Sompo Holdings, Inc. (8630) Earnings Call Transcript & Summary

[Interpreted] Yes. Thank you for joining us today. First, please turn to Page 3. Last week, we announced our first half results and had the earnings call. So I will skip the details on the numbers. But in a nutshell, I would say that we are making good progress over the numbers. But looking at how rapidly the environment is changing and the magnitude of the change as well as the uncertainties, if we consider that, the reform that we have embarked on is still not concluded. As for the first half results, we exceeded our initial guidance. And I think that is partly thanks to the efforts that we have been making to date and also partly driven by the external environment. So we should not be just focused on the short-term results, but we will carry out what needs to be done. So our efforts will not bear fruit overnight. And in some cases, our efforts may bring results exceeding our initial expectation. And I think that is the destiny of the Insurance business. Moving on to Page 5. I would like to talk about the 2 [ domestic ] targets under the mid-term management plan. The ROE target and also the EPS growth. Regarding the EPS growth, we are growing -- exceeding the initial expectation. And for ROE, we are making steady improvement, but we need a further improvement to the next level. And moving on to Page 6. Here, I would like to talk about the initiatives under Sompo P&C. Regarding the initiatives with Sompo P&C, it's on Page 6, please. We are executing what needs to be done. And we have achieved some quick wins, but we are also carrying out initiatives, which will bring about long-term benefits. So in terms of the numbers, we have reinsurance strategy, leveraging on the scale and also for investment as a quick win, but we are already achieving some benefits. And for Sompo P&C, the initiatives are done jointly with Sompo Japan and Sompo International. And also, there are other areas where Sompo Japan is taking the lead for initiatives like SJ-R and also other initiatives that's led by Sompo International. So it's a mixture of different initiatives. And we are already achieving some quick wins. But as I said earlier, updating the corporate culture and also walking away from focus on the top line. Those are things that cannot be changed immediately. Also, we have this unwavering determination to move forward without going back. For Sompo Japan, we are trying to build the underwriting culture, and this is the key. We are making tremendous efforts to achieve this. And we are getting a lot of support and stimulus from Sompo International, including trying to improve the portfolio, controlling the line size and also managing the limit. We are trying to walk away from the traditional industry practices, which would also require close communication with the customers. So we will focus on our path and move forward by tenaciously carrying out these initiatives. And in terms of the numbers, you can see improvement for combined ratio as well as adjusted profit. On next page on Wellbeing on Page 7. We have communicated about the concepts over a number of times. We want to make the aging society a positive society. So that's why we are addressing 3 concerns. So from the phase of concept, we are shifting to a phase of implementation this year. So on October 1, in order to accelerate these efforts, we have established a new entity, Sompo Wellbeing to promote these initiatives. So some things that cannot be addressed single handedly have been covered by 3 entities Connect and Be Connected to support the individuals by extending the services so that we can make a positive impact to the aging society. Page 8, please. This is regarding the growth strategy and growth investment. We have organic growth and also inorganic growth. Regarding the inorganic growth for M&A, recently, we made the announcement regarding the acquisition of Aspen. Also sourcing the deal and working on the deal and doing the PMI is something that we will carry out solidly. At Sompo International, organic growth, i.e., the geographical expansion is what we have been rolling out to establish new offices and also to hire new underwriters. This is enabling us to make steady growth. For Sompo Wellbeing, in order to address the 3 concerns and also to support the individuals lifestyle with that concept, on top of that, we are looking at the new opportunities or new services. we need to develop or create those services in order to fill in those missing pieces. One methodology is to try to grow organically, but to try to gain those pieces through inorganic M&A opportunities. So for this, we are now shifting to a phase of implementation. Moving on to Page 9. This is my final page. In order to realize our purpose, we will try to enhance our resilience and also Connected and Be Connected. We'd like to make sure that we continue this strategy and to become the truly global company born in Japan, we will not stop our efforts. In the medium term, what we are committed to is the JPY 500 billion in adjusted profit and market capital of JPY 6 trillion. So fiscal 2030, that is the deadline and how can we do this earlier than that? And the JPY 500 billion target, can we exceed this level? So those are the things that we are discussing right now. And in May, the new Sompo story is something that I'd like to share with you. And from my side, about the group-wide strategy, that's all that I wanted to say. And I will hand the microphone to Jim. Thank you.

Thank you, and welcome. I'd like you to turn to Slide 11, where we talk about the pillars of success for Sompo P&C. As Okumura-san mentioned, Sompo born -- Sompo is a Japanese company born and truly global. To do so, we need to operate more than just P&C and Wellbeing. But when we looked at the global P&C businesses, we were operating as 2 separate organizations, Japan and overseas. And so in April of this year, we brought the 2 organizations together in a form of communication and joint management structure. We focused on reinsurance, which began approximately 2 years ago to present ourselves to the marketplace as one organization. This allowed us to utilize the size and scale to negotiate better terms and conditions, not only on a reinsurance basis but of our overall global relationships with distribution partners. Over the last several months, we focused on building investment strategies, operations and IT, underwriting, human resources and risk. And now we're going to talk about 2 of those in particular and the first one being investments, and I'll hand over to Nick Burnet.

Thank you, Jim. On Page 12 of the presentation. As Okumura said -- San said, with the segmentation of Sompo P&C, we are starting to see the benefits associated with being one approach to the market. The alignment under Sompo P&C brings together one risk appetite, optimization of capital and investment strategy. This is expected to enhance operating income or adjusted profits by up to $50 million before taxes. We have created a new investment committee to drive the strategic asset allocation across Sompo P&C. This allows us to determine the balance sheet to get the best risk-adjusted returns based on capital risk appetite of local balance sheets, but also allows us to invest into larger increments and drive more attractive fees. We have established governance, leveraged capital, shared our strategy with our investment managers and have begun the consolidation of investment strategies. And while using our global balance sheets to attribute the reinvestments globally, it also allows us to leverage our global relationships and get the best access to managers across the globe. Finally, we have begun the integration of global systems, which should bear fruit when we integrate Aspen, which will give us even more scale. I'll turn it back over to Jim.

Thank you, Nick. On Slide 13, I'd like to talk about some of the operational effectiveness that have been put in place and are being put in place within Sompo Japan through the close cooperation. Number one, we've identified clear ownership and accountability with one person owning the operations and IT responsibility across Sompo Japan. We've identified product rationalization. We've identified operational efficiencies through system integration, and we focused on cost savings and have identified a target of JPY 30 billion to be achieved over the next 3 years. We utilize this and we've already demonstrated it through vendor rationalization and vendor negotiations, looking at vendors who supply both our international business and our Japanese business and negotiating as one. We are slowly becoming a more data-driven organization, making decisions based on the best interest of the organization. I'll turn over to Ishikawa-san for the next 2 slides.

[Interpreted] Thank you very much. So from my side, I'd like to talk about the domestic P&C, and I'd like to talk about the progress. Now in one word, we are on track. Now looking at each KPI, we have exceeded the all in all KPIs. And so in achieving MTMP, we are making the very solid progress. Now first of all, on Page 14, you see the ROE by business and the 8.3% was our initial forecast, and we have likely to achieve 12.5%. For the fiscal '26, our target was 10% or higher, and we are likely to achieve this or go beyond this. The second point is combined ratio, and we are likely to achieve 95.6%. So our target for fiscal '26 is 95% or less. So we are likely to achieve that target as well. And on the right-hand side, we are showing the reduction of the strategic shareholding and we are doing well on this area. And so the target of the sales has been increased from JPY 200 billion to JPY 250 billion. Now in achieving the targets of the MTMP, we are almost there. So we'd like to continue with those initiatives so that we can show you the concrete results. Going -- moving on to Page 15. This is the qualitative explanation about the domestic P&C, there are 3 pillars. And the first is to make sure that we make progress in the business improvement plan. And the second is through SJ-R, we want to improve the profitability and enhance the resilience. So to work on the transformation of the revenue foundation. The third is through the cultural transformation, we want to solidify the business foundation. In the middle, we are trying to regain the trust. Currently, we are executing 183 initiatives and 75% out of them have already reached effect lasting status. So we are making a good progress in making improvements. In the middle, we have earnings structure reform and enhancing the revenue management by segment and bottom line focused sales transformation. And also the claims service that -- the enhancement of the fraud detection, we are making a very solid progress. And the third pillar regarding the foundation of the business, we are trying to change the cultural -- corporate culture and also we are increasing investment into human capital. And we're also trying to walk away from the traditional market practices. And by enhancing our insurance and also the services delivered to the customers, we are trying to improve our basis so that we have been making good progress in trying to achieve a balanced and sustainable growth. So from this year, we have shifted to the Sompo P&C structure, and we are building a more robust business framework and accelerating transformation by getting the support from the overseas expertise and talent.

Thank you. On Slide 16, you see the targets for Sompo International, and this is based on an IFRS4 basis and on a calendar year basis. And as you can see, our target over the next -- till 2026 was to generate operating income of $1.5 billion. The 9-month 2025 is slightly below prior due to the first quarter California wildfires. However, as we look towards the fourth quarter and end of -- the last quarter of 2025, we see benign cat activity. And so we expect to recoup that and become much closer to target for 2025. On the GWP target for growth initiatives, we indicated a $1 billion target of GWP from all of the growth initiatives. This is representative of our inorganic growth strategy -- sorry, our organic growth strategy as opposed to the inorganic investments. And it was comprised of a number of countries and initiatives that I will talk about on the next slide. But as you can see, the target of $1.5 billion, we have achieved approximately $760 million after 9 months. And so we feel that we are well ahead of target in achieving that goal. The final goal of 13% ROE was achieved despite us holding additional excess capital in order to prepare for acquisitions, which we have announced with respect to Aspen. It also is an unleveraged number and the underwriting results are continuing to perform very well, both on an [ accident ] year, underwriting basis and on investment income basis. As you move to the next slide, Slide 17, as I mentioned, $760 million. You can see from the 3 different areas in North America. While the North America is an established market, there are several smaller markets and pocket markets within North America and investing in cities and offices such as Denver, Houston and Miami in 2025 -- end of '24 and '25 have generated new business that we would not have otherwise seen. And as you look into 2026, we are exploring potential new openings across North America. I would also include Canada, where we have achieved licensing of our business in Canada and is a new market for us, one of the -- I think it's top 7 global markets in P&C. And so a clear miss for us over the last years, but a great investment opportunity for Sompo. As we look into the U.K. and Europe, the U.K., similar to the United States, is a mature market. However, we've invested operations into Birmingham and Manchester and access those markets that they typically would not have seen in the London market. We also continue to invest in the expansion of our business throughout Continental Europe, opening offices in Italy, in Germany, in France and Spain and expanding in Switzerland. In Asia, we continue to invest into the hub of Singapore in order to attract more business that we might not have seen in the different geographies and capitalize on our brand and reputation that we have established over many years in many of the countries across Southeast Asia. Nick?

Yes. If we go to Page 18, we just wanted to give you an update on the Aspen transaction. And although we don't have all the answers, we wanted to share the progress that we've made to date. The Aspen acquisition had 4 strategic pillars for Sompo. As we have shared previously, we were taking, and as Jim just stated, a build versus buy approach for strategic growth in our targeted growth markets. But we stated publicly that any acquisition that would accelerate this growth would be interesting to Sompo, and Aspen accelerates our strategy in the U.K. and in the U.S. specialty business. It turns us into a top 10 P&C reinsurer. It provides us access to Lloyd's specialty market and access to 80 markets globally. And finally, it provides us with the ability to access third-party capital through Aspen Capital Markets. And we also expect to gain benefits from scale, capital optimization and synergies. And if we go to the next slide. As we shared with you when we announced the deal in August, we believe the transaction will provide expense synergies as we find opportunities to integrate and harmonize systems, co-locate offices and staff where appropriate and evaluate our legal entities for operational and jurisdictional overlap. Furthermore, the revenue base of Aspen is complementary and Aspen Capital Markets gives us the option to access third-party capital. Finally, we expect to get capital efficiencies as a result of improved diversification and the desire for the potential uplift in the ratings of Aspen. If we go to the next slide, Slide 20. There are many questions around the regulatory time line for which we can't predict the outcome. But what I can tell you is that we, Sompo and Aspen have achieved all of its filings in a time line consistent with receiving regulatory approvals by the first half of 2026. Outlined on the left side of the transaction are the main jurisdictions that have to approve the transaction. I'm also pleased to announce that the antitrust waiting period has expired and no issues have been raised, and we have even seen 1 or 2 small regulatory approvals. We are hard at work preparing for day 1, which includes having an opening balance sheet and IFRS 17 and other accounting standards, which will start the journey of realization of all the synergistic elements of the transaction. And Jim, I'll turn it back over to you.

Thank you, Nick, and to Slide 21. When I sat in front of you 4 years ago, I committed that we would continue to grow the business overseas, that we would look for organic and inorganic opportunities. But if we could not find the right inorganic opportunity, we would invest and build. And I'm pleased to say that over the last number of years, we have achieved that, and we will continue to achieve that through investing in our business and growing in the markets that we currently operate in. I'm very pleased with the Aspen pending acquisition. As Nick said, it brings many things to our organization. It brings diversification. It brings access to different forms of capital. It makes us a top 10 reinsurer in the marketplace. It gives us access to Lloyd's, which is not new to Sompo, but it is different than in prior years. And so many of the questions have been, are we still interested in the Lloyd's platform? And the answer is, absolutely yes. We're getting a top-tier team coming and operates in the Lloyd's market that has generated the performance that has been envious of many other markets in the Lloyd's business. And so we are very excited about everything that is happening. And again, we anticipate a Q1 or Q2 first half closing, but we are very much been active with working with Sompo and Aspen in terms of the integration. And so I'm looking forward to any questions that you may have with respect to Aspen and Sompo. Thank you.

So now we'd like to move on to the Wellbeing, and I'd like to call upon Mr. Oba.

[Interpreted] Yes. From the 1st of April, we started as a Sompo Wellbeing. So as we have Sompo Himawari, Sompo Care. And in addition to that, we have a corporate wellness, Sompo Healthcare Support and Wellness Communications, also the RIZAP, the 5 companies in total. The recent business results is that in terms of the adjusted profit, we are making good progress. As for the full year forecast, year-on-year progress and also vis-a-vis the targets, we will make sure that we achieve all of those targets. As for the Sompo Wellbeing as the future growth, there are 3 major pillars. First, each company will make sure to grow. So that is the organic growth. And in addition to that, on Page 23, that is #2 and #3, so those are the areas that the Wellbeing business will start as a new structure or new organization. The second is value up growth. So going beyond each business, we will try to offer value to the customers so that we can grow. And M&A strategy number three, we would enhance our proposals, and we would accelerate an M&A and also the alignment. And as a result, in 2030, JPY 100 billion or higher adjusted profit is what we would like to aim for. Going on to Page 24. Now one of the growth strategy is the value up growth. And this shows one of the symbolic initiative. As Okumura mentioned earlier, on the 1st of October, we established a new entity in here for the nursing care -- nursing care will be the beginning so that we can try to solve the various concerns of the customers. So we made a start of this. And the -- it starts from the nursing care consultation and we introduced the facility for the nursing care and then go to the inheritance or sale of the real estate and the nursing care for their parents and also the -- in dementia and so forth, we would like to link this to the consultation of the health of themselves. We'd like to take advantage of the expertise of Sompo as well as other business entities so that we can build this opportunity -- the models to provide those opportunities to the customers. And we'd like to apply this to BtoBtoE on the right-hand side. So we would work with companies and for the employees of those companies, we would provide the support of their health. And one of the social issues that we face is that the business carers leaving their work for caregiving. So we will be focused on providing program for those people. As for the mergers and acquisitions, we would like to provide the optimum solutions to the customers and the 3 concerns that we'd like to face and to alleviate those 3 concerns, the different factors and the functions will be enhanced through the potential M&As and others. Page 25. This is for the domestic life insurance business. As for the adjusted profit, we are doing well. And for the full year, we are likely to achieve the target. However, for the new business NP, it is lower than our plan. So we are still faced with the challenges. But for the premium in-force, we are seeing the growth as well as the less translation or churn of the insurance contracts. And so insurance and health support, which are the pillars of the life insurance, we provide Insurhealth, and this is -- this has been the eighth year and the number of the contract exceeded 2 million and also the amount of the premium exceeding JPY 160 billion. So we focus -- continue to focus on Insurhealth. And when this business expands, the profitability of products would improve. And so in December, the variable product will be launched and also to support the health of the enterprises, we will start -- plan to launch the new product early next year. Page 26 is the nursing care business. We are doing very well in the nursing care business. And for this fiscal year, the utility cost and also the food costs are increasing. So this has been the headwind, but we offset that and we are likely to end with a higher profit for the full year. The reason for that is the accumulation of the efforts at the front line and the better productivity of the nursing care operators and what we call Mirai no Kaigo or future nursing care, this initiative has been effective. More specifically, here, we are trying to visualize the operations and standardize the operation and using the technology or data, we are reviewing the operation so that the time and personnel, which we can save can work on the better quality. And so the revenue from the nursing care insurance, we would like to expand the revenue. And as a result, we would like to improve the occupancy of the facilities and to improve the profitability. So we'd like to continue with those initiatives. So it's not just Sompo Care internal initiatives, but we would like to also provide consulting services to other businesses. Number 27 is the final page. This is the corporate wellness that we would like to focus more on with many companies supporting the health management, we have the contact with those enterprises and customers, and we would like to take advantage of that to improve our revenue base and also the profitability.

[Interpreted] Now we would like to open up for your questions. [Operator Instructions] Also Mr. Muraki from SMBC Nikko. Please, unmute yourself.

[Interpreted] Can you hear me?

[Interpreted] Yes, we can hear you.

[Interpreted] This is Muraki from SMBC Nikko. I have 2 questions. My first question is regarding your future M&A strategies. On the appendix presentation, Page 6, you have JPY 900 billion of investable capital. And through the sales of the strategic shareholdings, this is going to increase. So after Aspen, are you considering a large-sized M&A or bolt-on M&As? When would you like to execute those next M&A? The P&C companies in the U.S., the share price is coming down but it is also said that the softening of the market may last for a long time. So you have to decide if it's wise for you to make an early acquisition or wait until the later stage. So my first question is regarding your M&A investment going forward. And my second question is regarding Sompo P&C's simplified integrated operation that you presented. In the appendix presentation, on Page 10, you talk about the integrated group investment, what was the progress to date? And also including Aspen, are you going to make a further integration, including Aspen? Already in the first half, the junk bond portfolio increased to 9.9%. And compared to the others, your exposure to the non-IG bond has increased. So are you willing to take more risk in the investment portfolio? That's my second question. And also, for streamlining the operation, you say that the Aspen integration is going to complete in 2029. Why is it going to take 4 years?

[Interpreted] Yes, Muraki-san, thank you very much for your question. So I will make a quick response. And regarding M&A and the total capital available, the group CFO, Mr. Hamada, will respond to that. And also regarding the market outlook, Jim and Nick can complement. And for the integrated operation of Sompo P&C, investment can be handled by Hamada-san and Nick and maybe operation part probably should be answered by Nick. So first, regarding our philosophy for M&A strategy, as Muraki-san mentioned, there are many factors including the ones you indicated and also our unique factor of when we are going to be selling the strategic shareholdings. And also for the hands-on M&A, we are going to prioritize the PMI of Aspen. But there are also a variety of different M&A opportunities. Looking at our capital and also in order to accelerate the recycling of our capital, we will sit tight to explore many opportunities. We mentioned in the previous IR Day, Aspen is not the end of the story. So we're looking into opportunities to buy overseas insurance companies as well as M&A opportunities for the well-being business. So all the business owners are exploring those opportunities. And regarding your second question, for the integrated operation of Sompo P&C, looking at the different entities, maybe the exposure to high yield has risen, but we are looking at the risk one by one very carefully and also looking at the group-wide portfolio in a holistic manner. So for the detailed numbers, there are things that we can share and cannot share, but it's not as if we are aggressively taking all the risks. So I will stop here. And regarding the future M&A strategy and also the funding of the M&A, I will ask Hamada-san to respond to that.

[Interpreted] Yes, this is Hamada. Thank you, Muraki-san, for your question. Regarding Page 6 on the appendix presentation, if I may clarify this, right now, we have JPY 0.9 trillion of capital available for investment. This is after the Aspen acquisition. And the capital generation under the MTMP, we have about 18 months and how much capital can we generate, that we are calculating using many factors. And roughly speaking, I think we will have incremental JPY 1 trillion of capital. And within the next 18 months or so, deducting the shareholder returns. Prior to Aspen, I think we said JPY 1.5 trillion. So that capital availability would not change materially. And this is somewhat impacted by the stock sales held by Sompo Holdings. But we don't intend to use all of this in FY '26, all at once. So we will have discipline to explore M&A opportunities. So regarding the M&A market outlook, can you comment, Jim, please?

I think we are seeing a tick up in some of the activities, as you've seen through some of our competitors in the marketplace. They're taking on different forms, both M&A and investments. I believe that over the last 4 years, we've demonstrated a very disciplined approach to looking at investments and an M&A activity, and we will continue to do so. The market will go through cycles. It always has, and we'll have to manage through that, but we'll take a longer-term view about adding business that's accretive to Sompo Group. Nick, is there anything additional to that?

No, I think -- as you said, Jim, we have seen an uptick in many different forms and styles of the way the transactions are coming through, and we'll continue to monitor the marketplace, as you said.

[Interpreted] So Nick, can you talk about the investment side of the business, the initiative by Sompo P&C and also the exposure to the high-yield bonds?

So as we've stated, we're taking one approach as we think about Sompo P&C and the investment strategy and how we look at the strategic asset allocation across all balance sheets. So what we're trying to do is find the efficient frontier and make sure we have a balanced portfolio and warehousing based on our risk appetite these investments. So we're repositioning, rebalancing. We're using leverage to benefit from our size and scale with investment managers to reduce our fees. We're optimizing our strategic asset allocation, and there may be some shifts, but I would say it was more of an underweighting to that asset class, the high-yield asset class rather than taking on a bigger strategic footprint as it relates to high yields looking forward. So we've started to integrate this mindset. We've started to rebalance and reevaluate the portfolios. We're looking at each of the individual balance sheets as we do that to make sure that those investments are warehoused on the balance sheets where we get the best risk-adjusted return.

There was a question on Aspen.

Yes. So I think the last question that you had was about 2029. I think it relates to synergies. We will continue to drive the synergies as a result of the transaction as quickly as possible. The 2029 is when we have a fully integrated run rate expense savings in 2029. So that does not mean we won't start that journey on day 1. It just means that our expectations between the integration of systems, bringing the legal entity together, optimizing along and harmonizing along the whole synergy approach by 2029, we should have fully achieved those synergies.

Next, BofA Securities, Tsujino-san, please.

[Interpreted] First question is about overseas. The other day at the earnings call, this year, it will be with the soft power, you'll be changing the portfolio significantly. And because of that, expected loss rate was increased and the cat rate is lowered, but at the same time, the expected -- the loss rate is increased. And so this offset with each other, but the investment is up. That's what you said. Now this change of the portfolio, by changing the portfolio about the know-how of doing it, I'm sure that that's something that being done at the Sompo International. But how -- where do you pay attention to? What are the areas of the focus and increasing the expected loss rate, you are being conservative. So if it is something that is newly underwritten, so next year or in 2 years, the assumption probably were too high, you might lower that. Is that something that could happen? So that's my first question. And second question is about the domestic business. So underwriting in Japan, many things are doing well, you said. And as for the auto, at the beginning of the year, in comparison to the loss rate, the cat loss ratio was increased slightly. And so most recently, when you look at the year-on-year comparison, last fall, I think that components and other parts unit price went up. And the claim unit price is up year-on-year, I hear. So for the next fiscal year, the claim unit price and also the frequency, if they do not come down, 6% or 7%, price increase might be necessary next year or even every year. So if that is the case, can you move very quickly or flexibly to accommodate that?

[Interpreted] Thank you, Ms. Tsujino. My first question -- your first question is about the international overseas business. Well, in building portfolio, there are different perspectives. So market rate environment and also cat volatility control there are different factors. So this time, the market as a whole, the cat and property rate are coming down and casualty rate for us was favorable. And because of that, we increased the percentage of weight. And as a result of it, expected the loss rate of the casualty is high. So to secure a stable profit and then the loss rate is slightly up. But concerning that, Nick can probably give some more details. As for Japan, there are innovation of the systems and others. Now we are creating the situation about the infrastructure, we are -- I am also focused on that. I'm concerned about that. So it's not just increasing the rate and to work on the cost, that is one of the basics, but we would like to, of course, provide a value that is convincing to the customers and to make sure that we do the portfolio management to increase our productivity and reduce costs. So that is the effort that we should be making before raising the prices. And as for the timing, now there have been some systematic restrictions, but we would like to be able to do that flexibly in the system development and also to shorten the long-term contract so that we can increase our profit. So that's why -- that's what we are doing at the Sompo Japan. And as for the portfolio-related way of thinking and the higher expected loss ratio, I'd like to ask Nick to give some additional comment.

Thank you, Okumura-san. I think as we see a few things happening, as Okumura-san said, the mix shift has created some increase in the attritional loss ratio. But the other thing is we have hyperinflationary accounting in Turkey and almost 1 point of the attritional increase is coming from that hyperinflational aspect of consolidation through our balance sheet. The other aspect of that, though, and the converse of that is we get the investment income and it offsets. And part of the reason our investment income is going up is because of the hyperinflationary accounting. So through the first 9 months, when we look at the 2 points of movement or 2.3 points of movement on our combined ratio, some of that driven by mix into the casualty business, where we're continuing to see good rate increases that make us continue to shift towards that. The second part of that is approximately 1 point is as a result of hyperinflationary effects through Turkey, which we get the offsets in investment income as we get the benefits through the investment income line. And then the third is that because of the California wildfires as we look through the first 9 months on an IFRS4 basis, although we saw that there was benign cat in Q2 and Q3 and Q1 because of the California wildfires. So as we look to the underlying and we look to the attritional loss ratio of the underlying, we feel very good about the outcome. There will be this hyperinflationary effect that we will continue to see with hyperinflationary accounting, which is offset in investment income.

[Interpreted] As for domestic matter, I'd like to ask Ishikawa-san to comment. Well, first of all, about the auto insurance and the impact of the inflation. In fiscal '25, the initial forecast, the CPI and the corporate price index, different factors are being considered to come up with this. As for this fiscal year, at the beginning of the year, we thought that it's going to slow down a little bit. So compared to the previous year, it was around 5.7% or so increase. But as Tsujino-san pointed out correctly, up to the interim period, it was 7%. So there was an impact of the inflation. In the medium to longer term, this inflationary situation might continue. It might come down, but about from 4.5% to 5% range, that is the range of the inflation trend, which is likely to continue. So auto insurance the -- to sustainably increase in the rate and we need to face the higher unit price. And as Okumura-san mentioned, some on the -- if the inflation accelerates, or the environment changes, which is beyond our expectations, of course, we have done the preparation from that system perspective. And in the past, we looked at the revision of the rate once every year. But from -- now that we can be more flexible and increase the frequency. So we have already built such system. In a similar way, the long term -- as for the long-term contract, currently, the percentage of that is being lowered at the corporate-wide level. So long-term contract, when the percentage goes down, the rate and also the impact on the product price revision and also the policies in force, we can make sure that those can be more flexibly reflected. And the expense -- to optimize expenses and in the claims payment, we would like to make sure that we do so. So appropriately balanced premium and the cost reflection is something that we are currently working on.

Next, Watanabe-san from Daiwa Securities.

[Interpreted] This is Watanabe from Daiwa Securities. I have 2 questions. In the appendix presentation on Page 9, I want to ask about dividend. So you mentioned that when you announced the Aspen deal, the EPS growth rate is elevated at roughly 18%. So does this mean that the DPS growth outlook is going up to 18%? And here is, you -- are you considering just a single year of FY '26? Or are you considering multiple years, including '27 and beyond? My second question is on Page 10 regarding the exposure to private credit. Bottom right of your group investment outside, 10% is foreign securities and others. How much exposure do you have to private credit? And I think there's an exposure at Aspen. And can you also tell me the exposure at Aspen? And regarding private credit, there are uncertainties. How do you think about the discipline for private credit, including direct lending?

[Interpreted] Yes. Thank you for the question. Also for the shareholder return, I will ask Group CFO, Mr. Hamada, to respond. And on the second question, regarding the group-wide investment, we are actually having the investment committee. So I will have Nick respond to the second part of your question. Also, the Aspen deal as well as how we are improving the profitability. So based on those, the EPS growth rate is not just one-off. We expect this to be sustained. And regarding investment, since last month, we have been hearing some noises in the market. So based on that, at the Board for Sompo P&C in Japan and overseas and also at the investment committee, we have been discussing what kind of impact we should expect from those noises in the market? So at the Board level, we are confirming that. So to the extent possible, Nick, can you share what we are doing for the exposure to private credit? So first Hamada-san, please.

[Interpreted] Yes. So looking at Page 9 of the appendix presentation, it may look like FY '26 DPS growth is going to be 18%. So we have not decided yet. But I was foreseeing that, that will be the expectation of the investors. And overall, the share price is going up, and we would like to place some more focus on dividend to a certain extent. So we are proactively considering the dividend hike. And of course, this is not limited to a single year. So we will look at the EPS growth rate of different years to decide on the dividend hikes for FY '27 and beyond. San-Nick?

So as it relates to private credit, we're not over-indexed, but we continue to monitor the market, and we continue to adjust it and think about it. I won't go into Aspen sort of exposure to private credit as we're not the owners yet. But we don't feel overexposed to it. We're monitoring not only private credit by the type of investments, but also by the industries to make sure that we continue to remain in line with the expectations of the private credit market. Although there have been some defaults in the market, we haven't found ourselves overly exposed to any of those defaults, and we feel good about the private credit that we have, the collateral nature of the private that we have also as it relates to private credit.

[Interpreted] Could you give us actual private credit exposure in Sompo International and Aspen?

So I don't want to speak on behalf of Aspen yet because we don't own Aspen, and I don't know where their latest position on private credit is as they actively manage it. We have less than $1 billion of exposure to private credit in Sompo International Holdings.

Next, Sasaki-san from Nomura Securities.