My name is Kuroda for Sompo Holdings IR department. Thank you for attending our earnings call in spite of your busy schedule. Today, we will first go over our first-half results disclosed, as well as our full year's forecast for FY 2022 focusing on numbers. It will be a concise eight-minute presentation followed by Q&A session. As usual, our business strategy will be presented by the Management, i.e., CEO, COO, and CFO in our IR meeting to be held next week. Please also be noted that any forward-looking statements that could be contained in today's call represent our current projections and expectation about future events that may differ from actual results. Please turn to page three. Here, we show highlight of first-half results.
Our first-half consolidated net income for the entire group was -JPY 20 billion, with adjusted consolidated profit at JPY 50.8 billion, both marking a decline versus last year. Main points would be incurred loss increased at Sompo Japan and Himawari Life due to natural disasters and impacts from COVID. Whereas net premiums written for Sompo International, our overseas insurance, increased by 20% or more, marking steady earnings growth. We have also revised our FY 2022 forecast. We conservatively considered the first-half results, especially the status of incurred loss, and have halved our consolidated net income forecast for the year-end to be JPY 80 billion. Likewise, revised down consolidated adjusted profit by JPY 100 billion to be JPY 160 billion. During our second half, we expect to steadily build our profits above JPY 100 billion level in a more normalized environment.
Please turn to page four. Here, we show our group-based performance. The main reason behind decline in our net profit is the overall approximately JPY 83 billion negative impact from natural disasters and COVID-19 impact at Sompo Japan. At the same time, there was another JPY 15.7 billion negative impact from COVID-19 at Himawari Life, which again, is what was behind our first-half results. I will go over Sompo Japan's performance in the following page five. Sompo Japan's top line continued to perform well, mainly due to fire insurance rate increases, as well as new types of insurance from SMEs. As you can see, impacts from natural disasters such as Typhoon Number 14, 15, which was in September time, as well as hail in June this year, pushed down our performance by approximately JPY 75 billion.
We believe impact of COVID to our underwriting profit was approximately JPY 40.7 billion, but this was one main cause for the core underwriting profit to decline by almost JPY 70 billion. Those would basically be the main reasons behind our -JPY 34.3 billion in our consolidated net profit and adjusted net profit of -JPY 9.1 billion. On the other hand, gross investment profit increased by JPY 11.9 billion. Hedging costs increased by JPY 3.6 billion, but it's steady overall, backed by gains from currency adjustments with weaker yen. We have also made steady progress in decreasing our exposure to strategic holding stocks overall by JPY 29.4 billion, out of which sales of equity stocks amount to JPY 25.6 billion and futures by JPY 3.7 billion.
We expect one-time factors around COVID to peak out in the second half, which will build base profit and thus expect our full year's net profit to be JPY 84 billion and adjusted profit to be JPY 35.5 billion. I will explain our overseas insurance on page six.
First-half net income of overseas insurance was JPY 32.7 billion. Adjusted profit was JPY 51 billion, growing at around 50%. Net income increased by JPY 3 billion, excluding a technical impact associated with adoption of inflation accounting in Turkey. Both net income and adjusted profit are in line with the plan. Top line of SI Commercial increased significantly with rate increases greater than the plan and expansion of crop insurance. In the first half of last fiscal year, there were natural disasters such as cold weather in Texas, but this year, only limited number of natural disasters, so resulting in improvement of combined ratio with a net income increasing by JPY 4.4 billion. Meanwhile, profit of SI Consumer decreased by JPY 8.6 billion.
In Brazil and Turkey, inflation is impacting cost associated with losses, but in the second half, improvement is expected through active rate increases. In this fiscal year forecast, net income is expected to be JPY 81 billion and adjusted profit JPY 100 billion, the same level as the original plan. Next, Himawari Life on page seven. In the first half, adjusted profit was JPY 5.5 billion. It is forecast to be JPY 18 billion in full year. Profit decrease was mainly driven by claims payouts for COVID-19. We have already taken some countermeasures. In the first half, COVID-19 had JPY 21.8 billion negative impact on net income. In full year basis, JPY 28 billion impact has been incorporated, which is additional JPY 25 billion compared to the initial plan. Investment profit was firm.
Top line was driven by Insurhealth type cancer insurance launched in October last year with new business premium increasing. On page eight, turn nursing care and seniors business. Adjusted profit in the first half was JPY 2.8 billion. Its full year forecast remained JPY 6 billion as in the original plan. Improved occupancy rate and acquisition of Nexus Care contributed. On page nine, I explain main points of revised forecast. Please look at page nine. The full year forecast of the group's consolidated net income is JPY 80 billion, revised down by JPY 80 billion from the original plan. Adjusted consolidated profit has been revised down from JPY 260 billion - JPY 160 billion. Loss incurred is the key word for the revision this time. Revised items are shown on this page.
For example, -JPY 32.4 billion for natural disasters, close to -JPY 30 billion for COVID-19 P&C and life business combined. Large losses also pushed down consolidated net income by about JPY 12.2 billion compared to the ordinary years. Sector-wise, COVID claims payout policy has been changed, mitigating impact going forward. We believe there are many transitory factors. In other words, many things will normalize toward the next year. In the second half, this profit is expected to grow steadily. In October, we raised premiums for fire and allied lines to some extent. We expect to see positive impact from these rate increases. Investment result is expected to be robust as well. With respect to overseas insurance business, JPY 56 billion was incorporated for the impact of Hurricane Ian, which hit in September.
As a result, adjusted consolidated profit is to build up to JPY 110 billion level in the second half, with which revised profit figures will be achieved. The following pages show more details, including breakdown by business. Please read them at your convenience. This is the end of my presentation. Thank you.
We will now take your questions. We will now take the first question. This will be from Mr. Muraki from SMBC Nikko Securities.
This is Muraki from SMBC Nikko Securities. I have two questions. First is about the loss ratio of your automotive insurance. Here I am looking at page 17 of your presentation material. On page 17, I would see the first half loss ratio. Allow me to correct the number of page. This is page 18. The first half loss ratio has deteriorated by 7.7 percentage points. In the full years, I think you were looking at 54.2%, but then this has been raised to 61.2%. Can you share with us the reasons behind this?
What I understand is for the other three groups, or actually the other three companies within two group, would have the loss ratio of 63%, which has been revised to 64% under the plan. Do you think this current 61% would suffice? That's my first question. Can you share with us some of the up and downside risk factors? That's my first question. The second question is about your overseas insurance. Allow me to first ask my first question.
Thank you very much, Mr. Muraki. Anything around the auto insurance, yes, it's certainly one important point that we wanted to stress this time around, so allow me to take some time here.
Again, the loss ratio that you pointed out for the auto insurance for the first half, EI loss ratio is 61.9%. For the full years, we have this current assumption to be 61.2%. Now, this alone does not mean that we're expecting some improvement in the overall situation. It was just that in the first half, there were some noise factors that we observed. For example, that's the hail. Overall, that was JPY 25 billion, which half of that would be JPY 12 million, would come from the auto side. There's also the typhoon impact, typhoon number 15, which was a typhoon of heavy rain. Again, overall, that was JPY 10 billion, but out of that, JPY 5 billion comes from the auto side.
That would be JPY 17 billion in total, which is the loss ratio part for the first half. Otherwise, first, for example, when we look into the second half, we expect the sunlight hours to go down, which sort of increases the more accidents, but then that is also factored in within the overall assumptions for the full years. When it comes to the incurred loss with the overall auto side, allow me to go over that with you because I have been given this opportunity. At the beginning of the year, I do recall I was talking about the COVID impact, and I was saying that probably there'd be some impact of the COVID into our incurred loss. To be specific, I was saying -3%.
In other words, compared to like 2019 pre-COVID, the variance would be like 3% worth. When we look at what we observed at the end of first half, we found that it did deteriorate, but it's not that bad as we thought. This is one of the factors why when we again looked into our full year's forecast, well, we're just looking at -1% at the moment. This incurred loss compared to the beginning of the year, we tend to be a bit conservative in our outlook now. Also, there's also another reason. In other words, this will be about the unit price per se.
At the beginning of the year, we're talking about some of the fixed repair costs, which the 2% level was something that we already had baked in. In the first half, I think it's like 3%-4% level. That's one fact that we need to keep in mind. Of course, there's more high-tech components now. Like, I think this is a trend from like 2016 or 2017, and so there has been this increase by 3%. That was the overall trend. In this first half, I think we're now also seeing this 1% that would be coming from the inflation trend out of the overall 4%. 1% would be the inflation part.
That would be like a parts cost as well as the coating cost. This will be an area where we see the impact of weaker yen as well as the materials cost increase. Again, those are some of the factors that we've already baked in when we looked at the loss ratio for the full years, especially in the second half.
Thank you very much. In other words, you believe that you'd be able to keep your conservative view at the moment. Is that your understanding?
Yes, that is absolutely right.
Thank you very much. I'd like to move on to my second question. This is about SI Commercial on page 33. In other words, the underwriting profit. You have made a downward revision there, and I'd like to know the details behind this.
At the beginning of the year, you were saying it's going to be $750 million, which is now $610 million. I understand that natural disaster, after tax, that would be like $88 million or so. There's also a lot of them increase in revenue, but then what will be the other negative factors otherwise? Again, I'd like to know some of the ups and downs behind this revision this time.
Thank you very much for your question. For SI, overall, at least on yen basis, we have not really changed our view. There is the FX impact, something like JPY 15 billion-JPY 20 billion amount of impact coming from currency. Otherwise, it is the deteriorating loss ratio.
That is something that we have looked at, which is exactly what you just pointed out. Again, a little under half of that would be the natural disaster. In other words, up until Hurricane Ian, we were thinking that we should be able to go in line with our initial forecast. In France, we saw the hail, and also in Australia, there were flood damages. There were also some other factors that would sort of build up the numbers, and we found that our initial budget would not be enough. Initially, we had a budget of JPY 522 million, which is now going to be increased to JPY 611 million. That's one major factor.
Of course, that alone, if we try to translate that into yen, we still would be short by like JPY 15 billion. There should be some other incurred loss. What are the other factors? That would be, for example, the drought impact in the North America. Now, this is not something that would be included in a natural disaster. It was just included in the other non-natural disasters, which would be like a couple of billion-yen impact coming from the drought alone. Also for Russia-Ukraine, this is not an area where we find major change compared to what we initially had been thinking. At the end of first half, there would be like a JPY 3.2 billion impact in yen. In other words, that would be the amount of provisions that we'd be thinking about.
That would be one impact. Also when we look into the portfolio, for example, indemnity liability or casualty, we are finding more contracts where we're seeing some more loss possibility. It's really about the change in the portfolio and also some of the developments behind the first half. Again, there's also some little more add-on, depending on which deal that we'd be looking at. If we add all of that to the natural disaster, that's exactly the figures that we find.
Well understood. Thank you very much.
Mr. Muraki, thank you very much. If you have any question, please use your asterisks plus one to ask the next question.
The next question is from Ms. Tsujino, Mitsubishi UFJ Morgan Stanley. Thank you.
I'm looking at Sompo Japan, and when I look at underwriting profit, I deduct the natural disasters or net cat reserves. Here you're showing the comparison between the original plan and new forecast. We are looking at about JPY 95 billion in the negative direction for the adjusted profit. Could you please talk about the breakdown of this number and also talk about what will be improved in the next year? As to the group policy that you receive the premiums every year, the premiums that you collect is usually greater than the best benefit that you pay out.
In that case, there is the premium refund, but that's not the case this year. The premiums are less than loss incurred. This means that you don't need to refund the premium. That is that a small amount, the very low level? As to the small premium refund, which doesn't need to happen.
Yes. Please look at page five, at the Sompo Japan. The underwriting profit is down by the JPY 69.7 billion. I'd like to give you breakdown for this number first. The breakdown is as follows, JPY 40.7 billion for COVID-19, and its breakdown is as follows. The increase in COVID-related claims payout, it's about JPY 13 billion.
As to the automobile accidents, the number of accidents did not decrease as we had expected, so losses increased, and that is JPY 27.6 billion. The two together, JPY 40.7 billion. The remainder is JPY 29 billion. For that, the explanation is that the increase in the large incidents. When you compare the first half with the first half of last year, there's an increase of about JPY 22 billion, and this is mainly fire and allied lines. Still, there is a remainder of JPY 7 billion that can be explained by the weak yen impact for foreign currency claims reserve, which is offset by the investment result. This element does not give any impact on the bottom line.
As to automobile business, excluding COVID-19, the unit price difference explains JPY 10 billion. That is offset by JPY 10 billion, which is based on the sophistication of the vehicles. For the next year, we do not expect additional aggravating impacts for automobile insurance. As to COVID-19, the visibility that is better than before. As to the weak yen impact, it depends on situations. Let's say it's one time. As to large incidents, compared to ordinary years, it seems that there are more of large incidents. We are going to look at these factors to come up with the forecast for the next year.
As to group policy, roughly speaking, we can recover about 10% or so in the whole picture. That will last for about 10 years if the situation remains unchanged. Yes. Thank you.
Ms. Tsujino, thank you.
Next, we will take question from Mr. Watanabe from Daiwa Securities.
Yes, this is Watanabe from Daiwa Securities. I have two questions. First is about your shareholder return. I don't believe there has been anything mentioned here, but then I know that your adjusted profit is now revised to JPY 160 billion. How does that mean to the total payout ratio? Does that mean that we're not going to be seeing the same total payout ratio? Also, have you ever thought about additional shareholder return? I'd like to hear about what your tone is in that sense. Also, your policy held shares, and I do believe this was something that your outside directors meeting took that as something that needs to be reduced.
Is it correct to understand that that was not exactly the point of the discussion this time around when you revised your figures?
Thank you, Mr. Watanabe. First of all, for the shareholder return that you mentioned. In today's Board of Directors meeting, what we decided was exactly what you find in a Tanshin report. In other words, it's going to be JPY 260 per share. That's a increase of dividend payout by JPY 50. That's going to be the interim dividend payout, and we have just, as, kept our look view here. That's really it. Of course, you're probably trying to ask what's going to happen to your buyback policy. Now here, of course, this is something that the Board of Directors would be discussing in detail.
This time, when we looked at our performance, I believe the board decide to be really agile in making the next decision somewhere during the second half to the year-end. I know this is an area where we have presented some of our approach. Currently, we do have still a great appetite to make future investments. How much would that be executed? We also have to look at the capital market or the ESR outlook looking at our performance at the moment. Of course, we are looking at our second half performance in a concept of view, but we still do want to keep an eye on how we'd be able to execute our second half performance.
We also have to, of course, look at the expectation from the investors' community. Now, we do also want to keep our eyes that we actually did make JPY 130 billion amount of shareholder return last year. Of course, that's it of what the Board of Directors discussed today. In the IR meeting next week, there will be the management, including our CFO, available to answer to your questions. Please do ask your questions to them. Thank you very much. Also, for your next question, for the strategic holding shares. As a matter of fact, at the moment, we actually are trying to revisit our economic rationale. Of course, strategic holding shares are policy hold shares. What to do that is exactly one of the things that we are discussing.
At this moment, we are looking at JPY 50 billion every year and also JPY 150 billion over the three years. It's exactly what we're saying in a midterm plan. How to execute that is exactly what the board has decided. Of course, there are various discussions behind this.
What kind of amount do we have for future investment? We do want to make sure we'd be able to source it from our own fund as we look into what kind of risk profiles we'd be looking at. Of course, when it comes to dividend yield within the TSE First Section, 2.6%-7%, this is something that we want to look at. Of course, this is a strategic holding share. We want to see how it is going to impact the insurance business. We want to look at this in a more really total comprehensive manner. We also want to look into what the proxy advisors would be saying, we'd like to know what the investors are saying.
We'd like to look at what the peers are doing. It is an area where we will be keeping an eye on into the second half. It's not just about what we want to do in the next year, but then at the same time, what we want to do in the next midterm plan.
Thank you very much.
Thank you very much, Mr. Watanabe.
Next question is from Mr. Sato in Mizuho Securities.
Here is Sato, Mizuho Securities. I have two questions. First question, on page nine, you are showing some transitory factors. When you look at Sompo Japan, the increase in automotive-related losses is not really transitory, but if you add top four elements, you will come up with about JPY 70 billion in total.
When you add it to the revised domestic P&C underwriting profit, that would make about JPY 100 billion. Still, there is a gap with the JPY 150 billion, which is the target in the current MTMP. As to this JPY 150 billion of the domestic P&C target, should we think that there is a shortage? When you look at next year as well, you are in line with the plan? That is my question. My second question is about shareholders' return. The current MTMP talks about several conditions for additional shareholders' return. The decrease in profit due to natural disasters and other transitory factors that could be the trigger for that. That's my second question.
Sato-san, thank you for the questions. About your first question.
As to transitory factors, we are still analyzing them as of today. Roughly speaking, you're right in terms of the level. We are going to make some reference materials for the next week's IR meeting to better explain about it. As to this JPY 150 billion target, you pointed out that probably there is a shortage. Yes, at this moment, there is a small shortage. That is our internal understanding. Originally, excluding CALI and household insurance, the target of combined ratio was 91.7%, but in this forecast, it is 99.8%. The transitory factors will explain about 4 percentage point of the gap. Also earnings structure reform will explain 1-2 percentage point. These are already visible factors.
Still, there's remaining 2% point gap. As to automobile, the incident ratio, when we look at the first half results to come up with forecast, what we are observing right now is so-called revenge drive. More and more people want to go out and drive. I would say that the real trend is yet to be seen. We will closely watch the trend going forward. The growth of other lines of business and DX-based, digital transformation-based improvement of efficiency that could bring some additional factors. Even if we do not reach JPY 150 billion, there is some upside from overseas insurance and also the buffer from the existing FX. I think we can reach the group's targets.
As to your second question about shareholders' return. Well, as to transitory elements that we have been talking about it, and what will be transitory and to what extent, the growth investment, the capital and the performance, we are going to consider all of these factors to come up with the final decision about the return.
I need a clarification. As to combined ratio, there is about 2 percentage point gap. Is it against JPY 2 trillion? If so, that will be rather big. I mean, it's against top line, 2 percentage point against the top line, the pre-tax basis, there's a gap. Am I right to understand?
Yes, that's right. That's quite big a gap.
Thank you.
Next, we will take question from Mr. Sakamaki from Nomura Securities.
Yes. This is Sakamaki from Nomura Securities. Thank you for taking my question. I'd like to ask what your thought is for the rate revision in domestic as well as outside Japan, and especially for auto side. When you look at the loss ratio, you're saying that there has been some change in the first half, but then compared to others, you still do see a lower combined ratio. Do you think there's a room for a rate revision or a rate increase in the future?
I understand that you're seeing more large loss, and so if you're going to capture that as a trend, would that also impact in your thinking behind the rate for next year and onwards? I also have the same question for outside Japan. Now you're seeing a lot of drought, which is deteriorating your overall loss ratio, and is that going to be food for thought, in other words, going to trigger for a rate revision or rate increase for next year?
Thank you for your question, Mr. Sakamaki. First of all, for the domestic side, in other words, for the auto insurance, of course, we still have not made explicit decision for the future, but then if you look at the immediate future, that would be January 2023, this is where we're going to be revising our menu for insurance, auto insurance for a rate as well as the product. Now, when we initially created the plan, it was just about 3% of a rate down decline. That was the initial plan. We also want to look at what the circumstance is developing at this moment. It is going to revision basically flat, but then we also do want to make sure we'd be able to increase our top line through some better insurance, better service.
Of course, that's it to the extent of our decision for the future. We still do want to keep an eye on how the inflation is going to impact our future prospect. That is what we're going to keep an eye on. Of course, whenever such events happen, there will be a change to the advisory rate, and there will be some time lag before we'd also be incorporating the change to our own rate. As for the fire insurance, yes, for large loss, we do believe the overall trend is we're on increase. We're seeing building equipments getting older, which of course would be what would be behind the increase in this large loss. Otherwise, in the end, we're talking about corporate properties.
Any rate increase would be what we'd be negotiating every time we underwrite. Of course, if we look at the overall fire insurance, when we look at the current combined ratio, it's already over 100%. In other words, we can't really say that we're capturing the entirety. In other words, if we have the option, probably there's more possibility that we may want to go for the rate increase. Of course, nothing has been decided yet. You also touched upon overseas, and it exactly follows your understanding. We do want to make sure that we'd be able to capture this rate revision on this every year contract. If we do not bid on the same page in the conditions, we just don't go for the underwrite.
I think that is going to really push our rate revision in the future.
Thank you very much.
Thank you, Mr. Sakamaki.
Thank you very much. Next question, Mr. Majima with Tokai Tokyo Research Center.
Yes, I'm Majima. On page nine, you show main points of revised forecast, and on the right-hand side, there are differences between initial and revised forecast. Overseas business, Himawari Life, and Sompo Japan are expected to show great recovery in the second half. As to the overseas insurance business, rate increases, retention improvement alone will make such a big recovery? Because in the first half, the recovery was only about a little bit more than JPY 20 billion. For the second half, what are the impacts? The not many natural disasters, is that why? The second question is about the Himawari Life's rapid recovery.
As of the end of September, there is incurred but not reported, COVID-related reserves are already there, so in the second half, that you can make the recovery. Is that the reason?
Majima-san, thank you very much. As to overseas business, JPY 48.9 billion, to be exact. The breakdown is for underwriting, JPY 30 billion, and investment, JPY 20 billion. As to underwriting profit, as mentioned here, the premium is expected to grow very steadily. As to Himawari Life, you're right. The loss incurred for COVID-19 in the first half, it stood at JPY 23 billion. For the full year basis, forecast is JPY 28 billion. In other words, only JPY 5 billion increase. Majima-san's understanding is correct.
Thank you.
Thank you.
Next, we will take question from Mr. Otsuka from JP Morgan Securities.
Yes. Thank you. This is Otsuka from JP Morgan. Can you hear me?
We certainly can.
Thank you. I'm sorry I'm really going back to this question again, but then, what is the reason why you have decided not to go for a buyback? Is this really simply because you made a downward revision? That's my first question.
Thank you, Mr. Otsuka, for your question. Yes, it is. The reason is as simple as you just mentioned. That's the first thing. We're trying to think of the shareholder return for the full year's perspective, and so it's really about the timing of when we'd want to make the decision. We have decided that we don't have to make the decision at this very moment.
We did realize that our first half result did have some variance vis-à-vis our initial expectation, and so I do believe the management really wants to look at how we'd be able to do in the remaining months. Of course, there's going to be the IR meeting next week. I hope you'll be able to ask the management then.
Thank you. I got that. I'd like to go into a little more detail. What you have been saying previously today. Last year there was the JPY 150.7 billion amount of the shareholder return. When you try to exclude this JPY 220 billion of this additional return, now you'd be talking about this 50% total payout. In other words, that's part of your basic policy.
Now if you're going to be seeing lower total net profit, that means what we'd be able to get from the total payout ratio could go down. Is that okay with you? Does that fit your plan? I guess my understanding is you're still going to keep an eye on how more you'd be able to do in the full year's number, you looking at what you'd be able to disclose. Is that the nuance?
Yes, that is exactly the nuance that we're trying to do. Exactly as you mentioned, so yes. If we try to fit our rules to our performance this year, the dividend itself is actually really in par with the additional payout that we did.
We currently have this first half result, but then otherwise we want to make this discussion maybe not exactly towards the year-end, we don't know, but we want to make the discussion during the second half.
Got that. Thank you very much.
Thank you.
Next question, Mr. Sasaki, Bank of America.
I'm Sasaki from Bank of America. I'm sorry. The person who asked the question before me asked the question that I wanted to ask. On the current level of profit, is there a possibility for additional shareholders return? That is my question. If the answer is yes, is it because you will not use up the other capital earmarked for growth investment, so instead you use it for shareholders return? I'm sorry to ask the same question. Could you please talk about if it is possible or not to have additional return?
Sasaki-san, thank you for the question. Well, if it is the problem of possibility, I think the answer would be yes. As of today, we do not have any resolution or decision that we will not make any additional return. I also want to add that ROE is another focus of us and how to achieve it, and the various other factors that will be on the table for us to make a final decision whether or not we are going to make additional return and to what extent.
Understood. Thank you. Yes, I'm going to ask about it in the IR meeting. Thank you.
Next we will take question from Mr. Okada from UBS Securities.
This is Okada from UBS Securities. I'd like to ask about your overseas insurance. I have two questions. My first question is about SI Commercial on page 33 of your presentation material. I understand the expense ratio is actually improved vis-à-vis your initial plan. Now, this is where came from the change in the net premiums earned. For this expense being reduced, can you sort of give us a little more flavor about what's turning better? That's my first question. My second question has to do with what you are observing in Brazil or Turkey. In the second half, there's going to be a little tough profit because of inflation. Sorry, that was about first half.
I understand you were struggling with profit because of inflation. Why do you expect things to turn better in the second half? Can you share with us a little more about this?
Thank you, Mr. Okada. For the expense ratio for the SI commercial, it is true that, yes, we are seeing an improvement here. First of all, we are able to control better of our internal expense, and that is boding well for the net premiums earned. That is one thing that we factored in our plan. At the same time, some of the portfolio mix around the commissions that we'd be taking. For example, we'd be revisiting some of the expense behind the underwriting of the contracts, and that is what brings us to the current numbers.
Your second question is about consumer side, in other words, Brazil and Turkey. Exactly like you mentioned, for both, we, at the moment, in a nutshell, are observing the impacts from inflation. This is mainly around auto insurance, but this is where the loss ratio is deteriorating. That's exactly what we observed back in this first half.
At the same time, during the first half, in parallel, we have actually been aggressively tried to increase the rate. That rate revision has actually helped Turkey figure to really boost up so that we'd be able to become flattish vis-à-vis expectation. We're expecting that we should be able to revise the rate for Brazil so that we will not be seeing a further deterioration. That is exactly what we're trying to do in the remaining half.
Thank you very much. Well understood.
Thank you very much.
Next question is from Ms. Tsujino, Mitsubishi UFJ Morgan Stanley.
Thank you. As to the new forecast for adjusted profit, JPY 160 billion. The breakdown is that the full overseas business, JPY 100 billion. There's no change there. Net income of the group's overseas subsidiary decreased by JPY 14.7 billion. Why?
You are talking about adjusted profit?
Yes.
Yes. Domestic P&C, JPY 35 billion, and overseas, JPY 100 billion. You need the breakdown for that?
Yes.
As to overseas insurance business, well, as I mentioned earlier, losses incurred increased and loss ratio increased. The new forecast is -JPY 17 billion against the initial forecast, which is offset by weaker yen. As a result, the overseas business adjusted profit is JPY 100 billion.
Okay. Understood. Why a negative number for the accounting basis?
Right. As to J-GAAP based accounting, the Turkey is now recognized as hyperinflation country in the framework of accounting. From this first half, we started apply hyperinflation accounting. How much value lost in currency asset, and that should be reflected on the profit and loss statement. The companies operating in Turkey, such as AXA or Allianz, are doing that as well. Our full year forecast, the factor is in -JPY 15 billion or so.
Understood. That is not applied to adjusted profit?
That's right.
Thank you.
With that, we would like to close our session. Any additional questions, please make contact with our IR team. Thank you very much for your participation.