This is Hamada, Group CFO. Since last fiscal year, there has been many incidents for my company as well as in the industry, and I am fully aware of the concern this has caused to analysts and shareholders. Today, we announced our financial results at 3:30 P.M., and despite these challenges, Sompo registered good results with strong performance overseas. On the other hand, under our new medium-term management plan, which we will unveil at next week's IR meeting, the first year will be a dip in performance, and thereafter, we will be back on the growth trajectory. The starting base of the new plan will be based on the FY 2023 results and FY 2024 guidance, which I will share today, along with our shareholder return policy. Please refer to the executive summary on page three. The first point is the full-year results for FY 2023.
Adjusted Consolidated Profit was up by JPY 138.8 billion - JPY 291 billion, overachieving the full-year guidance and reaching a record high. Domestic P&C insurance business benefited from base profitability improvement for the fire lines, as well as the absence of one-offs, such as Nat Cat, COVID, and large losses, resulting in a profit growth of JPY 40.3 billion. Overseas insurance business achieved profit growth of JPY 69.7 billion, propelled by investment income with rising interest rates. The domestic life insurance profit increased by JPY 24 billion, thanks to the absence of the impact of COVID. The nursing care business also posted profit growth of JPY 2.8 billion, thanks to the acquisition of ND Software. All the business segments posted profit growth. The second point is a full-year forecast for FY 2024.
We are guiding for adjusted consolidated profit of JPY 255 billion. While the domestic P&C insurance business will have a challenging start, the overseas insurance business will grow strongly, partially offsetting the weakness in Japan. Despite the profit decline in FY 2024, our goal of double-digit annualized EPS growth toward FY 2026 remains unchanged, and we'll start the first year of the new MTMP with strong determination. According to the flash report, the overseas insurance business has been performing well in Q1. The third bullet is shareholder return, which I will explain in detail on the next slide, page four. First, our business performance and shareholder return initiatives. As explained earlier, adjusted consolidated profit for FY 2023 was a record high at JPY 291 billion, with all business segments achieving profit growth.
Adjusted Consolidated ROE was 10.1% when excluding the impact of the significant increase in net assets caused by fluctuations in the financial market. The target of over 10% set in the previous MTMP was essentially achieved with a reconciliation made. For the domestic P&C business in FY 2024, we will roll out the company-wide project dubbed SJ-R to restore trust and improve profitability. Cost for the project and upfront IT investments, among others, would put pressure on profit. In addition, due to the rising unit repair costs for auto insurance, NatCat , large losses, and other factors, the FY 2024 outlook is bleak. Growth in overseas insurance business, driven mainly from a strong investment income, will partially offset the adversity, but overall, the plan calls for a profit decline. The KPIs for the new midterm plan will be shared next week.
For shareholder return, on top of the JPY 98.9 billion dividend for FY 2023, share buyback of JPY 77 billion is underway in light of the partial sales of Palantir shares and other factors. The total shareholder return will be JPY 175.9 billion. For FY 2024, the base return ratio of 50% will remain unchanged. Although the gain from the sales of strategic stock holding is not included in the calculation of adjusted profit as before, 50% of the after-tax gain on sales will be returned as new additional return. As announced in February, we will lower the upper range of the ESR target in line with the ROE target and implement additional return with agility. We plan to hike the dividend by JPY 12 - JPY 112 per share.
As explained earlier, we expect a temporary dip in profit for FY 2024, but have decided to raise the dividend for the 11th consecutive year, in line with EPS growth, as we have strong confidence in our growth toward FY 2026. I'll elaborate more on the domestic P&C and overseas insurance business using the following pages.
Please look at page five. First, domestic P&C business, starting with automobile insurance of Sompo Japan. Accident rate of automobile insurance in FY 2023 was up 2.9% year-on-year, more or less in line with expected level. On a quarterly basis, as it's shown here, year-on-year increase has completely peaked out. Based on this, increase in FY 2024 is assumed to be flat. Rate of increase in unit repair cost was up 5.5%, which is also in line with the expectation. For FY 2024, 5.0% year-on-year increase is expected, given increasing repair price and other factors. In light of this situation, the improvement in automobile insurance profitability is an urgent matter. Within FY 2024, we plan to implement rate increase, which was postponed last fiscal year. Moving on to Fire and Allied Line....
Driven by rate increase and decrease in natural disasters and large losses, core underwriting profit in FY 2023 was up JPY 4.1 billion, turning around for the first time since FY 2016. Through rate optimization and stronger underwriting, this business line is expected to be consistently profitable by 2025. As to the hailstorm in April, JPY 30 billion-JPY 35 billion impact is currently expected, which has been incorporated in the budget. With respect to strategic shareholding, we accelerate the pace of reduction, aiming at zero in FY 2030. In FY 2024, the amount of reduction is at least JPY 200 billion. Page six, overseas insurance business. With the backdrop of increasing investment income, FY 2023 adjusted profit reached a record high at JPY 163.1 billion.
FY 2024 adjusted profit is expected to renew record high at JPY 190 billion due to the lack of conservative reserve increase in the previous year, and continuously steady investment profit. According to the flash report for the first quarter FY 2024, adjusted profit increased by JPY 15.5 billion - JPY 50.2 billion, and on U.S. dollar basis, up $71 million. FY 2024 marks the first year of the new MTMP. External business environment is changing, with some issues to be addressed in the industry. We will discard what we should discard, change what we should change, and protect what we should protect to promote transformation and to steadily increase profit. In the upcoming IR meeting on May twenty-eighth, we will explain our growth strategy and goals in the new MTMP. That's all I have. Thank you.
... thank you. Now, we would like to move on to the Q&A session. So we'd like to get the first question from Mr. Muraki from SMBC Nikko.
This is Muraki from SMBC Nikko. I have two questions. The first one is on the auto insurance business. On page 19, you project the loss ratio to be 68%. And so compared to the other company's assumptions, it seems to be slightly lower as the initial projection. Given that, the other peers have risen their prices and the premium, should we be concerned about the risk of the 68% potentially going up? So that's my first question on the auto business.
Thank you, Mr. Muraki, for your question. And so your question was, is our auto loss ratio outlook relatively low compared to the other peers?
So in our view of our auto business in FY 2024, the assumption is that for the accident rate, that it will be roughly flattish over last fiscal year, and for the unit repair cost, we are projecting a 5% increase year-over-year. So we believe that this is a reasonable assumption. But the competitive peers, it may look slightly lower, and I believe this is mainly caused by various factors. This is a little bit detailed, but if we look at the coverage ratio for the vehicle damage, for example, our coverage ratio is slightly lower compared to the peers. And in the current inflationary environment, the losses are from the vehicle damage, and also the third-party property damage is trending in a worsening trend.
So that said, the coverage ratio of those at our company has been working in favor for us, and so I believe that is one of the reasons.
Thank you very much for that response. My second question is regarding the 50% of the sales gain and the strategic stock holding to be included in the additional return. So how did you come to this decision? What kind of discussion took place? And also, for the Palantir shares, I guess it's not included in this bucket, but for the sales gain of the Palantir shares, would that be returned to the shareholders through the impact on ESR? Is that the right understanding?
Yes, so this is Hamada, and I will take your question.
Regarding the sales gain of the strategic stock holdings reflected into the additional return, when we had the IR meeting in February, we said that we will not change the definition of the adjusted profit. But the upper range of ESR will be adjusted in line with the ROE target, and based on that, we will be adjusting on the capital base. And based on that, we will consider the additional return. And after that, as you have been observing, here we are with the situation with the strategic stock holdings. And internally, we had repeated discussions, and we believe that just relying on the ESR target range and adjusting the capital base based on that will not provide a predictability for the investors.
From our perspective, it will be difficult to manage the level. So first and foremost, we believe that we have to have a stable shareholder return, and at least return 50%. And should we include that in the adjusted profit by changing the definition? That was also discussed, but as we have reported in this Tanshin , from the end of this fiscal year, we will switch to IFRS. So from the report that will be published in May next year, we will be shifting to IFRS. So if we change the definition of adjusted profit, we will be going against the consistency with the IFRS.
As we have been saying, the realization of the unrealized gain of the stock holdings is the sales gain, and using that as excess capital, we would like to consider the shareholder return. That has always been our company policy. And also, there's limit to how much strategic stock holdings we can sell. So if we think about the discontinuity of the future profit, we thought that it should be considered as a separate bucket, vis-à-vis adjusted profit. And we decided to give back 50% of the sales gain as additional return. And regarding the Palantir shares, we understand that there are many different definitions on strategic stock holdings.
But, for us, the Palantir shares is a stake that we hold for strategic business relationship and not for underwriting the insurance business. So by definition, Palantir shares will not be considered as strategic stock holdings. But as we have indicated with the share buyback program, we would like to at least return 50% of the sales gain, and going forward, we will seek another opportunity for selling our Palantir shares.
Thank you very much.
Thank you, Mr. Muraki, for your questions.
Next, Mr. Watanabe from Daiwa Securities.
Here's Watanabe, Daiwa Securities. I have two questions. First question is also related to strategic shareholding. On page five, you say reduce. Do you mean sell? And also, what will be replacing assets? Will it be credit or ETF? To what assets are you going to allocate? That's the first question.
Mr. Watanabe, thank you for the question. So as to the reduction in strategic shareholding, at least for the current MTMP for this one year, it is about selling those shares. And as to replacing assets, with the sale of the strategically held shares, there will be some negative impact on interest dividend income. And for the group-wide investment portfolio, there seems some headroom to take more risks, for example, overseas credit.
So we are going to look at good timing, and with good risk management, we are going to find replacing assets.
Thank you. My second question is related to automobile insurance. You talked about rate increases in your presentation. In FY 2024 plan, when are you going to increase rates, and how much percentage?
So the question is related to automobile insurance rate increase. As you know, our group has not been able to increase rates yet in this inflationary environment. We have been saying that as soon as conditions allow us to do so, and currently, we are fine-tuning the timing and the range of increase. And we'd like to implement our plan as early as possible to improve profitability, and we are currently under review.
But the effect will be felt rather in the next fiscal year than this fiscal year, although we are going to move quickly.
That's very clear. Thank you.
Mr. Watanabe, thank you very much.
So the next question will be from Mr. Sato from JPMorgan.
Yes, this is Sato from JPMorgan. My first question is mainly on SI commercial business, but in your plan for FY 2024, you're projecting a cost increase coming from inflation. So what kind of assumption do you have? Can you elaborate for which lines are you expecting the cost increase? And would you be able to reflect that by raising the premium? And also, as a follow-up to that question, regarding the investment income for this fiscal year, you're projecting $1.078 billion. And versus that full year guidance, the progress in Q1 seems to be quite good. So is there an upside to this number?
Mr. Sato, thank you for your question.
So I think your first question is how much inflation cost are we projecting? So currently, inflation is mainly stemming from increase in loss expenses and also personnel expenses, so that's where we are seeing a cost increase. And for that, Sompo International will steadily execute rate increase, and they have that as a track record to date. So in the plan for this fiscal year, SI is projecting a mid-single digit rate increase. And for your reference, at the end of Q1, as indicated on page 28, the rate increase of 4.9% has been achieved. So largely, the loss expenses and also the personnel and non-personnel expense increase has been offset.
And also when the cost, the inflation, is too excessive, as we have been doing from last fiscal year, the risk retention will be adjusted with agility, so that without reducing the profit as much as possible, they will be more disciplined in the underwriting process. So that is the company policy. And on your second question of the investment business, as you pointed out, for FY 2024, the plan calls for $1.078 billion. And versus that full year guidance at the end of Q1, the achievement was $316 million. So the progress is quite good vis-à-vis the full year guidance. And this is because, at the initial planning stage, Sompo International was expecting some rate cut. So there has been some conservatism in the plan.
But at this point, the U.S. rate environment continues to remain high for longer period. So if this trend continues, then, there could be some upside, for the investment income.
Thank you for that response. My second question is regarding the shareholder return indicated on page four. So my first simple question is, why did you decide to raise the dividend by JPY 12? Before the stock split, I think you were normally discussing about, JPY 50 dividend hike or JPY 40 hike per annum. But adjusting for the stock split, I think, the rate of dividend hike has slightly moderated compared to the previous years. So what kind of discussion took place, behind this decision of raising the dividend by JPY 12?
It's a little bit detailed, but you mentioned that the sales gain on the strategic stock holdings will be included in the digital return. On the adjusted consolidated profit, the sales and gains of the sales of the available for sale securities and also the adjustment on the impairment loss. So I think there is a slight gap in the definition when you look into the details, but is it okay for us to dismiss the impact of the valuation loss or the impairment loss?
Yes. So the dividend hike of JPY 12 -JPY 112 will be responded by Hamada. Regarding the dividend policy, we want to continue to raise our dividend in commensurate with the profit growth over the medium term.
So next week, when we announce the midterm management plan, we will give you more details on the shareholder return policy. So on that note, we decided to raise our dividend by J PY 12 or by 12%, and, we hope that, you will wait until next week for the details.
And, regarding, your other, question on the impairment loss, at this point, given the current market environment, we do not expect a huge impairment loss stemming from the strategic stock holdings. And on that point, it's primarily the definition of the adjusted profit, as though this is the referential point, that we use in calculating, the base return. But of course, the market is fluid, so we will continue to monitor the market trend closely.
But in principle, for the 50% of the sales gain of the strategic stock holdings, we will be returning that to the shareholders at, at the additional return. And if there are some impairment losses, then we will be considering that, including capital adjustment.
Thank you very much. Thank you for the responses.
Thank you, Mr. S ato, for your questions.
Next, Mr. Sasaki from Nomura Securities.
Hey, it's Sasaki from Nomura Securities. I have a question about page eight. For FY 2024, domestic P&C business, there is some negative impact on profits, including upfront investment for systems, JPY 20 billion, and for rising unit repair cost, JPY 18 billion. What is the objective of the upfront investment? Are you going to launch new products? Is that why? Or are you going to renew systems in the future, and the cost associated with that is booked here? And as to rate increases for automobile insurance, I didn't quite understand. The rate increase is not included in the guidance for FY 2024 or partially included? These two questions, please.
Here is Kakami. The new systems has been launched. This system is to be used for external connection, including API linkage.
It's a high-performance system, and its effect will be felt in the next fiscal year and beyond, and the upfront investment there is a little bit below JPY 10 billion. And also using our system, Foundry and data, this ratio has been improving, and we are going to increase the number of business lines in the scope. And we expect some investment for abolishment and integration of sales offices. The effect there will be felt from 2027 and onwards, and but for this fiscal year and onwards, we have reflected some effect of that. As to automobile rate increases, even if that we move very quickly, it will give almost no impact on the results of this fiscal year, so no effect is included for FY 2024. Understood.
At the beginning in your presentation, you said you are going to lower ESR range so that you are going to take more proactive approach to shareholders' return. Is it a done deal already? Have you already officially decided on that, namely the probability of additional return has risen, or the situation is still fluid depending on the discussions going forward?
Here is Hamada speaking. Actually, we made that decision today, so it is a fixed deal. But as to the new range, please wait for the IR meeting next week.
Understood. So am I right to understand that the, the new ESR range for shareholder return will be used for FY 2024 and beyond?
Yes, that's right.
Understood. Thank you.
Mr. Sasaki, thank you.
Next question is from Mr. Sakamaki from Mizuho Securities.
Thank you. This is Sakamaki from Mizuho. I have two questions. I will ask one by one. My first question is on the domestic P&C business regarding your NatCat budget. So you said that included the impact of the hail damage in April, but if you exclude for that, have you made any changes to the thought process of the NatCat budget?
Yes. Thank you for that question. As Mr. Hamada explained earlier, in our domestic NatCat loss expectation, the hail damage of JPY 30 billion-JPY 35 billion is included in our full year budget of JPY 110 billion. So if you exclude that, the remaining NatCat loss expectation is JPY 80 billion. So compared to the normal years, the NatCat loss budget seems to be slightly higher.
Are thoughts on the secondary peril reflected?
Yes. Regarding the secondary peril, as you pointed out, in the last few years, the secondary peril type of natural catastrophe has been increasing, and that is our view as well. Based on that, from last fiscal year, especially for domestic NatCat , we are using a very severe year as a base case. And then from the outset of the year, we would be budgeting in a conservative way. We took the same process for this fiscal year, as the one of the secondary peril has already been incurred. So we will be looking at the probability of such peril, and as a whole, we have budgeted JPY 110 billion for the full year.
I see. Thank you for that response.
My second question, I guess, you will be offering details next week, but it's on page four of the double-digit growth for EPS. So how are you going to achieve that? By working on the profit, which is the numerator, and the number of share accounts, which will be the denominator?
Yes. Also, on that point, we will be offering you the details next week, including the target level. But, for the domestic P&C business in FY 2024, the plan is what we have presented today. So from there, the key is how we are going to jump up for growth, to which level, and how to achieve that. Those are going to be the key.
Of course, in the overseas business, we believe that we can continue to grow by double digit, so that will lead to an increase in the numerator. And in terms of the denominator, we have not reflected anything that cannot be foreseen. So on, in an organic base, we are simulating the shareholder return, looking at the denominator. So if we cannot be successful in the numerator, then we will be adjusting the denominator.
Thank you. When you say organic, that means that 50% of the sales gain on the strategic shareholdings will be included, and the flexible capital adjustment is not reflected. Is that right?
Yes, that is correct.
Thank you.
Thank you, Mr. Sakamaki, for your questions.
Next, Mr. Majima from Tokai Tokyo Intelligence Laboratory.
Here is Majima. Can you hear me?
Yes.
I need some clarification for details. On page 20, rate of increase in unit repair cost, and +5.5% for FY 2023 and 5.0% for FY 2024, it looks that the rate of increase has peaked out. What is your view? Do you think that the increase has peaked out or not? The next question is related to page 18, Sompo Japan's, the interest and dividend decreased due to fund cancellation. So what kind of funds are being canceled? These two questions, please.
Mr. Majima, thank you. As to rate of increase in unit repair cost for automobile insurance, as you pointed out, FY 2023 actual was 5.5%, and for 2024, five percent is assumed.
Presently, year-on-year unit repair cost increase is beginning to settle down, although we cannot be sure yet that the increase has come to its end. As to a 5% level increase, we cannot drop our guard yet, and it is likely that the increase will continue to some extent on the midterm. Your second question, related to page 18, fund cancellation and impact on interest and dividend, for FY 2024, it involves Sompo Japan's hedge fund-related funds or real estate-related funds, with some impact on interest and dividend. As to asset management, at the beginning of the year, we do not assume large number as interest and dividend, and for FY 2024, there is some negative impact. Given the current environment for pure investment, you can see it as an upside factor.
Understood. So you're saying that the increase, decrease rather, you are referring to, is a conservative assumption?
Yes, that's right.
Thank you.
Any other questions? Seems that no more questions, so thank you for joining us at this teleconference.