MSADY

Financial Overview

• The company delivered solid first-quarter results, with adjusted profit hitting almost half of the full-year forecast, driven by broad improvement across all business segments.
• Economic Solvency Ratio (ESR) rose 1 percentage point to 215% from the end of March, maintained at a sound level, supported by accumulated retained earnings offsetting increases in integrated risk volume from the Barings business investment and rising domestic stock prices.

Operational Updates

• Gains on sales of strategic equity holdings reached 59.6 billion yen in the quarter, up 6.4 billion yen year-on-year, putting the company on steady track toward the full-year gain target of 268 billion yen. As of Q1, 21% of the full-year 476.3 billion yen mark-to-market reduction target has been completed, and the overhang from large cross-shareholding positions has been largely resolved.
• Domestic natural catastrophe losses increased 5.8 billion yen year-on-year (following no major events in the prior-year period), while overseas natural catastrophe losses decreased 1.3 billion yen year-on-year with no large events in the quarter. Both results remain within full-year forecast ranges.
• The post-July Kumamoto earthquake loss details are not yet finalized, but management expects total losses to stay within the full-year forecast, supported by existing reinsurance arrangements and a 150 billion yen natural catastrophe reserve.
• Domestic non-life insurance expense ratio improved 0.3 percentage points year-on-year, driven by growing top-line revenue offsetting inflationary increases in personnel and other operating costs, alongside improved commission structures after rate revisions.

• Management maintains the original full-year 2026 profit, natural catastrophe loss, and strategic equity holding sales guidance, with no planned revisions as of the end of Q1. While Q1 results outperformed internal forecasts, particularly in the international segment, management will continue monitoring market and loss trends and will revisit guidance only if needed.
• The 150 billion yen cumulative cost reduction target from domestic subsidiary consolidation streamlining is on track for completion by 2030. Positive cost and expense impacts will emerge gradually over the rest of the period, rather than appearing immediately after consolidation.
• Positive impacts from the reversal of onerous contract loss reserves for fire insurance will continue gradually through 2030, though the size of the annual positive impact will decrease each year as remaining reserves are drawn down.

Total group adjusted profit (the basis for shareholder returns) reached 310.6 billion yen, up 71.1 billion yen year-on-year, representing 38.8% of the full-year forecast. Adjusted profit excluding gains from sales of strategic equity holdings hit 251 billion yen, up 64.7 billion yen year-on-year, representing 47.2% of the full-year forecast. Total insurance revenue for the quarter was 1.6158 trillion yen, an increase of 208.8 billion yen year-on-year.

• Domestic Non-Life Insurance: Adjusted profit was 124 billion yen, up 4.2 billion yen year-on-year, contributing 49.2% of group adjusted profit. Insurance revenue was 819.3 billion yen, up 31.4 billion yen year-on-year, contributing 50.7% of total insurance revenue. Improvement was driven by better loss ratios in automobile insurance from rate revisions.
• International Business: Adjusted profit was 108.8 billion yen, up 52.9 billion yen year-on-year, contributing 35.0% of group adjusted profit. Insurance revenue was 707.7 billion yen, up 169.7 billion yen year-on-year, contributing 43.8% of total insurance revenue. Growth came from low loss levels, broad regional revenue growth (led by Europe), and new equity earnings from W.R. Berkley Corporation starting this quarter.
• Domestic Life Insurance: Insurance service profit was 16.5 billion yen, up 4.4 billion yen year-on-year, contributing 5.3% of group adjusted profit. Improvement came from reduced losses on onerous contracts after a review of mortality and other key assumptions.

• Actual full-year results may differ materially from forward-looking projections due to uncertainties including large natural catastrophe events, fluctuations in global equity markets, and changing interest rate and foreign exchange conditions.
• The European reinsurance and insurance market is experiencing softening, particularly for property and energy lines of business, which has led to lower-than-expected revenue at Amlin, though the impact has not exceeded planned levels to date.
• The U.S. commercial insurance market is also softening, though MS&AD's U.S. operations remain largely unaffected due to their focus on specialty lines and fronting business models.
• While the Kumamoto earthquake impact is expected to be manageable, final loss amounts are still uncertain, and insufficient data is available to compare its impact to the 2014 Kumamoto earthquake due to differing epicenter locations and changed regional economic exposure.
• Inflation continues to put upward pressure on domestic personnel costs, operating expenses, and average auto insurance repair and payout costs, which has put marginal upward pressure on underlying auto loss ratios when excluding one-time onerous contract impacts.

Q: The analyst asked to confirm their understanding that international business profit growth is driven by W.R. Berkley, lower European loss ratios, and valuation gains in Asia. / A: Management confirmed the analyst's general breakdown: the Americas saw 20.7 billion yen in growth, with roughly half coming from W.R. Berkley and half from organic U.S. business growth. Europe grew 18.6 billion yen, led by MS Re (9 billion yen), Amlin (5 billion yen), and GU (5 billion yen), with growth from both good underwriting and strong investment performance. Asia grew 14.9 billion yen, with ~10 billion yen from valuation gains at Taiwanese subsidiary MSIG Mingtai following local share price increases, and 2 billion yen from FX gains at First Capital. This matches the analyst's original breakdown.

Q: The analyst asked what drove the year-on-year improvement in domestic non-life auto insurance loss ratios, how much of the improvement came from onerous contract reserve reversals, and what the underlying improvement would be excluding this impact. They also asked about large loss trends in fire insurance. / A: Management confirmed that the reported 1.5 percentage point improvement in voluntary auto loss ratio (excluding natural catastrophe) includes a positive impact from onerous contract reversals. Excluding this impact, the underlying loss ratio actually increased slightly, driven by rising average repair costs. For fire insurance, the reported 2.7 percentage point year-on-year improvement in loss ratio reflects a smaller positive impact from onerous contract reversals than last year; the underlying improvement excluding this impact is 4%, driven by successful fire insurance rate revisions. Onerous contract reversal impacts will continue declining gradually through 2030.

Q: The analyst asked if Q1's strong outperformance, particularly in international business, means full-year guidance will be raised, and if strategic equity sales will be accelerated beyond the original full-year target. / A: Management noted that Q1 results did outperform internal forecasts, with international business seeing stronger progress than planned, largely due to better-than-expected share price trends. However, management stated there is no current plan to revise the full-year guidance for profit or strategic equity sales. The company will continue monitoring market and underwriting trends through the remainder of the year, and will consider accelerating share sales if conditions allow, but no changes are being made to the target at this time.

Q: The analyst asked about MS&AD's exposure to the Kumamoto earthquake, how its current risk preparedness compares to past earthquakes in the region, and whether losses will exceed the company's risk buffer. / A: Management confirmed that full loss data is not yet available, and that some losses are expected from the earthquake impact on automotive OEMs, semiconductor firms, and retail facilities in the region. However, the company holds a 150 billion yen natural catastrophe reserve and has adequate reinsurance coverage, so total losses are expected to remain fully controllable and within existing forecasts. Management added that there is not enough data to compare the current impact to the 2014 Kumamoto earthquake, due to the different epicenter location and changed regional exposure profile over the past decade.