Brief Explanation of FY2010 1Q Financial Results 1. Highlights of Consolidated Results of Tokio Marine Holdings (References: "Supplemental material for FY2010 1Q conference call") Ordinary Income - Net premiums written: ¥596.1 billion, up ¥2.3 billion or 0.4% YoY Tokio Marine & Nichido and Nisshin Fire saw slight increases, with increases shown overseas as well. - Life insurance premiums: ¥105.8 billion, down ¥15.9 billion or 13.1% YoY Insurance premiums and other of Tokio Marine & Nichido Life: Steady growth in policies in force raised insurance premiums by ¥8.4 billion or 8.6% YoY. Insurance premiums and other of Tokio Marine & Nichido Financial Life: Insurance premiums decreased by ¥9.8 billion or 16.6% YoY, due to a decrease in number of new policies of variable annuity as a result of restrictive marketing in light of market conditions. (References: Non-consolidated life results do not add up to the consolidated result of life operation due to the difference in accounts style between life and non-life operation; the consolidated result is shown under non-life style). - International insurance premiums (total of life and non-life)*: ¥156.0 billion, up ¥5.9 billion or 3.9% YoY * Overall international insurance businesses summing up premiums of overseas branches of Tokio Marine & Nichido, equity method investees and non-consolidated companies Increases or decreases by region: U.S. branches of Tokio Marine & Nichido and Europe: Premiums declined, affected by lower rates due to increased competition among Japanese businesses. Life and non-life insurance businesses in Asia: Premiums grew by double digits, supported by favorable increases in new policies. Kiln: Premiums increased by 7.0% owing to the growth of Group policies in force through Syndicate 1880. Philadelphia Consolidated: Affected by the appreciation of the yen, premiums dropped slightly, though they continued to grow by some 4% in local currency given the negative growth of the entire non-life insurance market in the U.S. Ordinary Profit - Ordinary profit: ¥87.9 billion, up ¥39.5 billion or 81.7% YoY Tokio Marine & Nichido: Funding in foreign-currency-denominated provisions for outstanding claims decreased due to the appreciation of the yen, and profits or losses from derivatives such as forward exchange contracts improved. Interest and dividend income rose, supported mainly by increases in dividends from international subsidiaries (though the majority of this factor is eliminated in the process of closing consolidated accounts). International insurance subsidiaries:
Philadelphia Consolidated posted an increase in profit. Investment profits of Kiln rose due to the appreciation of the dollar against the sterling. Profits of the life and non-life insurance businesses in Asia grew, reflecting the improvement of the financial markets. Profits or losses on investments in securitized instruments: CDS, ABS and financial guarantee reinsurance yielded total profits of ¥5.5 billion, including; CDS investment generated valuation profits due to the tightening of credit spreads Gains on redemption or sale of ABS investments Quarterly Net Income - Quarterly net income: ¥56.4 billion, up ¥21.0 billion or 59.6% YoY The factor driving the increase was almost the same as the factor that led to higher ordinary profit. 2. Highlights of Non-Consolidated Results of Tokio Marine & Nichido (References: Summary Report, page 12-13) - Net premiums written: ¥439.2 billion, up ¥0.5 billion or 0.1% YoY Increases or decreases in major classes of insurance: Fire insurance: Premiums decreased by 2.7%, owing to i) switches in inception dates of major contracts from the original dates in FY2010 to the previous fiscal year and ii) sluggish US economy Marine insurance: Premiums increased by 10.6% due mainly to a substantial recovery of international trades despite the negative effect from strong yen Auto insurance: Premiums increased by 0.4%, which is primarily attributable to the rise in unit price after the rate revision in July 2009. - Net loss ratio: 67.0%, up 1.2 points YoY Net loss ratio of major lines of insurance: Fire insurance: 47.0%, up 7.0 points due mainly to the payment of claims for major accidents which occurred during prior fiscal years Auto insurance: 69.5%, up 2.5 points, mostly because of an increase in claims paid relating to automobile physical damage insurance - Business expenses and expense ratio: Agency commissions and brokerage: ¥78.3 billion, largely flat YoY Operating and general administrative expenses on underwriting: ¥69.7 billion, down ¥1.4 billion YoY The decrease was primarily attributable to lower non-personnel expenses resulting from decreases in system-related costs and printing costs. Total business expenses: ¥148.1 billion, down ¥1.4 billion YoY Expense ratio: 33.7%, down 0.4 points YoY - Provision for outstanding claims: Reversal of ¥17.7 billion, up ¥9.1 billion YoY
The strong yen reduced funding of foreign-currency-denominated provision for outstanding claims. In fire insurance, claims for major accidents that occurred in prior fiscal years have been paid. - Provision for underwriting reserves: Reversal of ¥13.4 billion, up ¥13.6 billion YoY Of which general underwriting reserve: An increase of ¥14.0 billion, down ¥1.5 billion YoY The YoY decrease in provisioning reflects the substantial increase for the same period of the previous fiscal year, associated with an increase in income from the class of liability insurance. Of which catastrophe loss reserve: Reversal of ¥2.7 billion, up ¥1.1 billion YoY Claims paid for auto insurance increased. - Underwriting profit: ¥22.8 billion, up ¥8.3 billion YoY - Investment profits and losses: Interest and dividend income: ¥64.1 billion, up ¥25.0 billion YoY, due primarily to increases in dividends on foreign stocks of international subsidiaries Gains and losses on sale of securities: The amount, which has netted gains and losses on sale of securities, stood at ¥15.7 billion, up ¥2.8 billion YoY, mainly because the sell-offs of business-related equities Income from financial derivatives: ¥14.8 billion, up ¥10.6 billion YoY, mainly because the appreciation of the yen contributed to profits from valuation of forward exchange contracts and currency swaps. Investment profits and losses: "Investment Profits and Losses," which are calculated by deducting investment costs from investment profits, amounted to ¥72.5 billion, up ¥39.2 billion YoY. - Ordinary profit: ¥88.7 billion, up ¥50.3 billion YoY - Quarterly net income: ¥65.6 billion, up ¥34.8 billion YoY 3. Highlights of Non-Consolidated Results of Nisshin (References: Summary Report, page 16-17) - Net premiums written: ¥34.4 billion, up ¥0.8 billion or 2.7% YoY Increases or decreases in major classes of insurance: Auto insurance: Premiums rose, supported by an increase in the number of policies and the revision of rates Fire insurance: Sales of new policies remained favorable - Net loss ratio: 65.6%, up 4.7 percentage points YoY Like Tokio Marine & Nichido Fire, the increase was due to the growth in claims paid relating to automobile physical damage in auto insurance, and the progress of payment of fire claims for major accidents and natural disasters in prior fiscal years - Expense ratio: 36.9%, down 2.0 percentage points YoY
Factors supporting the improvement include a decrease in corporate expenses due to a substantial reduction of personnel costs as well as increasing premium income. - Underwriting profit: ¥0.6 billion, up ¥0.2 billion YoY - Investment profit and loss: Profits advanced, owing primarily to an increase of "Income from Financial Derivatives" thanks to the appreciation of the yen. - Ordinary profit: ¥2.1 billion, up ¥.0.9 billion YoY - Quarterly net income: ¥1.5 billion, up ¥0.8 billion YoY 4. Highlights of Non-Consolidated Results of Tokio Marine & Nichido - Business highlights (References: Summary Report, page 26): New policies (individual insurance): Number of new policies: up 7.8% YoY Amount of new policies: up 5.8% YoY Annualized premiums of new policies: up 8.3% YoY Both first-sector products including "Wholelife with Long-Term Discount Insurance" and "Household Term Insurance" and third-sector products including "Medical Mini" showed steady growth. Policies in force (individual insurance): All of the "Number of Policies," "Amount of Policies" and "Annualized Premiums" increased steadily. - Statement of income (References: Financial Reports, p. 24) Insurance premiums and others: ¥107.1 billion, up ¥8.4 billion or 8.6% YoY The stable growth was achieved in tandem with the higher volume of policies in force. Business expenses: ¥20.1 billion, up 0.5% YoY The increase remained relatively small compared with the growth rate of premiums. This was because non-personnel expenses were reduced despite the increase in agency commissions in line with the premium growth. Ordinary profit: ¥7.9 billion, up ¥0.7 billion YoY Quarterly net income: ¥3.9 billion, up ¥0.5 billion YoY (References) Net income of ¥2.0 billion is expected at the end of the current fiscal year, after funding the standard underwriting reserves as required in the previous fiscal years, 5. Highlights of Non-Consolidated Results of Tokio Marine & Nichido Financial Life - Business highlights (References: Summary Report, page 32): New policies of individual annuities: The "Number," "Amount" and "Annualized
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