Japan Financial Sector: BofA financials weekly

Research evidence excerpt

Japan Financial Sector: BofA financials weekly

lative to TOPIX continuing for ALM: Asset and liability management

the time being. AOCI: Accumulated other comprehensive income

Insurance, and other nonbanks (Natsumu Tsujino) BoJ: Bank of Japan

BRK: Berkshire Hathaway

From FY3/27, Tokio Marine HD and MS&AD will adopt IFRS. We understand that the

CET1: Common equity tier 1

quarterly recognition method for earned premiums in domestic fire insurance under IFRS

CMBS: Commercial mortgage backed securities

17 differs between Sompo HD, which adopted IFRS last year, and the other 2 companies.

C&I: commercial and industrial

Sompo HD does not recognize earned premiums on a pro-rata daily basis; instead, it

DI: Diffusion index

uses a method that reflects the probability of natural catastrophe occurrence in each

ESR: Economic solvency ratio

quarter. As a result, 1Q earned premiums are relatively low at around 17-18% of the full-

EV: Embedded value

year total given the low probability of natural disasters, and the cumulative amount for

FICC: Fixed income currencies and commodities

the first half slightly exceeds 50%. In contrast, Tokio Marine HD and MS&AD do not

FSA: Financial Services Agency

adopt this method bit a conventional pro-rata approach similar to JGAAP and IFRS 4.

FVTPL: Fair value through profit of loss

Consequently, in 1Q results, Sompo HD’s progress ratio will be lower than that of the

other 2 companies. This is a technical difference and should not drive share prices, but it MOCE: Margin over current estimate

warrants attention. MPM: Monetary Policy Meeting

MTP: Medium-term plan

The order of attractiveness among life insurers is Dai-ichi Life and T&D at the top, and MVA: Market value adjustment

Japan Post Insurance and SFG at the bottom. See Exhibit 3 for details.