Tokio Marine Holdings, Inc. (TKOMY) has announced its fiscal year 2023 financial results, surpassing its February projection with an adjusted net income of JPY 711.6 billion, an 11% year-on-year growth.
The company attributes this performance to lower-than-expected winter storm losses and increased capital gains from equity sales.
Looking ahead to fiscal year 2024, Tokio Marine is targeting an adjusted net income of JPY 1 trillion, a 46% increase, and plans to accelerate the sales of business-related equities.
Key Takeaways
- Adjusted net income for FY'23 exceeded projections by JPY 21.6 billion, reaching JPY 711.6 billion.
- Tokio Marine's normalized profit, excluding one-off effects, aligned with the February projection.
- The company has set ambitious targets for FY'24, including a projected adjusted net income of JPY 1 trillion.
- Dividend per share (DPS) for FY'23 increased to JPY 123, and a further increase to JPY 159 is projected for FY'24.
- A share buyback program of JPY 200 billion is planned for FY'24, with an initial step of JPY 100 billion already approved.
Company Outlook
- Tokio Marine expects continued strong business performance and profit growth.
- The insurer aims for top-class earnings per share (EPS) growth and return on equity (ROE) in line with global peers.
- The new medium-term management plan (MTP) sets targets for an 8% compound annual growth rate (CAGR) in EPS and an ROE of 14% or higher, excluding gains from equity sales.
Bearish Highlights
- Life insurance premiums are projected to decrease by 17% year-on-year in FY'24.
- The company anticipates conservative growth due to potential large tail losses and increased natural catastrophe budgets.
Bullish Highlights
- Despite challenges, Tokio Marine has maintained strong fundamentals, particularly in its international business.
- The company plans to leverage its diversified underwriting portfolio and investment income for sustained growth.
Misses
- There were capital losses, such as increased provisions for CECL in North America, affecting the adjusted net income for FY'23.
Q&A highlights
- The CFO, Kenji Okada, reiterated the company's commitment to sustainable dividend payments and share buybacks in alignment with profit growth.
- The introduction of International Financial Reporting Standards (IFRS) and Insurance Capital Standards (ICS) will lead to a revision of income definitions and shareholder return policies by FY'26.
Tokio Marine's strong FY'23 results and ambitious plans for FY'24 reflect the company's resilience and strategic focus on profitability and shareholder returns. The company's commitment to disciplined capital policy and aggressive equity sales strategy positions it for continued success in the competitive insurance market.
InvestingPro Insights
Tokio Marine Holdings, Inc. (TKOMY) has demonstrated a robust financial performance in the last twelve months as of Q3 2024, with a market capitalization of $64.09 billion USD and a price-to-earnings (P/E) ratio of 16.37. This P/E ratio is particularly noteworthy as it trades at a discount relative to near-term earnings growth, indicating potential for investors to gain from future earnings expansions.
The company's revenue growth of 6.81% over the last twelve months signifies a healthy increase in business activity, reflecting the company's strategic initiatives and market position. This is further supported by a strong gross profit margin of 31.31%, suggesting efficient cost management and a solid competitive edge in the insurance industry.
InvestingPro Tips highlight Tokio Marine's status as a prominent player in the Insurance industry and its ability to maintain dividend payments for 22 consecutive years, reinforcing its appeal to income-focused investors. Moreover, the strong return of 59.36% over the past year showcases the company's exceptional performance in delivering shareholder value.
For investors seeking more in-depth analysis and additional tips, there are 10 more InvestingPro Tips available for Tokio Marine on InvestingPro. These tips provide a comprehensive view of the company's financial health and market potential, which could be particularly valuable for making informed investment decisions.
To gain access to these insights, investors can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, offering a deeper dive into Tokio Marine's financial metrics and future outlook.
Full transcript - Tokio Marine Holdings Inc (TKOMY) Q4 2024:
Satoru Komiya: Good evening and hello, everyone. My name is Komiya. Thank you very much for taking the time out of your busy schedule to join us today. I would also like to thank all of you for your continued support towards Tokio Marine. First of all, I would like to start by explaining fiscal '23 financial results as well as the new medium-term management plan we have started from fiscal '24 and as KPI targets as well as messages from the management based on these results and our plan. Please turn to Page 3 of the presentation material. There are mainly three points I would like to convey to you today. The first is current financial performance, which is actual results for '23 and projections for '24. Adjusted net income on an actual basis for fiscal '23 is JPY711.6 billion, which is JPY21.6 billion higher than the full year projection of JPY690 billion announced in February of this year. This was mainly due to smaller-than-expected winter storm losses in the fourth quarter and increased the capital gain from sales of business-related equities. Excluding such one-off effects, normalized basis adjusted net income was JPY685.5 billion, which is in line with the JPY684 billion of February projection. On year-on-year basis, we have achieved 11% growth. So I believe it is fair to say the company's business remains strong and its underlying capabilities are steadily improving. As for our fiscal '24 projection, we expect to post an adjusted net income of JPY1 trillion, which is an increase by 46% over the previous year since we will add gains from accelerated sales of business-related equities to achieve zero stock holding on top of enhanced profit based on improved underlying capabilities. Regarding business-related equities, we have consistently stated for some time that we would continue to sell them. In this context, we have now set the time frame for completion of sales to be in six years. We have also decided to half the amount of stock holding within the next three years as a milestone. Regardless of the plan, however, we would like to accelerate the pace of equity sales as much as possible. This is our intention. The second point is the KPI target of the new medium-term management plan, which we have started from fiscal '24. We have always said that we would achieve world-class EPS growth and raise ROE to the level of global peers, while reducing volatility. The new medium-term management plan is still with the same tone, so our journey continues. Specifically, we will deliver EPS growth of 8% or more on CAGR basis and 16% or more, including capital gains from the sales of business-related equities. ROE will be 14% or higher or by including capital gains from the sales of business-related equities, it will be 20% or higher. These drivers are nothing other than the improvement of each of our businesses' underlying capability and I will be explaining more on this point again at the management strategy meeting to be held this Friday. The third point is about shareholder return. We have not changed our policy that profit growth of our business and expansion of shareholder return should be consistent with each other. In this context, regarding dividend payment, as I mentioned earlier, our business continues to be strong and profits are increasing. So we have decided to increase DPS for fiscal '23 by JPY2 from the initial plan of JPY121 to JPY123. DPS for fiscal '24 is projected at JPY159 in line with the profit growth I have explained. This will be DPS growth of 29%. And of course, we believe that would make us one of the world's top-class companies. In terms of capital stock, we will continue to implement disciplined capital policy. Our latest ESR is 140%, which is a substantial level. And we are currently planning to do a share buyback at this point in time by JPY200 billion in fiscal '24. Needless to say, we will continue to flexibly execute share buyback throughout the year, but today's resolution allows for the execution of initial JPY100 billion as the first step. Regarding capital policy, our CFO, Mr. Okada will explain about it later. I will now explain more on our business performance and business trends in more detail as well as KPIs of the new medium-term management plan. Please turn to Page 4. First, on the top line. As for the results for fiscal '23, net premiums written increased by 8% year-on-year, while life insurance premiums decreased by 2%. Although there was an increase in surrender and lapse of corporate-owned life insurance at TM and Tokio Marine & Nichido Life Insurance, the overall trend remained favorable, mainly in the international business. In this environment, we project a steady increase of net premiums written of 9% year-on-year, driven by rate hikes and underwriting expansion. Life insurance premiums are expected to decrease by 17% year-on-year, which seems like a major decline. But this is actually due to the impact of the existing block seeded by TMNF Life in April of this year. This is exactly what we mean by seeding a portion of the legacy portfolio in the form of reinsurance. At the same time, we will also reverse the matching underwriting reserves, so the impact on the profit will be nominal. Next, I would like to explain the adjusted net income. Please turn to Pages 5 and 6. As explained earlier, the adjusted net income result for fiscal '23 on actual basis is JPY711.6 billion, an increase by JPY21.6 billion from the February projection. Compared to the previous year, profit increase was 60%. However, these figures include such noises as natural disasters increasing sales of business-related equities and rebound from COVID, et cetera. We believe that the normalized profit, which excludes these factors is important to capture the underlying strength of the business. Normalized profit for fiscal '23 was JPY685.5 billion, an increase of 11% over the previous year and is a top-class growth rate in the world. In fiscal '23, we have recognized some capital losses such as increase in provisions for CECL in North America. However, we believe that both underlying -- underwriting and investment performance of the group as a whole are both strong, and we are steadily improving our capabilities. I will now explain about fiscal '24 projections. Please turn to Page 7. FY 2024 projection for adjusted net income is JPY1 trillion. And this includes gains from accelerated sales of business-related equities, this I have already -- more specifically, the amount of sales of business-related equities in FY'24 is planned at JPY600 billion and gain from sales of JPY300 billion year-over-year. Profit excluding gains from sales of business-related equities for FY'24 took into account a large tail loss in geography sector in April and the need to increase Nat Cat budget for Japan and abroad from the beginning of the term as well as the past year reserve, which involve large gains from takedown of reserve of plus JPY29 billion in the first half, which will not be factored in, in the beginning of FY'24, and therefore, we expected a conservative plus 2% growth year-over-year. Next, turning to new MTP KPI target. Please turn to Page 8. Target figures have been explained already. Key point for us is to realize top-class -- world top-class EPS growth, excluding gains from sales of business-related equities. Our EPS growth target is plus 8% or more in CAGR. It can be broken down into plus 7% or more in adjusted net income and plus 1% to 2% in share buyback. In other words, the growth driver will continue to be world top-class profit growth, and this figure is based on organic growth. With a well-diversified underwriting portfolio and strong investment income by leveraging our liability characteristics, we will achieve strong growth in Japan and internationally while keeping volatility low. ROE target -- including gains from sales of business-related equities, which is the same definition as before, ROE target will be 20% or higher. Now excluding gains, only gains from sales of business-related equities from the numerator while denominator includes gains from sales, therefore, numerator and denominator is not necessarily apple-to-apple. In this case, target is 14% or higher. On the back of high share prices and weak yen, net asset is increasing. We will consistently drive ROE to the level of global peers through profitable growth and a disciplined capital policy execution. Before I close my comments, let me extend my sincere apologies for the concern and inconvenience caused to you in the capital market by the issues that occurred at TMNF last year. My apologies to you all. I'm also aware that there have been reports in the press about the group policies. This is one of the series of issues that are included in the business improvement plan, we submitted to the authorities at the end of February. And we are already working on various measures to address the issues. How do we prevent recurrence and how do we review the company? These topics will be fully covered at the business strategy meeting scheduled this Friday. Looking back on the previous mid-term plan period that ended this past March, there were a number of challenges around the world. However, we never let a crisis go to waste. With this in mind, we have been able to overcome each crisis by mobilizing group's strengths and steadily improved our capabilities. The current business environment is not easy either, but the company over the years has nurtured a strong business foundation and the ability to respond to challenges, which should allow the company to continue to achieve world-top class EPS growth, while increasing ROE for the next three years and beyond. I will lead the business with that strong mindset. Your continued support is very much appreciated.
Operator: Komiya Sa, thank you very much for that. Now I would like to pass the microphone over to Mr. Okada to take you through the capital policy.
Kenji Okada: This is Okada speaking. Let me cover our shareholder return policy before we close. Please turn to Pages 9 and 10. So once again, our shareholder return policy is to make dividend payments and to increase DPS sustainably in line with profit growth. DPS for fiscal year 2023 will be JPY123, up JPY2 from original projection and up 43% year-over-year in DPS growth. Adjusted net income for FY'23 was affected by Nat Cat and capital loss in North America, but strong fundamentals in the international business made up for the loss. There were upsides to the original projections and November forecast, which are basis for DPS. The new MTP started from this past April. In FY 2024, the first year of the new MTP, we will maintain the payout ratio of 50% based on five year average adjusted net income. Adjusted net income for FY'24 is planned at JPY1 trillion. Based on that planned figure, DPS for FY'24 is projected at JPY159, up JPY36 in dividend payout or up 29% year-over-year in DPS growth. Going forward, the company will introduce IFRS at the end of FY'25. ICS will also be introduced. Definition of income and various other indicators need to be revised from FY'26. At this point in time, we have not yet decided on the contents of the revised policy and we will explain the various indicators and definitions as well as our shareholder return policy based on them in the fall of 2025, six months before the introduction of IFRS after internal deliberations and careful dialogue and discussions with the capital market. After the introduction of IFRS, the company intends to continue to take a comprehensive approach to set the dividend payout ratio level that will enable us to realize top-class -- world top-class EPS growth and DPS growth in line with that. Next turning to capital stock adjustments. Our capital policy remained intact. In other words, capital generated through organic growth and/or portfolio change is first to be used for M&A and additional risk-taking that contributes to ROE growth of the company. In case there are no such opportunities, we we'll do share buyback since the company has no intention to build unnecessary capital. Our current ESR is at 140%, which is considered sufficient. Taking into account M&A pipeline and business environment comprehensively, our current share buyback plan for FY'24 is at this point in time set at JPY200 billion. As a first step, JPY100 billion share buyback has been approved today. EPS target in the new MTP includes 1% to 2% in share buyback. The share buyback amounts scheduled for the fiscal year is in line with that policy. We took note of the fact that 2% share buyback vis-a-vis market cap is common among the global peers. The company intends to execute the business strategy in the new mid-term plan and to increase EPS and ROE, while controlling volatility, thereby responding to expectations from the capital markets. Your continued support and understanding is greatly appreciated. That is all for me.
End of Q&A:
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