T&D : Integrated Report 2021（２）

Corporate Governance

Outside Director Roundtable

Achieving the Group

Long-Term Vision

- Expectations for a new T&D Insurance Group -

Outside director

Naoki Ohgo

Outside director

Seiji Higaki

Outside director	Outside director
Haruka Matsuyama	Kensaku Watanabe
	Outside director
	Shinnosuke Yamada

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Formulating the Group Long-Term Vision

Matsuyama

We outside directors were informed of the formulation and the detail of the Group Long-Term Vision from a very early stage, and we also participated in the deliberations and gave our opin- ions. The emphasis was on strengthening the existing businesses that have always been important to us while incorporating new challenges. For this Group Long-Term Vision, I believe that the T&D Insurance Group has been able to formulate, perhaps for the first time, a growth strategy that is very new. It's a fact that the life insurance business is facing a very difficult environment in the midst of Japan's declining birthrate and aging society. Under such an environment, we will need to identify the areas in which we will take on new challenges in search of new growth. At the same time, we will need to control newly arising risks in those new areas that will require different know-how and risk management than what the life insurance business has faced up to now. As an outside director, I've expressed many opinions on these points.

Ohgo

As Ms. Matsuyama said, I think relying solely on the domestic life insurance business limits what we can achieve. Until now, the T&D Insurance Group has been unable to break its shell to reach new sources of growth. In Group Long-Term Vision, we started an initiative to explore closed book business and new areas utilizing health-related data as new growth opportunities. Each of these new businesses is starting to sprout, and the prospects are looking very good. Especially, what to do with the closed book business was a very big concern. Today, around the world, the industry is taking another look at the life insurance business and considering how to reorganize the liability of insurance and annuities, so it was a good move that we were able to enter the closed book business early enough. In cases where the Group is taking a minority interest, the insurance liabilities are mainly due to life insurance and annuity contracts, which I don't think will fluctuate that much. That being said, I've expressed my opinions on how to look at operational risks and how they may affect the risks of the Group management as a whole.

Higaki

So far, our Group governance has not functioned well enough to achieve the things that Ms. Matsuyama and Mr. Ohgo talked about. In formulating the Group Long-Term Vision, it was a big step forward that we approached governance of the Group as a whole, which is the fundamental issue of the Group. I believe that group governance is about how society, investors, and companies can engage in dialogue to resolve issues that come to light and enact reforms in an organic manner. In that sense, how to improve group governance is the most important point, and I've spoken out on this during the formulation of the Group Long-Term Vision. Because life insurance is a regulated industry and is protected by law in some respects, I expressed my opinion by focusing on how an ordinary business company would think about and approach these issues.

Watanabe

I agree that the whole point is, as a listed company, that the Group has chosen the market and is aiming for growth. Before formulating this Group Long-Term Vision, there was a discussion about whether the interests of policyholders and those of shareholders might conflict in some areas. However, for this Group Long-Term Vision, while keeping this issue in mind, we were able to return the discussion back to the basic starting point, which is the fact that we as a Group have chosen to compete and grow in the stock market.

Matsuyama

The strategies and goals of the T&D Insurance Group do not always coincide with the interests of the individual life insurance companies within the Group. For example, from the perspective of an individual life insurance company, allocating its own management resources, such as its top talent, to some new business of the holding company may appear to be a negative in the short run. However, in the long run, increasing the presence of the T&D Insurance Group as a whole will definitely benefit the businesses of Taiyo Life and Daido Life. In the past, the life insurance companies assumed that developing their own businesses

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Corporate Governance

Outside Director Roundtable

The T&D Insurance Group has been able to formulate, perhaps for the first time,

a growth strategy that is very new.

- Director Matsuyama

would contribute to the Group. However, now we should go one step further and make all executives and employees at the Group's life insurance companies more aware that looking at the Group as a whole will lead to the growth of their own businesses in the long run. I believe this was well emphasized in the formulation of the Group Long-Term Vision this time.

Higaki

The Group is a public company, not a mutual company, so it has shareholders among its stakeholders. A mutual company focuses on providing excellent insurance products and services to policy- holders, but a public company must do more than that. We must also provide value to our shareholders. That makes it important to steadily create new sources of revenue. I believe the recognition that more of this needed to be done is what drove President Uehara's sense of urgency to accelerate this shift by transitioning to a Company with an Audit and Supervisory Board. I agree with this idea, which is why I've taken on the role of chairman of the Audit and Supervisory Board. In other words, President Uehara's sense of urgency is appropriate, and it's our mission as outside directors to act on it.

Yamada

Due to the COVID-19 pandemic, uncertainty has increased, and we are now said to be in the era of VUCA, which stands for volatility, uncertainty, complexity, and ambiguity. It's precisely at times like this that it's important for us as a listed company to show all of our stakeholders what the Group should be, and that's why I've been involved in formulating the Group Long- Term Vision. In the life insurance business, which takes a super- long-term perspective, indicators based on economic value are thought to better represent the actual state of a company. On the other hand, it's also true that many companies today tend to focus on corporate accounting profits and believe that a good turnover of capital from the perspective of ROE management is an important indicator for evaluating a company. I thought it was important to show how to strike a balance between both approaches with a future-oriented perspective in the Group Long-Term Vision. We also took into account the increasing importance of demonstrating our commitment to the SDGs and ESG as a member of society. In the Group Long-Term Vision, both financial and non-financial KPIs are presented in concrete numbers, and I believe the fact that we were able to come up with target values for 2025 through repeated discussions within the Group signals a very clear vision to the market.

It is our role to closely monitor and support the progress of capital efficiency,

which is a challenge.

- Director Ohgo

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Changes at the T&D Insurance Group

Ohgo

In the Group Long-Term Vision, the term "capital efficiency" is used, marking the first time we have consciously considered the efficiency of capital. Our performance appraisals too are now focused on capital efficiency, so I think our mindset has changed in this respect. The next challenge is whether we can really reallocate management resources in line with capital efficiency, and our role will be to monitor and encourage progress on this front next year and the year after that.

Yamada

I also agree that it's important to explicitly track the efficiency of capital, especially when that capital is the capital of the T&D Insurance Group. We are a large Group with approximately ¥17 trillion in assets, and I believe increasing the Group's earnings through efficient management will lead to increased corporate value. To that end, it's important for all Group executives and employees to row in the same direction and play an active role in their respective positions.

Watanabe

On this occasion, we also rewrote T&D Insurance Group's management vision. In the story to unpack the vision, there's a line that asks, "Can we really say that today's insurance answers such turbulent change?" Although it says "insurance," in this case "insurance" really means "T&D Insurance Group." In short, this is asking ourselves whether we are responding to the changes in society today. It requires a change in the mindset of executives and employees, including the management team, and if this mindset can be instilled, I've no doubt that even greater transformation can be achieved.

Higaki

It seems that a corporate culture of addressing social issues directly and firmly is taking root, especially among younger em- ployees. I believe that corporate management starts by listening to the voices of a wide range of stakeholders with sincerity. The SDGs are a technical tool for addressing social issues, and if there's no motivation to improve or reform, various initiatives may get implemented but will not go any further. As an outside director, it's my role to supervise this process. From my perspective as a former banker, insurance companies are lucky that,

I thought it was important to show how to strike a balance between the "economic value base" and "financial accounting base" approaches in the Group Long-Term Vision.

- Director Yamada

unlike ordinary companies, they get to operate in a regulated industry within the framework of various rules set by the national government. I believe the Company needs to continue to hear outside voices and to understand the differences in awareness with the public that arise from these perspectives.

Matsuyama

Compared to 2013 when I became a director, the mindset of executives and employees has changed considerably. It shows how deeply the sense of urgency has penetrated the Company. Financial institutions are currently facing a serious crisis. Competitors from outside the insurance industry, such as FinTech and InsurTech, have suddenly entered the market. That means today's insurance Group Long-Term Vision be driven out of business in 10 years. For this Group Long-Term Vision, driven by such a sense of urgency, we thought about questions such as how to take up new challenges and how to understand and visualize the T&D Insurance Group. We thought about how to define and grow the corporate value of the T&D Insurance Group while operating in the capital markets as a listed company. If we fail to do so, the Group is in danger of being weeded out by the market sooner or later, so I think our mindset has changed in this regard. It's also important to harness this sense of crisis to accelerate the changes. Mr. Higaki talked about insurance companies

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Corporate Governance

Outside Director Roundtable

I think it was a big step forward that we approached governance of the Group as a whole in formulating Group Long-Term Vision.

- Director Higaki

being in a regulated industry earlier, and I also believe that there has arisen a big difference between companies that have a sense of crisis and those that do not. Companies that do not have a sense of crisis will not survive the next 10 to 20 years. The Group is fortunate to have established a unique business model which has given us a sense of security until now. However, when we think of the next 10 years, we come to realize there's a high possibility we won't survive if we continue business as usual. As a first step, we have formulated Group Long-Term Vision based on that sense of crisis. Going forward, the important challenge of us will be how to instill this mindset throughout the Group and accelerate the changes at an even faster pace.

Ohgo

Going forward, it will also be important how to utilize digital technology. Our in-house sales representatives account for a significant portion of the added value we provide by directly explaining our products and services to customers through real-world channels. On the other hand, when we consider the fact that customer contact has become more difficult with the COVID-19 pandemic, and the fact that we are trying to improve efficiency, in the future we can expect more opportunities to use digital communication rather than face-to-face visits. Of course, the degree of difficulty of digital transformation varies depending on the nature of the business. Taiyo Life already offers Sma-Hoken (internet channel), and how to improve it will be one

issue going forward. I also think there are many aspects in Sma- Hoken that can be applied to Daido Life's business. Discussions of digital strategy can get overly detailed at times, but it can also be used to address the fundamental issue of what to do with our in-house sales representatives.

Future Challenges and Expectations

Matsuyama

We have identified the challenges we face in the discussion up to now. However, I am pretty sure that the market has doubts about whether the Group can really achieve the Group Long- Term Vision it has set out this time. The questions will be whether the T&D Insurance Group, which has continued without much change for the past 17 years, can really take a bold step forward, and whether the essence of the Group Long-Term Vision can be instilled throughout the organization or not. For example, the market is interested in whether we can really manage in line with capital efficiency. Therefore, it will be important to make steady progress implementing the Group Long-Term Vision. It is above all a basic principle of corporate governance that the Group Long-Term Vision is a commitment to the market, and that it's the mission of management to make this happen. It's a question of not just philosophy but execution. If the vision can't be implemented, the T&D Insurance Group, even with its favorable business model, may not survive. In that sense, I believe it's important for us as outside directors to play a role in conveying this sense of urgency and our outside perspectives on it. We will continue to do so with an expectation that the Group will make this Group Long-Term Vision a reality.

Ohgo

In terms of expectations, as we mentioned earlier, the seeds of new businesses have just begun to sprout. Both Taiyo Life and Daido Life were originally run on very unique business models, but no new businesses emerged for some time. Now that new businesses are sprouting again, I look forward to seeing sustained and continuous progress.

On the other hand, one challenge when creating something new and unique like this is human resources. We need to be a group where employees who are not traditional insurance people can flourish, which is why I believe the next challenge is how to attract and make good use of diverse talent.

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