Company Reports

The December-quarter earnings for Japan’s leading insurers Tokio Marine and MS&AD reflect a solid performance in their nonlife profit, and for MS&AD, a surprisingly strong performance at its overseas business Amlin. We think the impact of higher prices is flowing through to their bottom lines, and this is also now being seen at Amlin. We raise our fair value estimate for MS&AD to JPY 5,800 from JPY 5,000 and for Tokio Marine to JPY 3,400 from JPY 3,300. We think the positive trends are reflected in current share prices, especially for Tokio Marine, which continues to trade at 3 times price/book. MS&AD trades on 1 time price/book and the market is pushing its share price higher on the positive earnings surprise. We think both insurers are expensive at current share prices.

We think Japan’s nonlife insurance sector has more appeal as a long-term investment than most other areas of Japanese finance, such as banking, securities, or life insurance, because industrywide return on assets has roughly doubled after the last round of industry consolidation in 2010. Three firms—Tokio Marine, MS&AD, and Sompo—stably control around 88% of market share, and only three others (including AIG, the nonlife unit of an agricultural cooperative insurer, and Sony Assurance) have even 1%.

We've revised Japanese insurers’ fair value estimates as higher interest rates and a weak Japanese yen boost investment returns. Tokio Marine's climbs by 16% to JPY 3,300, MS&AD Insurance’s by 6% to JPY 5,000, Sompo’s by 7% to JPY 6,500, and Dai-Ichi Life’s by 11% to JPY 3,000.

We think Japan’s nonlife insurance sector has more appeal as a long-term investment than most other areas of Japanese finance, such as banking, securities, or life insurance, because industrywide return on assets has roughly doubled after the last round of industry consolidation in 2010. Three firms--Tokio Marine, MS&AD, and Sompo--stably control around 88% of market share, and only three others (including AIG, the nonlife unit of an agricultural cooperative insurer, and Sony Assurance) have even 1%.

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.

We lift our forecasts for Japanese insurance companies. Our fair value estimates rise by 19% for Tokio Marine to JPY 2,850, by 9% for MS&AD Insurance to JPY 4,700, by 9% for Sompo Holdings to JPY 6,100, and by 4% for Dai-Ichi Life to JPY 2,700. The changes mainly reflect increases in our assumptions for investment returns, as higher interest rates, the weaker yen, and favorable Japanese equity markets more than offset increased hedging costs. As a secondary factor, the changes also reflect increases in our assumptions for Tokio Marine’s and Sompo’s overseas underwriting returns. Exposure to U.S. commercial real estate, or CRE, is a concern for both Tokio Marine and Dai-Ichi Life, but our forecasts do not assume CRE-related losses would be large enough to derail the overall earnings growth trajectory.

We think Japan’s nonlife insurance sector has more appeal as a long-term investment than most other areas of Japanese finance, such as banking, securities, or life insurance, because industrywide return on assets has roughly doubled after the last round of industry consolidation in 2010. Three firms--Tokio Marine, MS&AD, and Sompo--stably control around 88% of market share, and only three others (including AIG, the nonlife unit of an agricultural cooperative insurer, and Sony Assurance) have even 1%.

We retain our fair value estimates of JPY 2,400 for Tokio Marine Holdings, JPY 4,300 for MS&AD Insurance, JPY 5,600 for Sompo Holdings, and raise our fair value estimate for Dai-Ichi Life Holdings to JPY 2,600 from JPY 2,500. Our estimates represent 0.96 times book value for Tokio Marine 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; 0.50 times book value for MS&AD with the same adjustments; 0.68 times book value for Sompo with the same adjustments; and 0.37 times embedded value for Dai-Ichi Life, reflecting the divergent midcycle returns on economic book value.

We think Japan’s nonlife insurance sector has more appeal as a long-term investment than most other areas of Japanese finance, such as banking, securities, or life insurance, because industrywide return on assets has roughly doubled after the last round of industry consolidation in 2010. Three firms--Tokio Marine, MS&AD, and Sompo--stably control around 88% of market share, and only three others (including AIG, the nonlife unit of an agricultural cooperative insurer, and Sony Assurance) have even 1%.

We maintain our fair value estimates of JPY 4,300 for MS&AD Insurance, JPY 5,600 for Sompo Holdings, and JPY 2,500 for Dai-Ichi Life Insurance, and round up our fair value estimate for Tokio Marine to JPY 2,400 from JPY 2,333 post-split (JPY 7,000 before its three-for-one stock split). These are equivalent to 0.97 times book value per share 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 for Tokio Marine, 0.50 times book value per share adjusted on the same basis for MS&AD, 0.65 times the same for Sompo, and 0.36 times embedded value for Dai-Ichi Life. There is 13% downside from the current price to our fair value for Tokio Marine, 9% upside for MS&AD, and 6% upside for Dai-Ichi Life, while Sompo shares are trading very near our fair value.

We think Japan’s nonlife insurance sector has more appeal as a long-term investment than most other areas of Japanese finance, such as banking, securities, or life insurance, because industrywide return on assets has roughly doubled after the last round of industry consolidation in 2010. Three firms--Tokio Marine, MS&AD, and Sompo--stably control around 88% of market share, and only three others (including AIG, the nonlife unit of an agricultural cooperative insurer, and Sony Assurance) have even 1%.

We maintain our fair value estimates of JPY 7,000 for Tokio Marine, JPY 4,300 for MS&AD Insurance, and JPY 4,300 for Sompo Holdings after the three Japanese insurers’ results for April-June, the first quarter of their fiscal years ending March 2023. Shares of Tokio Marine fell 4.9% Monday, MS&AD shares dropped 6.4%, and Sompo shares were off 1.9%. Tokio Marine’s premium to our fair value estimate has thus narrowed to 5% and MS&AD now trades at a discount of 7% to our fair value. Sompo shares are 1% above our fair value.

We raise our fair value estimates for Japan’s three property and casualty insurers by 7.5%-7.7% and our fair value estimate for Dai-Ichi Life by 4.2% as we roll our forecast models forward a year and incorporate recently reported results. Our new fair value estimates are JPY 7,000 per share for Tokio Marine, equivalent to 0.89 times 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; JPY 4,300 for MS&AD Insurance, 0.47 times book value with the same adjustments; JPY 5,600 for Sompo, 0.60 times adjusted book value; and JPY 2,500 for Dai-Ichi Life, 0.36 times embedded value.

We think Japan’s nonlife insurance sector has more appeal as a long-term investment than most other areas of Japanese finance, such as banking, securities, or life insurance, because industrywide return on assets has roughly doubled after the last round of industry consolidation in 2010. Three firms--Tokio Marine, MS&AD, and Sompo--stably control around 88% of market share, and only three others (including AIG, the nonlife unit of an agricultural cooperative insurer, and Sony Assurance) have even 1%.

We think Japan’s nonlife insurance sector has more appeal as a long-term investment than most other areas of Japanese finance, such as banking, securities, or life insurance, because industrywide return on assets has roughly doubled after the last round of industry consolidation in 2010. Three firms--Tokio Marine, MS&AD, and Sompo--stably control around 88% of market share, and only three others (including AIG, the nonlife unit of an agricultural cooperative insurer, and Sony Assurance) have even 1%.

Japanese insurance results for October-December last week were mostly in line with expectations, except for Tokio Marine, which surprised to the upside again with its second large upward revision to profit guidance in two quarters.

Following Japanese insurers’ interim results for the year ending March 2022, we raise our fair value estimate for Tokio Marine by 7% to JPY 6,000; raise Sompo's and Dai-Ichi Life's by 4% each to JPY 5,200 and JPY 2,400 respectively; and retain MS&AD's at JPY 4,000. Our new fair value estimates value Tokio Marine at 0.79 times, Sompo at 0.56 times and MS&AD at 0.44 times their book values 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; and Dai-Ichi Life at 0.34 times embedded value. Relative to Bloomberg consensus earnings, our fair value estimates value Tokio Marine at 12.4 times, Sompo at 12.6 times, MS&AD at 9.3 times and Dai-Ichi at 8.4 times. Tokio Marine and Dai-Ichi Life are near our fair value estimates, while MS&AD and Sompo have modest upside.

We think Japan’s nonlife insurance sector has more appeal as a long-term investment than most other areas of Japanese finance, such as banking, securities, or life insurance, because industrywide return on assets has roughly doubled after the last round of industry consolidation in 2010. Three firms--Tokio Marine, MS&AD, and Sompo--stably control around 88% of market share, and only three others (including AIG, the nonlife unit of an agricultural cooperative insurer, and Sony Assurance) have even 1%.

We maintain our fair value estimates of JPY 5,600 for Tokio Marine (5% above the current share price), JPY 4,000 for MS&AD Insurance (16% upside), and JPY 5,000 for Sompo Holdings (7% upside) after the three Japanese general insurers reported strong results for April-June, the first quarter in the fiscal year ending March 2022. The shares have risen 4%, 7%, and 13%, respectively, since we published a 51-page report “Pandemic Impact on Japanese Insurers Has Passed” on June 30. In it, we had identified Sompo as our top pick, but there is now more upside to our fair value estimate for MS&AD.

The General Insurance Rating Organization of Japan, or GIROJ, a nonprofit corporation independent from the government but regulated by the Financial Services Agency, cut its reference rates for auto insurance by an average of 3.8% as of June 30 and increased those for fire insurance by an average of 10.9%. We expect that the changes will result in auto insurance premiums falling, but by less than 3.8% as insurers tweak their products such as by adding new riders. For fire insurance, we expect premiums to rise by the full amount of the reference-rate change.