Why do foreign investors buy Japanese insurance stocks? 2027 financial market reading from Tokio Marine settlements

[Summary]

Tokio Marine Holdings (8766) announced its financial results for the fiscal year ending March 2026 on May 20, 2026.

On the surface, both ordinary income and net income are down compared to the previous fiscal year.

However, when looking at insurance stocks, it is not just the profit for a single year that is important.

What the current market is focusing on is

• Sale of cross-shareholdings
• Shareholder returns including dividends and share buybacks *Changes in the investment environment due to interest rate normalization *Growth of overseas insurance business
• Visualization of capital efficiency through IFRS transition

It is.

In this article, we will use Tokio Marine's financial results as a starting point to explain why overseas investors are reevaluating Japanese insurance stocks and to summarize the essence of the financial market heading into 2027.

Tokio Marine HD’s financial results for the fiscal year ending March 2026

First, let's check the key numbers based on company disclosure.

At first glance, profits appear to be declining.

In the domestic non-life insurance business, ordinary income decreased compared to the previous fiscal year. On the other hand, the overseas insurance business has increased sales and profits, supporting the entire group.

In other words, this financial statement is

Financial results show both the temporary heaviness of domestic non-life insurance and the structural strength of overseas insurance

It is natural to read it as

Why it attracts attention even with a decline in profits

Normally, a decline in profits that is lower than market expectations would weigh on the stock price.

However, major non-life insurance stocks, including Tokio Marine, are not evaluated solely on the basis of single-year profits.

What the market sees is

Are capital efficiency reforms really more advanced than profit growth?

It is.

In the Japanese stock market, investors' evaluation criteria has changed significantly since the TSE's PBR improvement request.

Especially in financial stocks, how to use capital that has been dormant for many years has become important.

In the case of insurance companies, cross-shareholdings are at the heart of this.

Meaning of selling cross-shareholdings

Major non-life insurance companies, including Tokio Marine, have held large amounts of stock in the companies they do business with for many years.

This was part of a Japanese-style cross-holding structure.

However, in recent years,

• Governance reform
• Improve capital efficiency
• Pressure from the Financial Services Agency and the market *Requirements of foreign investors

As a result, cross-shareholdings are being rapidly reduced.

What is important here is that the sale of cross-shareholdings is not simply a "resolution of cross-shareholdings."

The funds obtained from the sale are

• Dividend increase
• Own stock buyback
• Overseas M&A
• Growth investment
• Improve capital efficiency

can be directed to.

In other words, an insurance company is a company that collects and pays insurance premiums.

Financial company that optimally allocates huge amounts of capital

is starting to change.

Japanese version of Buffettization

One reason behind the revaluation of insurance stocks in the market is that there is a view that this is a ``Japanese version of Buffett.''

This means that insurance companies are beginning to be seen as entities that use underwriting funds and assets under management to increase capital over the long term.

Of course, this is not a simple story in which Tokio Marine becomes the same as Berkshire Hathaway.

However, the structure is

• Earn stable cash through insurance underwriting
• Manage huge assets
• Reduce unnecessary cross-shareholdings
• Allocate surplus capital to shareholder returns and growth investments

This trend is growing stronger.

What foreign investors pay attention to is this ability to allocate capital.

Benefits of interest rate normalization

Another important thing for Japanese insurance companies is interest rates.

In the long-standing ultra-low interest rate environment, insurance companies continued to have difficulty securing investment yields.

However, Japan is also moving towards a world with interest rates.

Rising interest rates have different effects in the short and long term.

Short-term headwinds

• Valuation loss on bonds held *Temporary accounting impact due to rise in market interest rates
• Financial market fluctuations

Long-term tailwind

• Improved investment yield of new bonds *Improve reinvestment income from insurance premium income
• Decrease in assumed interest rate risk
• Long-term margin improvement

In other words, a rise in interest rates will create noise in the short term, but in the medium to long term it may increase the profitability of insurance companies.

This is why not only bank stocks but also insurance stocks tend to be at the center of financial markets.

Tokio Marine is not a domestic demand stock

There are some points that individual investors tend to misunderstand.

Tokio Marine is not just a domestic non-life insurance company.

Our profit structure is already globalized.

According to company data, the overseas insurance business had ordinary revenue of 4,599.8 billion yen and ordinary profit of 559 billion yen in the fiscal year ending March 2026, which was an increase in both sales and profits compared to the previous fiscal year.

Of particular note are the

• North American Specialty Insurance
• Commercial insurance
• Reinsurance
• Business base acquired through overseas M&A

It is.

If you evaluate only domestic car insurance and fire insurance, you will misunderstand Tokio Marine's actual situation.

Tokio Marine is

A financial company that underwrites global risks even though it is a Japanese insurance company

should be viewed as.

Insurance companies in the AI era

The insurance industry is likely to become even more important in the AI era.

The reason is that what insurance companies handle is "risk data."

In the future, insurance companies will no longer just be there to pay insurance claims after an accident;

• Pricing cyber risk
• Analyze autonomous driving risks
• Predicting disaster risks due to climate change
• Optimize insurance premiums using health data
• Quantify enterprise risk

could move in the direction.

In other words, an insurance company is a financial company, and at the same time,

A company that converts risks into data and prices them

It will change to.

This is a theme that is also connected to the expansion of AI, data centers, and cybersecurity.

Points to watch for 2027

Looking ahead to 2027, there are clear points that Tokio Marine and the insurance sector should focus on.

What is particularly important is whether profits from the sale of cross-shareholdings can be used to improve ROE sustainably, rather than ending up as a one-off profit.

The company has been presenting IFRS-based earnings forecasts since the fiscal year ending March 2027, and investors will need to look at IFRS-based adjusted profit and adjusted ROE in addition to conventional Japanese GAAP.

There are risks too.

Insurance stocks are an attractive topic, but they also come with risks.

1. Natural disaster risk

If the number of typhoons, heavy rains, earthquakes, wildfires, etc. increases, insurance claims will increase.

The company has also factored in a certain amount of damage from natural disasters in Japan and overseas in its forecast for the fiscal year ending March 2027.

2. Overseas M&A risk

Tokio Marine has strength in its overseas insurance business, but M&A is not always successful.

Acquisition price, integration, underwriting discipline, and local regulations are important.

3. Financial market risk

Insurance companies are also huge investment companies.

Fluctuations in stock prices, interest rates, foreign exchange, and credit spreads affect capital and profits.

4. Premium Rate Cycle

Profitability will improve when insurance premium rates rise, but profitability may deteriorate as competition intensifies.

Conclusion as an investor

On the surface, Tokio Marine's financial results for the fiscal year ending March 2026 show a decline in profits.

However, that alone is not enough to evaluate it.

The essence is

• Free up capital by selling cross-shareholdings
• Strengthen shareholder returns through dividend increases and share buybacks
• The operating environment will improve with interest rate normalization *Grow in the overseas insurance business
• IFRS transition makes global comparison easier

This is due to a structural change.

Foreign investors look at Japanese insurance stocks for more than just high dividends.

Japanese insurance companies are beginning to transform from low-growth domestic financial stocks to global financial companies with high ROE and high returns.

This reassessment is the key theme for financial markets in 2027.

Summary

• Tokio Marine's ordinary income and net income will decrease in the fiscal year ending March 2026.
• Meanwhile, the dividend is 218 yen, and the forecast for the fiscal year ending March 2027 is 245 yen
• Market places more emphasis on capital efficiency reforms than single-year profits
• Selling cross-shareholdings will become a source of shareholder return and growth investment
• Interest rate normalization will be a tailwind for insurance companies in the medium to long term
• Tokio Marine needs to be viewed as a global financial company rather than a domestic non-life insurance company.

Looking ahead to 2027, insurance stocks may be reconsidered as ``financial stocks that symbolize the capital reform of Japanese companies'' rather than ``stable dividend stocks.''

Source/Reference

• Tokio Marine Holdings IR Briefing/Fiscal Year IR Telephone Conference 2025
• Tokio Marine Holdings Financial Results for the Year Ending March 2026 PDF
• Tokio Marine Holdings 2025 Financial Results Presentation Material PDF