning to page 15, we present the initiatives that will form the foundation for strengthening the profitability of the domestic P&C insurance business and the progress of these initiatives. By thoroughly utilizing digital technology, we will reduce internal administrative work by 20%-30% by the end of 2026. This will amount to an annual reduction of JPY 30 billion -JPY 50 billion, and we are making steady progress in our current efforts.
We will also use the time saved here to improve the loss ratio in fire and insurance, expand the top line in specialty insurance, and in new areas where we are taking on challenges. We will also try to reskill and allocate our resources to new areas that we face a challenge in. We will never let our domestic business fall into a contractionary equilibrium and keep our combined ratio stable at a low level. We intend to build a lean and vibrant business. Next, please turn to page 16 where we talk about our international business. Looking at the North American high-net-worth market and the South American mortgage market, in order to capture this high growth, we acquired PURE in 2020. In 2021, we started a JV with Caixa Bank.
As you can see, PMI is making steady progress, and so far, the growth has been as high as we had planned. Now please turn to page 17 for the last part of our growth drivers for fiscal 2022, which is expansion of Delphi and investment income. Since the acquisition of Delphi in 2012, we have excelled in capturing investment opportunities. By leveraging this, we have been able to grow our income earnings in a stable and sustainable manner. The slide shows a breakdown of the earnings, but I hope you can see that the synergistic effect of the expansion of assets under management of the entire group, backed by strong underwriting and Delphi's investment capability, which has consistently outperformed the index in a countercyclical manner, regardless of the cycle, has resulted in a performance that is distinct from the market and difficult to imitate.
We hope you will understand. For the first quarter of the fiscal year, we have been able to confirm that performance currently is doing well, although the closing of the fiscal years differ. On page 18, we show the sources of Delphi's investment strength, which has two main points. The first is that the investment source is long-term insurance liabilities with predictable cash flows. Therefore, liquidity risk and short-term market fluctuations are acceptable. On the other hand, when the investment environment changes, as it has done in recent years, we were able to make flexible investment decisions. Secondly, we have a solid investment structure with highly reputable returns led by Don Sherman, the new Vice President of Holdings and Co-CIO since April.
They are a team with extensive market networking, information gathering, analytical skills, and discernment, so to speak, and have experienced several market cycles and have produced stable returns. On the other hand, as shown in the upper right corner of the slide, we have determined the appetite and boundary of credit risk. We control them both appropriately, including daily monitoring. For your reference, on page 19, we are showing the ratio of risk assets and also that of the peers. Please take a look at them. Next, I'd like to talk about the inorganic growth. Please turn to page 20. For M&A, assuming that we can identify the intrinsic value of the target company, we select and execute only those deals with high prospective ROI, contributing to enhancement of corporate value that come with synergy effects and risk diversification.
Going forward, we will consider including ESG-related criteria for companies when we try to identify potential targets. Some update on the in-and-out situation of the business portfolio. We have newly established a local entity in Canada called Tokio Marine Canada, which will start its operation from next month. As for how we view the recent large-scale M&A market environment, as I said in the very beginning, we do need patience. Of course, any time in history, a good company will also have a tantamount valuation attached. Even so, looking at valuation recently, they are over-inflated. We need to do thorough market intelligence, always keep our eyes on the long list and short list, have a meaningful dialogue, and build good relationships. After that, we have to patiently wait for the right opportunity to come across, and I believe that is the discipline we need now.
On the other hand, there is some room to do bolt-on type of M&A over companies who we know well already. On page 21, we are showing the track record of bolt-ons. Know-how is held by TMHCC, who has done over 60 cases of bolt-on M&As in the past, and we are horizontally spreading that capability across the group. in 2021, Delphi acquired a company called SSL, Standard Security Life, doing paid family leave insurance business, and they are already seeing some results that they originally expected. We have expectations for SSL to stably earn JPY 2 billion-JPY 3 billion profit each year. Bolt-on M&A is Tokio Marine Group's forte. We want to make it our forte, and we are willing to contribute to continue to capture prime opportunities proactively going forward. Moving on to part two, dividend growth and capital policy. Please turn to page 22.
Once again, our shareholder return policy is basically through dividend payment and sustainably enhance DPS in line with profit growth. On top of that, recently, we are achieving DPS growth with the addition of two drivers. They are strong profit growth multiplied by higher payout ratio. Specifically, for fiscal 2021, DPS was JPY 255, or year-on-year dividend increase by JPY 55 or DPS growth by 28%. For fiscal 2022, DPS was JPY 300, year-on-year increase by JPY 45 or DPS growth by 18%. This makes it 11 consecutive years of dividend hike. For DPS on 2023, we have not decided on that yet, but at least payout will be raised to 50%, and source of dividend payment uses five-year average profit.
That means as we roll forward, the impacts of relatively low-level profit years from 2018 - 2020 impacted by natural catastrophes and COVID-19 will become less prominent and exit from the five-year average profit calculation. Needless to say, we can never relax about frequent occurrence of natural catastrophes and intensification of catastrophes. But because moving average profit is expected to become bigger, I believe we will achieve both higher angle and higher confidence in dividend growth. Regarding the adjustment of capital level, as we show on page 23, there is no change to our policy of capital adjustment done with discipline. In other words, if we meet some M&A or growth investment/risk-taking opportunities that are likely to contribute to enhancement of ROE, we will execute on those opportunities.
However, in case we are not fortunate with those lucrative opportunities, then it only sounds natural that we use the capital to do share buyback as our recent ESR is ample 128%. With that in mind, for fiscal 2022, at this point in time, to cover the full year, we have allocated JPY 100 billion of budget to do share buyback to be used with flexibility. In a board meeting held last Friday, share repurchase approval for the initial JPY 50 billion was given as the first step in spending that budget. I believe we need to be allocating some budget for this, and we need to be spending it with flexibility as things are uncertain. On page 24, we are sharing with you the track record of how we have been spending and utilizing capital so far.
On the left of the slide is for the past five years, and the right is the past 10 years. With discipline in place, we have utilized capital for business investment and shareholder return. To say a little more, business investment is the part that requires right timing. Under a period where we were not fortunately meeting the right opportunities, we can see that we have increased shareholder return. As a result, we have seen steady enhancement of ROE. Last section will be on the topic of high-quality management, which serve as the foundation in enhancing the angle and confidence of profit and dividend growth. There are six points which we think are especially important as a global insurer. Let me explain about each of these six points. Please turn to page 28 and 29. First point I wanted to convey to you is about our sustainability management.
Since Tokio Marine's founding, our purpose has been to protect our customers and society in times of need. With that purpose as our starting point, by contributing to and solving social issues and to the progress and evolution of society, we have also grown continuously together. Because we live in such fast-changing and uncertain times, this purpose still serves as the starting point of our business and will guide us as a compass. By moving ahead with this purpose in mind, we will not constrain the growth potential in an effort to push the envelope with ourselves by an imaginary limit or glass ceiling. By solving social issues as we execute our business, we want to be chosen and requested by customers and by local communities. Tokio Marine and society will keep on evolving even into the next century.
That is the upward value creation spiral that we want to attain. Please look at page 30 and 31. Insurance business is a risk-taking business in nature. Therefore, managing its own risk portfolio through ERM is important. At Tokio Marine, since over 10 years ago, we have been spending the capital and funding created through sell-off of business-related equities to overseas M&As. For example, in the past 20 years, we have created JPY 2.4 trillion, and for the past 14 years, we have created JPY 1.7 trillion. By doing so, we have been able to rebalance the risk portfolio with more international insurance risk, which have less correlations with the domestic non-life business risk, while containing risk expansion and achieving profit growth at the same time. This is indeed the diversification of geographical lines of business and insurance product-based risk diversification.
In other words, we underwrite various risks from different parts of the world under appropriate management. When something happens anywhere in the world, they all become our own matter. But we are doing this under appropriate management. For each case of business, we assume some accidents occur when setting the underwriting conditions and arranging reinsurance in order to manage the entire portfolio. Therefore, on the Russian-Ukrainian event, it may be too early to clearly talk about the outcome of today's situation, but at least as far as its impact to our financial results are concerned, it will be limited. Please turn to page 32. EPS growth is achieved as a result of global risk diversification we have been executing so far. We are showing it in comparison to the peers. We are represented in blue.
Here you can read that while we have contained volatility of EPS, as shown on the right, we have been growing EPS, as shown on the left. For ROE, if you look at page 33, you can see the track record of the tangible ROE and its comparison relative to the positioning of the peers. Horizontal axis represents level of ROE, and the vertical axis represents volatility of ROE. Tokio Marine has been enhancing on its capabilities in management and business so that gradually we can move towards the upper right quadrant on this chart. However, I am still not satisfied. Through high-quality management, we are committed to further enhance our ROE, and there is room that we still have to achieve further growth. Here again, I would like to take a bird's-eye view of our business. Please turn to page 34.
Since the core of our business is now insurance, still, one might ask, "Are we a conglomerate in the first place?" However, we are an insurance group with strong standalone value in each of the regions we are in, and our regional insurance companies create more than standalone value through global synergies. In addition to the above, we will leverage our M&A execution capabilities, which we have cultivated, to seize growth opportunities for inorganic growth and incorporate them into the group's integrated management. We believe that we have room for growth to expand our business into pre- and post-incident areas, not limited to claim payments, backed by a wealth of data and analytical capabilities. Thus, we believe that we can continue to realize a conglomerate premium based on our ability to build our business portfolio. Let me dig a little deeper on page 35.
The slide shows our major locations on a map of the world. You can see that in each region, we have increased our bottom line more than the market, and we have a large presence in markets that are profitable or expected to grow strongly in the future.
In each region, we will continue to achieve top-class growth by serving our customers well and winning out. Turning to page 36, we present the status of synergies. We have generated $369 million in synergies in the past year, mainly in the four areas of revenue, investment, capital, and cost. Of course, this is a record high. In the lower right-hand corner of the slide, you can see how revenue synergies are expanding year after year. The group companies are proactively discussing synergies with each other with the support of holdings these days, and it is very encouraging to see this. Turning to page 37, we show the track record of the five overseas companies that have joined our group through large-scale M&As. All of them have achieved growth that has outpaced their market since joining our group. Their ROI is currently 12.1%.
This is significantly higher than our cost of capital of 7%. On page 38, I mentioned this on the conglomerate premium slide, but as an example of this expansion into pre- and post-incident areas, we introduce here the domestic initiatives for disaster prevention and mitigation. This is a field closely related to our company as a non-life insurance company. Last November, we launched CORE, a disaster prevention consortium, and 44 companies from a wide variety of industries have participated in it. This has started operations in a full-fledged manner since last month.
With CORE as the engine, we plan to build a comprehensive solution business for disaster prevention and mitigation that will be a pillar of our earnings in 10 years by utilizing the technology we have refined through our core insurance business, the data we have accumulated, and the contacts we have made with each of our customers. Other than disaster prevention and mitigation, we are also steadily working on concepts and preparations for new businesses in healthcare, renewable energy, cyber, and other areas. When the time comes, I would like to give you an explanation about them going forward. Global integrated group management is something that is a prerequisite to realize a conglomerate premium. Please turn to page 40. Since insurance business is about underwriting risk, it is important to diversify risks globally. If this is the case, management also needs to be global.
It took us seven years to establish our unique global integrated group management. Now, although we are still in the middle of the process, important management matters are decided and executed by combining global knowledge. In other words, there are no decisions or processes that are made solely by the Japanese. In this context, we have decided to appoint Don Sherman and Chris Williams as new Vice Presidents this year, seeking their participation in activities beyond overseas underwriting and asset management. This is in part to nurture the next generation of global human resources with them and to relay the baton of integrated group management. Also, Brad from Tokio Marine Kiln, who successfully completed the turnaround, was appointed as Executive Officer, and at the same time, four non-Japanese nationals were appointed as Deputy CXOs. We are now further evolving the integrated management of our group.
As shown on the left side of page 41, the successions of acquired companies are also on track. As shown on the right side of the page, we are also strengthening talent management at the next level of top management and the next level of middle management, both in Japan and international, to enhance the pool of talent who will be responsible for the future management of the group. In this way, I believe that strengthening and exercising the inner muscles of business is becoming very important, especially in this age of VUCA. Now talking about our goals with a further evolved integrated global group management structure, please turn to page 42. We have achieved our mid- to long-term target of adjusted net income of over JPY 500 billion and adjusted ROE of around 12% ahead of schedule.
We are currently considering what we want to achieve beyond this goal, but there are two things that we have decided. The first is to achieve world-class EPS growth, and the second is to improve ROE and increase the equity spread through a disciplined capital policy and strengthen efforts to reduce strategic shareholdings. The second is to improve ROE and increase the equity spread through discipline. Regarding ROE and equity spread, as shown on page 43, through profitable growth with cash flow and disciplined capital policy, we will continue to further increase ROE, which we have been saying is at least 12%. As we recognize that our cost of capital is still 7%, which is not easy to reduce. Nevertheless, we believe that we can and must improve the quality of our capital by, for example, strengthening our efforts to reduce business-related equities.
Through these efforts, we would like to firmly achieve improvement of ROE and expansion of the equity spread. Finally, please turn to page 44. Solving social issues, especially climate change, is an important issue for insurance companies. Some may view climate change as having a negative impact on insurance companies. However, we want to take this global issue head on and play a firm role. Rather, we would like to respond proactively. As a company in the midst of risk, we believe that we must play a certain role in this situation. We would like to be proactive in our response, and we would like to translate this into an increase in corporate value. To this end, we will mitigate risks such as the intensification of natural catastrophes, while seizing opportunities such as increased awareness of natural catastrophes and movement toward carbon neutrality, and respond firmly to them.
In January of this year, we became the first Japanese insurance company to join the Net-Zero Insurance Alliance, an international initiative. As the only Japanese company to be a founding member of the TCFD, we are committed to participating in the discussions and making active contributions to international rule making in the insurance industry toward the realization of a decarbonized society, while leveraging our knowledge and network and playing an advocate role in the discussion on the reality of Japan and the unique role that we should play. We will actively participate in this process. That is all I have to say. I would like to reiterate that we will realize high-quality management and achieve high EPS growth from two angles. With this as a background, we would like to return high dividend growth and high total shareholder return to the equities market.
We would like to ask you for your ongoing support. Thank you for your kind attention.
Thank you, Mr. Komiya. Now we would like to receive questions from the floor. When you ask a question, we would like to limit the number to be two questions per person. For those participating at the venue, I will be pointing at you, and one of our staff will be bringing you a microphone, so please speak through a microphone. As you speak, please keep your mask on. For those participating from overseas, if you have a question, please type in your question in the chat box down below. When you want to take back your question, please once again write so in the chat box, once again, and we will know.
Due to the time constraints, we may not be able to answer all of the questions, in which case, our group will be responding and will be getting back to you with your question at a later date. Now we would like to receive questions from the floor. From SMBC Nikko, Mr. Muraki, please.
My name is Muraki from SMBC. You are very conscious of the global peers and you presented with that consciousness. I have two questions. The first question is about Project X. If I look at page nine and page 10, you introduce Philadelphia and Kiln, how they have turned around from 2019 to 2020, how they have decelerated, and then they have turned around. What have you learned from this turnaround experience? Right now, we are going through inflation. There is war going on, which is another risk in the world.
O nce again, when Philly or Kiln, for them to avoid, once again, the deterioration of their earnings, what have you learned from this turnaround? Other than those two companies, among the P&C subsidiaries you have, I am sure you have some lines of business or maybe groups of customers who are less profitable. Any learnings that you have learned that you can spread horizontally across the group to be applicable to those group companies? The second question is that on, if you go to page 92, there is a skill matrix of the outside board members, and we do have a Mitachi-san with us today at the venue, who is an outside director. You have had consultants, and you have looked at how companies are managed at different companies.
Looking at Tokio Marine, how they make decisions, looking at the faces who sit among the executive management team, how do you evaluate them? Also when they take in the acquired company's management and do integrated group management in order to become a global top player for managing the company and also in your organization, any issues that you can identify at this point in time for you to become a true global player? Thank you.
On your first question, I am going to answer you very briefly, and then I am going to turn to Harashima-san to provide you with more answer. Philly and Kiln, I was in charge of those companies, and looking back, they were successful companies in the past. Because they were successful, they always go back to how successful they are, and sometimes they are overconfident. In that sense, when the environment changes rapidly, sometimes they cannot really catch up with the changing environment.
What I have learned from the experience is that as we do group integrated management, depending on the business environment, we have to be sharing and we have to be communicating. For example, there is a committee like IEC where we talk about each group company, and also GRSC where we talk about underwriting. This is the group integrated management where we need to be looking at issues with different perspective and with different intelligence, and then we learn more by doing so. I have learned that such exercise is very important for us. Harashima-san, do you have anything you can add to this?
Muraki-san, thank you for your question. What I have learned. The first is that the early detection I thought was very important because as long as we identify the problems at early stage, we can start responding quickly.
After that, we need to be proactive in applying measures to remedy the situation. The third thing is that we need to be bold in applying some changes. The fourth point is that not just looking at the results, but we also need to look at the process and do the regular monitoring of what we are doing. I will give you some specific examples. If you go to page nine, this is a page for Philly, and if you look at the left, there are measures that we have taken for Philly. As Komiya-san explained earlier, on the very bottom, in 2019, we have done the additional provisioning of the reserve for the past years, and this was quite shocking. However, because we did this, and also if you go above, we have done three additional measures, one after another.
Because of these measures were taken, in 2021, it led to their record high profit. If you go to page 10, this is for TMK. TMK was done in a similar manner. If you look at the left, these are the measures we have taken for TMK. When the profitability started to decline for TMK, we have taken these measures one after another. Within that, there is great changes that was added to their portfolio. Portfolio change, strengthening of management team. These are some of the bold measures that we have taken to turn around TMK, which led to the fruits of our labor. As I mentioned earlier, we had to be monitoring the process along the way. Something like this could happen anytime, anywhere.
We need to be highly sensible to the risk situation as we monitor all the group companies. We have a similar story for the domestic companies because we have integrated management and we have different functional teams and we have chief officers for different areas of business. As we do that, from each chief officers, there is support, there is monitoring being extended, and that is how we identify problems at early stage, if there are any problems, and then we pick and choose the best measures to be taken.
I would like to move on to the second question. This is Mitachi speaking. About the outside board member, how I view Tokio Marine.
To be very frank, Tokio Marine, compared to when I was outside of Tokio Marine, including board member meeting discussions and also decision-making, it is very bold and it is very liberal and people are very candid and outspoken, and I was quite surprised. On top of that, based on my experience in the past few years, some of the things that we have done, they have been done. One of the biggest things that was done is that the perspective is now with the global peers. Including the board of management, as we discuss the business among the management, they always have a global view and a global peer view, and that really changes how they look at their business and the world. M&A, they have achieved growth outside of Japan.
If you look into it, divestiture, and so exiting something from the portfolio, they have become more proactive or aggressive in doing that, then that is a positive change. I believe among the Japanese companies, they have the best practice in this area. Personally, I come from a consultation firm and I have been a member of the global management team, and I have made decision-making doing that. It was about a JPY 1 trillion company, so we were a lot smaller. Based on that experience, there are elements that they want to be adding, and it is doing well. However, the issues or concerns I have for Tokio Marine, including myself, next generation to do integrated group management to become a global company. That means that they all need to become global senior management.
Many Japanese companies, in terms of sales and capital and locations, they have globalized, but I have not really seen a model where they have successfully become global in terms of the makeup of the senior management team. How do we do that? It was presented earlier by Komiya-san that initially they buy companies with a good management team. T hen how do we do that in the next generation? Also at the holdings level decision-making, how do the global people come into that stage? It is experimental, but we are adding the vice president, as mentioned, and also in the board meeting, we have spoken to the international members directly, and we have done a Q&A in that. The succession planning is not just on paper, but it is really about how do we utilize these people.
Lastly, the management who were nurtured and developed in Japan, and how do they become the next generation of global management? If we see more talent from Japan in that arena, I will be delighted. This is one area I am sure that they will continue to try.
If you may add something to this. With the integrated global management, when you make decisions, doesn't it take longer? Isn't there a side effect that it takes longer because it involves so many companies? Of course, if you just try to make a decision among the Japanese people, just in Tokyo, that is still time-consuming, but then even more, you are involving more companies. Don't you see some negative side effects because you have become so global?
Since I become CEO, in a little while, it will be my third year.
On global level, Chris, Don, and other senior members from the global GCs, we take in their comments. Among the top management, we thrash out the direction that we want to pursue. I think that's a quicker way to do it, because sometimes we try to make decisions from the bottom up. But in identifying problems, introducing hypothesis, suggesting a direction, that's pretty much done in the faces that you see on the screen now, or even in a smaller group, and we execute the process among those members. I think it's a quicker way to be doing the decision-making. Thank you.
Any other questions? Watanabe-san from Daiwa Securities. I will bring a mic to you.
I'm Watanabe. I have two questions. First is on page 17 about Delphi and the source of its competitive advantage as well as its sustainability. You talked about the two angles, and you were saying that the investment capabilities of Delphi is key, and they have discerning skills. What's different from other companies? You were talking about always outperforming the index. As AUM continues to expand, will they be able to sustain their capabilities? Secondly, I also have a question towards Mr. Mitachi, the outside director. At the board meetings and the discussions you have, how are the feedback for the capital markets being reflected? Those are my two questions. Thank you.
Thank you for your question. In the presentation, we were talking about the source of profits in Delphi. I gave an explanation already. Our CIO, Mr. Endo, in charge of investment management, will talk about the discerning skills and capabilities that Delphi has. Because the size of the AUM is rising, will they be able to sustainably grow? That will be the focal area that he will add some comments on. Mr. Endo, over to you.
Thank you very much for your comment. As we show on the slide, there are two strengths of Delphi. It manages long-term money, which is a positive. Liquidity risk can be taken on to a certain extent. It can be held into maturity from that point of view, which is intrinsically a strength. Also, they are discerning, and they are able to repeat the performance that they have realized in the past. Whether it be COVID or the Lehman crisis, the Delphi team has experienced a variety of cycles, and they have been able to still generate steady performance. They have a good track record and experience. They also have a vast network, so they're able to collect good information and run good analysis. Depending on the environment they're in, they're able to flexibly build a portfolio.
Another thing, one focused area is CLOs, for example, or CRE loans and private loans. Loan assets are an area of focus. It is an investment that can be repeatable, which is also contributing to good earnings. That is one thing. Another thing is, another feature of their investment capabilities is they have in-house and out-of-house or outsourced investments. They have both. Internally, they test some things, and sometimes they may outsource a portion of the assets. Also, sometimes they may have been successful with outsourcing, which they may decide to internalize. It goes both ways. In the financial market, whether it is sustainable or not is key. Inside the team, we have been seeing good nurturing of PMs. Ever since we made the acquisition of Delphi, we have been seeing that the expertise in the team has been well-succeeded.
We also have been dispatching some expats, and there are about eight Japanese expats at Delphi as well. We would like to ensure that we could succeed expertise through the local team as well as the expat team. That is what we have been working on. That is all from me. Thank you. The organization itself is being expanded, and it is about word of mouth as well. High reputation leads to another deal. Locally, it is called smart money. I said that they use some outsourcing, and they outsource to about 30 managers, and they talk to one another on a daily basis. I think that is one of the sources that makes Delphi discerning. If there is an opportunity, people from the outside will call upon Delphi because they know their reputation. Their reputation is being amplified from that point of view.
Okay, Mr. Mitachi, what about the capital markets feedback?
That is one of the important roles that outside directors like ourselves play on the board. From the execution side, in April as well as in October, twice a year, they give an update of what the capital markets are saying. Not only that, we read analyst reports. We try to get them as much as possible. What is most important is when it comes to capital levels or when we are talking about plans, it is a matter of how it is communicated. We have a deep discussion around this because last year, I do not know if it is good to say or not, there may have been some communication that did not go through that well. We were discussing how it should be communicated this year.
We were able to have clear-cut discussions at the board level, regardless of the skill matrix, whether it be the directors or the auditors. There are some people who are deeply involved in the capital markets, or some people just look at it from an analytical point of view. In any case, communication is important, and we really need to have a discussion to see whether the communication is conveyed in a good manner.
Thank you. Sato-san from Mizuho, please.
Thank you. My name is Sato from Mizuho Securities. I have two questions for you. The first question is that if you go to page 80, I think you are showing the topic here. This is the trend of ESR. This time around, as you indicate here, the spread is widening, and that is because of the macroeconomy. But then due to the expansion of the business, you are seeing increase in risk. So in six months, I think there was some increase in risk due to the expansion of business. What I wanted to know is that going forward, as you continue to grow your business, would you be tolerant with the risk amount increase? Or at some point in time, would you be controlling your pace of growth? Do you need to be doing that because you have increased JPY 400 billion of risk in six months?
What is your plan for expanding the risk amount further as you grow the business? The second question is about your international business, your target for the international business in a sound manner. I wonder if you are setting a challenging enough of a target for your overseas business. If you go to page 72, you are showing your plan for this term, especially for the three companies in North America. I know that there are many incidental factors, but on local currency basis, this time, three companies, they are flattish in terms of their business unit profit. Last year, at the beginning of the fiscal year, your forecast was low to begin with, and then there was upside. What would be the appropriate incentives to be giving to the company management?
I wonder if the targets are set in a way that justifies the incentives giving to the management, especially what you are projecting for this fiscal year. What were the thinking in setting these targets for the overseas entities for this year?
Thank you for your question. On the first point, I like to talk and then I will switch over to our CFO. On the second point, I would like to ask Mr. Harashima, the Vice President, to give you the answer. So on the first point, first as an overview, at Tokio Marine Group, the ROE expansion will be the room that we have still to grow. ROE improvement, so achieving capital efficiency is what we are doing. There is nominator and denominator. Qualitatively
I know that there are more roles to be played by Tokio Marine, including resolving social issues. We have many more things that we need to be doing in order to resolve those social problems, in order to contribute to the world. With that assumption in place, we still need to be enhancing ROE. For the profit growth, which is a denominator part of the equation, we have talked about two plus one growth strategy in the midterm plan. For domestic P&C, improving profit, efficient operation, expanding underwriting, we can still do that for the international business. Because there is hardening of the market taking place, we will continue to increase rates, and there has to be an expansion of risk-taking for the international business. Or in the new business areas, we need to be exploring for new areas and for sustainability.
We always need to be exploring and expanding into new businesses and starting up new businesses. For the denominator part of the formula, risk diversification is one, reducing risk is another, and also doing stringent risk control is also another. Through expansion of international business, there is further risk diversification to take place. At the same time, we will be reducing risk itself, including business-related equities. For credit risk, we will be doing risk control. These all need to be done in order to give more room for ROE to get even higher. Now I'd like to move on to the CFO. CFO will answer your question.
Thank you for your question. For myself, I'd like to add a few points.
As you say, this time, looking at the ESR, changes in the ESR, due to the widening of the credit spread, et cetera, those market changes, as well as the underwriting exposure, as well as investment asset increase, these are the reason for the increase in risk amount. For the underwriting exposure and investment asset expansion, these were all within the target range, and these are the additional risk-taking that we have intentionally done. As long as it generates profit, and as long as it generates the increase in net asset value, it should be fine. We start with the risk-taking, and then it becomes profit, and then it leads net asset value growth, and that's how we balance the ESR. Within the target range, we are still in the higher end of the target range.
Of course, one by one, we set the boundary, and then we do the risk control, but we want to be maintaining ESR and also enhancement of corporate value. That concludes my answer to your question. Volatility has to be contained, and then raising ROE, that's what we are doing both on numerator and denominator side. There's more we can do with that effort. On the second point about the international business and how we are setting the target for the international business, and also how we are remunerating the management.
Harashima, can you please answer that question?
This is Harashima speaking. Koki-san, thank you very much for your question. If you go to page 62, I just want to start with the overall view. As written here, in 2021, excluding one-off factors, we saw 24% growth.
From 2022 projections versus 2021, CAGR of 15% versus 2020. In the midterm plan, the overall target they were giving the midterm plan is 9% growth. Against the 9% target, we are planning to achieve 15% growth in 2022 versus 2020. In the final year of the midterm plan, which is 2023, the target is that we are aiming to achieve the midterm plan target already in 2022. As the pace of progress against the midterm plan, we are outpacing the original plan. If you go on to page 63, in the current midterm plan, the biggest issue we have is that we want to be expanding on the underwriting profit. In 2021, the actual was about a positive JPY 14 billion. 2022 versus 2020, we are expecting JPY 35 billion, so we are seeing a steady increase of the underwriting profit.
We are very conscious of achieving growth in setting the targets. This is the overall view. Going on to the North American three group companies. The first point is that for the three companies in 2021, they have all recorded the highest profit in history. We only need to be looking at 2022 relative to what they have already achieved in 2021. If you go to page 72, the numbers you see here for 2021, for one-off factors, we have not adjusted for the one-off factors, so one-off factors are included. We need to be mindful of those one-off factors as we evaluate how much stretched the 2022 projections are. For example, for Philly 2021, because of the reversal of reserve, a lot of that took place 2022, we have not included the reserve factor for cat fund in 2021.
In Texas, there was a cold storm, and there was a lot of loss being booked due to natural catastrophe. In 2022 there is going to be additional provisioning, or there was provisioning to the cat fund in 2022. If you adjust for that, our target is still to achieve a 9% growth. For Delphi, for realized gain and loss, Delphi does include for 2021. We have set the projections with that included. In TMHCC, in a similar manner, we have adjusted the forward one-off factors for 2021 and then set the target for 2022. From our point of view, these are already stretched targets that we have given to those three companies. Appropriate incentives, and are these targets enough to justify the incentives?
We are very mindful of the balance. When we create a business plan, we have a strategic dialogue or planning dialogue, which we have with the overseas members. Chris and I, the co-head, talk to the presidents of each entity and set the target for the following year. We make sure that we give them a reasonable amount of stretch to their plans. How we regard growth, we have a basic rule, which is that we are a bottom-line-oriented company. Second is that we want to be reducing volatility. The third is stable and sustainable profit growth must be achieved. According to the three rules, we make sure that we give them appropriate targets each fiscal year.
For international business, we want to be raising ROE, low volatility, and also profit growth while we reduce volatility. That is still the policy.
So in terms of the level of goals or targets, that was as Harashima explained. Also every time before we set a goal, we have a very thorough discussion, make sure we factor in all the changes in the environment, and then there is a strong commitment to achieving whatever the numbers that they are giving. Insurance is a cyclical business. In the past few years, we have much experience, and within the group, we have been enhancing the synergy, and we now have bigger competency, we now have a better underwriting capability, et cetera. But because we live in such uncertain times, being bottom-oriented is something we want to keep. To do that, we need to be disciplined with underwriting, risk selection, pricing, setting the right value, insurance value. Having the right judgment over these elements that make up insurance business becomes ever more important.
I could feel that you are responding to these years very seriously, and I believe that you are giving them a sound and stretched target. Thank you.
Anyone else? Nagasaka-san from Morgan Stanley.
I am Nagasaka from Morgan Stanley MUFG Securities. In the presentation today, you were talking about ESG and climate change. In this part, you talked about the affinity with your business, and as you will be focusing on this area as a top runner, I understood that well. My question is, up until now, when it comes to insurance companies, institutional investors, and you will be engaging in this. So what are the progresses are you making when you look at insurance company, institutional investor, as well as the global community, the three angles? You were also talking about top-line growth of more than JPY 100 billion. Is there any upside potential to this? Also, not only provisioning insurance products, but data provision through consulting. What are the business opportunities that you are considering?
Thank you. From the three perspectives that you mentioned, what do you mean by that? For an IR day related to climate change, you were saying as an institutional investor, as an insurance company, as well as a global company, you would like to be the top runner in this space. I think you had said that before. So from that perspective, how do you assess yourselves? For climate change, our large way of thinking is our group. Of course, when you look at CO2 emissions and divestments, eight years in a row we have been neutral, and of course there is a lot of debate around that as to how you measure it, but we have been engaging in such efforts. But we are trying to reinforce sustainable management of the company.
Last year in April, we have created a sustainable committee, we have created a CSUO, and we are trying to make our efforts global in scale. That's what we've been doing in the past year. In September 2020, we talked about our thoughts around climate change, and in December we refined it and did an update on it.
Made an announcement. When you look back at the past year, what I felt was really important was divesting is important, but transitioning to a sustainable society as we are in this trend as an insurer, and in light of this trend, this global trend, it's a matter of how we contribute. Meaning, that will be through insurance products provision, as well as the promotion of renewable energy. We need to think about what kind of role we can fulfill. So that's what we put emphasis on. Regarding climate change measures in the past 12 months, when it comes to the PDCA cycle of our targets and a framework and making disclosures around it, we've been communicating with various stakeholders, including investors.
I think in the past 12 months, we have been able to create a good framework for this and for insurance underwriting as well, as well as investment management too. For renewable energy funds, we have been planning to establish a fund, and for impact investments, we have been setting targets around it and sharing it. Looking back at the past year, we have set forth our vision and created a PDCA framework, set up targets. We will spin the cycle, and we'll communicate our progress. We have been able to establish this cycle, although we are still in the middle of this process. Secondly, for specialty insurance and JPY 100 billion rise in revenue, as well as other key businesses and so forth, and the opportunity there in consulting.
First of all, talking about the opportunities in Japan domestically, I think Mr. Wada should refer to that. Then after, Mr. Hirose will follow up from Tokio Marine & Nichido Fire.
Thank you very much, Ms. Nagasaka. Let me talk about specialty insurance. First of all, as you know, at Tokio Marine, we would like to protect our customers in time of need. That is our purpose. From our point of view, what we want to do is to support customers in times of need, and what we need to do is in the insurance business. We need to expand into the risk area and also pre- and post-incident. We need to offer more assurance. That's the area we would like to expand more of business-wise. We believe it's critical to expand into these spaces. Central to that would be specialty insurance, we believe.
Last year, I think we talked about this. There are four focal core themes that we have specified, which we are currently working on, which are healthcare, supporting SMEs, green transformation, and cyber. These are the four core themes we have specified so that we can offer new values to our customers. During the course of the midterm plan, we would like to grow top line by JPY 100 billion through specialty insurance. For the first year, as you can see in the presentation, we were able to record JPY 15 billion higher top line, but we will be adding a further JPY 45 billion, so it will be plus JPY 60 billion versus 2020. That is what we are striving to reach. If possible, in 3 years' time, we should be able to achieve the JPY 100 billion target. We hope that we can exceed JPY 100 billion.
Does that answer your question for specialty insurance? Okay. Mr. Hirose, would you like to follow up?
Yes. This is Hirose. Thank you for your question. Like was explained, for the JPY 100 billion for specialty insurance, we are currently making progress in line with our expectations. We believe that we can also upgrade this. We are in year 1, but for the four core themes, mainly, we have been able to build a good foundation. Foundation meaning that there are two things to this. One is internally how we are organized. We have set up a project team, and for each of the social challenges, we have set up dedicated departments. Now we are better organized on a company-wide basis. For SME support measures in providing value to them, we are creating a platform which we call BUDDY +.
By borrowing the power of digitalization, having contact points with SMEs, we are trying to offer value in various ways. We have been able to accumulate a lot of contacts now, including email addresses. We would like to start offering proposals. We believe that we can also take a data-driven approach due to the foundation we have been building. So that is one aspect. Secondly, risks are diversifying considerably, and we are feeling higher needs from customers, especially in the area of cyber. There are a lot of cyber-related deals right now. For the first time in the industry, we have a 24/7, 365-day contact center who can support our customers when an incident occurs. There are a lot of inquiries around this, and we have been able to be of help.
Of course, we will need to make some reinforcements going forward, but the extension of the market has been greater than we have expected. So we will be aiming for JPY 100 billion growth, but hopefully, we will be able to increase it higher than that. Yes. Also, for consulting and fee business opportunities that you referred to, we have Tokio Marine dR, an affiliated company that leverages digital technology in offering various services. TCFD consulting can be offered, and Scope 3 emission tracking advice can be offered through this entity. Once again, we have been getting a lot of inquiries, and sometimes we will have to decline because the needs are so strong. In any case, we would like to make efforts even more so that we can respond to customer needs, so that we can generate a good fee business and solve social issues and be of help at the same time.
That is all from me.
From the CDO, do you have anything about the insurance area in a non-specialty insurance area or in the peripheral areas regarding fee opportunities or something beyond that about disaster prevention or mitigation?
This is Masashi Namatame speaking. Thank you for your question, Nagasaka-san. Regarding your question about the fee business, on top of our core insurance business, in various ways, we are trying to expand the insurance segment we are in. We would like to be proactive on that front in exploring. We would like to ensure for digital capabilities, it is most needed in the area of disaster prevention and mitigation. That is the area we would like to expand in. 14 companies started to have discussions in detail since November last year, and many corporations ever since have been signing up. Now we are working together with 44 companies.
There was a press release on April 20th, and we talked about five specific business areas and projects. For example, remote sensing, detecting risks, all-hazard maps to assess risk or real-time hazard maps, which on-site will enable the detection of risk. Without question, this will be a benefit to customers. We believe this will be able to reinforce the reason why we exist. As Mr. Hirose explained about TdR also plays an important role. Risk consulting is what they have been engaged in, and we believe what we are trying to do will generate synergies, and we will be able to therefore enhance our capabilities. Thank you very much. We are engaging in various measures. Does that answer your question?
Yes. Thank you.
It is 5:30 now. We still have more questions from the floor. Mr. Niwa from Citi, please.
My name is Niwa from Citi. Please let me know if you go to page 34, the conglomerate premium, exercise of the conglomerate premium, because this is more based on my long-term interest. On the right-hand side, the breakthroughs. What are the breakthroughs that you are expecting to see? Based on my understanding, global strategy for the U.S. strategy worked well. As you have explained in full details, it looks like that success is going to continue. The global peers versus the peers, it looks like you are going to be catching up with them. Beyond that, what would you do? That is my interest.
In terms of market capital within the insurance sector, there is a Chinese company at the very top, and then there are brokers who are also in the top tier. As you always say, in the developed markets and also technology, they are a threat to you, and I am sure they have some value in the market too. Traditional and authentic insurance companies, I know that you belong to that group. If there is a breakthrough for what Tokio Marine will be in the future, what would that be for you? What is your breakthrough?
Broadly speaking, our future vision, maybe our blueprint for the future, I hope what I am going to say answers your question. Which way do we go? We need to be realizing on the purpose. We always need to go back to the purpose, always understanding the purpose.
We have to do group integrated management. That is our strength, and we need to be polishing the integrated group management. For what purpose? It is in order to diversify the business portfolio in terms of lines of business, in terms of different areas of business, and also geography, and maybe in terms of time allocation. We need to be accelerating the process for diversification. First and foremost, improving the profitability of the insurance underwriting business is a first, so that we will not to be much behind the global peers, and then we want to seek for the opportunities to capture any change. If there is a chance, if it is disciplined, and if there is a risk return profile that is what we want, then we will also consider M&A.
At each group company level, we need to be strengthening their existing businesses and do bolt-on type of M&A that is being done under the plan that each of them have. Beyond that, we want to be providing safety and security and become a solution partner and solution provider for the entire society. That is what we want to become. As you see on page 34, new market, new approach, and areas of insurance has to get expanded so that we realize our purpose, and also we are there for the sake of our customers. Because in case some incidents happen, of course, we need to be there, but then they do not want to see any accidents or misfortunes hitting them. We need to help them mitigate such risk. The area covered by insurance business can get expanded.
Disaster prevention, cyber data, et cetera, may be the pillars of the future business and also something to augment the current business can be developed, and that will be done centering around Tokio Marine Holdings. Because it is so uncertain, we need to be changing together with the environment, and we need to be strengthening certain areas. At the same time, we also need to be exploring and seeking for new areas, improve the hypothesis as we move into new areas, and expand our business portfolio. That is what we need to be doing first. On top of that, what will be the scale of the company on global scale, et cetera, that would only follow afterwards. What we have to do all the time is the efficiencies of capital so that we reduce volatility and enhance ROE.
This is a point that we have to always maintain as we move forward. I hope that answered your question. Thank you.
Okada-san from UBS, you have your hand raised.
I am from UBS Securities. My name is Okada. I have two questions. First is about business-related equities, the second is about fire insurance. For business-related equities and the chance of accelerating your divestments, MS&AD, they have raised their midterm plan targets, although it is a different company. Regarding the possibility of yourself, what is your view? That is the first question. Secondly, how do you assess the current situation of fire and insurance relative to what you were planning for in the midterm plan? Net premium threatened for the new year, it seems that growth rates are stronger than your peers, expectation-wise. Also, you are going to do a product revision in October this year. What kind of product revision is going to lead to better profitability?
The waivers?
There is a minimum.
There is a minimum area size in restoration, but what are your thoughts around this?
Around the acceleration of the sales of business-related equities, our CFO will explain. For fire insurance and profitability improvement and how it compares against midterm plan as well as how we assess it, Mr. Hosojima will explain.
Thank you for your question. More than JPY 300 billion of sales is our plan in the midterm plan. For last fiscal year, we were able to achieve JPY 117 billion. For fiscal 2022, we are going to steadily make progress. That is our plan. Also, for solving social issues, to fulfill this purpose, we will also need to be able to face new risks as well as natural catastrophes.
Also from a risk appetite point of view, we will need to reduce business-related equities even further so that we can allocate the capital we gain into other areas. That is why the corporate governance basic policy has been revised so that we could reduce. We would like to reinforce our efforts to reduce business-related equities.
Therefore, there is a possibility of accelerating it, and we would like to pursue what kind of options we have. We have revised our corporate governance policy, so that really reflects our determination. Based on the new policy and accelerating the sales of business-related equities, it is basically the talks we have with the counterparties. It means that we are accelerating the pace of the negotiations we have. It is a matter of how far we can go with that in reducing business-related equities. We are basically having a dialogue right now. In the next six months or in the next 12 months, we will be engaging in these efforts, and based off that, we may be able to communicate our policies accordingly in the future. When the time comes, we would like to share it with you.
Mr. Hosojima, for fire insurance in October 2019 and 2021 January, and this year in October, for better profitability, we did do rate increases, and we will do rate increases. This will be on page 14 of the presentation. For profitability improvement, it is not just through rate increases, but we have been taking comprehensive measures so that we can do disciplined underwriting and prevention of incidents. For those customers who have faced incidents, the responses we take, as well as the retention policy. The measures we have been implementing is comprehensive in improving the profitability. For the midterm plan, we have been able to make improvements that exceed our expectations in the midterm plan. Originally, when we created the midterm plan, in the latter half of the midterm plan, we were expecting profitability to be in line with capital costs.
That was our initial expectation. But now we believe we could reach this level earlier than expected. But for fire insurance profitability improvement, it is still midway, and like Mr. Komiya explained in the presentation, in October 2022 this year, we are going to make a revision, but we may need another round beyond that. But in any case, we would like to implement comprehensive measures so that the business can be profitable compared to capital costs. For the revisions in October 2022, on top of rate increases, setting up the minimal immunity level, as well as the period of the insurance covered 10 years in the past, but by reducing that to 5, for example, we would like to also benefit from profitability improvements. Those are the things we are considering. But in any case, we will be taking comprehensive measures in order to improve the profitability.
For rate revisions or the product details or revisions around the underwriting, we will be making progress on that. We will be working on it. And when there is an incident, we would like to ensure that we can make swift claims payments by implementing technology. We will be accelerating efforts on that front as well. Also, as Mr. Namatame mentioned earlier, evacuation information or natural catastrophe information from the local governments are being provisioned, but we would like to also play a role in that. It is going to be basically comprehensive efforts that will be made compared to the midterm plan. We believe that like we have been communicating from several years ago, we have been making good progress on improving the fire insurance business.
Now we would like to move on to a question from phone.
From Mitsubishi UFJ Morgan Stanley, Ms. Tsujino through telephone. She is here.
Thank you for the opportunity. ESR and shareholder return. Your profit is expanding and your net asset is not going up as much. But against that backdrop, your ESR has come down and credit spread is likely to expand, and so I think there is going to be a downward pressure. But then if you look into the content of ESR, the operational risk has increased by JPY 100 billion. And so you are taking more exposure and there is natural catastrophe, which has increased a little bit. Other than that, you have a conservative stance. So you have adequate buffer. However, in order to grow, the image of the bolt-on acquisition that we have had will change.
Probably you need bigger bolt-on, and you need to be doing it more frequently because your profit level is going to go up and EPS growth rate will not be able to maintain. You might not be thinking about it now, but to do large M&A, what we term as large might become bigger than what you used to think. And so then that requires you to think about funding. You said that the EPS growth rate, you are going to be outperforming the peers. And you have also talked about the capital efficiency. And so if you do more buyback, that can be enhanced. I agree with that, but then buyback is around JPY 100 billion. It is continued for three consecutive years. We save JPY 100 billion per year. S o you need to be just amplifying all the numbers. What is your thinking amidst this environment?
So that was the end of your question. May we answer what you just asked?
Yes, please.
Okay, thank you for your question through telephone. From various perspectives, we are trying to reduce volatility, enhance ROE and EPS. Versus peers, we do not want to be so behind, so we want to continue to grow EPS, and that is what we need to be conveying to the market participants and to investors, and to meet their expectation towards Tokio Marine. It is a comprehensive exercise that we constantly need to be doing. That will be the ultimate answer from Okada-san, our CFO. He will be adding more to it. But the relationship to the buyback, that was part of your question.
Shareholder return, from that perspective, shareholder return is going to be done through a dividend payment in line with profit growth, and dividend should also grow together with profit growth. On top of that, for capital level adjustment, it will be a decision to be made from time to time. We refer to the level of ESR. ESR will not be the only factor. We look at the pipeline for potential M&A, we look at the market situation, the financial market situation, et cetera. These are the different factors we need to be looking at comprehensively. The level of profit that we can forecast as of today, and also the accumulation of capital, and also any changes happening with our risk factors, make sure that there is no major change to those, and make the ultimate decision. Right now, we have allocated JPY 100 billion.
We will be using up that amount in a flexible manner. If the future becomes really uncertain, we have just allocated JPY 100 billion for now. As we move forward, we look at the various factors, and we will be making decisions from time to time. Due to maybe a great financial crisis or natural catastrophes, that is a different story, because that is a devastating scenario. But in the middle of the year, we look at the ESR situation. When we have a better visibility to the future course, then we might be adding more to this JPY 100 billion. If everything goes well, and if there is no chance for major business investment, or do we have any?
If not, then looking at the market situation, if we have any cushion to the capital, then we will once again come back to it and consider how we can use it. Maybe from the CFO, if you have anything to add to this, please.
There is not much to be added from my side. As Mr. Komiya said, our adjustment of the capital level is just an adjustment. We are constantly looking for new bolt-on M&A opportunities or new risk taking. So growth strategy is a priority. Last year, the money that would, the bolt-on acquisition budget, was to be paid out of the same budget as the share buyback. W e decided not to do it from this year. We will continue looking for bolt-on acquisitions.
As for share buyback, we will be looking at the decision from time to time, looking at the M&A pipeline, business environment, et cetera, and also ROE target comprehensively to make that decision. Right now, the ESR is 128, which is almost the same level as last year. That is why we could allocate JPY 100 billion of budget to this year. As the year goes by looking at different parts changing, we will always make a comprehensive decision from time to time by looking at the environment.
Thank you. Because I speak to investors every day. Your shareholder return level is higher than the peers, but then your share price is hiking, so maybe this JPY 100 billion is now low. Those are the voices coming from the investors, so I have just conveyed those to you.
My final question is, for bolt-on M&A pipeline right now, do you have an ample pipeline for bolt-on? Or because we are still under COVID, people are still staying at home. Do you think there is a slowdown in looking at the M&A cases because basically people are staying at home and not active? How does your pipeline look like?
That will be answered from Mr. Harashima, in charge of International Business.
Tsujino-san, thank you for your question. As for the bolt-on M&A situation, as Mr. Komiya explained earlier, for large M&As, quite difficult to do, so we are looking for bolt-on M&A opportunities proactively. As for pipeline, I cannot really disclose the pipeline specifically, but we do always have something in the pipeline.
Because we are proactive with bolt-on, we need to be doing the sourcing of potential deals, and we want to be expanding the universe for doing the sourcing so that from a multifaceted manner, we can gather the lineup of potential deals in the bolt-on M&A universe. Valuation is important. We will not go ahead unless valuation is appropriate. We need to make sure that we get appropriate return from any of these companies.
For the potential deals with discipline, we continue to manage the pipeline.
This is Komiya speaking. For bolt-on M&As, we have an HC model, and we want to standardize that model, and we want to be implanting that knowhow to other GCs in the group. More so than ever, as holdings, we want to be involved in the process.
That's how we will move forward with the handling of bolt-on acquisitions. It's going to be strengthened. The methodology is going to be strengthened. What deals we have in the pipeline, it's a trade secret. I cannot disclose that to you. As a number of potential deals pre-corona, how many did you have? Post-COVID, how- I'm just looking at those numbers, and I think you're fine with the number of deals in the pipeline.
Thank you.
Ms. Tsujino, thank you.
There are two more questions from the phone, which we would like to respond to. Sasaki-san from Bank of America, you can go first.
Thank you. This is Sasaki speaking. I have one large question and one small question. Starting off with the small question. For Russia and the Ukrainian crisis and the risks associated with that, what is your view? If you can give us some detail on it, that would be great. The aim of the question is, I do not think you are going to generate losses that leads to a capital event. But as a global player, there are some views that you will be affected by a certain degree. How do you analyze this risk right now? If you can share the details with us as much as possible, that is great.
If possible, for Greensill too, can we get an update on it? Lately, in the IAG investor report, they have increased their provision, and they are saying net exposure is not going to emerge because they are insured with reinsurance. It seems that there are no legal liabilities. That is what you were saying before, that there is no risk. Can you give us your analysis of the Greensill exposure or risk you face right now? Those are the two questions. My second question is a simple question. President Komiya, the question is for you. The world is becoming increasingly complicated. In the next 12 months, for example, what would be a great event for you that will be an upside to your business, and what would be a negative to your business? Can you raise one each, one positive and negative?
That is it from me.
I will take the entire question. First of all, for Russia and Ukraine, it is very devastating when you look at what is happening. For the people who are affected, my heart and soul goes out to them. Talking about our business, we underwrite risk around the world. For Russia and Ukraine as well, we are exposed by a certain extent. But the exposure is small for Russia and Ukraine. Currently, it has been suspended right now when it comes to the exposure of assumed reinsurance. There are disclaimers around wars. The amount of underwriting in this area is small, and through reinsurance as well, the portfolio is being appropriately managed.
For Russia and Ukraine, right now, the impact on our performance is limited. That is our view. But for FY 2022 performance, when you look at our group companies internationally and the results for the March quarter, which is already out, they are trending at a pace that is exceeding our plan. F or Russia and Ukraine, we do not expect the situation to turn into a substantial or material earnings issue. Secondly, about Greensill. Last year in March and in June, we made a press release. Like we have communicated, through the distributor, BCC, and the transaction with Greensill, the validity of the transaction has been looked into in detail. On April 4, we made a release and a statement.
The investigations are still underway, but so far, the results tell us that material information that is necessary at the time of underwriting was falsified, and intentionally, reporting was not being made. That was made clear. We believe that the insurance itself is not valid. Therefore, we have sent an avoidance letter to Greensill saying that the insurance itself was nullified. To revitalize the economics of Australia, this was a credit insurance product. We wanted to play an important role in contributing to the Australian economy, as well as expanding our business. This is a general type of insurance globally, which is well-known, and it is based off goodwill economic transactions. However, for what happened, for claims payments, as well as signing up to the insurance, this was fraud. Therefore, we believe that the insurance itself is not valid.
We were aware that it will be subject to litigation, and we have been taking action accordingly. We are being sincere in our response, and we will make clear our position. Since this has become clear, we were aware that it might develop into this kind of situation, so it is not beyond our expectations. We were aware, and we have been prepared as well. We are well prepared. Since more than a year ago, we have been engaging the help of experts to run an investigation, and we have been making comments where necessary. We do believe that the validity of this insurance policy is questionable. We have an excellent team that is responding to this incident. What is important is that we have been communicating this in the past year.
Just to reiterate, the impact on our future performance, as well as the impact on FY 2022 expectations is zero or limited, if any. Talking about the 12 months going forward, I think we are standing at a very important position or place. A company, whether they are global or not, they really need to question themselves about what their social responsibility is, and they need to set forth and demonstrate their determination and will. What kind of social value can we generate? How can we capture that as a growth opportunity? We need to be bold and continue to engage in the resolution of social issues. By doing so, we believe to customers, investors, and for the global business, we hope that our efforts can lead to a better reputation of the company, and that will make us happy. The downside, that is the positive.
The downside for the next 12 months, if any, would be there are so many things happening across the world simultaneously. One would be natural catastrophes, I guess, because I did mention that it is a variable. So I really hope that there are no intense natural catastrophes that occur. I also refer to the mitigation and prevention of disasters. We would like to ensure we engage in activities so that we could protect people from being affected from natural catastrophes when they occur. That is all for me. Thank you.
Thank you.
Thank you very much.
Thank you very much. Lastly, we have a question from Mr. Majima from Tokai Tokyo Securities.
This is Majima speaking. Thank you for this opportunity. I have two questions for you. First is that relative to the global peers, you are equivalent level with the global peers. Of the four global peers, three of them report according to IFRS. You are using JGAAP and also U.S. GAAP, and I do not know if you will move on to also issuing IFRS. I know it is a time-consuming process, but from the outside point of view, when you want to compare yourself to the global peers on financial reporting basis, people expect you to also issue IFRS-based reporting. Is it due to cost and time? Is it difficult for you to move on to IFRS? That is my first question.
The second question is autonomous driving level 4 or level 5 is in sight, and the issue is that the policyholder will be the auto companies, and so building that relationship, and also there will be no advisory rate. How do you price your products without advisory rate? The personal auto insurance is going to shrink, so that means the source of income for your agencies will decline. I know this is further down the road, but what do you think about this changing landscape in auto insurance as we move to auto driving technology?
On the first point about IFRS, from CFO, Mr. Okada, I would like him to answer the question. On your second point about autonomous driving, for 2025, we will move on to level 4.
Using data, building relationship with the auto manufacturers, and also what will happen to the lives of the agencies who mainly sell auto insurance. That will be offered by Hosojima, Mr. Hosojima. Mr. Hirose, the President of TMNF will also add to that afterwards. First from Mr. Okada on IFRS.
Thank you for your question. Regarding IFRS, we are already working the ERM based on economic value, and there is good affinity with IFRS, and this will be comparable with the European peers. We are proceeding with the preparation to introduce IFRS. However, we need to do the analysis of the items included in IFRS and also what other companies introduce IFRS and how it is evaluated in the market. Adopting IFRS as an official financial reporting basis, it is still being considered.
We do not have a date for introducing IFRS officially yet. We still need to be analyzing our own numbers and also looking at its affinity with how we manage the company and also how other companies who report under IFRS are evaluated, EPS growth, ROE comparison, source of dividend payment. These are all very, very important issues, and these need to be judged before we simply move on to IFRS. About autonomous driving, can TMNF please speak?
This is Hosojima speaking. As Majima-san said, it is going to take some time because it will take more than 15 years for the fleet to be replaced, so the impact in the immediate future is limited. Regarding level 4, it will be limited to be used on the highways, so 97% of accidents take place in the city roads.
Even if we move on to level 4, it will be the driver who will be the liable person for the accident. Because of that backdrop, according to the report from the emulator, even if we reach level 4, the responsibility for the accident will not change from how it is set up now. For a while, the compulsory auto as well as private auto insurance schemes will be maintained even up to level 4. After we move to level 4, the auto manufacturers will not suddenly be taking all the responsibilities and will not become the policy holder in the auto insurance just because we moved to level 4.
Once we see the auto driving technology penetrate, the liability relationship becomes very complicated because where the driver used to be the liable body, now it will become the automakers or the software manufacturers to become liable for the accidents. These complicated responsibility relationships need to be coordinated by somebody, and that somebody can be the insurance company. That is a role that we could potentially play. That is why in April 2017, we have provided a rider for providing assistance to the victims. While the number of cars on the road will reduce, I think that is what you mentioned, obviously, we are going to be seeing reduction in population and due to the spread of safety measures, the Japanese auto market itself is going to shrink gradually. However, it will take some time before it reduces significantly.
Accident frequency will drop, but the price of a car, especially for EVs, the unit repair cost is going to rise, and those are bigger factors. As we see decline in frequency, unit claim cost is also going to go up. We do not expect that anytime soon, any impact to the agency will occur in scale.
This is Hirose speaking. As Mr. Hosojima mentioned, I agree with everything he said, except I need to add a few points. Going down the road, maybe further down the road, technologically, level 5 autonomous driving will become technically possible. Automakers are saying that technically it may become possible, but the pleasure of driving. People will still want to be driving cars, not on the autonomous mode, but on the manual mode. When that happens, of course, accidents might occur.
A car that is compatible for automated driving as well as non-automated driving, sonars, semiconductor components, and other advanced components are all equipped, therefore repair cost is going to get higher. There could be a cyberattack, which is an emerging risk once we have these types of high-tech cars. Including these risks, I think there will still be a need for insurance. These are the areas where we can play an essential role. That concludes my answer.
To summarize, it will take long time, and we will gradually move on to level 4 and level 5. Even if we move to that level, there will be an essential role to be played by insurance companies, and that means the roles of the agencies will still be in need. It will take much longer, and maybe gradually, the roles will shrink.
While we are still in this market, we need to be making new propositions in order to protect the clients. We need to be making new devices for accident prevention, et cetera. These are the capabilities that we need to equip ourselves and also for the insurance agents.
Majima-san, thank you very much for your question.
Thank you.
Thank you. We're a little bit past our scheduled time, but Mr. Komiya, would you like to close?
Thank you very much, everyone, for joining this meeting today, whether it be online or through phone. The Tokio Marine Group, I believe, is in a very important position right now. Compared to 10 years ago, we are basically completely different in where we stand. Towards the next 100 years, we want to be an indispensable presence. In order to be that, we need to take on new challenges, which we already are. I think it's a time when we're going to establish a bridge that connects us to the future, and we would like to be able to respond to our stakeholders, and the management will make efforts in order to do so. We would like to ask you for your ongoing support.
Thank you very much today, and thank you in advance for your future support.
With this, we would like to end our first half fiscal 2022 investor meeting. Thank you very much for your participation.