Tokio Marine mulls auto rate increases to stabilise domestic P&C profit

By Rebecca Delaney

May 21 - (The Insurer) - Tokio Marine has said it is considering lifting rates in its domestic auto lines in a bid to offset rising vehicle repair costs and achieve its combined ratio target of 95% or below for the class.

Speaking on a media call on Tuesday after the carrier published its results for the 2024 fiscal year, Simon Spitalny, value enhancement strategist at Tokio Marine, confirmed that the company is contemplating a rate increase to alleviate profit pressures in its Japanese P&C business.

In the Japan P&C unit, profit on a normalised basis totalled 137.9 billion yen ($952.98 million), driven by positive foreign exchange effects and a decrease in large losses. However, this was offset by auto pressures and some prior year loss reserve development for liability insurance in North America.

"In terms of the profit for Japan, the profit saw growth, but there was pressure from the auto line of business. Essentially what happened in auto is that we saw an increase in frequency in unit pricing, which was above our expectations. Unit price, for example, increased 7% in fiscal year 2024, which we expect to moderate in fiscal year 2025 to 6%," said Spitalny.

"What we can say is that we are considering a rate increase to offset increasing unit price in order to hit our combined ratio for auto of 95% or below. Our guidance incorporates 8 billion yen to incorporate a rate increase, which we'll disclose possibly at a further time once decisions are made."

In the international business unit, the combined ratio stood at 91.8% for fiscal 2024, in line with Tokio Marine's low-90s guidance, while normalised profit of 478.2 billion yen was up 6.6% year on year.

"In particular, one of our major U.S. subsidiaries, Philadelphia Insurance Companies (PHLY), saw 11% rate increase in fiscal year 2024, which was significantly above peers. Tokio Marine HCC and other major U.S. subsidiaries hit record profit due to positive rate environment and expanded underwriting."

Brad Irick, co-head of international at Tokio Marine, said that while rate increases are not expected to continue at the same level in 2025, the group's international operations will continue to see mid- to high-single-digit growth, particularly across liability and property package products at PHLY. Property, energy and marine lines across the international business are also expected to grow at a similar rate.

Irick confirmed the carrier's projections for 2025 in the international segment, including 6% net premium growth and 5% profit growth (excluding FX).

"While we're cautious in the face of geopolitical and economic uncertainties, our diverse specialty portfolio and underwriting discipline provide us with confidence in the execution of our business plans," said Irick.

"Our projections for 2025 do not include any assumptions with regard to possible acquisitions. We remain patient and disciplined in our approach to acquisitions with a near-term focus on bolt-on opportunities. We see the environment for larger-scale M&A likely improving in the next 12 to 18 months, and are open to those opportunities that meet our criteria."

Spitalny concluded that with the group's economic solvency ratio currently standing at 149%, share buybacks were authorised by the board on Tuesday.

"Excess capital will be first used for M&A and increased risk-taking that contributes to improving our ROE. If such opportunities do not arise, we'll carry out share buybacks, as we have no intention of accumulating capital unnecessarily," he said.

"In this context, we've decided to set the share buybacks for FY2025 at 220 billion yen. Today the board of directors has authorised buybacks in the amount of 110 billion yen as the first step."