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

Hello. My name is Okumura, Group CEO. First, about this title. Not only Middle East, but in various parts of the world, now we are looking at the geopolitical risks and the climate change and the declining population in Japan and AI and cyber risks. The landing environment is faced with very tough challenges, and we are standing at the front line. And we would like to dive into challenges and drive our evolution. Next page, please. Before talking about the content of the presentation materials, the other day, we made an announcement. So we are going to change the name of the company to Sompo Group Inc, and that is the proposal from the other executive, the group. Last year, Sompo P&C and Sompo Wellbeing, these two new business units were launched. And by breaking silo and we are going to make advancements of the group as a whole. And by changing the name of the company, we would like to focus more on One Sompo, more on integrated the management, not only about the change of the name, but it is true the vision -- to work on the vision to unlock the possibilities and Sompo and the group and each person working there, I believe in indefinite possibilities of potential of each person and of this group. And we would like to make new challenges with that belief. And as we announced the other day, to domestic employees, we are going to grant the shares of the company so that both executives and rank and file people can work together to share the value. So for that, we are going to be One Sompo and then make advancements. And so we are going to change the name of the company as well as renewing the vision. Now the gist of the presentation, I'd like to talk about three things. First, FY 2025, this is looking back the past, what we said and what we did and what kind of results were appeared in 2025. And then we are already running in 2026. So this is the last year of the current midterm plan, and that is what is the positioning of this year? What are we going to do? And Sompo journey is going to continue. And beyond that, on the midterm, the image is 2030 and beyond. Towards that, what kind of initiatives are we going to take? These are the three things that I'd like to talk about today. So let me start with 2025 fiscal year. First, looking back, please go to next page. So the summary of the year 2025. At the timing of results announcement for 3 consecutive years, we reported on the record high profit. So what has been supporting that various aspects are there? As I mentioned earlier, two business units are in place for Sompo and SJ-R and other business operation reform has been done. And at the same time, we have renewed business foundation and profit foundation and organic growth. In addition, now we have Aspen, which has brought inorganic growth driven by Sompo International. We have expanded our customer base. Sompo Himawari and Sompo Care also worked on the customer and profit basis and expanded them. In each business segment, year-on-year basis, both revenue and profit increased. Shareholders and all the other executives and employees, I feel really grateful. And as a result of that, market cap has been expanding very smoothly. And actually, it was 1.7x vis-a-vis FY 2023. Now some breakdown. Next page, please. ROE, more than 13%, which is the final goal of the midterm plan was established 1 year ahead of the schedule. In my presentation, the normalized figures will appear on the if basis, but from 2026 business plan and beyond 2026. For example, if this happens, I'd like to remove such assumption. And on a stable basis, we would like to achieve always 13% adjusted consolidated ROE or more EPS growth, the numerator, namely the profit growth and earnings growth and the adjustment of the denominator through that, we could achieve 19% growth more than we anticipated. Moving on to the next page. So I would like to talk about the two business units that are supporting our growth. Sompo P&C, Sompo Japan and Sompo International together have created the Management Board. And we are learning from each other and growing together. So initially, Sompo Japan's underwriting culture, we are to enhance and we are to enforce and Sompo Japan members have given various advices and enhancement of underwriting is continuing. And also Sompo Japan and Sompo International as if it is a single unit and as if it is a single business, the integrated risk management and risk management have proceeded. And in order to gain economy of scale, the arrangement of reinsurance has been done jointly and operation as well as IT, gaining the knowledge and expertise of Sompo International and no exaggeration to say the refresh of IT cost, which has progressed -- which is progressing significantly. And also, there has been a major progress in terms of investment results. So as a result, Sompo Japan for the domestic business is visibly underwriting profitability has improved and also line size control as well as due to portfolio management, the results have improved steadily. And also in the size control back in April 1, and also being able to control large events. This has been evaluated highly. So more than the market breakdown, we have been able to enjoy the reduction of reinsurance premium. And for Sompo International, a very good portfolio management is in place, not only underwriting cycle, but for asset management as well. Gradually, the portfolio has been controlled and the duration in order to extend slightly, we have expanded the fund for managing assets. So NII has grown stably and organic growth, U.S., EU as well as lately in Australia, we are enhancing. The other day, I was in Asia, and in various countries of Asia, against growth, people are hungry. So although the rates are being coming softer, but in pricing, the underwriting is growing organically. On top of that, inorganic growth, as a first step, last fiscal year, the acquisition of Aspen had realized. So later from London, we have and Nick. So Aspen's PMI, the top management of Sompo International from London, which is the largest location, they are proceeding with PMI. So perhaps they can report about the progress of PMI later. So meanwhile, Sompo Wellbeing, last fiscal year, we've created this business unit. And for fiscal year '25, how do we evaluate Sompo Wellbeing? In a nutshell, organizing a business foundation. So starting from fiscal year '26, we wanted to shift to implementation and leap forward. So it was a preparation period. We have tried to fill in the services in order to dispel the three concerns of aging society. So Sompo Himawari and Himawari Life have increased the customer base. So it has expanded the customer base. And also nursing care business with fewer children and aging population, it is difficult to secure people for work. So for future nursing care, utilizing data and technology being able to make it more efficient while maintaining quality. So that's the challenge we're taking on. And what was coming up was the business foundation to improve profitability. So for nursing care business, we have grown the number of customers as well as expanded our business foundation. That was fiscal year '25. As such, so for fiscal year '25, we have been saying this is what we're going to do. This is what we are aiming for. And we realized this in '25. But for '26, this is the final year for midterm management plan. So for fiscal year 2026, we want to further improve our profitability and capture efficiency and learning up to 2030, we would like to accelerate our initiatives. So EPS growth, 12%. We expect the growth plus 12% and ROE more than 13%. Like I said earlier, once again, let's say, if we exclude this factor, there are numbers that have conditions. But by 2030, even if we exclude these noise, we want to be able to stably achieve ROE of 13% plus. So that's how we would like to drive Sompo Group. So 2 years ago, compared to '23, the adjusted profit to double and market cap to double. So that's what I said. For profit, I took the average profit prior to fiscal year '23, but adjusted profit we have largely exceeded or will exceed the number that we would like to achieve in 2030. So towards FY 2030 compared to FY 2023, we are discussing how we could improve profit and market cap to become 3x. So based on that target, what kind of portfolio to be created? So how are we going to combine organic and inorganic? So at executive level, we are seriously having a discussion moving on. FY 2026, compared to the timing that we developed the midterm plan, adjusted profit has shown steady growth. When we announced the results, we talked about favorable nat cat situation, both at home and abroad. That was the tailwind. However, even without those one-off elements, our adjusted profit normalized level has been rising, and I'm very certain of that. Next page, please. FY 2026 this year, Sompo Japan and Sompo International, the driver for the profit is Sompo P&C. For Sompo Japan, various measures are taken. Actually, there are some headwinds. Inflation, for example, is continuing in the current external environment or labor shortage, given such situation, we cannot expect inflation to stop in the short run. This means that the unit price of the insurance will see the ceiling very soon. And in the circumstances like that, not just raising all the premiums at the same time, but we can make the more balanced -- well balanced out the pricing structure, looking at the situation of the customers. And by strengthening underwriting, we believe that we can improve our profit. For Sompo International, organic growth is one thing. As I mentioned earlier, through geographic expansion, all in all, pricing situation is softening, depending on the business lines, double-digit down is happening. But for Sompo International, for region, by region, what kind of pricing by region that will produce positive profit. Such detailed calculation is happening. So even in a somewhat softer market compared to 3 years ago, we can still be very profitable. And they are strengthening underwriting. And casualty where the market is hardening, we are going to increase casualty and we will increase the asset under management, thus NII. At the same time, we are working on Aspen PMI. And by doing a good work on that, both top line and the bottom line, we'll see contribution from Aspen. So Sompo Japan and Sompo International, so they are normalized level, JPY 65 billion expansion of the profit. And as a result, 2026, if the nat cat is normalized, still we will be able to achieve JPY 500 billion. That is our plan. On an if basis, if as it was the case last year, nat cat was favorable, then this JPY 500 billion could be JPY 600 billion. Next page, please. As to Aspen, so to person in London would like to talk about it later. So for integration, rating and capital release are moving on very well. And after the closing in memory, we have been integrating the offices, negotiating with rating agencies for upgrade. And if you have any questions, my colleagues in London would be happy to answer your questions. Aspen and Sompo International integration, I think synergy or cost synergy is probably the easiest to understand. When we acquired Aspen, new Sompo International, about 10% of the other expenses or $200 million cost synergy is the target we set, including office organization integration, consolidation or process consolidation, integration. There are various measures to achieve it. Already 65% of synergy has been achieved or factored in some other measures. So the 30% strong remaining portion synergy will be achieved. And by doing so by 2029 fiscal year, JPY 200 million cost reduction synergy will be achieved. 2026, Sompo Wellbeing, as I mentioned earlier, the foundation that we developed in 2025. And then 2026, we will enter into implementation and business expansion phase. To be honest with you, there are some missing pieces, actually, many of them. There are 100 years of life to go along with that, when we want to solve three concerns, there are some of the initiatives that we need to take, but the customer base consolidation and new product development and Sompo Japan and Sompo International going together hand in hand, and that is Sompo P&C. And the Sompo will being here by making more efforts here, the more solid customer base that will be achieved. Now we have the new partnership with Kamakura Shinsho and new companies up and running. So we are now entering into the phase of expansion that is the positioning of 2026. Next page, please. So now I'd like to talk about midterm growth strategy for 2030 and beyond. Here, Sompo P&C and Sompo Wellbeing are the two wheels of the vehicle to drive the business. Those 2 business units, organic growth for Sompo Japan, and we are going to show you some more detailed paper, organic growth and for Sompo P&C organic growth plus inorganic growth that will be worked on. For organic growth, the keys are DDX, digital data, AI, the full leverage of these elements. In doing so, new way of work, new role of human beings. And for that, we will make in talent as well. So for Sompo Wellbeing, the business foundation is set up. There are missing pieces, we will be filling in and we are improving profitability as well as expanding the customer base in Japan. The refined solutions, those solutions developed in Japan will go out to overseas and vice versa. So a true global company will move forward in its journey. And also in 2030, the portfolio that we aspire to achieve and also not only improving the capital efficiency, but also stabilizing the profitability. By doing so, we would like to further grow and make a progress. Moving on to the next page. Once again, as I said, Sompo P&C, there are organic growth as well as inorganic growth. that could be achieved. And the core would be domestic P&C business, the Sompo Japan as well as overseas, we have Sompo International. But for Sompo Japan, the combined ratio in a stable manner, we want to achieve 95% and leveraging AI as well as data and automating process and simplifying products. Dual structure needs to be dissolved. Through these initiatives, the expense ratio will be brought below 30%. So day in and day out, we are pushing with these efforts. And for Sompo International, JPY 25 billion organically. This is the top line. This must be achieved. And for fiscal year '26, Aspen's PMI, this will be the first and foremost priority. But it's not that we're not going to do anything besides PMI. But looking at market environment of insurance, it is softening somewhat. So inorganic growth opportunities are growing significantly. So we want to do a disciplined M&A. This is a good example that we saw in Aspen. And in order to realize Aspen, we have considered various potential acquisitions. And we decided to not to proceed. And this is because we have disciplined M&A, which is very important, same as underwriting discipline. In order to grow and stabilize our profitability as well as minimize volatility as Sompo P&C growth will continue to be our choice. Moving on to the next page. I'm sorry, this is a busy chart. Ishikawa-san, I'm sure you are willing to talk about it, but Hikeshi DNA at the center. So back in 1888, the fire insurance company as Tokyo Fire, that was the very start of Sompo Japan. And now this is to be modernized to the current Hikeshi. So we want to deliver safe and security and health of people. Of course, if something happens and if there is a loss, that will be the payout of insurance claim, and that will be the first and foremost. But even prior to these disasters, we want to work on the solutions along with the partners so that we can deliver good solutions, attractive solutions to our customers based on technology. And also, we want to leverage data, digital AI to deliver new values to our customers. And by reducing expense, we want to make it at an affordable price, reasonable for customers. Commercial domain is expanding. So global level underwriting is becoming very, very important. So in the future, the sales of commercial will be field underwriter and understand customers' needs as a risk manager and understand the risks and not just its own capacity, but being able to negotiate with the reinsurers and arrange facultative reinsurance. That's the level of commercial underwriting we hope to achieve. In 2026, Sompo Direct generating profit is around the corner. And we are very flexibly changing the rate, and we've changed the rate 7 times a year last year. Over the past several years, with Sompo Japan and Sompo Direct, the transformation was underway. And in fiscal year '26, this will be realized. But furthermore, by leveraging AI, I'm sure that this business model will evolve further. Moving on to the next page. Wellbeing. As I have been saying, we are filling in missing pieces. So we will be working with external partners and expanding customer base and base and this should be a stable profit, which will contribute to the stability of profit of group overall and also solution which has been defined in Japan. This will be exported to outside of Japan. When I went to Asia the other day from Asian countries, this whole business model or even a part of this business model, please roll out them in Asian countries. So these were requests. So Wellbeing is now in Japan, but in light with a view to going overseas, we would like to drive this business forward. And I myself, I want to increase ROE to plus 13% in a stable manner. And regardless of uncertainties in various cultures in order to offer safe and secure and healthy future, of course, scale is important and diversification is important. So the next M&A following Aspen, I want to execute in a steady manner and for sure, so that profit can be brought about by plus JPY 100 billion plus. And for Sompo and Wellbeing, there is a long list of targets also in new businesses as well. But we don't want to do M&A for M&A's sake. M&A has to contribute to our value. So that's what we have in mind when it comes to M&A. So like I have been saying, I don't want to include special factors. Excluding these -- excluding those special conditions, we are to achieve 13% plus ROE. So towards that end, we are to create our portfolio. And regarding our shareholder return policy, regarding return to our shareholders, we will strengthen. And gradually, we will increase the payout ratio. And by 2030, we want to raise this to 50% and ROE 13% in excess. So we don't want to just randomly pile up our capital, but flexibly buy back our shares. And once that improve our ROE. So this will conclude my presentation. Up to fiscal year '25, I evaluate that we have been performing well. But important thing is what's going to happen beyond 2026 and on to 2030. So at executive level, we are discussing in depth. Hopefully, in fall and towards next year, we would like to disclose the information to you.

Thank you very much, Okumura-san, we would like to move on to Q&A.

[Operator Instructions] Our first question is from Mr. Muraki of SMBC Nikko.

Here is Muraki, SMBC Nikko. I have two questions. First question, on Page 21, the future investment, especially overseas. So more than JPY 100 billion of profit is going to be accumulated, it says. How much of it will be overseas? And as I asked in the past, how much M&A? So ESR over 200%, I think you have JPY 1.5 trillion or so the capital. How much of it will be used for overseas? Tokio Marine & Fire over USD 10 billion. That's what they said to overseas mass media. Do you have the similar size for overseas investment? Next question is on Page 18, domestic P&C business. So three company structure basically. What is going to be your characteristic? Over the past 10 years, on a comparison basis, your share went down and the business expense ratio are on the same level as the peers. MS&AD, they now have the top share with the consolidation. Tokio Marine and Fire, they differentiate themselves by solutions. What is going to differentiate your company? And how that difference will be translated into numerical differences?

Masao, thank you for that question. The first question is about M&A and capital allocation and what are our targets? I think that's what you meant. And the second one is about domestic business. Ishikawa-san is going to answer the question. So as to your first question, let me take that question first, and then probably Jim and Nick can make some supplementary comments. As we have been saying for a while, about JPY 1 trillion or so M&A is doable. But to do that, we need to go through some process, not only overseas, but for some for wellbeing also, there's some effect coming from M&A day in, day out, I see it in the form of report. But right now, the current growth and the financial market situation, if we just want to accumulate numbers, then it will be easier to understand overseas rather than domestic market. We are going to accelerate discussion in this field. But on a bottom-up basis, picking up various potential deals, the hundreds of billions, maybe, but -- or it could go over JPY 1 trillion. We are doing that kind of discussion. M&A structure will be part of our discussion as well. 60% to 70% of the capital will be allocated to M&A overseas. That's the standard scenario and the remainder goes to the wellbeing. But after that allocation, what is the timing to recognize profit, that should be part of the picture. And because of that, there could be some change in the number. So let me -- let us start with the Ishikawa-san's explanation about initiatives in Japan. And then Jim and Nick can talk about overseas M&A market situation and what you have been doing as much as you can share with them. Ishikawa-san, please.

Yes, Ishikawa speaking. First, how to differentiate ourselves from the peers. I would like to say a few things here. First, Sompo P&C. Going forward, Japanese market is going to be westernized. That's for sure. The authorities are -- will be also westernized and for example, brokers will be more active in this market. So SIs, the know-how, the Sompo International's know-how will be arranged, if you like, for the Japanese market. That will be a big advantage for us. SJ-R initiatives are actually seeing the effects of such effort. About JPY 60 billion SJ-R effect, which is going to be expanded. That's the first point. And second point, digitalization, we would like to make advancements strongly digitalization, deducts. In -- from January 14 of this year, we started a trial. 90,000 the Sompo Japan employees were signed with agent. So all of them, except those who are on the leave, daily active user, more than 50%. That's the target of usage. So retail, commercial and the other HD are using more of the AI agent. Weekly active users, so they're including administrative staff, so more than 70% of them are using an agent. On average, it is the order of 10% in this country. So now we have usage ratio or implementation ratio 6x or 7x the national average. So DX, digital AI will be used more and more so that we will have much more lean and more productive organization. And lastly, as Okumura-san said in his presentation, Hikeshi DNA project is going on, is underway. 1888, we started as a fire insurance company. And we are going to redefine as modern Hikeshi or fire extinguisher. So wellbeing in the wellbeing area as the extinguisher of the problems, we differentiate ourselves. So Wellbeing and Sompo Japan, that is -- we are talking about the 20 million customer bases. So Wellbeing, the P&C side and well-being side can send their customers to each other. That is the structure which would differentiate ourselves. Thank you. Jim start your comment about overseas M&A market.

Thank you very much for the question. I believe the answer of what percentage was being allocated to overseas was given and give you a little bit of sense of how we approach M&A. We have a very rigid process in terms of evaluating how we deploy the capital, whether that's on organic opportunities or inorganic opportunities and are committed to delivering that return to both Sompo Holdings and to our shareholders. I think you can see from the results of our recent acquisition, which we took time to find, is generating the returns and the commitments that we gave to the marketplace. So I'm confident that our process of evaluating opportunities, both organically and inorganically will continue and continue to serve us well in terms of the M&A marketplace.

The follow-up for the overseas. The pricing situation is softening. What is the bottom? How long this soft market will continue, do you think? And that kind of situation is linked up with the valuation at the time of acquisition and when the changes in the stock price will come? In other words, my question is what will be the good timing for the acquisition? Duration, when you say duration, what do you mean? The duration of the soft market, how long do you think it will continue? And based on that understanding, what is the timing that you think that the best time to buy in the M&A market?

I have never discussed it with either Jim or Nick. Well, the valuation is coming down a little bit. But the reactionary move of the pricing situation, there are lots of elements there. Not just one big cat will not make any difference or the capital once it goes out of the insurance market, then the market will be hardening. So as to timing, I don't think there is any definite timing to see the end of the soft market. I think it will continue for a while and the valuation is coming down. Jim and Nick, if you disagree, please go ahead.

Thank you. No, I agree. I think it's important that we manage and build our business through various market cycles. How long it will last? I'm not going to predict that, but you can see the cycles -- historical cycles. And so I think through strong underwriting and risk selection, we'll continue to manage through the cycle, and there will continue to be opportunities.

So I think if there is any chance opportunity in a disciplined manner, we think we can conduct M&A. But when it comes to PMI of Aspen and synergy creation, that is our commitment for FY 2026. And while doing that, we will not miss M&A opportunity. Thank you.

Moving on to BofA Securities. Tsujino-san.

First of all, rather a narrow focus. The automobile insurance for March 2027, the forecast, excluding nat cat, the loss ratio is 1.9 percentage points. That's the improvement level from initial forecast. You're seeing an improvement. So why is that so? And meanwhile, it is growing. The numbers are growing, but looking at the improvement, it will have to improve further. And the pricing for July is 1.8%. So the competitive landscape, you're monitoring, I know, but maybe at some point, perhaps you will have to take action. Is that how you are planning? And also next is about buyback. Last year or maybe around or until around winter, in order to achieve ROE 13%, perhaps a major capital adjustment has to be made. That's the message that was delivered. And this time, on the 20th, it seems like you have changed your direction. So that was the impression that I got. Meanwhile, Aspen's PMI, those potential M&As that may not -- will not impact Aspen's PMI. So that's what you are exploring. So maybe you are being prudent in M&A. And you have strategic stocks that you can sell. So perhaps you did not have to change the direction 180%. So if you could give additional explanation?

Tsujino-san, you talked about the loss ratio of automotive insurance in Japan and improvement in profitability. So I will hand over to Ishikawa-san after myself. But not just auto, but as an insurance company, we have to do what needs to be done. And then we may ask for a proportionate share from customers and adjust. And if we have this order wrong, that is not going to be acceptable. And for the second point, I would like to respond first. Within ourselves, we didn't intend or our understanding was not turning our directions in a wrong way or a different way. We have adjusted profit and realized JPY 530 billion. And there was a onetime factor. So adjustment was about JPY 100 billion. And this time, we achieved 13% of ROE. But if we normalize, that would be about 11%. So in order to stably exceed 13%, then we need additional JPY 100 billion of profit and also the ESI calculation, the numerator as well as a denominator, we will have to think about. So inorganic, in M&A, it depends on the market, and there is a partner, the seller side. And if we cannot do it, then maybe we can buy back. But if there is a golden opportunity of M&A, because we have a ceiling, do we let go of this JPY 100 billion additional profit? So that is why I'm talking about M&A. But we are still very particular about 13%. So Ishikawa-san, over to you.

About the automobile insurance, as you have pointed out, back in -- in July, this will be revised. So fiscal year '26, there was a revision in January. So this will be second time for this year. And the raise will be 1.8% in average. So with this revision, those policies after the revision, we will be able to achieve 95% combined ratio, so -- which is a target for us. So we would like to continue to retain these policies. And this applies to other insurance companies as well, but we have long-term contract. So by changing the contract or changing the product, this does not act immediately. It will not have an impact. For the new businesses, of course, this will become and reach reasonable level. As far as long-term contract is concerned, earnings level is not sufficient. So in January 2027, what are we going to do? We have not decided anything, but maybe on a needed basis, we will consider. And not just changing the rates or products, but underwriting as well as deductibles, we can -- and also exclusions we can set. And just changing the rates, if we think about loyal customers as well as agencies, they may walk away from us. So like you -- as Okumura-san mentioned, we have to work on reducing corporate expense, commissions and then perhaps propose changing the rates will be the final option. Thank you very much.

Next question is from Watanabe-san of Daiwa Securities.

This is Watanabe with Daiwa Securities. I have two questions. First, on Page 23 of the presentation materials. So there's a shift of focus from share buyback to dividend payout ratio. So what is the time line for achieving 50% of the return ratio? And also Page 11 of the supplementary documents. So here, my question is whether give the policy to pay out 50% of the proceeds after tax of the disposal also strategically held shares is possible to be reviewed? And the Page 8 are the life insurance business ROE, looks relatively low with budget. The ROE 13% goal, it would be easier to achieve exit from life insurance business could be one of the options going forward.

First, shareholders' return and the reduction in the strategically held shares and buyback. So now our new CFO, Tajiri-san, can answer the question. As to 50% of the return ratio. By 2030, we'd like to achieve 50% [ TBR ] 1 or exceeding 1 in a stable manner. The stable profitability and review of portfolio through such efforts, we would like to steadily increase dividend and dividend payout ratio. So about share buyback Tajiri-san, please.

As Mr. Okumura said, at the latest by 2030, earlier, the better to increase the rate of dividend payout. So although we have been raising it to 39% level. So as much as possible earlier than later, we would like to raise it to 50% level. Why not 50% this year, you might be thinking? With the 50% of the total the return ratio, but we have to strike a good balance between dividend payout and share buyback. So this time, we have raised it to the order of 40%. As to strategically held shares, the stance remains unchanged, 50% of after-tax profit. That definition remains unchanged. As to life's business, Oba-san Wellbeing head is here. As a group CEO, we are aware of the low ROEs that we are going to work on numerator and denominator, but a simple exit from life insurance business is a clear cut, no. So now Oba-san, please.

CEO of Wellbeing, Sompo Wellbeing, Oba speaking. So as Okumura-san said, the big policy is in place. And as to this no ROE of life business, I would like to make a comment. Basically, this level of ROE is dragging the whole group. And I have a strong sense of other crisis. We need to improve capital efficiency, and that's the shared understanding. That said, IFRS, the net assets being the denominator, namely ROE, given the rising interest rate and that is reflected in the net assets, which is denominator and increase the net asset. So it's a kind of net asset with noise, a little bit the blown up, the net asset. And that is impacting ROE. That's one aspect that we have to bear in our mind. So ROE in the case of life business in various aspects, we need to have a multi-asseted way, multifaceted way of looking at it. From risk volume, based on risk volume there's required capital. And that is the denominator for certain net asset. And now based on that, it is over 10% ROE now is over 10%. So we need to have this multifaceted way of looking at it. And we need to improve the quality of business base and the business efficiency, operational efficiency that should be improved. And through that, we'd like to improve our ROE.

Follow-up question about the first one. Currently, the scheme of the shareholders' return basic, the return, 50% post the tax profit, 50% and also the capital adjustment. The basic return if it is already 50% of the payout ratio. Then still, are you going to maintained 50% after-tax basis?

For 2030, that is the 1 yard stake, by then, we are going to use the proceeds of sale of strategically held shares and by striking a better balanced portfolio and the better quality the portfolio should be achieved. And by then, the reduction in the 50% of the sales proceeds of strategically held shares will be maintained.

Next, from JPMorgan Securities, Sato-san, please unmute yourself.

This is Sato from JPMorgan Securities. I have 2 questions. First, I'm sorry to go back once again regarding ROE. So my question is as follows: To start with, in this midterm management plan, there was a target was not really 13%, but rather you expressed between 13% to 15%. In other words, perhaps if you have some kind of upside, then perhaps 15% is possible. So that was the assumption. So relatedly, what were some of the upsides that you had in mind to achieve 15%. And this time, you don't have this upper number, but rather focusing and emphasizing on 13%. And why is the reason that you are just giving a single number and also, as Ishikawa-san mentioned, deducts, digital, data and AI usage. You mentioned that you've introduced AI agents. And I don't think that will be a differentiator against competitors Honestly speaking, like Palantir and Lexia or Sompo [indiscernible] initiatives. So these were your uniqueness that were introduced to us. So this DDAX initiative that you are pushing forward. What are some unique initiatives that could be advantages over competitors? And also now in the era of GenAI, are you thinking that it has become difficult to differentiate?

Sato-san, thank you very much. For the first question, I would like to respond. And for the second question, Ishikawa-san and co-CDO, Kimura-san, is also with us. So from Sompo Group and as a broader Sompo Group, Palantir and ABEJA and these physical AI usage is something that I would like them to refer to. Regarding your first question, ROE, the numerator, level of profit we had initially assumed. The contribution of Aspen profit would start to materialize from this year. But this may be delayed somewhat. It may not have a full impact, but I evaluate that it is contributing. But maybe we were optimistic about the denominator like market situation. So we proceeded with sales of strategic stocks. And all included, this is a business management, so I may be making an excuse. But I think there were factors in the denominators. So in order to overcome that, we need to further expand our profit. So in organic as well as for Sompo International, we visit the retention and come up -- increase more quality in policies or compared to overseas competitors, can we not push ROE even further? So both denominator and numerator, do everything possible and try to improve ROE. We want to improve without making any excuses. So that's the question to your first question. Regarding your second question, AI initiatives. First, Kimura-san, would you care to answer? And please add after that.

Sato-san, thank you very much for your question. As you say, multipurpose, general purpose AI, Ishikawa-san mentioned about Sompo's AI. But in the reference materials, Page 14 and 15, I think our characteristic is that we are moving in all fronts. So as Ishikawa-san mentioned, the general purpose AI -- Sompo AI agent has been introduced. So Sompo Group overall, we have 34,000 accounts and the penetration and promotion, I think that's very obvious and the benchmark DAU, 10% of the people using every day. And company-wide, we're close to 50%. So on to optimize the daily operation and make them efficient. That is something that we are really pushing forward. And also on Page 14, the Specialized AI for operation to be embedded and make it automatic end-to-end. So once again, going to Page 15. So without any holy sight, we are applying to all operations. So if you could go to Page 15, AI 1.0. So that's the improvement of productivity. And when it comes to AI 2.0, this is a full operational process. And introduce AI to automate end-to-end. We are focusing on this. So at Sompo International, 50% of the claim process has been automated. So that's already a track record. And in group companies without any exceptions we are deploying so that we can achieve higher operational efficiency. And as Ishikawa-san mentioned, equivalent to 600 administrative staff reduction and also 2,700 equivalent sales operations personnel reduction. So these are the strength, and this has been almost realized.

Excuse me, perhaps I was not able to deliver my intent fully for the first question. On profit side, you have assumed yourselves that you have been successful, but you were optimistic on the denominator side. So if this is adjusted, then you can achieve 13%. So that's what you have explained. So my question was, you were successful and you were optimistic, and you've adjusted that. But you had a range like upper part of the range, 14% to 15%. That is not visible. So what were your assumptions? What did you expect on to achieve 14% to 15%. That was my question. I wanted to ask you. So if you can take that as simply as a size of M&A.

I see. So maybe more so than Aspen. Well, Hamada-san, who is not here said JPY 1 trillion. I don't want -- I'm saying bad things about the previous CFO but something bigger in size of M&A.

Okay. Before digital, I would like to add. General purpose AI, so corporate culture and future efficiency and in order to improve productivity, this is important. So I presented that earlier. But we have made a great stride here. So Oshiete SOMPO, by using LLM from external, let's say, agencies inquiries, we are changing to AI now, but LLM and AI, it would respond or assist the response and also when loss claim comes in, well, we're using a foundry of Palantir, and we added DDAX to that. So the person who will be in charge of that claim will be designated and also the repair factory. It would take photos and those would be sent and AI would look at whether the estimate of the repair cost is correct or not. So in this claim service operation, it is proceeding significantly so equivalent to 1,000 people in claim service operation, we expect to reduce in fiscal year '26.

So not only Sompo Japan, but in our case, starting with Palantir, ABEJA have been supporting us in the nursing care business. This is a major challenge in Japan. So unlike a common sense of the past can we not increase the productivity significantly, not only AI, but physical AI. We have entered into agriculture business as well. But can we not use AI in a totally different dimension for these business models. Once we make a progress, we would like to share this with you. At Sompo Japan, in various processes, AI is embedded. And now challenge going forward is those saved time and people, how can we shift those people in time to growth area and reap the benefits from that. I will stop here. Thank you very much.

Next question is from Niwa-san of UBS Securities.

Here is Niwa of UBS Securities. I have two questions. Page 10, long-term by 2030. So the 3x you said after twice, 3x or 4x, well, for the other 3x, based on what after 3x would be 4x. If it becomes 3x, it will be like 20%. Based on the current governance and the executive team, could you please give us some feel as to the governance and management, the sense of feel? Additional question to Sato-san's question. nursing care platform. So you have know-how and services to offer, I understand. Software development -- so the death of SaaS because of AI, how should we face with software development? Do you have to do it yourself? Or can you use rather AI to do more? Could you please talk about your direction?

Niwa-san, As for your first question, as of FY 2026, we said there was a profit in the market value as well. And the JPY 500 billion of adjusted consolidated profit and JPY 6 trillion of market cap. But now we can do more like 3x. Once we do it, then the stable ROE will be rising and more than 13% ROE without any conditions attached will be achieved. And more than 13% -- but when we say more, to what extent it depends on how we are going to redevelop our portfolio. At least given the current profitability level and the capital allocation for growth in -- organic growth, 3x profit and 3x market cap, I personally think are achievable. As to nursing care, Oba-san, the Head of Sompo Wellbeing.

Niwa-san Thank you for your question. I am CSO of Sompo Wellbeing. As to the nursing care platform business and how should we think about it? I think that's the gist of your question and how we are going to use AI for that. So the platform business positioning of it in the notice business, platform business is as follows. So the base to support the daily -- but separate from the support business for daily the life of the users. We provide solutions for example. Outside the other publicly provided benefit we get the profit by providing such services. In the -- outside of the public scheme, and actually, this line of business is growing steadily. Despite from Business -- other than the wellbeing services, the other services provided by many nursing care players, we will give our know-how to those -- the nursing care providers in the form of consultation or systems. NDS is one of our subsidiaries, which provides the systems to the nursing care players that this company is actually the top player in the field. So the know-how that we have accumulated is delivered through the know-how of those -- this company to other nursing care providers for fees. The key there is Sompo care. It's another top player in the facility care services and also data. We use our actual data, brushing up know-how so that it is -- it has become product that we can sell to other players. So I think capital profit it is set to hit this heading? Under such circumstances, we would like to grow this very promising business using advanced AI plant here at vigor. AI related companies with the most advanced know-how by combining the sample wellbeing data with such technological, I don't know how that will allow us to deliver the very -- the good quality products and services.

One additional question, market cap. In the simple calculation JPY 9 trillion will be the result of simple calculation. So what is the calculation that you used for your number?

It is not authorized yet, but the actual amount of adjusted profit and the net assets supporting it, PBR, NPR, combining all of them, JPY 8 trillion to JPY 9 trillion will be the result.

Moving on from Morgan Stanley MUFG Securities, Takemura-san.

I have two questions, if I may. My first question is about future M&A and your idea towards future M&A. More specifically, what will be the areas of interest or where would be an area that you can generate potential synergy. For instance, in the reference material, Page 37, by region, by segment, by risk, I can see the breakdown. So in line with these information, if you could give some hint of where you would like to grow or where you would like to generate synergy? That was my first question. Second question is related to Mr. Niwa's question. Following Mr. Niwa's question in FY 2030 profit to triple. That's what you mentioned. So that is 3x of FY 2023 adjusted profit of JPY 335.9 billion. Is that correct understanding? And so excluding JPY 100 billion from additional profit of investment, that means you need additional JPY 400 billion. So it could be a rough image, but what are the potential drivers? And maybe the reduction of combined ratio in domestic benefits, maybe that would be one factor. But if you could add color to it?

Your first question regarding M&A, especially overseas M&A, things are moving around. So I wonder to what extent I can talk about, but what will be the line of business or which region? Maybe Nick and Jim could add? And your second question -- so back then, it was not IFRS, but it was JGAAP and it was about JPY 290 billion profit. And in '22, '23, it was about JPY 250 billion in average. So back then, I wanted to double that to JPY 500 billion by 2030 and a market cap to JPY 6 trillion from JPY 3 trillion. So if I use the phase back then, it's JPY 700 billion to JPY 800 billion profit, including organic loss and both on M&A. And Sompo Japan, including the expense reduction, combined ratio will improve and wellbeing will increase its profit as well. And on top of that, inorganic growth, then I came up wtih that ballpark number. But at a management level, having a detailed discussion in 2030 and beyond, what is our vision? What are the values that we want to create? What are the needed portfolio to get there, we are working on the details. So now for overseas M&A from Japan,J and nick can you explain?

Yes. So the transaction we dusted with Aspen was really more about scale and getting the benefits of the scale in the markets where we get business before in the U.S. and on and getting some product extension as a result of that. Looking forward, it's very difficult to tell, but we're relatively happy with the mix that we have, but it could come in many different ways, logical footprint extension is adding lines of business. But there is one thing. I mean, the size of the transaction and the work associated with it, there is value in sort of getting the economies out of that. it's very difficult to tell what we'll do back, but this last one is representative of adding additional scale in the regions and the markets where we were the biggest.

So apart from specific potential deals, -- for instance, in Asia, we are running joint venture for some time. Well, maybe we can have potential to grow, and we can capture more growth in these regions as well. That will be all.

Sasaki-san from Nomina Securities.

Two questions. First, inorganic M&A, so you presented any other cases. What is the time line to make a new deal to make a deal and to create a new picture of P&C by 2030, you're going to make utmost efforts until 2030 or in the 1 to 2 years in the short term, are you going to decide on the other deal, I mean, because you -- the very sick capital comes with cost of capital. So when we think about your share price, we need to have some discount on the thinking about the -- your share prices. Any hint that you can give? That's the first question. And the second question is this slide, the top right wellbeing missing piece acquisition of missing piece here, it says, is it about life business or nursing care or other than that or life business overseas is included in the missing pieces? These two questions.

Sasaki-san, your first question in organic, what is the time line you said 2030 for me -- in terms of the sale of strategically held shares because that the operation will be completed by then, we need to build a good portfolio. That means 2029 or 28 late 2028, to do M&A '28 or '29, it is rather difficult to expect it to make full contribution. So the global market -- insurance market is getting softer. And the valuation, I think, is getting lower. So Aspen PMI, we will welcome that. So we should not put too much the burden on the frontline people. So we are continuing the to seek the good targets for the next deal. We will not wait until the 2030. So as to the three the uncertainties, including the retirement fund. But at this moment, we do not think about big well-being-related M&A overseas. We are front runner of the challenges, especially for well-being because the problems are emerging in Japan. So we need to give solution as much as soon as possible. And after that, we think about operation overseas, the size of the life business, nursing care business should be expanded. And also, we do not have many functions on our own. So maybe we would like to buy them from outside if there are chances. And the future nursing care, future care or the more significant labor shortage, even when that happens, we need to provide a good business model. And when we can do it, then we will see that has to expand our nursing care business. Oba-san some comments.

So being CEO over as to the M&A for well-being, whether it is a missing piece or not. Well, three concerns: health, nursing care and retirement fund, these three concerns. In order to solve these things, we'd like to provide a solution. That's the first thing that we plan to work on. That is our basic policy. And we are going to seek missing pieces. There are two big policies, first, functional access. In order to solve these three concerns, we need to think about the functions and also the customer base acts, including the channel. In these two directions, we list up some candidates and -- which are under review. And the example who that is Kamakura Shinsho, the tie-up with which we announced in December. Kamakura Shinsho is the biggest player when it comes to end-of-life platform. And with this tie-up we will provide life-ending support in the form of Sompo Care or life, and that is what we are working on. So the functional access and the customer base access are the two perspectives that we adopt and as to the retirement fund, we do have a life business, but we needed to have more vehicles or the partners for the life side to provide more services to retirement fund related services. And the B2B corporate wellness business, the business cares and corporate wellness wealth and wellness -- and we would like to work on that as well. And for that, we would like to find a partner for that purpose. And that -- those are the priority items for the time being. As to customer base, the customers of other life insurance companies are in the scope. We do not exclude the Life business. So we are using the wide perspective to find partners. And that's -- well, we do not intend to consolidate with some life company. But at the same time, we do not exclude life companies from our list.

Sakamaki-san from Mizuho Securities.

This is Sakamaki from Mizuho Securities. I have two questions. One is about domestic P&C ROE midterm management target. You have exceeded along with the improvement of automotive insurance profit Also, you are planning to reduce expense as well on a JGAAP basis. So to what extent is it possible to raise ROE of this domestic business? So what is your perspective at this point? Next is about capital policy. The ceiling of ESR has been eliminated, and you have changed to show the capital efficiency based on ROE. So how are you going to ensure the discipline of the capital -- so this will be a rather a question about management style. So using buyback for a certain part of EPS and thinking about the growth of EPS. But under this new scheme, how are you going to ensure capital discipline?

First of all, your question is about domestic P&C business, denominator is not the actual capital, so -- or maybe additional explanation will be necessary. The improvement of combined ratio and improvement of expense ratio, if we progress, then virtual ROE will be in excess of ROE. Do you want to add any comments? Okay, Ishikawa-san, would you care to respond? And also about capital discipline, I, myself, I would like to respond and, if necessary, CFO, will add a comment.

I am Ishikawa, in charge of domestic business with a virtual capital allocation, this will change. So this will be our perspective. When we formulated a midterm management plan, the target of domestic P&C ROE was a 10% target in 2026, but 40 points in 2025 was achieved and 12.4% in '26, that's the forecast because it will normalize, but we are able to achieve ahead of the schedule. But going forward, impact of SJ-R and also underwriting and with a good management, we believe that capital efficiency can further be improved. So the target is to contribute to the group, it will be somewhere between 13% to 15%. And we want to maintain the rate, and it shall not be impacted by nat cat in Japan. And second point, -- regarding this question, the limit of ESR. -- eliminating that and prioritizing M&A and expand the numerator. But as was mentioned in the return policy, the adjusted profit -- and again, half of a gain from the sale of strategic shares and ROE of 13% is the target. -- and adjusting the capital. So these ideas, we will continue to stick to. So would you like to add Tajiri-san?

As Okumura-san mentioned, in order to improve capital efficiency, I'm sure there is room for the current businesses to improve ROE. We have enough capital. Also, we can take more risks. -- and improve ROE, both domestic and overseas. But at the same time, we need to prepare for future potential M&A. So we will adjust our capital level. on a necessary basis. So these three will have to strike a balance. So rather than getting an approval of under MTMP, we work on year-by-year. And we will come up with a rolling plan of 3 years going forward. Like 3 years from now, maybe ROE, 11% is not visible or 13%, not visible. But then we will have to include in our option to adjust our capital. And if I were to add, I think these apply to other companies as well, but the capital is not being leveraged fully according to the government so fungibility if things are stuck, then we can perhaps use reinsurance and circulate the capital within the group. So I would also like to also thinking about the quality of the capital as well.

Maybe I missed it, but next midterm management plan, you are not going to formulate. It will be a rolling period like 1 year basis?

Well, under current MTMP, the dollar amount target has not been disclosed. Of course, for some of the businesses, we have a certain criteria in place, and we work on a 3-year rolling plan. But external environment is changing dramatically. It's so dynamic. And can we put together and formulate a certain dollar amount of 3 years from now at one point. Rather, it would be better to be on a rolling base every year or think about scenario base or risk based. This is to be discussed. But when we complete the current MTMP, what will be the direction that and targets that we would like to present to the market, we will have a further discussion inside.

So the time is running out. The next person will be the last person to ask questions. Tokai Tokyo Intelligence Lab, Mashima-san.

Here is Mashima. Page 7. So I was looking at Page 7. It is a detailed question, domestic P&C site control. About this reduction in the large losses are expected through line science control. Does this mean that the -- you are seeing some other cases where the control is not appropriately done. And also, you said that you would like to reduce IT costs, if I understand that correctly, DX, but you are saying that you invest in AI and DX investment? And how are you going to reduce investment? Do you mean that you have renewed all of these things to some extent, so you can either reduce the cost there or using AI agent that can write the other programming codes to reduce outsourcing costs? These two questions, please.

So your first question, Ishikawa-san is going to talk about the reaction on the front line. And as to the second question, Tajima working on -- so the -- including the know-how you gained from Sompo International. Of course line control, size control in doing that kind of control communication with customers is very important with the old sense of value, the sizes were quite big and with some customer accounts, management-wise, we had to struggle with it. But in a certain period of time, we have been negotiating or communicating with them to gain their understanding. As to IT cost, so we renewed the core systems and amortization is happening. And compared to other inflationary the goods, the IT cost is the above that average inflation cost. So that was the most important priority. And Tajima-san is going to talk about it. So about the reaction on the front line for line control. Ishikawa-san please look at Page 28 of the supplementary document, what kind of the portfolio synergies we have taken that each shown here. So by different appetite, there are different volatilities. And now we have detailed segment control or management to increase good risks and reduce not so good risks. And that's what we are doing with the frontline people. As you can see, the we use data and deducts if I talk on the retail side, automobile insurance, that we used to get 200 meshes for the segmentation. But in SJ-R not to fund it, but the 17,000 niches are used for the control. That's how we are the managed segment to develop a good portfolio. That's the basis. It's not about huge capacity or anything like that. And if we do so, we review -- we renew it or the change the other conditions by taking good communication with customers. Of course, we set sufficient lead time when we talk with customers. So we are not seeing any material troubles emerging. And of course, we need to the focus on customers. And by doing so, we are building this portfolio. And as to cost, -- as you pointed out quickly, in the Sompo P&C, this IT is the initiative that we are taking. As we discussed last year, Regime talked about the JPY 30 billion reduction as the North Star. He made that announcement last year, and we are going to -- we are working on that. And so the business side, people should be involved as well. And JPY 4 billion for '25 and for '26 JPY 7 billion. So more than JPY 10 billion impact is already emerging. Actually, it is expected. And until April,I was the CXO of Sompo Japan leading the base. As Ishikawa-san said, in this new ecosystem of Sampo P&C. And I think this is the example with the biggest effect. Sompo International COO, Daniel and myself work together to avoid the more complex systems to move away from such trend of the complexity of the systems. The shared -- the challenge among all the Japanese companies. I have been thinking about it with Daniel and Daniel participated in the meetings. And Daniel used to be working at Zurich, working on a similar framework. So leveraging his experience, especially for maintenance systems cost, we have simplified it. We have reduced hundreds of vendors we have narrowed down the list of vendors. And under the banner of North Star, we have been reducing cost by about JPY 10 billion already and it's aiming at JPY 30 billion. So in the digital world, in order to reduce cost, if we just stop making investments that will make us weaker. So this current maintenance cost will be reduced. But for the deducts for future investment, that's different that is managed separately.

Thank you. So we have exceeded our time, so we would like to close the meeting. If you have any additional questions, please contact our IR team. Thank you very much for your attendance. [Statements in English on this transcript were spoken by an interpreter present on the live call.]