Sompo will lean global for growth & margin while reworking home market
Japan-based insurance group Sompo Holdings will lean on its overseas operations for growth and scale while it makes deep repairs to battered domestic operations, a new mid-term plan indicates.
Overseas operations, gathered in Sompo International, should maintain double digit profit growth “through disciplined renewal of existing portfolio and contributions from growth initiatives,” management said in an outline of a new mid-term plan.
Such growth initiatives above and beyond market growth can quadruple their top-line contribution from some $216 million in added gross written premium in 2023 to the $1 billion mark by 2026, management claimed.
“The overseas insurance business aims to expand business geographically and into new segments through disciplined underwriting and talent acquisition, increase investment income, and stably grow profits,” management said of its plan for the foreign growth horse.
Sompo will further “continue searching for M&A candidates with discipline toward discontinuous growth,” management said without further details.
For 2024, overseas operations are the lone source of growth in a group beset by earnings declines on the home market.
Expect overseas operations to offer ¥190 billion ($1.2 billion) in fiscal-year 2024 contribution to consolidated profit, up 16.5% from the prior year take.
And through fiscal 2026, overseas operations are the margin master: expect ROE to hold near 13% through 2026, well ahead of Japanese P&C which will rebuild from 4.5% to just 8%. Overseas can sport the group's lowest combined ratio at 93.8% to 2026 chiefly on the strength of a superior expense ratio.
On the home market in Japan, domestic P&C is beset by drama, where the profit contribution will fall to just over one-fifth the 2023 take in the coming year before finding traction as the company works to "regain trust and increase resilience". Earnings in the Japanese life segment will slide fractionally in fiscal 2024; nursing care will remain in infant stages.
A price fixing issue and an auto-segment claims fraud scandal have highlighted “short-termism and inability to break away from the old business model and industry practices,” management now says.
“There is a pressing need to drastically transform the business model in addition to fully implementing recurrence prevention measures,” management said.
In Japanese P&C, reform starts in sales and portfolio management with profit-focused sales to gain margin, stability and flexibility. Claims service needs new structures with division of responsibilities to help detect fraud. Costs can be tackled through a major reduction in office locations.
The lone portfolio strategy tidbits visible in the initial mix: Japanese typhoon risk is listed as “maintain or reduce,” long-term contracts are set for a “large reduction,” and Sompo will run unspecified “further drastic measures.”
By 2026, the contribution to adjusted profits from Japanese P&C should have more than overcome the hit pending in fiscal 2024 and 2025. The combined ratio should fall below the 95% mark from 2026 and beyond.
Taken together, the group believes it will suffer a reduction in adjusted consolidated ROE to c. 7% in fiscal 2024 from 9.3% in the year just finished before starting its march to a 13-15% target for FY2026. Adjusted earnings per share should rise at a compound average rate of 12% or greater.
Did you get value from this story? Sign up to our free daily newsletters and get stories like this sent straight to your inbox.
