Japan Insurance: Earnings Strong as Expected, but Dual Scandals Pose Risks

We maintain our fair value estimates for Tokio Marine, MS&AD Insurance, and Sompo Holdings of JPY 2,850, JPY 4,700, and JPY 6,100, respectively, 9% below the current share prices of Tokio Marine and MS&AD and 1% below Sompo’s current share price. Our fair value for Tokio Marine puts it at a multiple of 1.04 times tangible book value adjusted for catastrophe, contingency, and price fluctuation reserves, unrealized gains on bonds not marked to market, and the value of in-force life insurance business, compared with its five-year average multiple of 0.89 times. Our fair value for MS&AD is 0.47 times its book value with the same adjustments, compared with MS&AD’s five-year average of 0.45 times, and our fair value for Sompo is 0.63 times its adjusted book value, compared with a five-year average of 0.58 times.