This article first appeared on GuruFocus.

Release Date: November 19, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Sompo Holdings Inc (NHOLF) reported a significant year-on-year profit growth of JPY78.1 billion, driven by improvements in domestic PNC business and strong net investment income overseas.

The company revised its full-year FY25 earnings forecast upward by JPY77 billion to JPY440 billion, indicating strong financial performance.

Shareholder returns for the first half of FY25 amounted to JPY145.5 billion, including JPY77 billion in share buybacks, with a full-year forecast of JPY250 billion, up JPY26 billion from the initial forecast.

Domestic fire insurance profitability improved due to rate increases and enhanced underwriting, with a loss ratio expected to improve by 4.3 points year-on-year.

The overseas business saw a profit increase of CNY20.7 billion, supported by fewer natural disasters and increased investment income from asset growth.

The transition to IFRS accounting makes direct comparisons with previous records challenging, potentially complicating performance assessments.

Auto insurance faced challenges with increased accident frequency and repair costs, leading to a revision of the forecast and a planned rate increase in January 2026.

The overseas insurance business is experiencing a softer rate environment, which may impact future profitability.

The company acknowledged that many of the current year's profit drivers, such as lower natural catastrophe impacts, may not persist into the next fiscal year.

Despite improvements, the company may still fall short of its 13% ROE target, necessitating potential capital adjustments.

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Q: What factors are driving the upward revision for the fiscal year, and which will remain for next fiscal year? A: (Unidentified_1) The upward revision was driven by lower natural catastrophe and larger loss experiences, which will normalize next fiscal year. Improved profitability in fire and casualty lines due to rate revisions and stronger underwriting will remain. The auto loss ratio has deteriorated, but rate revisions in January 2026 aim to offset this. For overseas business, the upside from lower natural catastrophes will not remain, but investment income growth will continue.

Q: Can you update on the necessity of adjusting the capital to achieve the ROE target for next fiscal year? A: (Unidentified_1) The ROE target for FY25 has been revised up to 11.5%, but normalizing factors will reduce it to over 10%. With Aspen's impact and profitability improvements, we expect a 2% boost, but still short of the 13% target. We may adjust the denominator or exclude certain factors like Palantir share sales from the ROE calculation. Capital adjustments may be necessary.

Q: How has the profitability of fire and auto insurance changed, and what is expected for next fiscal year? A: (Unidentified_2) Auto insurance losses worsened by JPY3 billion against the initial forecast, but rate revisions in January 2026 will have a full-year impact. Fire insurance profitability is improving due to rate increases and underwriting enhancements, with positive impacts expected next year.

Q: What are your thoughts on the sales of Palantir shares and their impact on M&A activities? A: (Unidentified_1) The decision to sell Palantir shares was driven by the significant rise in share price and risk management. Proceeds may be used for M&A, including the Aspen acquisition. The sale was a strategic opportunity to manage exposure and fund potential acquisitions.

Q: How do you view the ESR and its impact on capital management? A: (Unidentified_1) The ESR is in excess of the upper limit, and we manage it to achieve ROE and balance investment with shareholder returns. The Aspen deal impacts ESR, but we tolerate a certain level of excess over 250% to explore organic opportunities.

Q: What is the outlook for overseas underwriting profit given the softening market? A: (Unidentified_2) The overseas market varies by line of business. Property policies face a softening market, while casualty products, especially excess layer products, maintain high rates. We selectively underwrite to build a profitable portfolio, adjusting the product mix accordingly.

Q: How will the massive renewals in fire insurance impact the loss ratio? A: (Unidentified_2) Massive renewals will increase written premiums but have minimal impact on the base loss ratio. The seasonality of IFRS affects the booking of insurance revenue, with larger bookings in the second quarter due to natural catastrophe losses.

Q: What initiatives have led to the reduced expense ratio in domestic fire insurance? A: (Unidentified_2) The reduced expense ratio is due to conservative assumptions on agent commissions and favorable actuals. The strategy to revisit agent relationships is ongoing, contributing to the favorable status.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.