Strategy

Events that were unimaginable in the recent past are now occurring one after another, including natural disasters of increasing intensity, supply chain disruptions due to the COVID-19 pandemic, and higher-than-expected levels of inflation. In order to protect people from all kinds of risks in the face of this new normal, the Sompo Group has been striving to improve resilience by pursuing “Scale and Diversification” as a basic strategy in its Mid-Term Management Plan.

The pillars of the strategy are the expansion of global scale, the advancement of risk diversification, and the reform of the earnings structure in Japan. This part of the report describes the efforts of the two businesses that are driving these “Scale and Diversification” efforts: the Overseas Insurance and Reinsurance Business and the Domestic P&C Insurance Business.

After delivering market leading results there are still opportunities for Sompo International to grow while continuing to support existing customers with a simplified and compelling product and service offering. Today, the insurance segment is heavily focused on business in the United States and United Kingdom. This provides an opportunity to expand into some of the other top 10 P&C markets globally as well as into new geographies within borders to participate in local and regional retail and Excess & Surplus markets. Selectively expanding the commercial insurance business into Canada, Continental Europe and Southeast Asia as well as delivering a broader commercial offering to our customers in Brazil will also be key drivers of growth. As the opportunities and market presents itself, we are ready to deploy more capacity to our reinsurance customers.

The introduction of the SOMPO brand to new customers and new markets along with geographic expansion and a sharp customer focus will position Sompo International to successfully deliver on commitments to the Sompo Group.

In order to continue fulfilling our mission of supporting the Security, Health & Wellbeing of our customers even in a rapidly changing environment, Sompo Japan Insurance has been working on earnings structure reform since fiscal 2019 under a three-pronged strategy of optimizing pricing, strengthening underwriting, and improving productivity.

As a result, in fiscal 2023, the final year of the current Mid-Term Management Plan, we expect an increase in profit of 76.5 billion yen, which exceeds the initial target and represents a solid contribution to resilience.

With regard to optimizing pricing, we have worked to improve profitability by revising the product details and premium setting in our mainstay fire and allied insurance and automobile insurance products.

In terms of underwriting, we are using Palantir’s AI underwriting to improve revenue from policies with high loss ratios.

With regard to productivity, we are improving productivity and optimizing our workforce by promoting business process reforms that leverage digital technology.

Although these efforts are steadily generating results, the business environment has deteriorated significantly in recent years due to the increase in the frequency of natural disasters and higher-than-expected inflation. We recognize that further improvement in profitability is necessary to sustainably fulfill our responsibilities as an insurance company in the future.

While steadily continuing the measures that have been implemented so far as earnings structure reform, such as pricing optimization and utilizing Palantir’s technology for underwriting, we will work on in-depth profit improvement measures and further productivity improvements, aiming to achieve an expense ratio of 31% in the medium to long term.

Improving the profitability of fire and allied insurance is an urgent issue, and we aim to make a profit by the mid-2020s.

Specific measures to achieve profitability will include a fundamental review of premium rates and implementing portfolio improvements by reviewing coverage for unprofitable policies.

We will accelerate efforts to improve profitability in light of changes in the business environment, including more frequent natural disasters and an increase in large losses.

In FY2022, the Group established a working group under the three main themes of “Retention and Cession,” “Investment,” and “Multinational Business.” As a result, in FY2023, the Group worked to accelerate cooperation between Sompo Japan Insurance and Sompo International in the area of Retention and Cession, which led to improvement in Risk Returns.

In Investment, a capital transfer of ¥200 billion to Sompo International and diversification of operations are expected to generate an impact of ¥15 billion. In Multinational Business, Sompo Japan Insurance has established a platform and continues to acquire contracts through cooperation with Sompo International.