Sompo Holdings,Inc. Q4 FY2026 earnings call

- Full Year FY 2025 Results - Achieved the FY 2030 adjusted consolidated profit target of JPY 500 billion 5 years ahead of schedule, with a 2025 result of JPY 535.2 billion. - Growth was delivered across all business segments, with particularly strong profitability improvement at the domestic P&C business that drove group profit. - Shareholder Return Policy - Total shareholder return for FY 2025 (dividends plus share buybacks) reached JPY 281.6 billion: full year dividend per share was JPY 150, and total annual share buybacks were JPY 146 billion. - The company targets a medium-term total payout ratio of 50%, with a goal to increase the dividend payout ratio to 50% over time. 50% of proceeds from strategic shareholding sales are allocated to share buybacks. - Operational Updates - The Aspen acquisition was completed in February 2026, with the actual impact on the company's Economic Solvency Ratio (ESR) half of the initial conservative forecast (15 percentage points vs. the previously estimated 30 percentage points), due to higher accumulated capital at Aspen at closing. - Domestic auto insurance has expanded risk segmentation from 2,000 to 15,000 segments, enabled by AI, to improve risk selection and fraud detection. New operational partnerships have also reduced claims payout for specific damage types by approximately 30%.

For FY 2025, Sompo Holdings delivered adjusted consolidated profit of JPY 535.2 billion, an increase of JPY 211.8 billion year-on-year, reaching a new all-time high. 1. Domestic P&C: Adjusted profit increased by JPY 95.9 billion year-on-year. Improved base profitability of Fire & Casualty contributed JPY 70 billion, and higher investment income from stronger fund-related returns contributed an additional JPY 15 billion, with a tailwind from lower natural catastrophe (nat cat) losses. 2. Overseas Insurance: Adjusted profit rose by JPY 105.5 billion year-on-year. Favorable low nat cat losses supported results, with underlying improvements including a JPY 25 billion contribution from a better loss ratio and a JPY 27 billion positive impact from increased interest and dividend income driven by larger assets under management (AUM). 3. Sompo Wellbeing: Adjusted profit increased by JPY 7.9 billion year-on-year, driven by lower claims payments and growth in the nursing care business.

- Adjusted consolidated profit for FY 2026 is projected to reach JPY 500 billion on a normalized nat cat basis, which represents an increase of JPY 62.4 billion compared to FY 2025's normalized profit (excluding the one-off tailwind from low 2025 nat cat losses). - Dividend per share for FY 2026 will be increased 33% year-on-year to JPY 200, marking the 13th consecutive year of dividend increases, with a projected FY 2026 payout ratio of 39%. - For domestic P&C, underlying profitability improvements in auto and fire insurance are expected to drive profit growth. A planned 1.8% auto insurance rate hike will go into effect in July FY 2026, following a 7.5% hike in January 2026; the company targets a mid-term combined ratio of 95% for auto insurance on a policy year basis. - Overseas insurance profit growth will be driven by organic growth at Sompo International and a full year of earnings contribution from the acquired Aspen business. Excluding Aspen consolidation, Sompo International expects 6% top line growth in FY 2026, which incorporates the current industry soft rating environment outside of casualty lines. - Adjusted ROE for FY 2026 is projected to be 13.1% after adjusting for unplanned market-driven increases to net assets (unrealized gains on fund holdings) and potential accelerated strategic shareholding sales. Unadjusted ROE for FY 2026 is forecast at ~11%. - The ESR upper limit of 250% has been removed; the company now focuses solely on stable achievement of a 13% ROE target. ESR is projected to increase 10-20 percentage points by March 2027, all else equal.

- Current softening market conditions for insurance rates across most lines outside of casualty create pressure for top line growth and profitability. - Persistent inflation in claims costs puts pressure on auto insurance profitability, requiring ongoing rate adjustments to meet target combined ratios. - Uncontrolled market-driven increases in unrealized gains on fund holdings inflate the ROE denominator, pushing unadjusted ROE below the 13% target even when underlying profitability meets medium-term plans. - Large M&A transactions carry inherent execution and integration risk, particularly for larger scale cross-border deals, and can delay planned capital return to shareholders. - Lower dividend income from ongoing sales of strategic shareholdings must be offset by higher returns from fund investments to maintain investment income growth.

Q: Can you explain the adjusted ROE definition and why the company is holding back on larger share buybacks despite exceeding ESR targets? A: The ROE adjustment removes the impact of unexpected market-driven unrealized gains (which added ~JPY 400 billion to net assets) and potential accelerated strategic share sales (which could add another JPY 400 billion). After adjustment, FY 2026 ROE is 13.1%. The company maintains a 50% total shareholder return policy, but holds excess capital to prepare for potential large M&A opportunities, which have become more common in the current soft market.

Q: Why was the ESR upper limit removed, why is Aspen's ESR impact smaller than forecast, and what is the auto insurance rate hike plan for FY 2026? A: The 250% ESR upper limit was removed to simplify the capital framework, which now focuses on stable 13% ROE achievement. Aspen's ESR impact was 15 percentage points (half the initial forecast) because Aspen accumulated more capital by closing and the original forecast was conservative. A 7.5% rate hike took effect in January 2026, with a further 1.8% hike planned for July 2026, with no additional hikes decided yet, targeting a 95% combined ratio.

Q: What triggers capital adjustment (share buybacks) if ROE is below target, and what is the domestic loss ratio trend excluding nat cat for FY 2026? A: The company does not do small fine-tuning for single-year misses to 13% ROE. It will only consider capital adjustment if ROE remains below target on a sustained long-term basis and no large M&A is planned. Excluding nat cat, FY 2026 auto loss ratio is forecast at 66.9% (up 2% improvement YoY), while fire loss ratio is forecast at 28.7% (a <3% YoY increase, due to fading one-off gains from onerous contract releases).

Q: Has the company's M&A risk appetite increased, and what is the outlook for overseas top line growth amid market softening? A: The company's M&A appetite has not increased, it remains consistently active, with opportunities for bolt-on deals for Sompo International that require less integration work than the Aspen acquisition. M&A opportunities also exist in the Wellbeing segment to expand the company's solution platform. Excluding Aspen, Sompo International forecasts 6% YoY top line growth, which factors in soft rating conditions outside casualty; the company avoids pushing unprofitable top line growth while still targeting moderate expansion.