The challenging macro outlook will
redefine scale. Media speculation about
consolidation is increasing
􀀗 We anticipate that the market will
become increasingly event driven
􀀗 Upgrade Tokio Marine to OW(V), from
N(V), and maintain other ratings
Low growth and investment returns will be the macro
environment in which the industry will operate in the nearto-
medium term. Japan’s adverse demographics will
exacerbate the situation. That, in our opinion, will redefine
scale, triggering both domestic consolidation and more
overseas expansion.
Weakened solvency ratios should prompt managements to
seek to improve operational returns. That would effectively
be delivered through synergy gains and cost savings.
We expect an increasingly event driven market.
Southeastern Advisor’s large presence on the Nipponkoa
share register, its increasing influence over management and
active encouragement for the group to seek partners to
increase scale has helped keep the share price ahead of the
fundamental valuation. Media reports indicate that there will
be a three-way merger between Aioi, Mitsui Sumitomo and
Nissay Dowa. Speculation with respect to AIOI has helped
support the share price. The stock was the best performer in
2008 despite the deteriorating outlook for the auto business.
We have further reduced forecasts for 2010 and 2011 to
reflect the more cautious stance taken by HSBC economists.
Target prices have been rolled forward to end of March
2010. We upgrade Tokio Marine to OW(V) from N(V); and
maintain our ratings on the rest.

Investment overview 3
2008 could have been worse… 3
…but will outperformance continue in 2009? 3
…and what will be the major themes?... 4
...or is the market too bullish? 5
Stock selection 5
Value and catalysts 6
Industry outlook 8
Annus Horribilis...again… 8
Main themes for 2009 14
Company Section 17
Tokio Marine (8766) 18
Mitsui Sumitomo (8725) 23
Sompo Japan (8755) 28
AIOI (8761) 32
Nipponkoa (8754) 36
T&D Holdings (8795) 40
Disclosure appendix 44
Disclaimer 47
Contents