Topics & Basics. July 2016

Transcription

1 Topics & Basics July 2016

2 1. Mid-term management plan P1 (1) (2) (3) Key points of management plan Business strategies for each business segment ERM, capital policy & asset management P2 P8 P23 2. About SOMPO Holdings P34 Appendix P38 1

3 1-(1).Key points of management plan Targets of Mid-term Management Plan In the plan, we embody our management philosophy to provide the highest quality services that contribute to our customers security, health, and wellbeing, and we aim to increase earnings and improve ROE further. Targets of mid-term management plan (Plan period FY2016 to FY2020) Targets in FY2018 Our vision (after FY2020) *2 Adjusted consolidated profit *1 180 to 220 billion Global top 10 level ( 300 billion level) Adjusted consolidated ROE *1 Shareholder return Over 8% Over 10% Enhance shareholder return in accordance with growth in adjusted consolidated profit and EPS. (Reference) Planned progress ROE 6.9% bn. ROE over 8% 220 bn. Over 180 bn. ROE over 10% 300 bn. level FY2015 FY2018 Vision (after FY2020) *1 See page 33 for definitions of adjusted consolidated profit and adjusted consolidated ROE. (Mainly changed definition of indicators for domestic life insurance business.) Targets in FY2018 are calculated assuming that consumption tax rate is raised from 8% to 10% in April *2 We will set targets in FY2020 by FY2018 based on our vision, etc. 2

4 Fund for shareholder return 1-(1).Key points of management plan Shareholder Return Based on growth of adjusted consolidated profit, plan to increase total shareholder return (cash dividend and share buyback). Adjusted profit of domestic life insurance business is newly included in fund for shareholder return from FY2016, and target of total payout ratio over medium term is 50%. Shareholder return policy Total amount of shareholder return Aim at attractive shareholder return through stable dividend and flexible share buyback, taking into account dividend yield or DPS growth, etc. (Billions of yen) Double Cash dividend Share buyback (Total payout ratio *1 ) 65.8 Around 50% It is possible that we consider additional share buyback when there is capital surplus, considering ROE level. Target over medium term It is possible that we adjust total payout ratio in a single year when we conduct huge M&A, considering capital level or financial ratings. *2 *1 Total payout ratio = (Cash dividend + Share buyback) / Adjusted consolidated profit *2 Not plan to lower total payout ratio below 30% even in a single year per share FY2010 FY2015 FY2016 (Image) (Actual) 21.0 bn. 80 per share (Actual) Adjusted profit of domestic life Not included (Forecast) FY2018 (Image) (Plan) bn bn to bn. Adjusted profit of domestic life Included 3

5 1-(1).Key points of management plan Sustainable Growth of Corporate Value Embody management philosophy, and realize sustainable growth of corporate value over mid-term. Differentiating factors in the mid-term management plan Clear vision Robust and agile governance system Digital strategy (taking advantage of ICT) Vision Realize growth of corporate value over medium term by embodying management philosophy. Group management philosophy We will at all times carefully consider the interests of our customers when making decisions that shape our business. We will strive to contribute to the security, health, and wellbeing of our customers and society as a whole by providing insurance and related services of the highest quality possible. Theme park for security, health, and wellbeing Based on the theme of security, health, and wellbeing, we support our customers happy life by running business beyond the boundaries of insurance, utilizing digital technologies and providing the highest quality services, being always close to them. Total support to connect always with customers SOMPO brand focused on security, health, and wellbeing Easing anxiety of customers, and making them smile Business development beyond insurance boundaries Differentiated, appealing attractions (businesses) Culture and DNA to keep evolving 4

6 1-(1).Key points of management plan Road Map for Growth Achieve steady organic growth based on robust group governance system, and realize global top 10 level earnings size and capital efficiency by steadily capturing new growth opportunities. Establish global SOMPO brand focused on security, health, and wellbeing by changing company name of the holding company and group (planned in October 2016). Substance of business strategies Evolution of business model Culture to keep challenging changing environment Establish fundamental for growth Improved profitability of domestic P&C Steadily grew domestic life Grew by overseas M&A and gained experience of PMI Acquired business base for nursing care business Growth opportunities in accordance with financial soundness Total support Digital strategy Superiority established and strengthened in each business Disciplined growth investments Enhancing services beyond boundaries of insurance Strengthening customer contacts and improving quality Steady organic growth in each business with strong presence Until FY2015 Mid-term management plan 5

7 1-(1).Key points of management plan Reform of Business Portfolio Build a well-balanced business portfolio that enables us to maximize risk diversification effect. Transition of business portfolio (image) Nursing care & healthcare, etc. From FY2020 onward 12% 19% FY2015 1% Adjusted consolidated profit bn. 68% about 15% about 15% FY2018 about 5% Adjusted consolidated profit 180 to 220 bn. Domestic life about 65% Overseas Over 20% Over 25% Over 5% When achieving adjusted consolidated profit of 300 bn. (assumed portfolio) Below 50% Domestic P&C ERM (Strategic Risk Management) 6

8 Adjusted consolidated ROE 1-(1).Key points of management plan Path to Further Improvement of ROE Establish a cycle to improve ROE sustainably by utilizing cash generated in each business segment, and improving earnings and business efficiency under appropriate balance sheet management. Cycle to improve ROE [Cycle to achieve over 10% of adjusted consolidated ROE] Keep and enhance each business s stable cash flow generation accomplished by FY2015 = Adjusted consolidated profit Adjusted consolidated net assets Drastically increase earnings level while improving business efficiency Reform of business portfolio or model Appropriately control balance sheet Capital release by reducing strategicholding stocks Capital control by shareholder return, etc. Appropriate control of financial leverage Utilize capital effectively Capital allocation to growth area (M&A, etc.) Strategic upfront investment in IT, digital, etc. 7

9 1. Mid-term management plan P1 (1) (2) (3) Key points of management plan Business strategies for each business segment ERM, capital policy & asset management P2 P8 P23 2. About SOMPO Holdings P34 Appendix P38 8

10 1-(2). Business strategies for each business segment Initiatives in Each Business and Collaboration among Businesses Steadily grow and enhance attractiveness of each business, and provide total support to customers through collaboration among businesses. Initiatives in each business Domestic P&C insurance business Value-generating innovation be the most highly evaluated P&C insurance company Reform business process and system infrastructure Establish customer contact by digital and human Grow in accordance with quality Domestic life insurance business Evolve into health support enterprise the second founding Evolve into health support enterprise Integrate seamlessly three elements of product, service, and channel as a business model Digital strategy Growth opportunities in accordance with financial soundness Total support through collaboration among businesses Nursing care & healthcare business, etc. Realize Japan, an affluent country that can boast to the world of a long and quality life. Provide safe and reliable nursing care services while simultaneously ensuring the dignity and independence of the elderly. Provide total service of insurance, nursing care, and healthcare. Overseas insurance business Accelerate growth by steady organic growth and disciplined M&A Utilize Sompo Canopius as a vehicle for growth. Grow organically mainly in retail business in emerging countries. Conduct well-balanced M&A both in developed and emerging countries. 9

11 1-(2). Business strategies for each business segment(domestic P&C insurance business) Business Strategy for Domestic P&C Insurance Business Expand size of earnings by drastically improving business efficiency and developing services thoroughly from customers perspective. Key points Contribute to group strategy by generating stable funds for growth and utilizing the largest customer base in the group. Plan for adjusted profit (Billions of yen) Assume CAGR of about +4% Global top level business efficiency CAGR about +1% Evolving into cost structure competitive on global basis by reforming business process and system infrastructure (future innovation project) Over Aim at below 30% of net expense ratio in the future. + Keep expanding top-line and bottom-line by developing products and services thoroughly from customers perspective. Plan combined ratio of 93 to 94% level. Growth accompanying quality FY2015 FY2016 (Forecast) FY2018 (Plan) FY2020 (Image) 10

12 1-(2). Business strategies for each business segment(domestic P&C insurance business) Sompo Japan Nipponkoa Net Premiums Written Growth rate of net premiums written is expected to be about 1% per annum (conservatively assuming market average of growth rate is zero). Trends of net premiums written * (Billions of yen) Assume CAGR of about +1% CAGR about +1% 2, , ,260.0 Automobile, Fire and allied lines Assumptions of the plan CAGR of +1.0% mainly due to expansion of market share (conservatively assuming market average of growth rate is zero) Marine, miscellaneous, etc. CAGR of +2.6% by selling customeroriented products, and so forth. FY2015 FY2016 (Forecast) FY2018 (Plan) FY2020 (Image) * Net premiums written do not include assumed reinsurance premiums transferred from Sompo Japan Nipponkoa to Sompo Japan Canopius Re (about 30 billion). 11

13 1-(2). Business strategies for each business segment(domestic P&C insurance business) Sompo Japan Nipponkoa Combined Ratio Plan combined ratio of 93 to 94% level by controlling net expense ratio appropriately, and so on. Plan for combined ratio Net loss ratio *1 Net expense ratio Combined ratio *2 Loss ratio is expected to drop by 1.5 points. Loss ratio adjusted by impact of natural disasters is expected to be flat. Expense ratio is expected to keep dropping. Based on improved profitability, we have started upfront investment for next generation. Combined ratio of 93 to 94% level is planned. -1.8pt -1.5pt 63.7% 62.6% 62.2% 62.0% (Adjusted by impact of natural disasters *3 ) 31.6% 32.3% -0.3pt 31.3% To below 30% excl. upfront investments 95.3% 94.8% 93.5% 93.5% (Adjusted by impact of natural disasters *3 ) FY2015 FY2016 (Forecast) FY2018 (Plan) FY2020 (Image) FY2015 FY2016 (Forecast) FY2018 (Plan) FY2020 (Image) FY2015 FY2016 (Forecast) FY2018 (Plan) FY2020 (Image) *92.5% in FY2018 without consumption tax hike *1 Loss ratio is on a written paid basis (including loss adjustment expense). E/I loss ratios (excl. CALI, household earthquake) are 61.6% in FY2015 (actual), 59.3% in FY2016 (plan), and 60.2% in FY2018 (plan). *2 Loss ratio and expense ratio are calculated assuming that consumption tax rate is raised from 8% to 10% in April The impacts of consumption tax rate hike are +0.5pt in net loss ratio and +0.4pt in net expense ratio. *3 Net loss occurred for domestic natural disasters is adjusted to assumption for new mid-term management plan (net loss occurred of 43 billion, net claims paid of 38 billion). (FY2015 (actual) figures are net loss occurred of 84.2 billion and net claims paid of 76.5 billion.) 12

14 1-(2). Business strategies for each business segment(domestic P&C insurance business) Sompo Japan Nipponkoa Future Innovation Project Improve productivity by reforming and slimming business process and system infrastructure. After completion of the project, achieve global top level company expense ratio. Aspiration Trends of company expense ratio * Global top level company expense ratio Simple system with advanced technologies The number of steps less than a half. Agile product development by anticipating changes in business environment Period of product development from 7 to 2 months. Achieve no administrative work in sales office Able to reduce sales headcounts by about 12%. Status quo -0.3pt about-2pt 13.6% 14.3% 13.3% 13.5% Full effect is expected to be realized from FY2021 onward (Reference) Examples of global peers in % 14.7% 16.5% Old systems Lengthening of product development Structural overlap between sales office and agent Company expense ratio (excl. upfront investments) FY2015 FY2016 (Forecast) FY2018 (Plan) 13.5% 13.7% 12.8% From FY2021 onward (Image) A (Europe) B (Europe) C (North Americe) D (North America) * Company expense ratio = Operating, general and administrative expenses for underwriting / Net premiums written 13

15 1-(2). Business strategies for each business segment(domestic life insurance business) Business Strategy for Domestic Life Insurance Business Positioning FY2016 as our second founding, we transform ourselves into a health support enterprise as the most innovative life insurance company. Key points Evolve into the new business model focusing on customers health, and contribute to group strategy by steadily increasing the number of customers. Plan for adjusted profit (Billions of yen) Assume CAGR about +6% Product Service New growth strategy : Launch products satisfying customers needs : Provide health-support services 30.4 CAGR about +2% Over 32.0 Channel : Enhance hybrid channel * Product strategy focusing on highly profitable protection-type products Channel strategy utilizing P&C agency network Strengths of Himawari Life FY2015 FY2016 (Forecast) FY2018 (Plan) FY2020 (Image) * High-quality life insurance sales representatives follow up customers enrolling in insurance online. 14

16 1-(2). Business strategies for each business segment(domestic life insurance business) Himawari Life New Growth Strategy Drastically enhance presence in the market by seamless integration of product, service, and channel. Detailed initiatives The number of policies in force Product Launch new products breaking industry norms By focusing on coverage for which customers have strong needs, launch new products in which customers can enroll online. (10 thousand) To about 6 million * Double by FY2025 Service Provide new services Provide customers with a variety of services that support health of our customers by utilizing digital technologies. 372 CAGR about +10% 400 about 500 Channel Product + Service Establish hybrid channel Establish system where high-quality sales representatives selected by Himawari Life follow up customers enrolling in insurance online. Challenge to integrate product and service Aim to develop new products that integrate insurance product and services that help customers to be healthy. Market share FY % FY2016 (Forecast) 2.1% FY2018 (Plan) about 2.5% FY2020 (Image) 15

17 1-(2). Business strategies for each business segment(domestic life insurance business) (Reference) Definition of Adjusted Profit for Domestic Life Change definition of adjusted profit in order to grasp business performance of domestic life insurance business appropriately and to link it to shareholder return from FY2016. (Reference) Conversion from J-GAAP net income to new adjusted profit Calculation based on FY2015 results (billions of yen) 3 characteristics of new adjusted profit 1 2 Earning level becomes twice or three times larger than J-GAAP profit. It shows more substantial profitability by adjusting provision of capital reserve or conservative underwriting reserve. Adjustment of underwriting reserve Provision of capital reserve 11.6 bn Deferral of acquisition cost Depreciation of acquisition cost bn bn. Since it approximates to global standards, such as IFRS or US-GAAP, the comparability with global peers improves. 3 Net income (J-GAAP) * Although MCEV is largely influenced by interest rate, we plan to continue to use it as an important indicator that indicate our corporate value. Adjusted profit Adjusted profit = Net income + Provision of capital reserve *1 + Adjustment of underwriting reserve *2 + Deferral of acquisition cost *3 Depreciation of acquisition cost *3 (Reference) Growth in adjusted EV *1 Net provision of contingency reserve and reserve for price fluctuation (after tax) *2 Changes between net provision of underwriting reserve re-calculated with factors used for calculation of premiums and official net provision of underwriting reserve, which is calculated conservatively (after tax) *3 Acquisition cost, such as commissions for new contracts, depreciated over 10 years (after tax) 16

18 1-(2). Business strategies for each business segment(nursing care & healthcare business, etc.) Business Strategy for Nursing Care & Healthcare Business, etc. Realize Japan, an affluent country that can boast to the world of a long and quality life by providing comprehensive nursing care & healthcare services that satisfy needs of the elderly. Key points Contribute to group strategy as a new business pillar by utilizing ICT and digital technologies, and reshaping the industry through collaboration of insurance and nursing care. Nursing care & healthcare business Establish business base by strengthening internal control system. Improve productivity and quality by utilizing ICT or enhancing training. Enhance at-home nursing care service and strengthen functions. + Strengthen and expand business domains beyond the boundaries of insurance. Focus rigorously on continuously providing services of the highest quality through alliance with major players and collaboration among businesses. Other businesses Plan for adjusted profit (Billions of yen) FY2015 Nursing care & healthcare Asset management Other CAGR about +70% FY2016 (Forecast) Assume CAGR about +50% Over FY2018 (Plan) FY2020 (Image) 17

19 1-(2). Business strategies for each business segment(nursing care & healthcare business, etc.) Road Map for Nursing Care & Healthcare Business Develop nursing care services to provide comprehensive united at-home services, combining nursing care, preclinical and preventive care, and collaboration with medical institutions. Differentiate group s business model by strengthening peripheral business fields, including collaboration with outside players. Estimated scale of the nursing care market in which private operators can participate * Reform of nursing care & healthcare business Expand to more than double 18.7 trillion Increase profit and improve ROE 8.6 trillion 14.7 trillion Earn business base The number of rooms for senior living No.1 Sales No.2 Improve quality, strengthen business base Strengthen internal control. Improve productivity and achieve security and safety by utilizing ICT. Enhance at-home nursing care service and strengthen functions Expand at-home nursing care services mainly in metropolitan areas. Strengthen peripheral business fields, including collaboration with outside players. Provide total service of insurance, nursing care, and healthcare. FY2014 FY2020 (Estimate) FY2025 (Estimate) Until FY2015 FY2016 Mid-term management plan FY2020 Post mid-term management plan * Estimated based on below sources. - Prepared based on Present Situation and Future Prospect of the Public Nursing Care Insurance System and Survey of Long Term Care Benefit Expenditures by the Ministry of Health, Labour and Welfare - Estimated Figures of Expenses Related to Social Security by Ministry of Finance - Present Situation and Future Prospect of Welfare-related Markets 2014 by Fuji Keizai Co., Ltd. - Data Service Concerning Housing for Elderly People for the First Six Months of 2014 by Tamura Planning & Operating (Estimated figures). 18

20 1-(2). Business strategies for each business segment(overseas insurance business) Business Strategy for Overseas Insurance Business Aim at organic growth faster than market average, and drastic expansion through disciplined M&A. Key points Plan for adjusted profit Contribute to group strategy by growing organically and pursuing certain level of scale through external growth. Steady organic growth (Billions of yen) Assume CAGR about +10% (organic) Developed countries Emerging countries Utilize Sompo Canopius as a vehicle for growth. Grow faster than market average. + Conduct well-balanced investments both in emerging countries to expect future growth and in developed countries to acquire immediate profit. Scrutinize each deal in terms of valuation, possibility of PMI, and affinity of corporate culture. Accelerated growth via disciplined M&A FY2015 CAGR about +6% FY2016 (Forecast) Organic growth Developed +5% Emerging +8% Over 23.0 FY2018 (Plan) FY2020 (Image) * Adjusted special factor in FY2015 (+ about 1.7 billion in SJ America in accordance with restructuring of shareholders of invested company). 19

21 1-(2). Business strategies for each business segment(overseas insurance business) Appetite for Growth In existing overseas subsidiaries, aim at growth by utilizing resources of Sompo Canopius, and growth in retail business in emerging countries. As for M&A, consider well-balanced investments in developed and emerging countries. Key points for organic growth Establish strategies for each local market by delegating authority to executives of each region and top executives of subsidiaries. Developed countries Emerging countries Utilize Sompo Canopius for platform of reinsurance, ERM, etc. Improve profitability by reforming business portfolio. Expand mainly in retail business by utilizing business base in existing countries, such as Brazil, Turkey, and South East Asia countries. Clarify targets, such as product, sales channel, etc. and achieve faster growth than market average. Targets of M&A (System to realize disciplined M&A) Appointed an executive in charge of overseas M&A (Mr. Nigel Frudd) in UK. Established system to conduct speedy M&A while keeping policy of disciplined M&A (e.g. set specialized committee for M&A). Increased know-how and experience for PMI. Developed countries Emerging countries Purpose Stable profit contribution Profit contribution over mid-to-long term Targets Insurance companies competitive in certain fields mainly in corporate area Insurance companies expected to grow fast over mid-to-long term mainly in retail area 20

22 1-(2). Business strategies for each business segment(overseas insurance business) Premiums Increase top-line by grasping growth in emerging countries while aiming at expansion by M&A. Premiums written in each area (only organic growth) Europe (Reference) Market average CAGR +1.6% CAGR +13% 210 cities in 32 countries and regions North America (Reference) Market average CAGR +1.9% CAGR +1% 22.0 bn bn bn bn. FY2015 FY2018 (Plan) FY2015 FY2018 (Plan) Asia & Middle East (Reference) Market average CAGR +7.7% 68.6 bn. CAGR +18% bn. Latin America (Reference) Market average CAGR +4.6% 78.3 bn. CAGR +17% bn. FY2015 FY2018 (Plan) FY2015 FY2018 (Plan) * Premiums written are those underwritten only by foreign subsidiaries, and, therefore, do not include those underwritten abroad by Sompo Japan Nipponkoa. * Data source of market average CAGR is Munich Economic Research (Estimated CAGR from 2015 to 2025) 21

23 1-(2). Business strategies for each business segment(overseas insurance business) Net Income Achieve steady organic growth in bottom-line. Net income in each region (only organic growth) (Billions of yen) Europe Asia & Middle East North America Latin America Sompo Canopius *1 Other Assume CAGR +11% Other Companies in South East Asia SJ Sigorta *2 SJ America *3 Yasuda Maritima Other 8.3 CAGR +10% Assume CAGR +11% CAGR +9% 6.8 Assume CAGR- 8% CAGR -15% Assume CAGR +14% CAGR +6% FY2015 FY2018 (Plan) FY2020 (Image) FY2015 FY2018 (Plan) FY2020 (Image) FY2015 FY2018 (Plan) FY2020 (Image) FY2015 FY2018 (Plan) FY2020 (Image) *1 Include assumed reinsurance business by Sompo Japan Canopius Re. *2 Sum of Sompo Singapore, Berjaya Sompo (Malaysia), Universal Sompo (India), Sompo Indonesia, SJNK Thai, PGA Sompo (Philippines), United Insurance (Vietnam) *3 Adjusted special factor in FY2015 (+ about 1.7 billion in SJ America in accordance with restructuring of shareholders of invested company). 22

24 1. Mid-term management plan P1 (1) (2) (3) Key points of management plan Business strategies for each business segment ERM, capital policy & asset management P2 P8 P23 2. About SOMPO Holdings P34 Appendix P38 23

25 1-(3). ERM, capital policy & asset management Capital Policy Aim to keep robust financial soundness and improve capital efficiency (ROE) by controlling balance among capital, risk, and return. Capital policy based on ERM framework Adopt more conservative capital control than Solvency II (use 99.95% VaR to calculate risk amount). Keep improving quality of capital and aim at capital policy that enables us to acquire return actively. Capital Keep financial soundness Control index: internal solvency ratio - Target range of 120% to 170% Improve capital efficiency Control index: adjusted consolidated ROE - Target in FY2018 is over 8% - Aim at over 10% after FY2020. Risk Return Improve profitability against risk Control index: ROR - Capital allocation to maximize ROR 24

26 1-(3). ERM, capital policy & asset management Financial Soundness Internal Solvency Ratio Control domestic natural disaster risk and investment risk, and keep robust financial soundness. Internal solvency ratio Breakdown of adjusted capital and risk Target range is around 120% to 170%. 120%: 170%: The level leading to stable financial soundness, based on the result of stress test, etc. The level set based on capital efficiency 155% Hybrid capital instruments Capital reserve, etc. *1 Adjusted capital 2.6 tn. 0.1 tn. 0.5 tn. Diversification effect, etc. 1.0 tn. Risk *4 1.7 tn. Nursing care & healthcare1% Overseas 6% Domestic life 30% Take risks in growth fields 2.6 tn. Adjusted capital End of March tn. Risk * Internal solvency ratio is calculated according to Solvency II. However, conservative 99.95% VaR is used for calculation of risk amount. Unrealized gains and losses on assets *2 Economic basis net assets *3 (excluding unrealized gains and losses on assets) 1.1 tn. 0.9 tn. Risk 1.7 tn. End of March 2016 Domestic P&C (investment) 34% Domestic P&C (underwriting) 28% Reduce strategic-holding stocks Control domestic natural disaster risk *1 Reserve for price fluctuation and catastrophic loss reserve, etc. (after tax) *2 Unrealized gains and losses on securities, etc., including non mark-to-market assets (e.g. policy reserve matching bonds) *3 Total of net assets on non-consolidated balance sheets, and value in force of P&C and life insurance business. *4 Risk : 1 year holding period, 99.95% VaR (AA equivalent confidence level) Risk amount of each business: 99.95% VaR before reflecting risk diversification effect among businesses and before-tax basis. Group total risk: Sum of risk amount of each business less risk diversification effect among businesses and tax impact. 25

27 1-(3). ERM, capital policy & asset management (Reference) Market Sensitivity Market sensitivity of internal solvency ratio : Internal solvency ratio : Change Domestic stock price Domestic Interest rate Exchange rate +8pt +6pt +3pt -9pt -13pt -3pt 155% 155% 155% End of Mar % Nikkei % 16, bp End of Mar interest yield of 30y JGB 0.56% -50bp 10% Yen depreciation End of Mar USD: EUR: % Yen appreciation 26

28 1-(3). ERM, capital policy & asset management Strategy for Asset Management Keep reducing strategic-holding stocks, and improve return on risk by diversifying investments. Aim at stable investment profit through ALM, considering characteristics of liability and liquidity. Investment policy Amount of investment assets (trillion of yen, end of March 2016, group-wide basis) Other 0.5 Deposits, etc. 0.6 Measures for negative interest rate Diversify investments, such as foreign currency assets. Sophisticate asset management, such as growth investment. Reduction of strategicholdings stocks Foreign securities 2.0 Domestic stocks trillion Corporate and municipal bonds 0.9 Government bonds 2.8 Domestic bonds 3.7 ALM Keep stable profit through duration matching. Keep selling around 100 billion stocks per annum constantly. Loans 0.6 * Other includes lands, buildings and stocks of non-consolidated subsidiaries, etc. 27

29 1-(3). ERM, capital policy & asset management Asset portfolio Sompo Japan Nipponkoa The general account is managed with diversified investments while the saving-type account utilizes portfolio management based on ALM. Aim to diversify investment instruments (e.g. increase weight of hedged foreign bonds), considering lowering interest rate. Amount of investment assets (Sompo Japan Nipponkoa, non-consolidated) Total 6.7 trillion 1.3 tn. Saving-type account Total 6.3 trillion 1.2 tn. 5.3 tn. General 5.0 tn. account End of Mar End of Mar Proportion of saving-type account Proportion of general account 一般勘定 :5.3 兆円 Foreign currency 一般勘定 assets :5.4 兆円 Loans 2% 27% Loans 7% Domestic stocks 29% Other 8% Deposits, etc. 5% Yen-interest assets 67% 31% Foreign currency assets 18% Deposits, etc. 7% Yen-interest assets Duration of saving-type account End of Mar End of Mar Asset 4.5y 4.7y Liability 6.2y 7.2y Break down Break down Break down Government bonds Government bonds Corporate and municipal bonds Hedged foreign bonds 15% 3% 13% Foreign bonds Corporate and municipal bonds Funds, etc. Hedged foreign bonds 30% 31% 6% Subsidiaries, affiliates 4% 7% 7% 28

30 1-(3). ERM, capital policy & asset management Asset portfolio Himawari Life Manage the portfolio through disciplined ALM, which mainly consists of yen-interest assets. Keep allocating investment assets to foreign currency assets, assuming normalization of low interest rate. Amount of investment assets (Himawari Life, non-consolidated) 一般勘定 :5.3 兆円 Foreign currency assets 4% Loans Other 1% 0.02% Deposits, etc. 2% Duration of general account End of Mar End of Mar Asset 13.2y 13.7y Liability 19.0y 23.1y 2.2 tn. General 2.7 tn. account Proportion of general account Yen-interest assets 94% Government bonds Corporate and municipal bonds Hedged foreign bonds Break down 73% 14% 7% End of Mar End of Mar * Amount of separate account is about 20.0 billion. 29

31 1-(3). ERM, capital policy & asset management Reduction of Strategic-holding Stocks By reducing strategic-holding stocks, enhance quality of capital, and improve capital efficiency by utilizing released capital for growth investments, etc. Plan for reduction of strategic-holding stocks Around 100 billion (fair value basis) (Reference) Balance of strategic-holding stocks on book value (billions of yen) -57% Disclosure based on Corporate Governance Code We plan to keep reducing strategic-holding stocks. - Discuss on the Board of Directors meetings about strategicholding stocks, based on economic rationality, etc. - Allocate a part of capital surplus released by reduction of strategic-holding stocks to growth business investments to improve financial soundness and capital efficiency. (Reference) Image to utilize ROR indicator 1,241.2 Rank stocks by ROR 1, about -30% Stocks above threshold (about 50%) Stocks below threshold (about 50%) End of FY2000 End of FY2005 End of FY2010 End of FY2015 End of FY2020 Utilize ROR for selecting stocks, considering measures to improve profitability for insurance business, etc. * As for ROR calculation, numerator (return) is the sum of dividend income of strategicholding stocks (excluding investment expense) and net underwriting results of insurance business. Denominator (risk) is the sum of risks of stock price change and insurance risk. 30

32 (Reference) Group Numerical Management Targets Numerical targets (Billions of yen) FY2015 * (Actual) FY2016 (Forecast) FY2018 (Plan) Domestic P&C insurance Over Domestic life insurance Over 32.0 Nursing care & healthcare, etc Over 8.0 Overseas insurance Over 23.0 Total (adjusted consolidated profit) Adjusted consolidated ROE 6.9% 6.8% Over 8% (Reference) ROE (J-GAAP) 9.2% 8.4% Around 10% level *Figures for FY2015 are based on standards of current mid-term management plan(see page 33). 31

33 Himawari Life Sompo Japan Nipponkoa (Reference) Numerical Management Targets for Major Subsidiaries FY2015 FY2016 FY2018 (Billions of yen) (Actual) (Forecast) (Plan) (Change from FY2015) Net premiums written 2, , , (Excl. CALI, household earthquake) 1, , , Loss ratio 63.7% 62.6% 62.2% -1.5pt (Excl. CALI, household earthquake) 61.1% 59.3% 59.2% -1.9pt E/I loss ratio (excl. CALI, household earthquake) 61.6% 59.3% 60.2% -1.4pt Net expense ratio 31.6% 32.3% 31.3% -0.3pt (Excl. CALI, household earthquake) 33.4% 34.1% 33.0% -0.4pt Combined ratio 95.3% 94.8% 93.5% -1.8pt (Excl. CALI, household earthquake) 94.5% 93.4% 92.2% -2.3pt Underwriting profit Investment profit Ordinary profit Net income Adjusted profit FY2015 FY2016 FY2018 (Billions of yen) (Actual) (Forecast) (Plan) (Change from FY2015) Annualized new premium Premium and other income Investment profit Ordinary profit Net income Adjusted profit

34 Adjusted profit for each business (Reference) Definition of Adjusted Consolidated Profit, etc. Current mid-term management plan (Reference) Previous plan Domestic P&C insurance *1 Net income + Provisions for catastrophic loss reserve (after tax) + Provisions for reserve for price fluctuation (after tax) Gains/losses on sales of securities and impairment losses on securities (after tax) Special factors (e.g. dividend from subsidiaries) Net income + Provisions for catastrophic loss reserve (after tax) + Provisions for reserve for price fluctuation (after tax) Gains/losses on sales of securities and impairment losses on securities (after tax) Special factors Domestic life insurance Change Net income + Provision of capital reserve (after tax) + Adjustment of underwriting reserve (after tax) + Deferral of acquisition cost (after tax) Depreciation of acquisition cost (after tax) Growth in embedded value (EV) Capital transactions such as equity issuance Changes in EV attributable to fluctuation of interest rates, etc. Nursing care & healthcare, etc. Net income Net income Overseas insurance Change Net income (incl. major non-consolidated subsidiaries) Net income (excl. non-consolidated subsidiaries) Adjusted consolidated profit Total of above adjusted profits Total of above adjusted profits Adjusted consolidated net assets Change Consolidated net assets (excluding life insurance subsidiary s net assets) + Catastrophic loss reserve in domestic P&C insurance (after tax) + Reserve for price fluctuation in domestic P&C insurance (after tax) + Domestic life insurance adjusted net assets *2 Consolidated net assets (excluding life insurance subsidiary s net assets) + Catastrophic loss reserve in domestic P&C insurance (after tax) + Reserve for price fluctuation in domestic P&C insurance (after tax) + Life insurance subsidiary s EV Adjusted consolidated ROE Adjusted consolidated profit / Adjusted consolidated net assets * The denominator is the average balance at the end/start of each fiscal year. Adjusted consolidated profit / Adjusted consolidated net assets * The denominator is the average balance at the end/start of each fiscal year. *1 Total of Sompo Japan Nipponkoa, Saison Automobile & Fire, Sonpo 24, Sompo Japan Nipponkoa Insurance Services, and DC Securities *2 Domestic life insurance net assets = Net assets (J-GAAP, after tax) + Contingency reserve (after tax) + Reserve for price fluctuation (after tax) + Adjustment of underwriting reserve (after tax) + Non-depreciated acquisition cost (after tax) In FY2015, net assets (J-GAAP) is billion, MCEV is billion, and adjusted net assets is billion. 33

35 1. Mid-term management plan P1 (1) (2) (3) Key points of management plan Business strategies for each business segment ERM, capital policy & asset management P2 P8 P23 2. About SOMPO Holdings P34 Appendix P38 34

36 2. About SOMPO Holdings Overview of the Japanese P&C Insurance Market and our Position Premiums are stable and earned mainly from automobile insurance. The total market share of the top 4 companies is approximately 90%. Sompo Japan Nipponkoa has the largest share in the Japanese P&C insurance market. Size of P&C insurance market by country* 1 (FY2014) Market share in the Japanese P&C insurance market* 2 (FY2014) (US$ bn.) Aioi Nissay Dowa 14.6% Others 14.2% Sompo Japan Nipponkoa 27.4% Historical premiums in the Japanese P&C insurance market* 2 ( bn.) 8,000 6,000 4,000 2, , , , , , ,196.7 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 Others CALI Voluntary automobile Personal accident Marine Fire&Allied Mitsui Sumitomo 18.1% Tokio Marine & Nichido 25.6% Source:Swiss Re Sigma Report, Hoken Kenkyujo Insurance. *1. Gross premiums, including reinsurance premiums *2. Based on net premiums of P&C insurers in Japan excluding reinsurance companies 35

37 2. About SOMPO Holdings Overview of SOMPO Holdings Positioning the Sompo Japan Nipponkoa as the core, SOMPO Holdings develops insurance businesses at home and abroad, nursing care and healthcare businesses, etc. Consolidated ordinary income amounted to over 3 trillion and total assets amounted to over 10 trillion. Group at a glance Selected financial data (Consolidated) Domestic P&C Sompo Japan Nipponkoa - Saison Automobile & Fire - Sonpo 24 - DC Securities Nursing care & healthcare business, etc. - Message - SOMPO Care Next - Healthcare business - Asset management business - Assistance business, etc. Domestic Life Himawari Life Overseas insurance - Sompo Canopius (UK) - Yasuda Maritima (Brazil) - SJ America (US) - SJ Sigorta (Turkey) - Berjaya Sompo (Malaysia) - Sompo Singapore, etc. ( bn.) Consolidated Ordinary Income Consolidated Ordinary Profit (Loss) Consolidated Net Income (Loss) FY2014 FY2015 FY2016(E) 3, , Total Assets 10, , Total Net Assets 1, , Market Capitalization 1, ,

38 2. About SOMPO Holdings Overview of Sompo Japan Nipponkoa We have over 120 years of history, and net premiums written amount to more than 2 trillion. History of domestic P&C insurance Launched fire insurance first in Japan Tokyo Fire July, 1887 Yasuda Fire & Marine Launched Personal Accident insurance first in Japan Nippon Accident Nissan Fire & Marine Sompo Japan Taisei Fire & Marine Nippon Fire May, 1892 Nippon Fire & Marine Nipponkoa Chugai Marine Koa Fire & Marine Selected financial data (Sompo Japan Nipponkoa) ( bn) FY2014 FY2015 FY2016(E) Net Premiums 2, , ,189.3 Ordinary Profit (Loss) Net Income (Loss) Total Assets 7, , Total Net Assets 1, , Combined Ratio 97.4% 95.3% 94.8% Credit Ratings (As of May 2016) Merged on September 1, 2014 Sompo Japan Nipponkoa Moody s S&P R&I JCR A.M. Best A1 (Stable) A+ (Stable) AA- (Positive) AA (Positive) A+ (Stable) Premiums in FY2015 (Sompo Japan Nipponkoa) By products (Net premiums) Domestic vs. Overseas *1 (Net premiums) By distribution channel *2 (Gross premiums) CALI 13.8% Others 12.4% Fire 14.9% Automobile 48.2% Marine 2.3% Personal accident 8.3% Overseas 15.8% Domestic 84.2% *1. Overseas net premiums = Net premiums of overseas subsidiaries + Net premiums from overseas insurance contracts of Sompo Japan Nipponkoa *2. Gross premium on a performance evaluation basis, excluding saving-type insurance. Professionals, Corporates, Car dealers, Car repair shops, etc., Financial institutions and Others are all agents. Brokers 0.7% Financial institutions 6.3% Car repair shops, etc. 12.7% Others 22.3% Car dealers 13.9% Professionals 26.3% Corporates 17.9% 37

39 1. Mid-term management plan P1 (1) (2) (3) Key points of management plan Business strategies for each business segment ERM, capital policy & asset management P2 P8 P23 2. About SOMPO Holdings P34 Appendix P38 38

40 Existing business New business model Digital Strategy Appendix Apply digital technologies to each business as a smart provider while grasping technological innovations immediately and in detail. Already established solid platform by inviting leading figures in the industry to contribute. Organizational structure and what to be achieved CDO (Chief Digital Officer) Invited Mr. Koichi Narasaki who has wellexperienced in Silicon Valley. Collaboration Senior advisers Assigned Mr. Thomas H. Davenport who is a global authority on big data. SOMPO Digital Lab Silicon Valley Develop marketing for digital-native Develop new products and services by utilizing digital technologies, etc. Innovate customer contact Utilize smart phone application (Portable Smiling Road), wearable devices (Fitbit), etc. Evolve business model Create new businesses, etc. Digital strategy planning department (Tokyo) Improve business efficiency Utilize Artificial Intelligence (AI) in call centers, etc

41 Cross-segment function Appendix Business Owner System Speed up management further by delegating authority to the utmost. Establish robust and agile management system, and maximize possibility to achieve the management plan in the changing environment. Introduction of business owner system SOMPO Holdings Group CEO Delegation of authority CFO Domestic P&C Business owner (President of SJNK) Domestic life Business owner (President of HL) Nursing care & healthcare Business owner (Executive officer in charge) Overseas insurance Business owner (Executive officer in charge) CRO CIO Sompo Japan Nipponkoa Saison Automobile & Fire Sonpo 24 Himawari Life Message SOMPO Care Next Cedar Overseas subsidiaries CDO DC Securities Risk management & Healthcare Strategic businesses (Executive officer in charge) Asset Management Prime Assistance Product Warranty Japan Fresh House 40

42 Audit & Supervisory Board Board of Directors Appendix Our Group Governance Model Seek to adopt a hybrid governance model that combines the advantages of having an institutional design of company with committees with our existing structure of company with auditors. Proactively appoint outside directors and outside Audit & Supervisory Board members, and build a system that optimizes the functions of the Board of Directors and the Audit & Supervisory Board. Key points for our initiatives (Reference) Major prerequisites company with auditors company with committees Our initiatives *as of May or more outside directors are recommended. - Basically decision are made by the Board of Directors. At least 1 full-time auditors are required. Auditors are NOT members of the Board of Directors. Scope of audit covers legality only. 2 or more outside directors are required. Nominating and compensation committee are required. Authority is drastically delegated to executive officers. Members of the Audit Committee are not need to be full-time. Members of the Audit Committee are member of the Board of Directors. Scope of audit covers legality and validity. 4 out of 12 directors are outside directors. Voluntarily established the Nomination and Compensation Committee chaired by an outside director. (4 out of 6 members are outside directors) Drastically delegate authority to executions. (Ensure speedy management decisions.) 2 out of 5 auditors are full-time, and 3 auditors are outside auditors. Auditors provide supervision and checks and balances from a position independent of management. Auditors participate in various internal committees, and get involved in decisions on the validity of business execution. System to support outside directors Diversity of outside directors Assign people from different nationality, gender, and background. Sending materials in advance and conducting preliminary briefing sessions to facilitate Board of Directors operations Promote constructive and effective deliberations by convening preliminary briefing sessions for outside directors. Meetings between outside directors and Group CEO Convene meetings enabling open exchange of opinions between outside directors, and with the chief executive. Support for auditors auditing Establish an office for staffs of Audit & Supervisory Board to enhance the effectiveness of auditors auditing. 41

43 Appendix (Domestic P&C) Advisory Rating System in Japan Advisory rates are pure premium calculated based on a wide range of statistics, and member insurance companies* 1 refer them when calculating their own premiums. The advisory rating system functions as a profit stabilizer. Loading Premium Rates for expenses Advisory Pure Premium Rates Calculated for: fire insurance, personal accident insurance, automobile insurance, etc. Premium Rates Pure Premium Rates (Advisory Pure Premium Rates) for claims Calculated by the GIROJ.* 2 The GIROJ collects large quantities of data from member insurance companies. The GIROJ uses statistical approach to calculate the advisory pure premium rates and present it to member insurance companies.* 1 Member insurance companies can use the advisory pure premium rates with respect to the pure premium rates as a basis of calculating their own premium rates. The GIROJ annually reviews whether the current advisory pure premium rates are at an appropriate level and reports the result to FSA. If they are judged to be inappropriate, the advisory rates are promptly recalculated. *1 Member companies of the General Insurance Association of Japan *2 General Insurance Rating Organization of Japan 42

44 Appendix (Domestic P&C) Automobile Insurance Revision of Driver Rating System After the revision, rating levels reflect risks of each policyholder more accurately. Overview of Driver Rating System (October 2012) Old Driver Rating System Overview Problems Overview Risk is classified into rating levels from 1 to 20 to ensure that premiums reflect the degree of risk according to a policyholders prior accident record A rating coefficient (discount rate) is established for each rating level A driver with no accidents during a given year will be promoted to the next higher rating level in the following year. A driver involved in an accident will be demoted by three rating levels Ratings shall be maintained at the same level if a driver suffers certain types of incidents such as vehicle theft, as well as damage due to flying debris or vandalism such as graffiti (hereinafter, waived incident ) Policyholders involved in accidents have a higher actual risk than justified by the premiums they pay Accident-free policyholders have a lower actual risk than justified by the premiums they pay <Example> When customers with rating level 18 received an insurance payment after being involved in an accident Revised Driver Rating System For policies in force, rating levels 7 to 20 were subdivided into an accident-free coefficient and an accident coefficient Ratings coefficients for all rating levels shall be revised to reflect the most recent actual risk The practice of recognizing waived incidents was abolished and replaced with demotion by one rating level The period 1 for applying the accident coefficient shall be three years for every accident resulting in a demotion by three rating levels (one year for an accident resulting in a demotion of one rating level) Old Old coefficient Old coefficient Old coefficient Level 18-59% Level 15 Level 16 Level 17 Level 18-52% -55% -57% -59% <One year later> <Two years later> <Three years later> <Four years later> Accident-Free Accident coefficient Accident-free Revised Level 18-54% Level 15-33% Level 16-36% Level 17-38% Level 18-54% <One year later> <Two years later> <Three years later> <Four years later> Rate of premium increase from the old system 2 => +39.6% +42.2% +44.2% 1. Up to six years 2. Rate of premium increase = Accident coefficient (after application of discount rate) / Old coefficient (after application of discount rate) 43

45 Appendix (Domestic P&C) Automobile Insurance Others Trends of number of reported claims in Sompo Japan Nipponkoa Trends of policies in force of Otona no Jidosha Hoken in Saison Automobile & Fire (Thousands) (10 thousand) +little less than 300 thousand 3, % -8.0% -5.7% -5.4% CAGR about +20% About 1.2 million 2,000 2,751 2,713 2,495 2,353 2, ,000 FY2011 FY2012 FY2013 FY2014 FY2015 October 2012: Revision of driver rating system End of FY2015 End of FY2016 (Forecast) End of FY2018 (Plan) End of FY2020 (Image) * The number of reported claims are excluded for certain natural disasters, whose incurred loss exceeds certain threshold. 44

46 Appendix (Overseas Insurance) Performance of Overseas Subsidiaries (Billions of yen) North America Europe Asia & Middle East FY2015 Net premiums written Change FY2016 (Forecast) FY2015 Net income Change FY2016 (Forecast) SJ America SJNK Europe NK Europe Key points In FY2015, impact of one-time realized gains on equity sales in accordance with restructuring of shareholders of invested company (+ 1.7 bn.) FY2015 was in line with the plan. In FY2016, plan to stabilize earnings by reinsurance. Sompo Canopius Assume cautious underwriting in softening market. In FY2015, there was an impact of (UK) Tianjin explosion ( 2.0 bn.) SJ Sigorta (Turkey) Sompo Singapore Berjaya Sompo (Malaysia) SJNK China NK China Premium is steadily increasing mainly in automobile insurance. Both underwriting profit and investment profit are steady. In FY2015, investment profit, such as realized gains on equity sales, was favorable. In FY2016, premium is expected to increase. Impact of one-time large losses in FY2015. Plan to increase earnings by reducing expenses. (Reference) Exchange rate JPY/USD JPY/GBP JPY/GBP JPY/TRY JPY/SGD JPY/MYR JPY/RMB FY2015 (+0.0%) (-4.4%) (-4.4%) (-20.2%) (-6.3%) (-18.3%) (-5.1%) SJNK Hong Kong Plan to keep earnings level in FY JPY/HKD (+0.1%) Universal Sompo (India) Plan to increase premiums from FY JPY/INR (-12.4%) South America Yasuda Maritima While premiums decreased due to exchange rate and tightened underwriting, loss ratio (Brazil) improved and net income increased in FY JPY/BRL (-30.0%) Total * Net premiums written of subsidiaries and affiliates reflect holding shares of each company. This treatment does not coincide with financial statements. The net income figures also have been adjusted to reflect shareholdings and other factors. 45