Sompo can price to beat both inflation & combined ratio in foreign P&C

Sompo’s foreign P&C operations will take a hit from inflation in the coming fiscal year but can price sufficiently to both beat rising inflation and still bring down the combined ratio, company officials have claimed.

“We are assuming an impact from inflation in terms of loss incurred, personnel costs and non-personnel costs,” investor relations chief Yukinori Kuroda said of the group’s recently issued guidance for the new fiscal year started in April.

At its foreign holding  Sompo International,  Sompo intends to hack another 3.2 percentage points (pps) from its P&C combined ratio to 90.7% for the coming fiscal year, management said in recently released guidance. The forecast decline includes 2.5 pps from the loss ratio, despite an unspecified increase in the nat cat loss ratio, plus 0.8 pps from the expense ratio.  Sompo International’s combined ratio had come down by 3.9 pps in the 2021 fiscal year concluded end-March.

“A majority of the improvement comes from simply the rate increases,” Kuroda said.  Expenses are said to be simply “under control.”

The impact of rising rates includes both the earning in of the 16.2% average increase secured over the past fiscal year plus the 8% which  Sompo has pencilled in for the coming period, but could press higher if inflation demands, Kuroda said.

“If we see more impact from inflation, we are going to include that in the level of rate increase we are going to do in this fiscal year,” Kuroda said. “So this 8% forecast is somewhat conservative; that is our view now.”

The latest price picture suggest that  Sompo International is starting from a 10% annual gain on rates, offering some cushion to the inflation and rates forecasts built into  Sompo’s annual guidance, he suggested.

Inflation uncertainties and the Russian war in Ukraine could make the hardening cycle “linger” longer than might otherwise have been expected, Kuroda said.

Of its own Russian or Ukrainian exposures, Kuroda said the group expected no top-line impact, “close to zero” on aviation losses and a “certain exposure” in trade credit for which assigned reserves of “one to two billion yen will be enough.”

Did you get value from this story? Sign up to our free daily newsletters and get stories like this sent straight to your inbox.