Tokio Marine Holdings, Inc. (OTCPK:TKOMY) Q2 2022 Earnings Conference Call November 18, 2022 1:00 AM ET
Company Participants
Taizou Ishiguro – Head, Investor Relations
Satoru Komiya – President and Group Chief Executive Officer
Kenji Okada – Group Chief Financial Officer
Tsuyoshi Nagano – President, Corporate Funding
Toshihiro Yahata – President, Corporate Planning
Kichiichiro Yamamoto – Corporate Accounting and Financial Balancing
Yoshinori Ishii – Managing Executive Officer Group CLCO
Conference Call Participants
Masao Muraki – SMBC Nikko
Natsumu Tsujino – Mitsubishi UFJ Securities
Tamaki Murooka – Nomura Securities
Tatsuo Majima – Tokai Tokyo Securities
Koichi Niwa – Citigroup Securities
Taiki Okada – UBS Securities
Futoshi Sasaki – Bank of America
Satoru Komiya
Good evening, everyone and hello. My name is Komiya. Thank you for your participation to this meeting despite your busy schedule. I also wanted to thank you for your continuous interest and support towards Tokio Marine Group. To kick off this telephone conference tonight, I would like to present financial earnings for the second quarter. This is just from the management based on the second quarter earnings.
If you have the material in front of you, please turn to Page 3. There are mainly three points I would like to convey to you today. First point is about the underlying performance of the Tokio Marine’s business, although recently, we have been impacted by COVID-19 and natural catastrophes. Excluding these transient one-off factors on underlying basis, performance continues to be strong led by international business. In fact, normalized profit forecast for this year is revised upwards by ¥10 billion to ¥560 billion.
Second point is about transient effects that we are impacted by recently. We are estimating the transient effect for this year for fiscal ‘22 to be minus ¥160 billion, out of which COVID-related is minus ¥130 billion. Most of this is coming from Taiwan business in which we have revised COVID-related expected loss to be ¥91 billion based on the enlarged infectious state in Taiwan. As for Hurricane Ian, this is expected to bring the second largest historical loss in the industry. Its impact to us is expected to be not so big, as we sense our business in specialty line of business and our loss is expected to sit within the natural catastrophe budget for international business.
Third point is about shareholder return. I have been saying to investors that profit growth and EPS growth should come hand in hand and also that share repurchase will be done with discipline. While looking at the status quo of business, although there are some impacts of transient effect, our underlying performance is indeed strong. Based on that, we are keeping that EPS for fiscal ‘22 to be ¥100 as we had announced at the beginning of the year and that means keeping the EPS growth estimate of 18%. As for share repurchase, since management recognized the current level of capital to be ample. We have decided to keep the same amount of ¥100 billion to be allocated for this year’s share repurchase program and that means we will be spending the remaining ¥50 billion. That decision was made in the Board meeting today.
I would like to explain these points in more detail. So please turn to Page 4. First on top line. Financial performance in second quarter was led by international business and saw year-on-year 18.7% growth with net premiums written and year-on-year 13% growth in life insurance premiums. Excluding the factor of FX, they still achieve the growth by 10.4% and 3.1% respectively, with growth in pace above the levels we showed in the projections announced in May. This tells our underlying performance to be strong. Full year projections were revised upwards based on recent briskness in underlying performance. So on year-over-year, excluding FX basis, we are projecting net premiums within growth by 9.1% and life insurance premium growth by 2.8%.
Next, I would like to explain about our adjusted net income Please turn to Page 5. There is no doubt the underlying performance continues to be strong as I have been explaining. But I would like to look into the details for some components making up the second quarter adjusted net income. Starting with TMNF in the domestic business, TMNF received multiple impacts of one-off events as follows, such as the hail damage in June and typhoon etcetera. The second is that the impact of flood in South Africa. The third is the increase of COVID-related payments due to spread of infection. And fourth, increase in provision for foreign currency denominated claims reserve due to yen depreciation. These are one-off factors, which impacted earnings of TMNF, but excluding these factors, progress rate of profit versus original projection was 54.8% showing healthy underlying performance.
Please turn to Page 6. As for TMNL, life operation was also under the impact of one-off factors such as COVID-related loss and losses on derivatives and part of the investment portfolio, where hedging accounting was not applied. Excluding these transient factors, progress rate of profit was 51.5% and here too, underlying performance is strong, not bad at all. As for international business, as we have announced on August 5, it is under the one-off impact of Taiwan COVID-related loss of minus ¥53.9 billion to be booked in the second quarter and also under the impact of increasing yen denominated profit due to yen depreciation. Excluding these factors, rate of progress in profits is 56.5%, suggesting underlying performance is strong. In fact, financial performance of key entities for the second quarter was overachieved versus local plan, which excludes the impact of effects. It was overachieved by ¥23 billion.
Next, I would like to explain about the full year projection, please turn to Page 7. Full year adjusted net income on an actual basis is expected to be ¥400 billion, down ¥150 billion from original projections. While our underlying capabilities are improving steadily transient factors accounting for approximately ¥160 billion, such as the spread of COVID infections and domestic natural catastrophes was significant.
Let me give some color on the Taiwan situation, which was particularly large on the next page. Please open to Page 8. As announced on August 5, net loss of ¥53.9 billion was reported in the second quarter for the impact of COVID in Taiwan. The assumed COVID infection rate then was 30%, but as of the end of October or actually it hit peak mid-October and has come down to since, the rate as of the end of October exceeded 32% and still counting. As such, we decided to revise the full year net loss of the impact of COVID in Taiwan to ¥91 billion. Estimated infection rate for the revised loss is 44%. Infection rates are extremely difficult to predict, but COVID insurance policy is a 1-year coverage till February 15 next year for COVID coverage in Taiwan and we will not let the negative impact to continue into fiscal year 2023.
Please turn to Page 9. This page illustrates full year adjusted net income projections on a normalized basis, excluding transient factors. As explained already, our underlying performance is strong. We will revise our original full year projections to ¥560 billion, up ¥10 billion or up 9% year-over-year from original projections on a normalized basis. Profit growth driver is organic growth on the international business in North America in particular, I believe our underlying performance capabilities are steadily enhancing and I will be covering this in more detail at the IRS briefing scheduled for next week.
Lastly but not least, to summarize, earnings for fiscal year 2022 was largely impacted by transient factors. For this very reason, management believes it is highly critical to a) strengthen our individual businesses and b) enhance the management level through global risk diversification strategy and group integrated management. This, I believe, is extremely critical. We will buckle down and work even harder, so that as a result we will sustain world top class EPS growth and raise ROE to a level that is comparable to global peers. It is with such strong determination that I intend to run the company. And once again, details will be explained in next week’s IR meeting. That is all for me. Thank you.
Taizou Ishiguro
Thank you very much for that. And now, I’d like to ask Okada-san to take us through the capital policy.
Kenji Okada
This is Okada speaking, CFO. Before closing, let me cover shareholder returns. Please open to Page 10. Our basic shareholder return policy is dividend and to maintain the EPS growth in line with profit growth. As addressed by Komiya-san, fiscal year 2022 adjusted net income on an actual basis was revised down for transient reasons. However, income projections on a normalized basis remain robust source of dividends. 5-year average adjusted income has increased year-over-year from ¥375 billion to ¥390 billion. Therefore, the EPS for FY ‘22 will remain unchanged at ¥300 before stock split or ¥100 after stock split or EPS growth of 18% year-over-year.
Our stance on capital level adjustment remains intact. As always, opportunity for M&A or risk taking that contribute to our corporate value and ROE enhancement will be pursued, but if there are no such opportunities, we will execute share buyback. For fiscal year 2022, we announced in May ¥100 billion share buyback plan. And since our ESR is at 122%, we have ample capital. We will stick to the plan. And today, as was mentioned by Komiya-san, board resolution which was held today passed to execute to the remaining ¥50 billion. The company intends to execute the business strategy steadily and raise EPS and ROE while suppressing volatility and respond to your expectations in the capital markets. Your continued understanding and support is very much appreciated. And that is all for me.
Question-and-Answer Session
A – Taizou Ishiguro
Thank you, Okada-san. Now we would like to receive your questions from the floor. [Operator Instructions] So first will be from SMBC Nikko, Mr. Muraki.
Masao Muraki
My name is Muraki from SMBC. So I’d like to ask my question. If you go to Page 30 on normalized basis disclosure, first of all, thank you for the disclosure, based on this when we think about next fiscal year, I want to think about the starting point for next year, the launch pad, so ¥560 billion, that is the normalized basis revised projections for ‘22. However, for FX if you fix it at the end of September FX rate, then the negative ¥41 billion of the orange bar and so I believe if the FX is ¥156 billion, then I believe around ¥600 billion will be the launch pad for next fiscal year. And also up to this level, in thinking about next fiscal year, what are the pluses and minuses that we have to be adding anything that we need to be mindful to be on top of this number? So I know there is increase in top line for overseas for the domestic auto insurance for unit price, I believe there are some cautious statements in the material. And also the cost of reinsurance going up perhaps, what are evaluations of these factors that we should be adding for next year’s number?
Kenji Okada
This is Okada seeking, the CFO. Thank you for your question, Muraki-san. So the launch pad or starting point for next fiscal year was your question. So, on Page 30, ¥560 billion, the FX effect you have the right understanding. So in this waterfall chart, ¥41 billion is the impact to TMNF, but they are not unchanged. There is about ¥2 billion of FX impact. And so there is about a total of ¥43 billion of the impact, which is already part of the launch pad for next fiscal year. And on top of that, for next year, the plusses and minuses that we need to consider. So first, the largest positive item we have for next year is the domestic fire insurance. In October, there was a price hike for fire this year. And so there has been several rate hikes that we have already done. And if we assume the natural catastrophe to be on normalized level, then the impacts coming from the fire insurance in terms of property improvement will be ¥16.5 billion. And on qualitative basis, the interest rate hike in the overseas markets, there has been some steps in hiking rates this year. And so from the highest point we will be starting from there. So centering around, Delphi, the income from the investment activities overseas is likely to increase enough for business related equities we want to be accelerating the sell-down. And so there could be some upward revision to that next year.
On the negative factor, the last one that might get the bigger next year is the reinsurance cost. While we negotiate with the big insurers, we are revisiting our programs and we are trying to control the reinsurance cost. But this could be one of the items that bring us a negative factor for next year, which is reinsurance cost. And then in general, the trend of inflation, if it continues next year, then we need to be catching up with the rate hikes whether if we can do that or not and also in the Western countries and international business. If the economy goes into recession, then that could be another risk factor. That concludes my answer.
Satoru Komiya
This is Komiya speaking. Let me add something to your question. Thank you always for your questions and for the details. Please wait for a week until next week’s meeting, but uncertain factor is always natural catastrophe. For next fiscal year, as you said for specialty and higher the profitability improvement and we will be there and then we need to be cautious with the outlook for overseas, they are expanding their business. So they are achieving organic growth, while we see that the reinsurance market and also the response to the hard market situation, how quickly we can catch up with the hardening of the market is another point. And another thing is the FX situation and reinsurance. I would say these will be the factors to keep our eyes on, but I would like to update you on these matters in the next round as well. Thank you.
Taizou Ishiguro
Thank you very much. Let us move to the next question is Mitsubishi UFJ Securities, Tsujino-san, please.
Natsumu Tsujino
It’s kind of tough to just now down to one question, so ¥160 billion transient factors. So this is after tax. So it’s kind of difficult to see, but nat cat domestic ¥47 billion. This is before tax. Upside has increased from projections. Am I correct? In Taiwan, ¥53.9 billion. And then COVID I guess I assume, but TMNF projections, I always do the adjusted underwriting profit, which is a figure that I can get from the presentation material and excluding nat cat and the provision for underwriting results for the first year and the impact of foreign exchange and so forth. I think you have given us a breakdown of that? So there is a downside of ¥60.9 billion from the ¥235.2 billion minus of ¥147.3 billion. And I want you to give us a breakdown of the ¥60.9 billion things like auto, non-performing well and so forth. So if you could give me a breakdown of the ¥60.9 billion?
Taizou Ishiguro
Thank you for your question. So I want to ask Nagano-san of accounting to take this question.
Tsuyoshi Nagano
I am Nagano, the corporate funding department of TMNF. TMNF against the original guidance, the reason for the downward revision natural catastrophe you got it right, but the COVID claims ¥25 billion, this has pushed down from the original guidance, but then apart from that there has been some large losses incurred. I will explain the remainder. How about unit price increase in auto? To a certain extent that is factored in, but that was not a major factor. In which case this kind of ties back to question of what happens next year, price increase in auto for example, going back to the normalize figures that is taken out, that impact will remain next fiscal year. What is your take on that? Rather than looking at it as a risk factor, I would say that it is uncertainty for next fiscal year. Thank you very much.
Taizou Ishiguro
Next from Daiwa, Mr. Watanabe, please.
Kazuki Watanabe
My name is Watanabe from Daiwa Securities. If you go to Page 18 of the material about the loss ratio of auto insurance excluding not just the basis, is it worsening compared to your expectation? And in that case, you had been reducing the rate for auto, but will there be any chances for you to increase rates for auto, what is your pricing strategy for auto?
Taizou Ishiguro
Thank you for your questions. This is going to be answered by Yahata from the Personal Life Underwriting Department.
Toshihiro Yahata
My name is Yahata from personal life underwriting. In Page 18, we are seeing 62.27%, which is plus 8 points on the loss ratio. And the reaction from COVID last year that is most of the reason but there is some impact with the increase in the repair cost and also increase in frequency as well and this is the forecast. Please go ahead.
Kazuki Watanabe
And so about the auto premium, any chances of increasing your rates?
Toshihiro Yahata
Nothing has been decided so far. However, as a risk factor, there is information that we need to consider. And for those that to be impacted by natural catastrophe, this is the repair costs and within the repair cost, the parts cost could be the target or the normal auto, it’s about ¥500 billion in payments, but then the parts cost is ¥100 billion. And so if the parts cost increases that only impacted by about 0.8 points, so even under the inflationary situation, we might have to review the pricing of the auto in a flexible manner. Thank you.
Taizou Ishiguro
Thank you for that question. Next, Morgan Stanley MUFG Securities, Nagasaka-san.
Mia Nagasaka
My name is Nagasaka. Thank you very much for the presentation. I have a follow-up question to the first question. Looking towards the next fiscal year, downside risk, inflation and recession you pointed out. Inflation, this is overseas international business and the impact of social inflation, you have ample returns set aside for social inflation. So, is it correct to say that we don’t need to be concerned about that. And about recessions, it depends on how it develops, but what are some areas that you are concerned about like decrease in premium income or investment environment? Any views on how you view the spread of the impact of the recession spreading?
Satoru Komiya
Thank you for the question. This is Komiya speaking. Regarding social inflation and you might be familiar with this already, but we have been ahead of the curve in addressing social inflation in fiscal year 2019. We have built a reserve – a big reserve in 2020 fiscal year as well and increased – and apart from that, we have increased rates and also promoted early settlement and so forth. But now, profitability hasn’t moved this full year ‘21/22 we have reversed some of the reserves. But the situation is that – so we have sufficient reserves and we or the group companies are taking appropriate actions, which is the foundation already, but we are focusing on our profit performance. Therefore, we need to be conservative in our reserves policy. But in terms of impact on inflation, may I ask someone from the international business to respond to this part?
Tsuyoshi Nagano
This is Nagano of International Business Development department. So apart from social inflation, economic inflation or recession, I think was also included in your question and it will come to economic inflation, we will be addressing that question in more detail in next week’s IR briefing, but basically our portfolio is not very much impacted by economic inflation. And anything that will be impacted we are making sure that we will raise rates that would mitigate the impact of economic inflation, like deductibles amount to be enhanced in order to mitigate the impact on our business, negative impact on profit from economic inflation is being addressed in such a way and also pricing wise, the hard market is expected to prolong than what we originally expected, but we will be re-pricing, pricing up our products in order to ensure that we can secure profit. So that’s the basic sense. Now, when it comes to impact of recession, which are the areas that will be affected, it is yet to see. But as you mentioned, wages and economic activities could be seen in that way and therefore, impact of the – it could be seen partially in our top line. And when it comes to investment, when there is a recession, there could be bankruptcies increasing that could have an impact on our investment side of the business to a certain extent. But in terms of write-offs – but the depth and length of recession will have an impact on the overall effect on our business. So, we will be monitoring carefully how a recession will develop going forward, that’s all for me.
Mia Nagasaka
Thank you. That was very clear.
Taizou Ishiguro
Thank you very much. Next will be from [indiscernible] of Mizuho.
Unidentified Analyst
Yes. Can hear you?
Satoru Komiya
Yes, we can hear you.
Unidentified Analyst
One question about EM, the impact of EM, how it’s going to impact you? This time the $50 billion is estimated loss in the industry and your impact is only 0.4% as a share of the loss. Looking at either etcetera from the past, I think is the magnitude is smaller to you than the past hurricane. So in North America, what kind of risk control have you done? In other words, what is the – is this a result of your wealth and risk control? And also, Tier 1, I believe it’s that they had a lot of underwriting in Florida. So in the Tier 1 portfolio, what is the cap risk control strategy they have and what have they achieved?
Satoru Komiya
This is Komiya speaking. About the impact of hurricane, 2017, we have HIM in the U.S. market compared to the share of the market. The share of the damage has been diminished, but compared to that I think we were able to do things to reduce the share of the loss. Market share wise for March, it’s about 0.4%. This is not the exact number but this is an estimation basis. Since then, TMK had a lot of streamlining of their portfolio. And I don’t know if you recall this, but the insurance company, TMR in 2018, it was sold. So, nat cat portfolio, we have been scrutinizing it carefully, it maybe too early to summarize what we have done. And so perhaps a comment from the international department will be preferred, that was the comment from Komiya. Anyone from international?
Tsuyoshi Nagano
This is Nagano from IBDD. Just add some comments to what Komiya-san said previously. And so as it was pointed out, natural catastrophe, we have decided to control it appropriately. That has been our policy. And retention strategy and group retention strategy have been established making sure that the natural catastrophe wouldn’t have much impact on the group and through the exposure. For every state, exposure have been controlled as well. So that they are hurricanes, which may go through different routes, we have analyzed all the possible routes and then no good point basis, we have controlled exposure. And I believe there was some fruit that bad as a result of these efforts. As for the ratio of the impact of being smaller compared to the overall profit, we have decided to underwrite lines that are less impacted during natural catastrophes. And so there is better diversification across different lines of business. Of course, this time, the impacts of 0.4% as a share of net incurs losses, but that’s for the route of travel. Of course, they may go through different routes, there could be different simulations to be done. And so it depends on the route of travel for the hurricane, but overall, we have to put some effort in trying to minimize the impact of natural catastrophe on group wide basis.
And the other part of your question about TMK, if I may add some comment to TMK, as Komiya-san mentioned, exposure to natural catastrophe used to be large at TMK. Now, we have put some efforts in reducing to volatility. And in order to improve the margin, we have reduced the lines of business to be underwritten. And there is a portfolio that’s now been constructed that’s less impacted by natural catastrophe. And I believe we have seen a good result of that effort. The reinsurance business – assuming reinsurance which is susceptible to natural catastrophes, we have run off the reinsurance business. Therefore, even more, we are more insulated from the impact of natural catastrophes. That concludes my comment to your question.
Unidentified Analyst
Thank you very much.
Taizou Ishiguro
Next question, Tamaki-san of Nomura Securities.
Tamaki Murooka
This is Tamaki speaking. I have my question for next fiscal year, selling off of business related equities you said that you are going to accelerate that and this is going to be contemplated from me. What are the kinds of discussions that you had internally in the past 6 months and what kind of level of selling of business related equities do you anticipate for next fiscal year?
Kenji Okada
Thank you for the question. This is Okada speaking. In May, I said that corporate governance policy will be adhered to and we will work to reduce our business-related equity acquired in order to pursue with this effort that we need to receive understanding from counterparts committee. We have continued that dialogue in the past month. This dialogue is still ongoing. But we believe that there is even deeper understanding on our approach. At the time of May, I said that by November at the earliest. And by May next year at the latest, I said and this is something I will be reporting next week at the IR meeting for fiscal year ‘23, which is the final year of the current midterm plan. We are already seeing some impact of dialogues with our customers. So one is, instead of ¥100 billion, we are planning to accelerate ¥220 billion, ¥230 billion. And towards the next mid-term plans, ¥300 billion in 3 years could be increased by 50%. And depending on how we progress with our dialogues, and of course, we need to watch carefully with our share prices, but specific numbers should be available in our next mid-term plan.
Tamaki Murooka
Understood. Thank you very much for sharing us the details.
Taizou Ishiguro
Thank you for the question. Next, from Tokai Tokyo Securities, Mr. Majima, please.
Tatsuo Majima
Hello, everyone. Good evening, everyone. I have a question for you. On 12 – the adjusted net income on Page – for second quarter for unchanged it’s negative ¥12.8 billion, but then on 29, if you look at the full year forecast for unchanged, it’s minus ¥15 billion and so that means that in the second half, the negative impact, I believe is going to be ¥2.2 billion, but the unchanged is life insurance. There is a lot of impact from COVID. And there is some impact coming from the financial related products and the earnings not deteriorating so much in the second half is it because the annual profit is still going to be good despite these negative impacts that you would have from COVID and also the financial derivatives impact?
Satoru Komiya
Let me have somebody from your question.
Kichiichiro Yamamoto
My name is Yamamoto from the Corporate Accounting and Financial Balancing. First of all, as for the impacts of COVID at the unchanged in the first half, the IBNR reserve was adequately reserved, and therefore, the impact to the second half is limited. For the existing policies, expansion and also the hedge cost increase is taking place, but as you mentioned, it’s total impacts into the second half we do not expect any major downside in the second half of the year.
Tatsuo Majima
Thank you.
Taizou Ishiguro
Thank you for the question. Next question, Niwa-san from Citigroup Securities.
Koichi Niwa
I hope you can hear me, let me ask my questions. About claims paid for COVID, very broad question, I am sorry, tapping on prices going forward, any areas of improvement going forward and how much time do you think it will take? So my question and the point of my interest could be explained in three areas about life insurance, I believe that this could be quite difficult and domestic non-life, how much time is it going to take? And for Taiwan, what are the contributions? How the Taiwan going to contribute to profit going forward? It is an earnings event, but unlike other lines of business, it might be difficult to recap. So I have a question about reinstituting?
Yoshinori Ishii
So your question actually overlaps the various departments. So, this is Ishii. I would like to first of all start. So, ¥130 billion, this is the impact of COVID of which Taiwan COVID, we have already stopped selling and if we are losses incurred from them cannot be taken back reversed and domestic non-life this COVID ¥2 billion and there is package business insurance that is sold with the domestic market price increase in the future by selling rates in that way, we should be able to balance going forward in other words, we will be able to recover, going forward. And life insurance, lastly, life insurance consist of two parts. One is that insurance premiums that is not paid will be paid back in anything that was pre-COVID insurance – COVID claims will be offset that will be subtracted deducted, but for normal life insurance policies will be paid and therefore we will not be able to take it back or recover. I hope that answers your question.
Koichi Niwa
Well, if I could move on and ask about Taiwan, when you made investment, you said that there is substantial business opportunities but even by paying this much you are not changing your expected returns from the business or do you think you would need to change your view on the Taiwan business?
Satoru Komiya
So, this is Komiya speaking. If I could briefly respond to your question and anything in more detail, I want to ask other members to jump in if necessary. So Taiwan Newa, TMNewa in Taiwan are the three things that I saw my mind, it’s been more than 10 years that we’re doing I was TMNewa, and we’ve been making investments in that business before COVID. Our investment has been recovered, or we had received returns on that investment. And by the way, I mean by that is that the business in Newa was profit generating business, it was a promising business. And we’re making additional capital investments injection into the TMNewa is incurring large losses, and therefore, this capital injection is necessary, in order to compensate for the losses and claims paid. We were minor stake investor in the company in the past, but we had always, as an investor in the company, it was, we felt that it is a responsibility for us to support the company with capital injections, because otherwise, we will be suffering reputational risks. So without paying claims, without paying the loss claims, and returning a back to Taiwan is not how we want to do business, and therefore, making capital injections for the business. We believe that they have a responsibility.
And the next point is beyond that, and thinking about a new Newa and continuing business as renewed TMNewa, the growth opportunity in Taiwan high quality growth opportunities. We want to see that, but that we need to be thinking about the economic rationale of that and think of what we need to do in that market. And as a matter of fact, this is something that would apply to any business. But that is my view on that, though, I think that was a very high-level response to your question. I wonder if the International Business Division wants to supplement it.
Tsuyoshi Nagano
This is Nagano, of IBD. Basically, our approach is what has outlined by Komiya-san. The third point about going forward. Taiwan business is expected to enjoy high growth rate. It did step aside because of COVID, but in other business areas remain quite strong and robust. And going forward, new business channels or sales channels could be explored and developed. And there are a lot of opportunities in the market, and therefore we have high expectations. With – and therefore, we still have the option of maintaining the business in Taiwan.
Koichi Niwa
Thank you very much for responding to my question in detail.
Operator
Next, will be from JPMorgan Mr. Okubo, please.
Unidentified Analyst
My name is [indiscernible] from JPMorgan. I hope you can hear me
Satoru Komiya
Yes, we can hear you.
Unidentified Analyst
Thank you. If you go to Page 29, the impact of effects, I just wanted to clarify your how you view effects. So the orange portion and the red portion, the 41and 46, if you combine the two on holdings basis, that means that there is positive income to the such by ¥5 billion. And if you go to 28, you are showing the effects assumption. So originally you were calculating based on 122, and now it’s 144. So, yen depreciated and therefore, there is a gain by ¥5 billion. So, is this a straightforward way of calculating the impact, correct? Do I have the right view?
Satoru Komiya
Thank you for the question. You have the right understanding. So, for the FX impact, if you go to Page 53 on financial accounting basis and on adjusted net income, we are showing the income for 1-year and then for the international business is the positive impact or for the domestic impact, there is a hedging loss as well as the increase in the reserve and they offset each other from both sides. And to dollar there is an impact by about ¥200 million, which is the difference of after net income compared to the size and this impact for the domestic purpose to one off and so for ‘23, we will get rid of that in ‘23. And so ¥56 billion there is an upside to that process, because of this difference. It is the ¥560 billion. So on consolidated net profit is based on ¥144 billion and then if again can appreciate then in the current portfolio, it’s negative right, 4-year, if yen/again appreciate compared to right now, yes, it would become negative impact. And so as of September end, yen is widely appreciating and so that means, yes, you understand, that means Correct.
Unidentified Analyst
Okay, I got it. Thank you.
Taizou Ishiguro
Next question from UBS Securities, Okada-san, please.
Taiki Okada
This is Okada speaking, allow me to ask my question. Rate up in the United States, HCC and PHLY, as you disclose quarter-on-quarter rate-up is the remaining high level. I don’t think the rate increase has picked out by looking at the current situation, do you think that the peak-out, peak is postponed is pushed out into the future, is there – is any color as to price increase, I would appreciate your point on that. And also, when you think about rate increase and the next fiscal year hardening of the market, because of inflation was mentioned earlier. But yen for example, could also support rate increase, if I could have your views, please?
Tsuyoshi Nagano
This is Nagano from IBD. With regard to the current pricing environment view surveys, there are differences by line of business. But overall, well, peak was hit a couple of years ago, and the extent of rate increase has been suppressed. That has been a trend recently, but inflation has accelerated and there’s an impact of a Hurricane Ian and the capital that comes in from the capital market has tightened, relatively speaking, and the reinsurance market impact among others, and that if we’re going forward, it’s not that we have a pretty good figure in mind. But slowdown in hardening has kind of stopped and therefore, we’re expecting to see a prolonged hardening of the market and certain lines of business. The extent of rate increase could expand. This is how we view the market. In terms of specifics, we need to monitor the trend very carefully but the weighted inflation, hurricane both have impacted and while they are variances across line of business, we expect the hard market to continue. That’s all from me.
Taiki Okada
Thank you.
Taizou Ishiguro
From Bank of America, Sasaki.
Futoshi Sasaki
My name is Sasaki from Bank of America. CSR and current risk appetite, for this time, any new business investment plans or further risk taking plans any major items used? I guess you don’t have those this year. But then you have ample asset down for capital. And so do you have any visibility in the pipeline for those major spendings or because of the effects, timing is not good, so it’s going to be postponed. And maybe you will focus more on shareholder return for your use of capital. So, risk appetite versus business investment opportunity versus shareholder return, can you tell us your current view on the correlations between these three items?
Kenji Okada
This is Okada speaking. Thank you for your question. So regarding the appetite for business investment, as we explained in May, large M&A, we have some issues with valuation and also other challenges. We still amid COVID environmentally will continue to be patient over those opportunities. And for the bolt-on type of acquisitions by the subsidiaries, the strategy stays the same. And so our growth companies continue to look for opportunities to do bolt-on type of acquisitions. And so our appetite remains unchanged for the bolt-ons including those in the pipeline, the ESR of 122%, as of the end of September, this is right in the middle of our target range. And therefore the shareholder return plan and also the capital adjustment basic policy that we have showed at the beginning of the year don’t need to be changed. And therefore the shareholder return has been decided and share repurchase also has been decided for execution. And so risk appetite versus the capital situation and also the basic stance towards the shareholder return, all remain the same.
Futoshi Sasaki
Thank you. Thank you for that.
Taizou Ishiguro
We are nearing the end of our time. So I would like to make the next question. The final question is MUFJ Morgan Stanley Securities, Tsujino-san.
Nastsumu Tsujino
Brief questions, 44% infection in Taiwan, I think this is for industry-wide data for outstanding claims. What is the current situation for your policy for your business? Is that the TMNewa is because that way we can tell how far we are and premium rate in North America for July and September for certain products, we are seeing decrease being our professional line, which raised a lot now is minus 6% or so. So if you could give us an update on that? That’s all for me.
Tsuyoshi Nagano
Thank you. This is Nagano from IBDD. Your question on Taiwan, you are exactly right, we offer on our figures and therefore there is a certain extent of conservatism reflected in our figures and rates in the U.S., as you pointed out and as was mentioned by Nagano-san on was on earlier there are some variances across different lines of business and for D&O and as you correctly pointed out, there is a decreased trend in rates, but there are other lines of business where has bought them out and for Hurricane Ian in property, rate, there is an upward pressure for rates. So that is how we see it. That is all for me.
Nastsumu Tsujino
So in D&O, I believe that the rank is high or market share is high. And so July and September compared to peers, your profit level will not deteriorate vis-à-vis the peers?
Tsuyoshi Nagano
Well, we are strong in D&O, but that’s also still just one of the lines of business but just because of that we are not expecting a strong – a big dip in our profit.
Nastsumu Tsujino
Thank you.
Operator
Thank you. So that concludes the financial announcement meeting for the second quarter of fiscal ‘22 of those Tokio Marine Holdings. This concludes the telephone conference. If you have any further questions, please do not hesitate to contact us later on. Thank you for your participation today. Thank you. And I ask for your continued support. Thank you. This is the end of the meeting.
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