MS&AD Insurance Group Holdings,Inc. Q3 FY2026 earnings call

Core Financial Performance Progress

• Consolidated net income for the third quarter already exceeded the full-year forecast set in November, with group adjusted profit also progressing on track
• Fewer natural disasters than expected across both domestic and overseas segments drove strong year-to-date performance

Capital and ESG Related Progress

• Policy share reduction for the two major domestic non-life subsidiaries has proceeded on track, reaching a cumulative reduction of 467.6 billion yen as of the third quarter
• The Economic Solvency Ratio (ESR) increased 12 percentage points from the end of March to 238%. While total integrated risk (the denominator) increased from expanded overseas business investment, fair value net assets (the numerator) increased more from higher domestic and overseas stock prices and accumulated retained earnings

Overseas Investment Updates

• Equity acquisition in W.R. Berkley is progressing on track: as of early February, the stake has reached just over 14%, and the company remains on target to reach 15% by the end of the current fiscal year
• Collaboration discussions with W.R. Berkley are advancing as planned, with further details expected to be shared in May

Top-line overall: Net earned insurance premium for all non-life insurance subsidiaries reached 3.8404 trillion yen, an increase of 269.2 billion yen year-over-year, driven by large revenue growth at overseas subsidiaries. Domestic non-life insurance: Net earned insurance premium reached 2.4341 trillion yen, an increase of 83 billion yen year-over-year, driven by rate revisions for auto and fire insurance. Group adjusted profit by business segment: 1. Domestic Non-Life Insurance: 457.6 billion yen, an increase of 24.7 billion yen year-over-year, contributing 60.55% of total group adjusted profit. Growth was driven by higher earned premium and lower-than-average natural disaster losses. 2. Domestic Life Insurance: 27 billion yen, a decrease of 17.2 billion yen year-over-year, contributing 3.57% of total group adjusted profit. The decrease was driven by higher hedging costs at Mitsui Sumitomo Aioi Life Insurance and a negative reversal from large surrender gains in the prior year from target-hit contracts at Mitsui Sumitomo Primary Life Insurance. 3. Overseas Business: 271.1 billion yen, an increase of 114.8 billion yen year-over-year, contributing 35.88% of total group adjusted profit. All regions achieved profit growth led by Lloyd's/reinsurance and the Americas, driven by higher premium revenue, improved general loss performance, and a gain on the sale of Challenger stock. For overseas insurance subsidiaries specifically, profit increased 60.6 billion yen year-over-year, with regional breakdown: Lloyd's/reinsurance +32.7 billion yen, Asia +3.6 billion yen, Europe +6 billion yen, Americas driven by new non-Japanese client growth, and overseas life insurance +6.6 billion yen from share price gains at Bank of Communications Life Insurance. Bottom-line consolidated net income: 657.1 billion yen, an increase of 31 billion yen year-over-year. It reached 111.4% of the full-year forecast released in November. Group adjusted profit reached 755.7 billion yen, an increase of 121.8 billion yen year-over-year, hitting 99.4% of the November full-year forecast.

• Full-year 2025 group adjusted profit guidance was maintained at 760 billion yen, following an upward revision of 89 billion yen from the initial forecast in November 2025. Management did not revise the guidance this quarter due to remaining uncertainty from recent heavy snow claim payments and financial market volatility, but noted that current performance is well ahead of plan and the full-year result is on track to meaningfully exceed the maintained forecast
• As of the third quarter, the full-year natural disaster budget for Lloyd's/reinsurance stood at 47.1 billion yen, with only 25.3 billion yen incurred to date, leaving 21.8 billion yen in remaining budget. Management noted that even after accounting for recent fourth quarter natural disasters such as Hurricane Melissa, the remaining budget is sufficient, and Lloyd's is on track to deliver a full-year result meaningfully above plan
• For fiscal 2026 guidance, management is currently refining plans, and will incorporate a historically normal level of natural disaster losses into the forecast, rather than carrying forward the unusually low level of losses seen in 2025. The company is still evaluating whether the strong 2025 underlying performance (beyond just lower natural disasters) can be sustained into 2026, particularly given ongoing soft market conditions in reinsurance, and will finalize guidance after this evaluation
• The company maintains a base capital return policy of distributing 50% of group adjusted profit, with the portion not paid as dividends allocated to share buybacks. The company will evaluate the need for additional returns based on how overseas investment progresses and the resulting impact on ESR

• Uncertainty remains around the final loss amount from recent heavy snowfall across Japan, as claims reporting is still ongoing and final figures have not yet been compiled
• Soft market conditions in global reinsurance are ongoing, with January 1 renewal rates for natural disaster risk down 10% to 20% from prior periods. While the company has only seen flat to modest decreases in rates for some lines of business, soft market conditions create pressure on future premium growth and underwriting profitability
• Ongoing overseas business expansion will increase the company's integrated risk amount, which will put downward pressure on ESR after the current investment phase is completed, offsetting recent ESR gains from rising stock prices and accumulated retained earnings
• There is no guarantee that the favorable underlying loss performance and low natural disaster losses seen in the 2025 third quarter will continue into future periods, creating uncertainty for 2026 performance projections

Q: Can you share what the expected loss from the recent early February snowfall is?

A: The event is very recent, so we have not finished compiling specific loss figures yet. Snowfall was widespread beyond just Tokyo, so we will conduct a thorough review once we can see the full scope of claims.

Q: What is the current status of domestic auto insurance, specifically claim costs, average premium per policy, and claim frequency compared to plan, excluding natural disaster impacts?

A: Across our two major domestic subsidiaries, claim frequency has decreased slightly by 0.4% year-over-year, while average premium per policy has increased 6.6% year-over-year. Compared to our original plan, average premium came in slightly lower than expected, while frequency was slightly higher than expected. These two deviations offset each other almost entirely. The EI loss ratio (excluding natural disasters) is 67.1%, up just 0.1 percentage point year-over-year, which is broadly in line with our original plan.

Q: How has the softening of the overseas insurance market impacted results so far, and how did the January 1 reinsurance renewals compare to expectations?

A: There have been no material deviations from our original expectations for the impact of market softening on the bottom line. For the January 1 renewals, natural disaster risk rates decreased 10% to 20% overall in line with broader market softening, though some lines such as casualty saw flat or only modestly lower rates. Both MS Reinsurance and MS Amlin have continued to only write contracts that meet our expected return targets, so performance remains in line with plan.

Q: What is the current status of W.R. Berkley share acquisition and collaboration planning?

A: As of early February, we have built a stake of just over 14%, and we remain on track to reach our 15% target by the end of the current fiscal year. Collaboration discussions are progressing concretely and on schedule, and we expect to share more detailed updates on this work in May.

Q: What is driving the exceptionally strong performance of the overseas segment, particularly the high year-to-date progress ratios for Lloyd's/reinsurance (92%), Europe (98%), and overseas life insurance (140%)?

A: Overseas life insurance is outperforming due to large share price gains at our holding in Bank of Communications Life Insurance in China, which flows through to our P&L and has beaten plan by a wide margin. In Asia, Taiwan's Ming Tai has also benefited from strong share price performance that has driven results above plan. For Lloyd's/reinsurance, while we faced initial losses from California wildfires and the conflict in Ukraine, premium growth has been strong, earned premium has been growing as expected, and general loss performance has been exceptionally good, leading to strong underwriting profit. Both MS Amlin and MS Re have had very stable loss performance and are significantly outperforming plan, even after prior large loss events. The January 1 rate changes were broadly in line with expectations and do not represent a material change to the 2026 outlook.

Q: What is the current ESR after accounting for ongoing overseas investments in W.R. Berkley and Barings, compared to the prior 210%-220% projected range?

A: As of the end of December, ESR stands at 238%. The ongoing gradual acquisition of W.R. Berkley shares has increased our risk amount, but we have not yet completed our planned dividend and share buyback distributions for the period, so retained earnings have grown. Additionally, higher domestic stock prices have lifted fair value net assets, which is why ESR has increased from the prior projection. We expect ESR will decline from the current December level after the overseas investments are completed (due to goodwill accounting impacts) and after year-end distributions (which reduce fair value net assets), in line with our prior expectations.

Q: Can you break down the 114.8 billion yen year-over-year increase in overseas segment adjusted profit into its components?

A: The total 114.8 billion yen increase is structured as follows: 60.6 billion yen comes from higher profit at overseas insurance subsidiaries, 18 billion yen comes from the gain on sale of Challenger in August, 17 billion yen comes from a consolidation adjustment related to the reversal of 2024 California wildfire losses, and 15 billion yen comes from overseas business conducted directly by the domestic parent entities of Mitsui Sumitomo (MS) and Aioi Nissay Dowa (AD). Breaking down the 60.6 billion yen increase at overseas subsidiaries by region: 32.7 billion yen from Lloyd's/reinsurance (driven by higher premium and better general loss performance), 3.6 billion yen from Asia (driven by the lap of prior year large losses at Ming Tai and lower losses at MS First Capital Insurance), 6 billion yen from Europe (4.4 billion from Aioi Nissay Dowa Europe driven by auto premium growth and lower losses, with additional gains from MSIG Europe SE's P&C business), gains in the Americas from new non-Japanese client growth at Mitsui Sumitomo Marine Management (U.S.A.) and MS Transverse Insurance, and 6.6 billion yen from overseas life insurance driven by share price gains at Bank of Communications Life Insurance.

Q: The annual policy share reduction plan is 600 billion yen; sales are proceeding faster than planned with strong stock prices, is there potential to exceed this target this year?

A: Through the third quarter, sales are progressing slightly ahead of the original plan. We have already recognized approximately 40 billion yen of gain on sales that was originally planned for the fourth quarter, so we will make minor adjustments to stay on track for the full year, but the strong stock market does create potential for the total reduction amount to modestly beat the 600 billion yen target. There is also potential for additional gains from individual share sales driven by specific corporate actions, so exceeding the full-year plan is entirely possible at this point.

Q: There is approximately 21.8 billion yen remaining in the full-year overseas natural disaster budget, with few large disasters to date, so the budget will likely come in under spend, which will drive a full-year upside. How should we think about the sustainability of this strong performance for next year, particularly for the strong results at Lloyd's/reinsurance and Asia?

A: You are correct that 21.8 billion yen of the original Lloyd's/reinsurance natural disaster budget remains unspent through the third quarter. Even with the recent fourth quarter events like Hurricane Melissa, this remaining budget is more than sufficient to cover all expected claims, so Lloyd's will indeed deliver a strong upside to the full-year plan this year. For 2026, we are still refining our plans, so we cannot give a definite projection at this stage. We will build our 2026 plan around a normal expected level of natural disaster losses, rather than carrying forward the unusually low loss count we saw this year. You are also correct that performance outside of natural disasters was also strong this year. We are still in the process of evaluating how much of this strong underlying performance is sustainable, particularly given ongoing soft market conditions that mean we cannot assume all current favorable trends will continue. We will incorporate this evaluation into our final 2026 guidance.

Q: ESR has risen to 238%, can you confirm if we can expect share buybacks aligned with this excess capital, building on the prior plan for buybacks equal to 3% of market capitalization to support EPS growth?

A: Our base return policy has not changed: we distribute 50% of group adjusted profit, with the portion not paid as dividends allocated to share buybacks. We will evaluate the need for additional returns based on the progress of our ongoing overseas investments, which will impact ESR, and adjust our plans accordingly.