Background & Hiya Japan
There was a whole lot of noise round Berkshire’s 10 bn participation within the Alphabet capital enhance. Nevertheless, on the Berkshire AGM, Greg In a position largely singled out the funding of Berkshire into Japanese Insurer Tokio Marine as a fantastic funding.
He additionally talked about explicitly that this was Ajit Jain’s concept. Many Berkshire Aficionados know in fact that Ajit is behind the rise and success of Berkshires Insurance coverage enterprise.
So when Ajit is brokering a take care of Tokio Marine, I made a decision to have a primary look into this firm regardless of having by no means checked out a Japanese firm extra significantly.
Subsequently “Hiya Japan” for the primary time on the weblog.
Apparently, I used to be not capable of finding any actual write-ups on Substack, just some very “gentle” ones mentioning the Berkshire partnership. The “Buffetologists” have ignored that one to date.
The Berkshire deal
The Berkshire Cope with Tokio Marine covers the next “legs” in line with Tokio Marine’s webpage:
Strategic Funding: NICO acquired a 2.49% stake in Tokio Marine Holdings for roughly $1.8 billion, with choices to extend its holding as much as 9.9%. To my understanding, Tokio Marine bought Treasury shares to Berkshire.
Reinsurance Settlement: Berkshire entered a whole-account quota-share reinsurance association, absorbing a portion of Tokio Marine’s globally diversified portfolio to assist the Japanese insurer mitigate pure disaster and underwriting volatility.
M&A Collaboration: Each corporations plan to collaborate on international M&A and strategic funding alternatives.
Technically, the funding is completed by NICO (Nationwide Indemnity), not Berkshire. The third half is admittedly fascinating and distinctive. It will likely be fascinating to see how this might look in follow.
Tokio Marine overview
Wanting on the TIKR overview, we will see that Tokio Marine has a market cap of round 85 bn USD, is sort of worthwhile and trades at 14x LTM P/E. The three% dividend yield is sort of excessive for Japanese requirements.
The share value has executed very nicely in Yen. Though as this chart reveals, a part of the more moderen efficiency can be because of the very weak yen. However the firm nonetheless simply outperformed the European friends Zurich and Allianz by a large margin over the previous 5 years:
One fascinating facet is that Tokio Marine is broadly owned. It was linked to the Mitsubishi Group (Kereitsu in Japanese) however they bought their remaining Mitsubishi shares in 2025.
Additionally they acknowledged a purpose to promote all remaining listed fairness investments by 2029.
The enterprise
Tokio Marine has a surprisingly complete Investor Presentation on its web site.
One facet that basically stunned me is that their enterprise appears to be by majority within the US (measured by “adjusted internet earnings”) as this chart reveals:
So primarily, Tokio MArine is a US Specialty Insurer with a Japanese enterprise. Wanting on the blended observe document of Japanese acquisitions within the US, this appears to be like relatively sensible compared.
Marketing strategy:
Their plan is to double Web earnings by 2035:
That is some extra element:
In fact, as insurance coverage just isn’t at all times predictable, this needs to be taken with a grain of salt, however placing out a ten 12 months plan is nonetheless a really constructive facet.
Change from Japanese GAAP to IFRS
What makes issues a bit bit extra sophisticated to research is the very fact, that in line with the presentation, Tokio Marine is switching from Japanese GAAP to IFRS in 2026.
They’ve this desk which appears to point that IFRS earnings are increased, however ROE decrease, as internet belongings (Fairness) is leaping after the swap:
General; Tokio Marine estimates that earnings on an adjusted foundation will likely be increased and fewer risky in comparison with JGAAP.
Shopping for an Engineering design firm
One fairly distinctive transaction was their buy of an Engineering design firm in 2025. That’s fairly distinctive amongst insurers.
I’m actually curious if and the way this may really develop within the subsequent 2-3 years.
Capital optimisation
One of many “soiled secrets and techniques” of Insurance coverage shares is {that a} important a part of the Massive Insurer’s capital base consists of bonds, so referred to as “hybrid bonds”. These are considerably cheaper than fairness. That is Tokio Marine’s slide that reveals that they’ve made little use of that to date:
Simply attending to their competitor’s ranges offers them a whole lot of flexibility with regard to M&A and/or share buybacks.
What’s fascinating is clearly additionally how Tokio Marine has elevated dividends and share buybacks over the previous 10 years which may be seen on this desk:
Return expectation:
A simplified return expectation for Tokio MArine would appear like this:
Dividend yield + Buyback yield + development price
Taking Tokio Marine’s numbers this might lead to:
3,1% + 1,5-2% + 7% = 11,6-12,1% p.a. with out assuming any a number of growth
This isn’t unhealthy, however to be trustworthy, additionally not tremendous nice.
Here’s a fast Peer Group desk which reveals that Tokio Marine enjoys an absolute common valuation in my subjective Peer Group:
The query or upside can be if Tokio Marine is admittedly an “above common” participant, then perhaps they’d deserve an above common a number of. Primarily based on their very conservative capital construction, they need to (in principle) have the ability to develop greater than opponents.
To be trustworthy, based mostly on this fast examine, I’m not but prepared to offer them an “above common” score regardless of Ajit’s endorsement.
Professional’s/Con’s
As at all times, a fast abstract of Professional’s and Con’s
- Ajit typically is aware of what he’s doing & Berkshire Cooperation
- Excessive capital flexibility
- Good enterprise combine
- Shareholder pleasant distribution/buyback technique
- Good share value /earnings momentum
- Excellent historic development
+/- not tremendous low cost, anticipated return beneath my hurdle price
+/- Japan GAAP to IFRS transition
+/- advanced enterprise
+/- USD/JPY threat (as EUR investor)
- Basic Nat Cat publicity (well-known Japanese Earthquake)
Abstract:
Tokio Marine appears to be like form of fascinating. Particularly the truth that nearly all of its revenue comes kind the US is a giant shock to me.
Nevertheless, after the Berkshire announcement, the inventory just isn’t so low cost anymore.
So in the intervening time I’ll put it onto my “focus watch checklist” however not make investments. I believe it is going to be fascinating to see how IFRS outcomes will appear like in 2026.
In any case, this shift from JGAAP to IFRS appears to be a really fascinating merchandise for Japanese insurers.