Sompo Holdings Inc U/Adr

Yes, thank you for joining us today. First, please turn to page three. Last week, we announced our first half results and had the earnings goal, 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. So 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. 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 five, I would like to talk about the two numerical targets under the midterm management plan, the ROE target and also the EPS growth. Regarding the EPS growth, we are growing significantly. 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 six. Here, I would like to talk about the initiatives under a simple PNC. Regarding the initiatives with the sample PNC, it's on page six, 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, we are already achieving some benefits. And for simple PNC, The initiatives are done jointly with SMPO Japan and SMPO PNC, SMPO International. And also, there are other areas where SMPO Japan is taking the lead for initiatives like SJR and also other initiatives that's led by SMPO 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 SMPO 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 SMPO 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. Our next page on well-being 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 three concerns. Also, from the phase of concept, we are shifting to a phase of implementation this year. Also, on October 1st, in order to accelerate these efforts, we have established a new entity, Sample Well-Being, to promote these initiatives. Also, some things that cannot be addressed single-handedly. have been covered by three entities connecting and being 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, associating the deal and Working on the deal and doing the PMR is something that we will carry out solidly. At Semple 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 Semple Well-Being. in order to address the three concerns and also to support the individual's lifespan With that concept, on top of that, we're 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 connect it 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 500 billion yen in adjusted profit and market capital of 6 trillion yen. So fiscal 2030. That is the deadline. And how can we do this earlier than that? And the 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 Sampo P&C. As Okamura-san mentioned, Sampo is a Japanese company born and truly global. To do so, we need to operate more than just PNC and well-being. But when we looked at the global PNC businesses, we were operating as two separate organizations, Japan and overseas. And so in April of this year, we brought the two organizations together in a form of communication and joint management structure. We focused on reinsurance, which began approximately two 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've focused on building investment strategies, operations and IT, underwriting, human resources, and risk. And now we're going to talk about two of those in particular, and the first one being investments, and I'll hand over to Nick Burnett.

Thank you, Jim. On page 12 of the presentation... As Acomore said, San said, with the segmentation of Sampo PNC, we are starting to see the benefits associated with being one approach to the market. The alignment under Sampo PNC 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 committees to drive the strategic asset allocation across Sampo PNC. This allows us to determine the balance sheets 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 Sampo Japan through the close cooperation. Number one, we've identified clear ownership and accountability with one person owning the operations and IT responsibility across Sampo 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 30 billion yen to be achieved over the next three 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 two slides.

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 in all KPIs. And so in achieving MTMP, we are making 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 at 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 200 billion yen to 250 billion yen. 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. Moving on to page 15, this is the qualitative explanation. About the domestic P&C, there are three pillars. And the first is to make sure that we make progress in the business improvement plan. And the second is through SJR, we want to improve their profitability and enhance their 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 the effect lasting status so we are making the good progress in making improvements in the middle we have earnings structure reform and enhancing the revenue management by segment and bottom line focus sales transformation and and also the claims service, the enhancement of the fraud detection, we are making very solid progress.

And the third pillar regarding the foundation of the business, we are trying to change the 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 simple 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 IFRS 4 basis and on a calendar year basis. And as you can see, our target over the next until 2026 was to generate operating income of $1.5 billion. The nine 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 nine 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 action year underwriting basis and on an investment income basis. As you move to the next slide, size 17, as I mentioned, $760 million. You can see from three different areas in North America. While in 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 2024 and 2025, 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 there's a new market for us, one of the, I think it's top seven global markets in PNC. And so a clear miss for us over the last years, but a great investment opportunity for Sampo. As we look into the UK and Europe, the UK, similar to the United States, is a mature market. However, we've invested operations into Birmingham and Manchester and accessed those markets 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, in 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. To Nick.

Yeah, 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 four strategic pillars for Sapo. 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 Sapo. And Aspen accelerates our strategy in the UK and in the US specialty business. It turns us into a top 10 PNC 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 timeline for which we can't predict the outcome, but what I can tell you is that we, SAMPO and Aspen, have achieved all of its filings in a timeline 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 am also pleased to announce that the antitrust waiting period has expired and no issues have been raised, and we have even seen one or two small regulatory approvals. We are hard at work preparing for day one, 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 four 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 Sampo. but it is different than in prior years. And so many of the questions have been, are we still interested in the Lloyds platform? And the answer is absolutely yes. We're getting a top tier team coming and operates in the Lloyds market that has generated the performance that has been envious of many other markets in the Lloyds 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 Sampo 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 Sampo. Thank you.

So now we'd like to move on to the well-being, and I'd like to call upon Mr. Oba. Yes, from the 1st of April, we started as a SOMPO well-being. So we have SOMPO Himarai, SOMPO Care, and in addition to that, we have a corporate wellness, SOMPO Healthcare Support and Wellness Communications, also the Rise Up, the five companies in total. The recent business results is that in terms of the adjusted profit, we are making good progress. As for the four-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 temple well-being, the future growth, there are three 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 number 2 and number 3. So those are the areas that the well-being business will start as a new structure or new organization. The second is value-up growth. So going beyond at 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, 100 billion yen 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 body of growth. And this shows one of the symbolic initiative. As Okumura mentioned earlier, on the 1st of October, we established a new entity. And 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 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 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 B2B2E 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 three concerns that we'd like to face and to alleviate those three concerns the different factors and the functions will be enhanced through the potential M&A's 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 cancellation or term of the insurance contract. And so insurance and health support, which are the pillars of the life insurance, We provide insure health, and this has been the eighth year, and the number of the contract exceeded two million, and also the amount of the premium exceeding 160 billion yen. So we continue to focus on insure health, and when this business expands, the profitability of products would improve, and so in December, the variable increase 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 frontline 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 their revenue and as a result we would like to improve the occupancy of the facilities and to improve the profitability. So we would like to continue with those initiatives. So it's not just SonpoCare 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 contact with those enterprises and customers, and we'd like to take advantage of that to improve our revenue base and also the profitability.

Thank you for the presentation. Now we'd like to open up for your questions. We have simultaneous interpretation, so when you ask a question, we would appreciate if you could speak a little slower than normal. If you wish to ask a question, please use the raise hand button on the screen, unmute yourself, and also, if you may, please turn on the camera. Before asking your question, please state your affiliation and your name. So, Mr. Muraki, I'm from SMBC. Nicole, please unmute yourself. Can you hear me? Yes, we can hear you. This is from SMBC. I have two questions. My first question is regarding your future M&A strategies. The appendix presentation, page 6. you have 900 billion yen of investable capital. And through the sales of the strategic shareholdings, this is going to increase. So after Aspen, Are you considering a large-size M&A or bolt-on M&As? When would you like to execute those next M&As? The PNC companies in the U.S., the share prices are 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 Sunport 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 intervention is going to complete in 2029. Why is it going to take four years? 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 Sunbu 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 IRD, and Aspen is not the end of the story. So we're looking into opportunities to buy overseas insurance companies, as well as many 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 Sunbu PNC. 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. 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 0.9 trillion yen of capital available for investment. This is after the Aspen acquisition. And as the capital generation under the MTMP, we have about 18 months, and how much capital can we generate? We are calculating using many factors, and roughly speaking, I think we will have incremental 1 trillion yen of capital and within the next 18 months or so, deducting the shareholder returns. Prior to Aspen, I think we said 1.5 trillion yen. So that capital availability would not change materially. And this is somewhat impacted by the stock sales held by Simple Holdings. But we don't intend to use all of this in FY26 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 four years, we've demonstrated a very disciplined approach to looking at investments in 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 sample group. Nick, is there anything in addition to that?

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

So, Nick, can you talk about the investment side of the business, the initiative by Sampo PNC, and also the exposure to the high-yield bonds?

So is... As we've stated, we're taking one approach as we think about some of 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.

Yeah. 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 one. It just means that our expectations change. between the integration of systems, bringing the legal entities together, optimizing along and harmonizing along the whole synergy approach, by 2029, we should have fully achieved those synergies.

Yes, thank you.

Thank you, Mr. Muraki. Next, BO Bay Securities, Tsujino-san, please. Thank you very much. First question is about overseas. The other day that the earnings call this year, it would be with the soft power, you'll be changing the portfolio significantly. And because of that, expected a loss rate was increased. and the CAT rate is lowered, but at the same time, the expected 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's being done at the SOMPO International. But where do you pay attention to? What are the areas of the focus and increasing the expected loss rate? You are being conservative. if it is something that is newly underwritten, so next year or in two 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 domestic business. so underwriting in japan many things are doing well you said and as for the auto at the beginning of the year the in comparison to the loss rate the cat loss rate show 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 right here. 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? Thank you. Thank you, Ms. Tsuchino. 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 the 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. We are creating the situation about the infrastructure. I am also focused on that. I am 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 and 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, there have been some systematic restrictions, but we'd 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 what we are doing at the SOMPO Japan. And as for the portfolio-related way of thinking and the higher expected loss rate, I'd like to ask Nick to give some additional comments.

Thank you, Akamor-san. I think as we see a few things happening, as Akamor-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 one point of the attritional increase is coming from a 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 hyperinflationary accounting. So through the first nine months, when we look at the two points of movement or 2.3 points of movement on a combined ratio, some of that's 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 one point increase. 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 nine months on IFRS 4 basis, although we saw that there was benign cuts 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.

As for domestic matter, I'd like to ask Ishikawa-san to comment. 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 Tsuchino-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 a range of the inflation trend, which is likely to continue. So auto insurance, to sustainably increasing the rate, and we need to face the higher unit price. And as Okumura-san mentioned, if the inflation accelerates or the environment changes dramatically, 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 the expenses, And in the claims payment, we would like to make sure that we do so. So properly balanced premium and the cost reflection is something that we are currently working on.

Thank you. Thank you.

Thank you, Ms. Tojino. Next, Watanabe-san from Daiwa Securities. Please unmute yourself and ask a question. Yes, this is Watanabe from Daiwa Securities. I have two 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 to roughly 18%. So does this mean that the DPS growth outlook is going up to 18%? And here, are you considering just a single year of FY26, 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 asset, 10 percent is foreign securities and others. How much exposure do you have to private credit? And I think there's exposure at Aspen. And can you also tell me the exposure announcement? And regarding private credit, there are uncertainties. How do you think about the discipline for private credit, including direct lending? Yes, thank you for the question. So for the shareholder return, I will ask Group CFO, Mr. Hamada, to respond. And on the second question, regarding the group of 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 VEPS 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 sample PNC 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. Yes. Yes. So looking at page 9 of the appendix presentation, it may look like FY26 DPS growth is going to be 18%. So we have not decided yet. But I was foreseeing that that would be the expectation of the investors. And overall, the share price is going up, and we would like to place 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 FY27 and beyond. So, Nick?

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's 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. Could you give us actual private credit exposure in SOMPO International and Aspen? 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're actively managing. We have less than a billion dollars of exposure to private credit in Sampo International Holdings.

Okay, thank you so much.

Next, Sasaki-san from Nomura Securities, please unmute. Sasaki of Nomura Securities. I have two questions about Aspen asset management. In Japan, the pension fund, the very popular investment strategy, ILS and cat bond, have been included for a long time. But in Japanese market, Aspen's asset management, is it possible that this could expand at the accelerated speed? That's my first question. The second question is about the domestic PNC. In the supplementary material, On page 23, I'd like to have some additional information. So here, it doesn't mention, but the various initiatives are being taken. What I'd like to know is about the agency's comparative sales recommendation. I'd like to know what you are doing with the change of the law. and the authority. I think that in the full-fledged manner, the Japanese insurance companies or the agencies will be able to recommend the different products based on the comparison. So is it possible for the market share to drastically change in Japan? For example, In auto insurance, manufacturers and the life insurance companies were kind of linked with each other. But without that kind of affiliation, would that have a major, would it create some major change in the positioning of your business? Could you repeat the first question? About the asset management of Aspen, ILS and CatBond. I think that the Japanese pension fund, among the pension funds, was very popular. And in coming to Japanese market, the asset management business of Aspen, is it possible that this business will drastically expand? Do you have such view? Okay, thank you very much to your first question. I'm not sure who is the best person. I personally think that the drastic expansion, probably not really. In any case, the underwriting risks and the matching of the capital market, even if there is one side, it's not going to lead to the major expansion. But I would check, ask whether Jim and Nick might have some comment later on. As for your second question, I would ask Ishikawa-san probably to respond. comparative sales promotion. And not just that, but we are faced with various challenges and we need to respond to them. So the business practice that we have had until now need to change. And as a result, already we are seeing the kind of securitization in the market and that's likely to happen. And one of the major impact including the dealers, whether there will be a major market impact or not. Yes, I think that there will be bigger impact. So let's take the second part of the question about the movement in relation to the comparative sales. Ishikawa-san, and for the first question, I would ask Jim and Nick to respond. Ishikawa-san first. So yes, about the enhancing this recommendation. based on the comparison of the different insurance, whether this would have a major impact on our business. Now, the agencies and distributors, of course, they have been aiming for the healthy business management. And it's not just this comparative sales, but... There could be. I think that one of the assumptions is that there will be some selection of the different insurance companies. And now we have rules developed, so this would lead to the changes of the business. But if you look at the total picture, the change of the market share, drastic change, that is not likely currently. But individual receivables and individual contracts, there could be some major changes. So there will be pinch and opportunities. I think we should consider this as an opportunity for us. And as it was mentioned, The variable non-life insurance companies we deal with those companies and of course we have to be accountable for the quality and the system and we need a very high level of quality management. Only a part of the distributors in relation to the cost, they will probably reduce the number of the piercing companies they deal with. And as a part of it, as for the dealers, they would probably consider reducing the number of the companies to deal with. But at the same time, as I said, from our perspective, this is a pinch but also consider this as an opportunity so we like to make sure that we communicate about our products so that we can increase our market share and also to expand our top line thank you So to the first question about the Aspen, ILS, and HCM, would there be a major change in the market? Nick, probably you can comment on this.

So, Akumar-san, I agree with you. I mean, when we define major, but I mean, it's already a major presence in the market. It has about $2.2 billion of assets under management already. It has $140 million approximately of fee-based income. But it gives us the opportunity with our larger balance sheet to look at all the different opportunities we have underneath the Sampo umbrella. So I think it provides us with the option. But to drastically increase, if that means doubling, I don't see the doubling effect of it.

Understood. Thank you.

Thank you, Sasaki-san.

Next. Sakamaki-san from Mizuho Securities. Please unmute yourself and ask your question. Yes, this is Sakamaki from Mizuho Securities. I have two questions. The first question is, the ROE target and your commitment under the midterm management plan, at the outset, Okumura-san said that you need the extra effort to further improve the ROE. And at the earnings call on the result announcement day, Hamada-san said that it's becoming more difficult to achieve that target. So for next fiscal year, the ROE target of 13%, how feasible is this? Can you attain this? Or do you have excess capital today and you have opportunities now? So do you still consider to achieve this next fiscal year or maybe in other years? So what is the thought of the management team for the ROE target? The second point is about the overseas business. In the MITO management plan, you aim to increase the GWP by geographical expansion. But what are different vis-a-vis your expectations? such as the softening of the insurance market by different lines of business. Do you see any areas where it may be difficult to achieve the gross premium target? And also in the softening market, how do you expect to grow the premium income? What is your risk appetite for growth? Thank you for the questions. So first, regarding the ROE target, I and Hamada-san will respond to that. And regarding the second point, it's regarding organic growth in a softening market. What is the risk appetite and how do we balance with the profit? So I will ask Jim to take the second question. So for ROE target or This is a KPI that we upheld, so we have a strong commitment to achieve that. So that said, we are now trying to expand the numerator to achieve the ROE. On the other hand, it has become a little bit difficult because of the external environment. How do we think about the denominator, the E portion? And also, as we are discussing now in the P&C market, there are a lot of M&A opportunities that's popping up in the market. So how do we think about organic and the inorganic growth, and how do we allocate capital for that? So right now we are accelerating internal discussion amongst the management team. So I may not be able to respond directly, but 13% is what we had committed to. But on the other hand, the expansion of the corporate value over the medium to long term is something that we are also committed to. So we would like to strike a balance to achieve that 13%. And on the second point, For organic growth, we are expanding in Europe, and I am derating a little bit. But until last week, I was visiting Brazil, and in 2021, the retail business and the health insurance business was sold. And we sold 50% worth of the premium income. But within four plus years, we have been able to recoup that with the commercial business expansion. So it does not get the attention much, but in different regions in the businesses, entities are striving to achieve organic growth. So I will ask Hamada-san and Jim to add some comments. Yes, this is Hamada speaking. As Okamura-san said, I don't have much to add. I agree with him. As in the previous result announcement, we communicated that the next fiscal year, we will expect a normalized level of net cut, and our calculation gives us 12% plus. And to raise that to 13%, we have a strong awareness to try to fill in that gap, but it's not going to be easy. Also, we may say 13% subject to XX, but we have this midterm management plan, and the management team is strongly committed to that. But it doesn't mean that by the end of FY26, a simple group would no longer exist. So we will also consider the sustainability and the continuity of our business to strike a balance vis-à-vis investment.

The question of growing in a softening market, I think I would point out that when we talk about softening market, it doesn't mean it's not profitable business. And so as Opal Morrison indicated earlier, property business, we are seeing rate reductions, but we still believe that pricing is still above cost of capital and sufficient to generate the required return on equity. and investments that we see. Liability is still priced well and improving. Other markets, such as directors and officers' liability, we are seeing dramatic reductions, and so we do see that size of that portfolio reducing. However, in many of the markets that we're operating and growing in that we highlighted, We are new to the market, and so we are writing business as new, and so we definitely see still good business in those marketplaces. The two things that we need to continue to focus on is underwriting and risk selection is even more important, and the other lever that we control is expenses, and so being as efficient as possible to ensure that we can manage and grow and be profitable throughout the underwriting cycle.

Thank you.

Thank you. Thank you, Sakamaki-san. Next. Organ standard MUFG Takemura-san, please unmute. Thank you very much. I have two questions. First, it's about the next fiscal year, which is the final year of MTMP, the growth of the profit and driver of the profit growth. I'd like to know about the image, about the domestic P&C. I think that the improvement of the profitability, I think, can be expected. Is that the case? And as for the overseas business? Depending on the line of business, there are some softening. And do you think that you can continue to realize the profit growth? Earlier, SOMPO, PNC, future profitability improvement, The portfolio management was mentioned. So 5 to, sorry, 50 to 100 million, I think, or 30 billion yen level of the effect can be expected. Maybe I heard it wrong. But that's for the time frame, if you can mention that, through the operational efficiency improvement. So that's my first question. The second question. is about in the future plan and potential change of the plan. At the beginning of the session, the adjusted profit of 500 billion yen and the market gap of 6 trillion yen And you mentioned that there is an internal discussion going on that you might be able to achieve that earlier than expected. So about the sale of the shares, is that also included in the potential change of the plan? The share prices are increasing, so it might be difficult for you to reduce the risk, but it's possible to consider, or you'll be focused on the timing of the future M&A before making the decision. So those are the questions. Thank you, Takemura-san, for your questions. So for the next fiscal year, the driver of the profit growth? organically to make sure that the SI and SJ or well-being to continue to make the steady growth, and we are taking initiatives for that. And as for the investment, the investment asset is increasing, and in the integrated management of the BNC, we would like to do so and reduce risks. As for Aspen, with the approval from the authority from fiscal 26, this would be contributing in a full-fledged manner, and that could be a growth driver as well. But as I said at the beginning, first half this year, The natural disasters were less than what we expected. And because of that, what we can do, for example, portfolio management and to stabilize the revenue, we can control the size and control the limit. We will do everything we can do. But there are other areas that we are unable to control. So how should we capture that? That is something that we need to discuss from now on. As for the detailed numbers, 50 million and 30 billion yen, those numbers probably can be commented by Nick or Ishikawa-san. In the medium term, plan or targets being changed and I mentioned that there is an internal discussion about that. Looking at the market environment and the sale of the strategic holding and also by increasing our profit, the capital that we can use for M&A will be generated. So what about the timing of the sale of the strategic shareholding? We are committed to the number by the end of fiscal 2030. And if there is an opportunity for merchandise acquisitions, we will deal with it in a flexible manner. And we have already reached an agreement with the SOMPO Japan members and the leaders. As for the end of fiscal 2030 and the sale of the strategic shareholding, we did receive the question on that. We have held the shares of our customers for a long time, and because of the various reasons, we decided to sell some of them. As for the background and explanation, we'd like to make sure that we spend the sufficient time to do so, so that we are accountable for the strategic shareholding. So by 2030, for example, not just making the changes, but rather to sell all of them by the end of fiscal 2030. And also looking at the market situation, we would like to handle this in a flexible manner. Okay, so for the next fiscal year plan and the growth driver, about the SI and SJ, I would like to have some additional explanations, starting with the GIMP.

In terms of growth over the next number of years and profitable growth, as I said earlier, will depend on underwriting discipline and expense management in terms of managing that business. We still see pockets of good growth and good business opportunities in terms of expanding into new geographies. But I can assure you if we don't feel that the business is profitable, then it's not within our appetite and we won't write it. But we do feel optimistic about that opportunity. We will measure ourselves. As Okamura-san indicated, the closure of Aspen in 2026 would certainly generate growth increase. However, we are going to hold ourselves accountable and measure those separately. And so we'll be accountable for the original targets that we had put in place two years ago. Anything to add, Nick?

We remain committed to those targets, and we hope and we're on track to close out. I mean, as it looks at the three targets, Jim talked about the top-line growth in our strategic growth markets. We've actually accelerated that by a year. We expect to get to a billion dollars a year in advance. That's a positive, so that's going to help. Remembering that the fiscal year is a combination of new business but older underwriting years, and we believe the older underwriting years are coming through positively into the results. So that's another positive that we have. And then we have some of the benefits and the tailwinds of investment income. So we feel good about achieving and closing out, as Jim said, the 2026 year midterm plan. And we'll continue to work on developing the next midyear plan and come back with you with our new targets.

So thank you, Takemura-san, for your question. For the next fiscal year, improvement of the profitability, we need to continue to expand. And as for the initiatives in the supplementary material, on page 18, this talks about the auto, and page 19 talks about the fire insurance. And the major initiatives are shown there. And page 21 here, it talks about the expense ratio outlook. And there are various initiatives that will be taken to reduce that. So in that sense, to expand that profitability, that is our plan. And SJR initiatives, talking about those, As mentioned today, there is an impact of the inflation and the repair unit price of the auto insurance is going up and others. So higher expense ratio is expected in the change of environment. But in SJR, we are focused on the pricing and the optimization of the reinsurance and reduction of the expenses and to improve the quality of the portfolio. Those initiatives will be continued. And for this fiscal year, about the share of year-on-year, 46 billion effect was generated. So we want to expand that further. So steadily, we would like to continue to expand our revenue. So we are determined to do so. Thank you.

Thank you. That's very clear. Thank you, Takemura-san. Next, Sato-san from JP Morgan Securities. Please unmute yourself and ask your question. Yes, this is Sato. My first question is regarding investment. For the existing Based on the current capability, I understood the magnitude of the improvement. And looking at the initiatives, you have the best group synergy. through sharing the know-hows and expanding the risk-taking or risk capacity that is not reflected in these numbers. And with the inorganic opportunities, Would you consider doing acquisition to buy the expertise or the capacity for investment business? And the second question is just confirming the numbers. Earlier, you said the ROE target for next fiscal year is around 12% plus. So you have adjusted net asset of 4 trillion yen. Is the ROE of 12% based on that number? Going forward, the adjusted net asset, if you are going to retain everything, I think even 12% ROE could be quite challenging. So may I confirm that number, please? Yes, thank you for those questions. Regarding the first question, in enhancing the investment capabilities, would we be targeting the investment managers for M&A? In the context of gaining new capabilities to expand your business, we leave all the options on the table. But at this point, what you said is not the target over M&A. And for the confirmation of the ROE target, Hamada-san, can you take that question? Yes, Sato-san, you have the right understanding. We have a net asset value of roughly 4 trillion yen, but this is excluding OCI. So based on that, we are calculating the ROE, and we expect next year to be 12% plus. So 4 trillion yen multiplied by 12% plus alpha, that's what you're looking for? Is that right? Roughly speaking, yes. Okay, I see. Thank you very much.

Thank you, Sato-san. Next, Tokai Tokyo Intelligence Lab, Tajima-san. Please unmute. Thank you. Well, SOMPO PNC integrated management was mentioned and SI or SOMPO International is the commercial and Aspen is also in the commercial area. As for Japan, SOMPO Japan is commercial and consumer. and has a big, big consumer business. So even if you say integrated management, Aspen, SI, Sonpo Japan, commercial, integration is, of course, possible, I think, but at the same time, the consumer part of the P&C also exists. So, you said integrated management, so how should I understand this? Consumer or commercial part is integrated, but the P&C consumer part Is not integrated. Is that the correct understanding about the sample well being as you mentioned? This is newly established so. About the corporate Wellness enhancement was mentioned. You have to be speedy so that I think it's better to work on the inorganic growth. So what do you think? Simple well being. what kind of the size of the inorganic growth are you considering? Maybe acquiring the multiple smaller companies, or if you can talk about the scale or the size of the inorganic growth of the SOMPO well-being. Thank you. About the SOMPO PNC, integrated management, commercial and consumer, we have both, and you are correct. So in SGA and A, there are commercial and consumer. And in the area of the consumer, in the SOMPO International, the Turkish underwriting know-how, and that leads to the claims payment and efficient process and so forth. That is something that we can learn from. And as we mentioned, the integrated management, the technical pricing, underwriting, reinsurance portfolio, in addition to those technical sides about the organizational design and the investment and the transformation of the corporate culture, I'm not saying that everything that Sonpo International does is correct and Sonpo Japan is wrong, but we'd like to learn from it. And if it makes sense for Sonpo Japan to transform the business model and to renew the business foundation, not just the revenue and the profit, we will be aggressively incorporating those ideas. As for well-being, that's something that we are discussing right now. From the different perspectives, inorganic opportunities are considered. How can we increase the number of the customers? How can we gain the missing pieces? So we are not really particular about the size or scale, but Obasan maybe can give us some additional comment from the well-being perspective. Yes, thank you very much for your question. The corporate wellness that we will be focused upon, of course, we have to be speedy. As you correctly pointed out, we are working on that. And to your question, the size of the M&A, I cannot really give you the specific number, but I would like to be disciplined, but there is no restriction or limitation. The way of thinking is that in order to be fast, We have to look at the functional access. So to provide a solution to the customers, what are the missing services or missing vehicles? We can do the alliance or M&A to make sure that we have sufficient functional access. In the area of the healthcare, in Japan, there are not so many major companies in healthcare, so it's not going to be a big-scale acquisition, but at the same time, About the healthcare area, so for example, the retirement funding to provide a solution, the potential M&A or vehicle, there could be different possibilities. So for example, inheritance, real estate. there could be various opportunities in those areas. At the same time, aside from the functional side, the customer base, already the companies with a certain size of the customer base, working with them so that we can provide our solution, is also possible, and there are various possibilities. So the channel or the companies with a certain level of the customer base, we can probably do the M&A or alliance, and there are various opportunities like that. Thank you. Thank you very much.

Thank you, Mr. Majima.

So we have gone over the scheduled time, so we'd like to take the last question. Ms. Chujino from BOVA Securities. Please unmute yourself and ask a question. Yes, I have one question. For the 13% ROE target for next fiscal year, to achieve that, I guess you would consider capital adjustment. So earlier... You mentioned about enhancing the corporate value over the medium to long term and to balance things out. Also, considering gold age factors, if you try to achieve that 13% ROE, you will have to do something substantial for capital adjustment. And that could be an issue over the medium to longer term. Also, my understanding is that you have to consider with a lot of flexibility. Also, based on my calculation, if you intend to do something that will be quite substantial and gigantic, and I am excluding the impact of the proceeds from the volunteer stock sales. So should I consider that something big will not be happening because I think you need to manage the expectation of the market? Yes, thank you. I think you explained everything yourself. Also, our commitment to the market, our short-term commitment and the long-term commitment, how should we balance these out? How do we look at the internal environment and the external environment and the changes on the numerator and the denominator? Also, we all take a comprehensive view to do something, and I think this is something that the CFO needs to commit, so I will ask Kamada-san to make some comments. At the first half of our results announcement, we mentioned that the denominator was expanding more than initially expected, thus impacted by the sales of the stocks held by simple holdings. So we said we may exclude that in calculating the ROE. But as we emphasize the importance of investment, it does not mean that we are not going to do any capital adjustment. I think the key is striking the balance. It is difficult to explain, but we will have a certain level of logic to make ourselves accountable to the shareholders and to present something at the end of next fiscal year. I see. So for example, the synergy that you are expecting, would you try to front load the benefit? Would you make such kind of adjustment in your calculation? Well, we have not thought about that, but what's important is when we made this MTMP, we felt that the 13% to 15% early target was appropriate. So if we were to exclude something, we would be excluding factors which we did not expect at the time of making the MTMP. I see. Thank you very much. Mr. Jino, thank you for your question. With that, we would like to conclude today's IR meeting. If you have any further questions, please contact our IR office. Thank you very much for joining us today.