Ladies and gentlemen, thank you very much for joining us to the conference call of Sompo Holdings. I am the speaker today, the Head of IR, Nose. Based on the material, I will go through the presentation for about 20 minutes, and then proceed to the Q&A session. For your information, with regards to the progress of the medium-term management plan, CEO and the management team will talk about it in the IR meeting to be held on November twenty-fifth, next week. Now let's get right into page two. This page shows the highlights. In the first half of FY 2021, consolidated ordinary profit increased by JPY 113 billion to JPY 190.5 billion, driven by higher profit of Sompo Japan and of Sompo International, as well as gains from partial sales of stocks held at the holdings.
We have revised our full-year forecast for FY2021 upward to consolidated ordinary profit of JPY 267 billion, and a consolidated net income of JPY 178 billion. Main reasons for the upward revision include the impact from the partial sale of stocks, in addition to reflecting the progress of each business area. With regards to the shareholders' return we have disclosed today, as you can see in the public release, we decided to conduct the buyback of JPY 20 billion. This is the additional return in line with our shareholders' return policy, because the latest capital surplus is expected to stably exceed the estimated level being assumed in the medium-term management plan. Please turn to page four. This page shows the review of the first half of FY2021. I am going to go through the major points on the next page onwards. Please turn to page five.
This page shows the underwriting profit of Sompo Japan. Underwriting profit increased by JPY 11.9 billion year-on-year, driven by a decrease in the domestic natural disasters, in spite of some rebound from the loss ratio decline due to the impact from COVID-19. Please turn to page six. This page is on the investment profit. Investment profit has increased by JPY 13.8 billion year-on-year, mainly due to an increase in net interest and the dividend income on the back of higher distributions from the funds. Please turn to page seven. Consolidated ordinary profit.
Other than underwriting profit of Sompo Japan and investment profit I explained on the previous pages, we had the impact from the top line growth from Sompo International, and a higher profit from the absence of the COVID-19 impact we had last year, in addition to the positive impact from partial sale of stocks held at the holdings. As a result, consolidated ordinary profit increased by JPY 113 billion year-on-year to JPY 190.5 billion. Let me add that the numbers of our overseas subsidiaries include some noise associated with accounting for the changes of unrealized gains and losses of assets under the local accounting principles of Sompo International. We show the consolidated net income on page eight, so please take a look later on. Please turn to page nine. Let me next talk about our full-year forecast for FY 2021.
As I mentioned at the beginning, we have revised our guidance upward, reflecting the impact of the partial sale of stocks held at the holdings, and the progress of each business area. Let me explain in more detail the main points of the revision on the following page. Please turn to page 10. We have revised our guidance for Sompo Japan, reflecting the decline in large losses in the first half, and steady net interest and dividend income. We have also incorporated the impact from partial sale of stocks held at the holdings in consolidated adjustments and others. On page 11, we show the breakdown of consolidated ordinary profit. On page 12, we show the historical progress rates of quarterly results. On page 13, we show numerical management targets on the adjusted profit basis. Please confirm them later on.
This completes the explanation of the consolidated results and the forecast. Next, let me move on to the explanation about the domestic P&C business. Please turn to page 15. First off, the overview of the results of Sompo Japan. Let me explain each item on the next page onwards. Page 16, please. This page shows the net premiums written. Net premiums written excluding household earthquake and
Net premiums written in auto, our main product segment, trended steadily with the benefits from pricing optimization. Please turn to page 17. Net loss ratio on the earned-incurred basis. While accident rate rose due to the partial decline in the COVID-19 impact, earned-incurred loss ratio improved by 0.9 point to 56.8% due to a decrease in the domestic natural disasters. The earned-incurred loss ratio forecast for the full year is roughly around the same level as the assumption we had at the beginning of the year. We have the loss ratio on the written basis on the next page, so please take a look at later on. Please turn to page 19. Here is net expense ratio.
Net expense ratio of the first half increased by 0.1 point to 34.0%, mainly due to depreciation cost of new systems. The ratio, particularly company expense ratio, is in good shape against the plan. Full year forecast is 34.9% or up 0.1 point against initial forecast. Please check the page 20 later for combined ratio. Please turn to page 21. Investment profits and losses. I explained about the first half results on page six. As to strategic holding stock, JPY 5.9 billion worth spot was sold. Combined with stock future hedge, strategic holding stock was reduced by JPY 19.9 billion. The full year forecast, factoring in a good level of net interest and dividend income, is JPY 141.1 billion or up JPY 20.4 billion against initial forecast.
Please refer to the next page for the details of interest in dividend income and gains and losses on sales of securities. Please turn to page 23. Business forecasts of Sompo Japan. Please refer to the next page 24 as well, which illustrates automobile insurance related data. Please turn to page 25. Let me give supplementary information about domestic natural disasters. Gross incurred loss in the first half was JPY 28 billion, and net incurred loss was JPY 26.5 billion. While there was some impact from torrential rain in August, damage by typhoons decreased. As to full year forecast of domestic natural disaster, it's set at JPY 73 billion, factoring in potential impact from snow. Next page is reference data of funds and reserves. Please check it later. So much for domestic P&C business. Moving on to overseas insurance business, please look at page 28. Overseas insurance.
Sompo International saw its profit increase with increasing revenue due to rate increase, less impact from the pandemic compared to last year, and improving investment results. Mainly driven by these factors, adjusted profit of overseas insurance was JPY 35.1 billion or up JPY 27.7 billion year-over-year. Given natural disaster impact, including Hurricane Ida and the performance progress of overseas group companies, full year adjusted profit is expected to be JPY 56.5 billion. Please look at page 29 later for business results by region. Please turn to page 30. Some additional comment for business results of Sompo International. The figures on this page are in the U.S. dollar. In the first half, top line grew steadily with rate increase, increasing share of profitable products, and a consolidation of diversified U.S. crop insurance company.
As I mentioned earlier, adjusted profit progressed steadily, supported by increasing revenue, easing pandemic impact, and improving investment results. Full year adjusted profit is expected to be in line with initial forecast with impacts such as U.S. Hurricane Ida being reflected. Next page shows numerical data of Sompo International for your later reference. Much for overseas insurance business. Please move on to page 33 for domestic life insurance business. Himawari Life. With in-force business of protection type product increasing, adjusted profit of the first half increased by JPY 0.4 billion to JPY 18.5 billion. New business, in particular Insurhealth product, grew steadily with revenue increasing by 16% year-on-year. Net income in the first half decreased by JPY 1.8 billion, partly due to business expense increase along with new business increase.
As a result of reviewing each item based on performance progress, full year forecast of net income and adjusted profit remains unchanged from the initial forecast. Next page shows increase and decrease factors of net income over Himawari Life. Page 35 gives additional information on adjusted profit. Please check those pages later. Much for domestic life insurance business. Please move on to page 37 for nursing care and seniors business. Nursing care and seniors business. Last fiscal year, we paid out extraordinary allowance to the facilities staff due to the COVID. With no such impact in the first half of this year, adjusted profit of nursing care and seniors increased by JPY 0.2 billion to JPY 2.5 billion. With a steady improving occupancy ratio, full year forecast of adjusted profit for nursing care and seniors is expected to be in line with initial forecast.
Please check page 38 for the trend, such as occupancy rate. So much for nursing care and seniors business. Lastly, please move on to page 40 for ERM and asset management. Skipping some pages, please go to page 40. The status of ESR. As of the end of September 2021, ESR stood at 252%. Accumulated profit and reduced strategic shareholding and interest rate risk, it paid off. Our financial soundness remains intact. Please check page 41 later for the breakdown of adjusted capital and risk. Please turn to page 42. Lastly, group consolidated base asset portfolio. The following pages show asset portfolios of Sompo Japan, Sompo International, and Sompo Himawari Life. Please read them later. The portfolio of each company remains focused on safe investment. That concludes my presentation. Now, we move on to Q&A session. The first question is from Mr. Muraki, SMBC Nikko Securities.
Hi, this is Muraki from SMBC Nikko. My first question is on your capital policy. On page 40, you are explaining that partial sale of Palantir stocks, how much percentage points have you included from that in ESR? Thank you so much for this additional buyback and the return to shareholders. What is the condition and circumstance where we can expect additional more return? I think in the new medium-term management plan, you have shown four triggers. For example, ESR above 275%, no M&A, large amount of assets, and necessity to improve capital efficiency. What was the trigger that was infringed, that triggered you to make a decision on the additional return? That's my first question on the capital policy.
Mr. Muraki, thank you so much for your question. In the material, we simply say partial sale of stocks held at the holdings. Due to the partial sale of Palantir stocks, the impact on the ESR, that was your question, and also the trigger triggering the additional return. Those are the two questions we received from you, Mr. Muraki. To your first question relating to the partial sale of stocks of Palantir, what has been the impact of that on ESR? On page 40, if you look at other factor +13 points on the left-hand side, of that, about half, which is about 6 points, was the impact from partial sale of stocks in Palantir. ESR has increased, driven by the partial sale of Palantir stocks. That's the answer to your first question.
What has been the trigger or criteria for the additional buyback of JPY 20 billion? In the IR meeting in May, we explained that in addition to the base return, if certain condition is met, we are doing the additional return. We explained that policy in the IR meeting back in May. This time, out of four triggers, what was the trigger which became the reason for the additional buyback? The details will be explained in the IR meeting next week on November 25th. The management team is going to explain specifically other factors requiring capital efficiency improvement. What's the trigger specifically for the additional buyback this time? As I mentioned at the beginning.
We can assume the stable capital surplus, which is slightly above our assumption in the medium-term management plan. We decided to use that to additionally return to shareholders. I hope I answered your questions.
Thank you so much. Moving on to the question on SI, page 31. Combined ratio was revised down by 2.3 points. Is it only due to the natural catastrophes? Or last year, I think you revised it down too, but natural catastrophes, assumptions at the beginning of the year, large losses.
How do you set the budget at the beginning of the year? Do you think how you compile the budget at the beginning of the year is appropriate? You are revising it down. How do you evaluate your ability to appropriately assess the natural catastrophes at the beginning of the year?
Mr. Muraki, thank you so much. Your question was about the division of the combined ratio for Sompo International. How do we assess the budgeting at the beginning of the year? Well, unfortunately, we decided to revise our combined ratio assumption downward. As you pointed out correctly, the large components are natural catastrophes. Those are the major reasons. If you look at the below part, underwriting profit, this time compared to the initial forecast to the current forecast, about $100 million down where the division was made. This is almost by and large natural catastrophe, in particular, Ida in Q3 and the flood in Europe. Most of the $100 million revision was due to those natural catastrophes.
Looking back in 2020 last year, from the underwriting profit to underwriting profit at this time, we have factors such as impacts from COVID-19. Other than that, due to the top-line increase, steadily profit has been increasing. Underwriting profit has been increasing. On the base excluding COVID, base such as crop insurance, natural catastrophes, excluding COVID-related impact, the base fundamental insurance products are better. Loss ratio can be improved in 2021 versus 2020. We are controlling the loss ratio continuously very well. Compared to the track record from the past that Muraki-san, you saw in the past, I think it's getting better. That's my answer to your second question. I fully understood. Thank you so much. Thank you.
Next question is from Mitsubishi UFJ, Tsujino-sama. Mr. Tsujino, please. Ms. Tsujino, please.
The domestic natural disasters forecast has been declined, but is still on the high level for the winter. Is it because that there are some uncertainties? Also in Japan, Sompo Japan, the loss ratio excluding natural disasters is raised. What is the background? Is it just a one-off or because of the other large losses, or the other middle-sized losses were the driver for that?
Mrs. Tsujino, thank you for the question. First, the budget of the domestic natural disaster. Please look at page 25. As you pointed out, for the first half, JPY 26.5 billion. Against that, there is JPY 33 billion as revised forecast. As I mentioned at the beginning, in the second half, there's potential snow damage. As of the end of last year, there was some snow damage, which was quite a big size, for the first time in a long time. This is to prepare ourselves for the same level of snow damage. That is the answer to the first part of your question. The second part of your question, excluding natural disasters and the Earned-Incurred Loss Ratio in the first half was on the rise. First, about automobile insurance.
The impact from COVID compared to the last year, this year, the impact still remains, but not as big as the last years.
For the sake of time, I'm asking about the forecast for the full year.
Okay. For the second half, the automobile loss ratio were in the March, There, there's some seasonal rise that is factored in. For fire insurance-
There's a part which is not really covered as natural disasters. I mean that there are small natural disasters, the increase in the number. As a result, excluding natural disaster, Earned-Incurred Loss Ratio is expected to rise. Thank you. Thank you.
Next questions are from Mrs. Watanabe from Daiwa Securities.
Hi, this is Watanabe from Daiwa Securities. I have two questions. My first question is to confirm your capital policy, JPY 20 billion buyback. Am I right in understanding that this is the additional buyback? If you apply 50% total return ratio, then additional buyback can be expected when you announce your results in May. Am I right?
Mrs. Watanabe, thank you so much for your question. About the capital policy or shareholders' return policy, this JPY 20 billion additional buyback that we have just announced, as I explained at the beginning of the year, this is the additional return. Base return, which is 50%, we usually return based upon the flow earnings at the end of the year, but this JPY 20 billion is in addition to that. At the end of the year, 50% of the adjusted profit will be returned as a base return. If necessary, we are going to study the possibility of the additional return, if necessary. As Mr. Muraki mentioned, according to the four criteria that Mr. Muraki mentioned, we are going to study the potential additional buyback.
Understood. My second question is on the natural catastrophes overseas. In Q2, what was the actual number? And what is the budget for the full year? And then Hurricane Ida, European flood, would you please give me the breakdown of each natural disaster of the total budget of natural disasters for the overseas business?
Thank you so much, Mr. Watanabe. Natural catastrophes numbers overseas, in the third quarter, Ida happened and also floods in Europe. In total of the two, the total was mid-20 billion. Ida mid-teens billion and the European floods are less than 10 billion, but high single digit billions of yen. The overseas budget for natural catastrophes for the full year, we are assuming JPY 60 billion. The breakdown is as follows, SI and other overseas, JPY 55 billion. Sompo Japan, JPY 5 billion. That's a breakdown of the total JPY 60 billion.
Understood. Thank you so much.
Thank you.
Next, Mizuho Securities, Mrs. Naruhiko Sakamaki, please.
Hey, it's Sakamaki of Mizuho Securities. I have two questions. First question is about your fundamental earning capability. That's what I would like to know. In May, you publicized the group adjusted profit, and that included some COVID impact incorporated. How much of it is included in the revised forecast at this time? Also, other than COVID, factors such as the release of the deferred tax asset in Brazil and other so-called the one-off factors, how much or how many of them exist? Thank you, Sato-san. Your question is about our fundamental earning power and also the COVID and other one-off factors. Starting with the impact from the pandemic. In this revised forecast, the impact from the COVID in terms of adjusted profit is about plus JPY 19 billion.
Compared to the initial forecast of the year, it is a little bit below JPY 10 billion, which is pushed up by automobile net profit increase and so on. Next, as to one-off factors. What kind of one-off factors? As you mentioned in your question, this Brazil-related factor and many of them are one-off factors, which will not give any negative impact next year and onwards. It will not leave any big impact on the next years and onwards. As to COVID, how much impact will come next year? That's certain. That's uncertain. Compared to the pre-COVID, that there's some delivered impact of COVID. If we assume it, the COVID impact could lead to the positive impact because of the absence of that impact.
As to localized events such as the thunderstorms, which are quite small in size. If such small incidents did not occur, then that would contribute to the final results. That also applied to overseas. The Brazil factor, if it's not realized, that will be positive. For the other investment, the profit which is good this year, and if that is not recurred next year, that will be negative. The structural reform is paying off and the revenue is increasing overseas and these positive factors will remain next year and onwards. Thank you. Second question.
As to Sompo International's, the revised plan, the gross premium is raised greatly compared to the midterm, the plan target. It is coming very close to it. Is it sustainable or not? And also when you look at the net premium retention rate is actually declining while the plan is to the improving it and what is the background for that? As to Sompo International, the sustainability of top-line growth and also the net premium. The retention rate or the difference between gross and net and the thinking about that's the second question. I think, and the environment that is remaining very well.
Compared to fiscal year 2020, the fiscal year 2021, the rate increase pace itself is slowing down but the environment is good for the hike of the rates. So it's not that the next year top line is going to decline. That is not our assumption. As to the plan for the next year in May, we are going to issue that plan. It's not that the. We are seeing some factors that will be the shade on the top line increase next year. As to retention rate, as you know from December, the crop insurance company, the diversified that has been consolidated. Right after the consolidation. Well, this is still immediately after the consolidation.
As much of the business, it's ceded. It looks like the retention rate is different from the actual retention rate, but without crop insurance, the retention rate increases. The effort to increase the retention rate still continues. Thank you.
Next questions are from Futoshi Sasaki from BofA Securities Japan.
Hi, this is Sasaki from BofA Securities Japan. I have two questions. My first question is on the rate increase of SI. In January, next round, at the moment, what is your view on the next round of price negotiations in January or renewal January? Probably market expects that, price increase magnitude is going to be smaller, but, there are some, people in the market, who thinks that a rate increase is going to be as large, as the one, that is being achieved by SI. What is your view on the magnitude of price increase? Secondly, you talked about partial sale of stocks in Palantir, but, you don't have to give me detailed numbers, but would you please, give me the reasons why you have sold?
You have gone out of the lock-up period, is that the reason? Looking at you together with Palantir, my impression is that you are working well with them, like investing together with them. What is the background of why you have sold partially stocks in Palantir?
Mrs. Sasaki thank you so much. To your first question, what is our view to the rate or renewal increase in January? As you mentioned, there are two camps or people in the market, two different opinions. Yes. As of now, we don't have the firm view, but January 1st renewal is going to be quite solid continuously. That's what we feel at the moment. Of course, the accident, without accident and the frequency of peril, the pricing will be different and compared to the rate increase that has been achieved by SI up to the end of last year, it's possible that the pace of increase may slow down but we are not assuming sudden rate decline from January 1st. To your second question about the reason and the background why we decided to sell partially our stocks in Palantir.
As you mentioned, Mrs. Sasaki , collaboration with Palantir has been making a very good progress. We are working together in the project relating to RDP, and we have projects where we are jointly investing, as we mentioned. At the working level and at the CEO level, we have a very close, good relationship with them. When we formed a capital alliance at the beginning, actually the strength of the relationship has become much stronger. In this environment we started to invest in Palantir to strengthen the relationship with them. We don't need to depend so much on the capital relationship. We have a good established relationship now without depending so much on the capital relationship, and also exposure to one name has become quite large. From the risk management perspective, we decided to partially sell.
In our meeting in May, our CEO mentioned that if we need new investments in the digital area, we have the policy to sell partially stocks in Palantir to use proceeds from the sale to invest in new digital areas. That was another reason why we decided to sell partially.
Understood. Is it the only sale, or are you planning to sell more?
Well, about the potential sale in the future or not, in the IR meeting next week, would you please ask that question to the management team. Basically, if necessary, we'd like to sell our shares in Palantir and use proceeds from the sale to invest in digital areas. There's no change to that strategy. We don't have any concrete strategy or new strategy that we can share with you as of now.
Understood. Thank you.
Next question, Mrs. Otsuka from J.P. Morgan Securities.
Otsuka, J.P. Morgan Securities. I have the questions. First question is about dividend. It remains intact, and why it's not changed as adjusted profit is revised up?
Thank you for the question. For the dividend payout, that remains unchanged. As to dividend, the 40 yen did increase per share was as shown that at the beginning of the midterm plan. Rather than increasing the payout even more, we decide on JPY 20 billion additional buyback. For FY 2021, if we continue to accumulate the adjusted profit, then that could contribute to the basic return to the shareholders or additional buyback.
We are going to make a decision as the time comes. If you'd like, you can ask the question to the management next week at an IR meeting. Thank you. As to the second question, it's a simple question. The 148.7 billion yen and the 210 billion yen are for the full year the consolidated adjusted profit. At this level, that seems to be rather high. Could you please talk about the background of these numbers? For this time, with the revised forecast. For example, natural disasters. It is rather difficult to have the right assumption.
The last year, the snow damage was more than we had expected. For the second half, though we are on the conservative side for the snow damage. If we turned out to be wrong, then we would be very happy. We can accumulate more adjusted profit, so the 50% of the basic return and for that as well, and we can increase the source for the return to shareholders. The risk factors for the second half, natural disasters and what about market risks in the first half, the dividend from the fund is contributing, but you do not expect it as a big positive factor for the second half.
For the first half, it is realized to some extent, and it is incorporated as the part of the factors for the revision for the full year. If the market gets better, and we do not assume that the market will improve further in the second half. You do not expect the market will go down either? At this moment, such an assumption is not factored in. That's clear. Thank you.
Now it's near the ending time for this conference call, so we'd like to close the conference call. If you have additional questions or follow-up questions, please contact our IR team. This completes the conference call. Thank you so much for your participation.