Sompo Holdings FY2023 Results

Key Highlights of FY2023 Results

• Record-High Adjusted Consolidated Profit: Sompo Holdings achieved a record-high adjusted consolidated profit of ¥291.0 billion in FY2023, representing an increase of ¥138.8 billion year-on-year (YoY). This growth was driven by strong performance across all business segments.
• Domestic P&C Insurance: The adjusted profit for Domestic P&C insurance business (Sompo Japan) increased by ¥40.3 billion, mainly attributed to improved base profitability in the fire & allied line and a decrease in natural disaster losses.
• Overseas Insurance/Reinsurance: The Overseas insurance/reinsurance business recorded a significant increase in adjusted profit by ¥69.7 billion, primarily driven by higher investment income.
• Domestic Life Insurance: The adjusted profit for Domestic life insurance business (Himawari Life) rose by ¥24.0 billion, mainly due to the absence of the COVID-19 impact on claims.
• Shareholder Return: Sompo Holdings implemented a share buyback of ¥77.0 billion in addition to a dividend payout of ¥98.9 billion in FY2023, resulting in a total shareholder return of ¥175.9 billion.

FY2024 Business Forecast and Outlook

• Adjusted Consolidated Profit Forecast: Sompo Holdings forecasts an adjusted consolidated profit of ¥255.0 billion for FY2024, representing a temporary decline from the record-high FY2023. This forecast reflects upfront investment in system development and an increase in unit repair costs in the Domestic P&C insurance business, partially offset by the continued strong performance of the Overseas insurance/ reinsurance business.
• Domestic P&C Insurance: The Domestic P&C insurance business anticipates an upfront investment in system development and an increase in unit repair costs in the automobile line. Despite this, the company expects continued improvement in base profitability in the fire & allied line.
• Overseas Insurance/Reinsurance: The Overseas insurance/reinsurance business is expected to achieve record-high adjusted profits in FY2024, driven by steady growth in investment income and underwriting performance.
• Shareholder Return Strategy: Sompo Holdings plans to increase DPS by ¥12 to ¥112 in FY2024, marking the 11th consecutive year of dividend increase. The company also intends to return 50% of gains on the sale of strategic holding stocks (after tax) to shareholders, in addition to the base return of 50% of adjusted consolidated profit.

Detailed Breakdown of Business Segments

Domestic P&C Insurance (Sompo Japan)

• Underwriting Profit: FY2023 core underwriting profit increased significantly due to improved profitability in the fire line and the absence of one-time factors such as natural disasters and COVID-19. However, FY2024 core underwriting profit is expected to decline due to upfront investment and rising unit repair costs in the automobile line.
• Net Premiums Written: Net premiums written for FY2023 were nearly unchanged YoY, excluding the impact of rush demand before the rate increase in FY2022. The company expects an increase in net premiums written in FY2024, driven by stable growth in casualty (other) and rate increases in the fire line.
• Combined Ratio: The combined ratio improved in FY2023 due to a lower loss ratio. However, the combined ratio in FY2024 is expected to be impacted by an increase in expense ratio due to upfront investment.
• Investment Profit: Investment profit increased significantly in FY2023 due to higher net interest and dividend income, along with gains on the sale of strategic holding stocks. The company forecasts a further increase in investment profit in FY2024, driven by increased gains on the sale of strategic holding stocks, although this will be partially offset by the absence of interest and dividends due to fund cancellations and foreign exchange gains.
• Automobile Insurance: The accident rate in the automobile insurance line peaked out in FY2023, with a flat YoY rate expected for FY2024. However, unit repair costs continue to rise, with a planned increase of +5.0% for FY2024, including labor costs.
• Fire & Allied: Sompo Japan achieved a positive core underwriting profit in the fire line in FY2023 due to rate optimization efforts in previous years. The company expects consistent profitability in the fire line in the mid-2020s.

Overseas Insurance/Reinsurance (Sompo International):

• Adjusted Profit: The Overseas insurance/reinsurance business recorded a significant increase in adjusted profit in FY2023, driven by higher net investment income and improved consumer results. The company expects further growth in FY2024, driven by continued strong investment income and underwriting performance.
• SI Commercial P&C: Gross premiums written (GWP) for SI Commercial P&C in FY2023 remained relatively flat YoY due to lower commodity prices and selective re-underwriting in AgriSompo. The company expects GWP to increase in FY2024, driven by strategic growth initiatives in North America and Global Markets, as well as targeted growth in Reinsurance.
• Combined Ratio: The combined ratio improved in FY2023 due to improved accident-year loss ratios and lower catastrophe losses. The company forecasts further improvement in underwriting performance in FY2024, driven by investments in organic global growth initiatives.
• SI Consumer: The combined ratio for SI Consumer improved in FY2023 due to lower inflation impact in Turkey. The company expects net written premiums to increase in FY2024, driven by growth in Turkey, although this will be partially offset by the impact of the Brazil consumer business sale.

Domestic Life Insurance (Himawari Life)

• Adjusted Profit: The adjusted profit for Himawari Life increased significantly in FY2023, mainly due to the absence of the COVID-19 impact. The company anticipates stable adjusted profit in FY2024, with the impact of business investment offset by increased policies and reduced hedge costs.
• Annualized Premiums: Annualized premiums in force for Himawari Life increased steadily in FY2023 due to the accumulation of new policies, particularly in InsurhealthⓇ. The company expects sustained growth in policies in FY2024, driven by continued expansion of InsurhealthⓇ.
• Expense: Expense for Himawari Life decreased in FY2023 due to well-controlled general expense. The company forecasts a slight increase in operating expense in FY2024, driven by an increase in acquisition cost due to new contracts and expanded business investment.

Nursing Care

• Adjusted Profit: The adjusted profit for the Nursing Care & Seniors business increased in FY2023 due to the acquisition of ND Software and the impact of tax reform. However, the adjusted profit is expected to decline in FY2024, mainly due to the absence of the tax reform benefit, despite sales expansion.
• Sales and Operating Margin: Sales increased significantly in FY2023, driven by the acquisition of ND Software and higher occupancy rate. The company expects continued sales growth in FY2024 due to an increase in revenues outside of long-term care insurance.
• Occupancy Rate: The occupancy rate for SOMPO Care facilities continued to rise in FY2023 and is projected to remain at a high level in FY2024.

Financial Soundness and Risk Management

• Economic Solvency Ratio (ESR): Sompo Holdings’ ESR (99.5% VaR) increased significantly in FY2023, primarily due to profit accumulation, a reduction in stock price risk and interest rate risk, and favorable stock market impact. This strong ESR indicates robust financial soundness and a solid foundation for future growth.
• Adjusted Capital and Risk: Sompo Holdings’ adjusted capital remained at a healthy level in FY2023, exceeding its risk amount. The company continues to manage its risk effectively across various business segments, including underwriting, investment, and non-insurance business.
• Asset Portfolio: The company’s asset portfolio is diversified across fixed income investments, equity investments, and cash and cash equivalents. The investment strategy is focused on optimizing return while managing risks effectively.

Key Management Indicators

• Return on Equity (ROE): The company aims to achieve an ROE at the global peer level. The adjusted consolidated ROE for FY2023 was 9.2%. The company projects an adjusted consolidated ROE of approximately 7% in FY2024.
• Operating Income: The company’s operating income (excluding one-time factors) serves as a key management indicator to monitor the core profitability of the business.

Shareholder Value Creation

Sompo Holdings is committed to maximizing shareholder value through a comprehensive shareholder return strategy, including:

• Dividend Increase: The company plans to increase DPS for the 11th consecutive year in FY2024, reflecting its commitment to consistent dividend growth.
• Share Buybacks: The company implemented a significant share buyback program in FY2023 and continues to actively manage its capital structure to enhance shareholder value.
• Agile Capital Adjustment: The company is committed to actively adjusting its capital allocation strategy to seize growth opportunities and maximize shareholder return.

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