In order to improve the Group’s capital efficiency in a sustained manner, we use both the stable cash flow generated from existing businesses and the capital generated by reducing risk to invest in areas of high capital efficiency, including M&As and other growth investments and digital technologies. With these measures geared towards improving capital efficiency, we aim to achieve a capital efficiency with an adjusted consolidated ROE of 10% or higher and expand Group profit levels over the medium term. We have also established ROE targets for each business and by monitoring the initiatives implemented in each business, we intend to improve capital efficiency and increase adjusted profits for the Group as a whole.

We set our target for adjusted consolidated ROE based both on our capital cost of 7% and on the average level of our global peers, as estimated by the CAPM^*1.

To clearly define the Group’s medium-term risk-taking policy and direction, we have established a risk appetite statement (RAS) as part of the current Mid-Term Management Plan. The RAS outlines our approach to risk taking in each risk category based on return on risks (ROR). Based on the RAS, we are reducing our strategic shareholdings that have low capital efficiency and lowering our exposure to domestic interest rate risks by strengthening ALM. Our initial KPIs for the three-year period of the Mid-Term Management Plan were to sell off roughly ¥50 billion in strategic shareholdings each year and purchase super-long-term bonds to the tune of ¥300 billion annually through the Domestic Life Insurance Business. In fiscal 2021, the first year of the plan, we kept to this schedule by selling strategic shareholdings worth ¥50.1 billion and buying up super-long-term bonds to the value of ¥329.4 billion. In fiscal 2022, however, we stepped up the pace by selling ¥70.3 billion in strategic shareholdings and purchasing super-long-term bonds worth ¥489.3 billion, thus reducing risk at a pace faster than initially planned. We will continue to reduce our strategic shareholdings with the aim of trimming the level back down to less than 20% of adjusted consolidated net assets on a market value basis by fiscal 2030.

Cash flow generated by each business will be used for M&As and other growth investments. Under the current Mid- Term Management Plan, our policy is to allocate management resources worth ¥600 billion to growth investments in the areas of scale and diversification and new value creation, two of the three core strategies in the plan.

For our scale and diversification strategy, we will invest in M&As and organic growth primarily in our Overseas Insurance and Reinsurance Business, with the aim of bettering our chances of achieving our management targets. For our new customer value creation strategy, we intend to invest in creating a Real Data Platform (RDP) and in companies that possess digital and other advanced technologies, as well as in the healthcare domain, with the twin aims of contributing to the resolution of social issues and boosting growth over the medium-to-long term.

We have established a disciplined investment framework when it comes to considering M&As: we assess the consistency of any potential deal with our business strategy, and analyze any expected synergies; we have also set a hurdle rate that takes into account the weighted average cost of capital (WACC) based on financial leverage and the industry characteristics of the acquisition target.