We'd like to invite next Group Chief Executive Officer Okum ura to say a few remarks. Okumura-san, please.
Thank you very much for joining us today. From April 1st, I'm going to be the Group Chief Executive Officer. Okumura, very nice to see you. First, BigMotor or the other price fixing, because of these issues, we have caused lots of inconveniences to you, and I would like to extend my apology for that again. Based on the various investigation reports and the results of the investigation, we have taken all of the results seriously to prevent recurrence. Only with that, we cannot enhance our enterprise value. First, we need to regain trust. That's the first thing that we need to do. For that, both customers and business partners, employees and the other stakeholders, they have expectations, and we would like to satisfiscal year their expectations to regain trust.
Above all, it is important to focus on human resources, employees, for us to regain the trust. We need to improve their expertise. For that, we are going to talk about it more in details. For that, we need to invest in human resources on a different level. The other corporate culture, the internal control, and the other internal governance, we are going to revamp them, and we are going to make speedy actions to enhance enterprise value. Thank you very much.
Next, we would like to invite the new Chief Executive Officer of Sompo Japan, Ishikawa. Ishikawa-san, please.
From February 1st, I became the new Chief Executive Officer of Sompo Japan. First, what I would like to say is about the price fixing or the other BigMotor issue, that we have taken some inappropriate actions, and the people out here present today, and agents, and the customers, we have caused lots of inconveniences, and I would like to say sorry about that. We are now working on the effective plan to preventive measures with the other guidance from the authorities, and we would like to implement those measures. The corporate culture and other issues have been pointed out by the authorities, and of course, we are going to make improvements on these points. I believe that one of the biggest points for us is related to Sompo's business model. There are some structural issues emerging. For that, we would like to make firm actions.
On the short term, though we have to work on some issues immediately, and also on longer term, there might be some structural issues, and we would like to face them directly. My mission, as I understand, is to recreate the Sompo Japan. This is the second, the regeneration of the company. With that in my mind, I would like to do my best. Thank you.
Thank you. Now we would like to move on to presentation. Okumura-san, please.
Thank you. Please look at page four. Well, actually, talking about page four or the other IR issues, I'd like to talk about how we have dealt with the Noto earthquake, and I would like to say the heartfelt condolences to them. On January 1st, 4:10 P.M., there was a big earthquake. In dozens of minutes later, we set up disaster management headquarters, and January 4th, Shirakawa-san, the former president, and on January 14th, Ishikawa-san and myself went to Noto to see the disaster areas and the employees working there. Our employees who came from all the corners of the country to Noto, or some of them had their own houses destroyed.
They are all working together, and I understand, again, our social responsibility as a group. In that context, the people helping out other people, and there are services for that, and leveraging digitalization. For example, at Sompo Japan, Palantir Foundry has been used to pay benefits as soon as possible, and we could successfully connect data for that purpose. The other number of long work has been significantly reduced. As a result, we are now able to pay benefit much faster.
Also for the group as a whole, the nursing care business that exists. In Noto, the 50% of the population that is over age 65 years, and at the evacuation sites, there are many seniors living there still now. What our group can do in this situation, for example, we can offer senior food or nursing care staff, their own houses were destroyed, but still helping out senior people. There are so many people who rushed to the areas of the earthquake. Sompo and Palantir collaborated, and also collaborated with the Digital Agency in Ishikawa Prefectural Government to integrate the evacuees information. This is part of our effort to play our role expected in the society. Please go to page five. There are three things, three points today, as Ishikawa-san said, the second time of starting up our business.
It is about the regeneration of Sompo Japan, restarting Sompo Japan. That's the first thing. Secondly, the growth, the past. We have forward-looking perspective, and that's how we are going to conduct our business. Where we are now, and in the past, what did we do, and what we could achieve, and what we could not achieve. Looking back, we would like to look back the past of our growth. From next fiscal year, we have this new midterm plan, and toward the future, what will be our purpose and targets? Details will be given later on. We going to increase our resilience. That's one of the things, and also connect with customers and deliver the connected services, connect data.
We are going to provide services beyond insurance to our customers so that we can provide services contributing to safetiness and healthiness of the society as a result of that. We are going to pursue the capital efficiency, which is on the level of global peer and double-digit EPS growth. Page six, please. There are various issues, including Big Motor or price fixing. Although we have heard lots of inputs, and we have been discussing why they happened, but I think that we need to confirm what is in the scenery as a whole. On the left-hand side, the big market changes. The preaching the converted, for example, decreasing population, lower births, and aging society, and the natural disasters due to climate change, and changing customers' values, and digital technology advancement. For the domestic P&C business, the deregulation of insurance occurred in late 1990s.
There are all kinds of market changes. Probably we are more biased to status quo and the maintenance of status quo. Maybe we cannot completely adapt ourselves to those changes. I think that is one of the challenges for us. As I mentioned earlier, we need to satisfiscal year expectations of the stakeholders. Of course, we will hurry to regain trust, but the patchwork kind of preventive measures alone will not be enough to regenerate Sompo Japan. Enterprise value increase of Sompo Group will be difficult as well. The details will be presented in May this year when we announce next midterm management plan. What we are trying to do at Sompo Japan, we say reborn or revolution. From that we call this initiative SGL. Ishikawa-san, our new president, is going to talk more about that.
Let me repeat, the base of those initiatives is people. We are going to thorough investment in human resources. Please go to page seven. There are many challenges emerging. We have taken some appropriate measures. For example, DLS, we discontinued DLS, we abolished simplified underwriting. Also we increased the staff members at the claims services departments. Also we newly established a rule against making contacts with peers. Also training about Antimonopoly Act. That said, in our business improvement plan, regain trust, customer centric, and quality will be the keywords. With that, we are going to revamp governance. We reform mindset, and we develop human resources. Specifically, as governance regime, we will be more conscious of how we are perceived outside. Between Holdings and Sompo Japan, some people say maybe the communication between the two entities was not enough.
To improve that, we are going to have double-hatting system or via some exchanges and communication, working at the very same physical site, for example, so that we will fill in the gap if there's any. Page eight. Far, I have covered the left-hand side through the middle of this page. Let me repeat again. For us to grow ourselves in a sustainable manner, just working on emerging problems will not be enough. SJ-R, this new challenge or initiative, in that our values and the businesses. Although we are also working on the industry practice as well. We would like to talk about the path of growth in the past, or what have we been doing, on page 10.
In 2010, Sompo Holdings was established. Since then, adjusted consolidated profit grew at 20% on an annualized basis. Adjusted consolidated ROE grew + 8%. We are working very hard to achieve it. The 10% also is even in the reach. The era of VUCA, that's the phrase that we use very often. In that, by providing services, contributing to security, health, and well-being, we protect customers from risks. We would like to create a society filled with healthy people with smiles on their face. That is the purpose of Sompo. We will do our best for that purpose. To realize that purpose, that's one thing, and at the same time, we are going to work on profit growth higher than the peers, and the global level capital efficiency. That's the things that we are going to continue to work.
Please look at page 11. With profit growth, shareholders' return is expanding very steadily as well. Since fiscal year 2012, EPS growth rate has been about 30%. It's a more significant growth than the peers, and we take pride in doing that. With this profit growth, the shareholders' return has been increasing. For 10 consecutive years, DPS continues to increase, with dividend growing five-fold approximately. Share buyback is being implemented constantly, with total return amount steadily trending up. Moving on to page 12. During that due course, I myself have been working upon the improvement of the resilience, because that is marked as a very important point in the VUCA era, without which we won't be able to realize our purpose. We won't be able to protect our customers from risks.
From that perspective, first of all, the expansion of the group's scale was one thing that we targeted at. After 2010, we have grown at the CAGR of 5%, and also the top line has grown at the pace of 8% CAGR. In the very beginning, Sompo Japan was a top-line growth driver. After 2020, as you see on the right-hand side, overseas business has been driving the growth. Top line is growing at the pace of 15%. Jim is here from Bermuda, so he will explain about the top-line growth and also bottom line or the profitability growth as well. On page 13, please. This resilience of the group. In 2010, our company is more on the domestic business.
The overseas business weight was only about 7% in fiscal year 2010, while the population is declining in this domestic market, the natural disaster is becoming more frequent, and the damage is becoming much bigger. That risk diversification and the diversification of the profit source were imminent. As a result, in the forecast of fiscal year 2023, the overseas weighting is expected to occupy about 60%. Sompo Japan's rebirth or SJ-R initiatives to bring about the better profitability, meaning that the expansion of the overseas not only merely going to continue as is, but with the current situation, the risk diversification, and also striking a good balance of the business mix is going to be the key. Also, by looking at the focus businesses, looking at the overseas business, even looking at the overseas business alone, the resilience improvement has made the progress.
In the process of its growth, the weight of the natural disaster is big, and probably there is a volatility in the profit itself. The people had talked about that, and that was the situation. In the last few years, the scale has expanded. Risk has been diversified. Because of the inflation, there will be some negative impact to be coming for the contracts that was made years ago. In order to work on that, we are trying to work on the reserves for the balance sheet to be much stronger. We have made some initiatives for the overseas business as well. For the premiums, the profitability is quite hard to improve. That within SJ-R, we wanted to take more initiatives to kick off.
Let's move on to page 14. Progress has also been made in initiatives related to health and nursing care, which are targeted for medium-term growth. For the domestic life insurance business in 2017, the healthcare service launched in fiscal year 2017, with its user base growing to 1.4 million people. We continue to launch Insurhealth type of products that combine insurance and health promotion functions since fiscal year 2018. So far, the cumulative sales volume is 1.5 million. In the nursing care business, high-quality nursing care has been delivered, and we have taken advantage of our number 1 position in industry in the number of senior residents' rooms. We launched egaku in fiscal year 2023. This Insurhealth and egaku in nursing care has been the cornerstone of the well-being initiative of the next mid-term management plan.
First of all, about risk reduction, let's look at page 15. Steady progress in reducing risk in areas of low capacity efficiency, significantly enhancing resilience to market volatility. The shareholding of strategic stocks is the hot topic, but JPY 1.5 trillion of strategic holding stocks has been sold since the establishment of the holding company. Within the current mid-term plan, we are also going to accelerate this to achieve JPY 190 billion or over the course of three years. For interest rate risks, we have invested in super long-term bonds ahead of schedules to seize the timing of rate hike. As a result of it, the interest rate risk has already been reduced to about 1/3 of the level compared to the start of the mid-term plan. On page 16, this is about the capital policy or capital circulation.
In terms of capital policy, we will balance the allocation of capital generated by risk reduction and accumulated profits, as we've already discussed, between disciplined investment in growth and returns to shareholders. In investment for growth, the endurance, well, the current system is epoch-making, so that for the investment of SI, Sompo International, its ROI is currently achieving 116%, driving growth of the profit of the group. Regarding the collaboration with Palantir, its business collaboration has progressed in various parts of the group. From the perspective of our shareholding in Palantir, its investment multiple hit more than 4x . As a result of by looking at the total payout ratio, which hit 58%, exceeding the basic return ratio, that has been delivered as a result of exercising agile share repurchase.
In the following pages, we'll supplement details on some key points in the growth trajectory or proven track record. This time from Bermuda, Jim Shea had come because he wanted to talk for the overseas business by himself. James, over to you.
Thank you, Okumura-san. On slide 17, what you see are the metrics used to measure the overseas business in the three-year plan that ended in 2023. On the left-hand side, showing the continuous growth of the adjusted profit. This was achieved in the areas of investment in businesses, in people, in service, in IT, in support of our customers. It was a continuous focus on underwriting results, an improved investment climate, strong expense management, and as Okumura-san highlighted earlier, it enabled us to strengthen the balance sheet at the end of 2023. The middle column talks about the gross premiums written and the achievement of that target. This was achieved through, as I said earlier, our investment in people, the market conditions, our investment in new products and geographies, achieving more customers.
But I would highlight that the top line is not a metrics that we use to incentivize our management team. It is the bottom line and the adjusted profit. On the right-hand side, you see the combined ratio. The trend is to continue to reduce. The target of 88% set for the midterm plan several years ago, didn't anticipate some of the economic inflation that we saw. It didn't anticipate the increased investment in organic expansion of our business, nor could it have contemplated the impact of the size of our crop business, which historically runs at a much higher combined ratio than the 88. So I believe that was a success in achieving that over the last three years. If we move to slide 18, please.
On the left-hand side, what we're trying to demonstrate is that as the market rate, and you see on the bottom, which indicates pricing, but also more importantly, terms and conditions and risk selection in the portfolio increased. We increased the net retention of our portfolio. As that market and the market tends to stabilize, we will stabilize that net retention. The decrease to 67% is because what we've included is the commercial business in places like Turkey, Brazil, and in Asia, which hadn't been included before. Those countries had historically taken a much lower net retention, and as we work through that, we will increase their net retentions to be consistent with the rest of the Sompo International risk appetite. On the right-hand slide, even in inflationary environments, the actual loss ratios continue to decrease.
This, again, as I'll reiterate, was a continuous focus on the underwriting and investment in people, tools, and our ability to achieve that through the market. I'll turn to slide 19. This slide is illustrating the resilience of the portfolio to catastrophic events, and I would draw two comparisons for you to look at. Number one would be the two largest cat years, which was 2017 and 2022. As you can see, the impact of the loss ratio to our portfolio went from 22.7%- 6.6%, and again, that is a result of a diversification of the portfolio, risk selection, terms and conditions, and overall portfolio management. The other comparison I would make would be to full year 2020 and 2023, which were similar in terms of size, and the impact on the loss ratio was almost half.
This is a demonstration of how the portfolio has grown, and the diversification has aided us in the scenario of large cat events. Next slide, please. Slide 21. What we are showing here is the increase in the investment income. On the left-hand side, as a result of the growth of the portfolio, we've been able to generate more income and more assets to invest. On the right-hand side, it shows that the duration of our investments has allowed us to keep up with the change in the market trend and the market yield. With an average of approximately three years of our investments, it's enabled us to stay very close to that, which has enabled us to achieve the results that you've heard. [inaudible].
Thank you, James. Now we'd like to go to page 22, starting with domestic fire and other insurance. Slide 22, please. From 2020, the underwriting income has been improving very steadily. In the next mid-term plan period, it is likely that we will return to profitability. Still, there are many challenges to work on. The simple rate increases that will not remedy the profitability status. For example, leveraging the Palantir, we are working on high loss ratio countermeasures, portfolio change, and underwriting major change that will happen during the three years. In the past, the underwriting income of the fire insurance has been improving. Page 23, please. Since the change of the grade system, the automobile insurance, the profitability has been stable, but recently it is impacted by inflation, partly because of Big Motor issue.
We have stopped the rate revisions temporarily, and that we are going to seek the right timing to implement rate change. Page 24. This is about enhancement of productivity. The streamlining of the work is another thing that we have been working on. With the launch of new system, depreciation expenses will increase. We are going to drastically review the products to be simplified, for example, or we will consolidate branches. We are going to outweigh depreciation expenses with productivity improvement. Page 25. The casualty insurance is seeing more needs, as this slide shows. We are going to continue to capture new needs. Of course, we will continue to work on the profitability as well, and work on the product development and the good underwriting so that we can improve our profit. Page 26.
This is domestic business, life business, nursing care, and senior business. It's about a new value creation for domestic life business, Insurhealth product lineup improvement through such measures. We already have very superior position compared to the peers in terms of the number of in-force policies. As to nursing care, senior business, during the COVID and also for the Noto earthquake, we take pride in saying that we are playing our role, but we are not satisfied only with that. We are going to transform ourselves to platform, and we are going to challenge solution business and the data business.
With that, we would like to aim at JPY 10 billion of operating profit in the midterm, page 27. On the left-hand side, we have the achievements of the current midterm plan. This is a summary that I have just set today. Going forward, there are things that we need to do, the targets that we need to achieve. That should be our focus. In the next midterm plan period, the external environment will be more severe, and we are bracing for that. The changes in the environment, even in the tough environment, we would like to improve our enterprise value. For that purpose, both holdings and the other operating companies, we would like to make concerted efforts. Not to just some stakeholders, but for all the stakeholders, we would like to manage our business in such a way satisfactory to all of the stakeholders.
That is the track record. From now on, we would like to talk about the principles or the direction of the next midterm plan management plan, starting from page 29. The first slide, I'm going to explain, and I'm going to pass on to Ishikawa-san for the domestic P&C, then James for overseas. First of all, this chart, I may be repeating myself, but the environment surrounding ourselves is getting tough, meaning unforeseeable. Against that backdrop, in order for us to walk through our purpose, making our resilience much more solid or stronger is imminent, and we have to walk that through. The other key is to get connected and to be connected with our customers, to connect data and connect services, and to be together with the customers or to be there for customers.
With that, creating a new business model is something that we have to do. As a result of that, ROE will be also the level of the global peers and EPS growth at the double-digit level. That's what we want to aim for. With that, there are three key initiatives, the new Sompo Japan, further overseas growth, and wellbeing initiatives. The supporting business foundation is going to be the human capital, corporate culture and the transformation of it, and the capital circulation. All the businesses and all the processes are going to use the digital technology and data. Without that, connection or connecting businesses or connecting data or to be connected with customers are not possible. Now, about the new Sompo Japan, I'd like to hand over to Ishikawa-san.
Well, I'd like to explain our efforts in the domestic P&C business, which will be one of the pillars of the group's next midterm plan. In the domestic P&C business, changes in the external landscape had already been clearly identified as a major issue since the previous fiscal year. In the meanwhile, as evidenced by the recent problems, the P&C insurance industry practices that has been kept as a matter of course, namely the bias toward top line and market share, or excessive support for the client's core businesses, or strategic shareholdings. Those industry practices or other institutional fatigue has come to the surface. We reckon it difficult to overcome these major issues and grow the business and maintain stable and high profitability if we are merely continuing the approach that has been taken so far.
To overcome these challenges, thinking about everything from the customer's perspectives and doing the right things correctly to evolve into a business that generates the right level of profits, we will start a business as such that we will firmly work on the project called SJ-R. Formally, it will be kicked off in fiscal year 2024. We are now in preparation phase. The next page shows you the overview of the SJ-R initiative. SJ-R will proceed with two pillars. One is business foundation rebuilding to transform corporate culture, quality and governance, and the claims payment service division. That means the changes with the rebuilding of the business foundation itself. The other is the portfolio transformation or the stronger portfolio strategy, sales based on this strategy, and the IT cost reduction. That's more like a rebuilding of the profit base.
Rebuilding the business foundation itself is closely related to measures to prevent the recurrence of the recent problem. While maintaining a sense of speed, we will work to ensure that these initiatives do not end up as transitory, but steadily take root in our systems and corporate culture. On the right-hand side is about the profit or the profit base. The main focus of the focus to transform this profit base is portfolio strategy. We have been taking measures to address segments with profitability issues in the past, such as fire insurance for solar power generation and aged properties. We have taken measures. However, we have only addressed specific segments, and we have not necessarily had a sufficient portfolio strategy from an aspect of our business. That we want to make sure to do so.
In SJ-R, in principle, we shall establish profit targets for all segments and control underwriting to achieve them. In addition, to achieve that portfolio, we will formulate and implement sales strategies to make this portfolio in retail and the commercial areas, respectively, that the portfolio transformation will not be a mere initiative of certain areas only. It's quite important to walk that through, and as you see on the bottom part, the data-driven is the key, and as Okumura-san mentioned, the human capital investments to get more expertise is going to be quite important to support that transformation. Literally, we're going to be working this as a company-wide strategy. Page 32, please. I have just explained the overall picture of the SJ-R.
Now I also want to explain separately about one particular factor, which is the reduction of strategically held shares, as we believe it an important part of the transformation of the corporate sales department. If so, this is drawing quite a lot of attention from investors. At present, the annual reduction target is JPY 70 billion. The midterm goal is to bring the level down to, by the year fiscal year 2030, 20% or less to adjusted consolidated net assets. However, in light of the recent press taxing issue and our analysis of its true causes or the mechanism or the structure of why that happened, we will consider accelerating the initiatives in order to create a fairer competitive environment and to further improve capital efficiency. This reduction pace is now planned to be accelerated more.
As you see here, our ultimate goal is to get this down to zero. How to do so and the initiatives will be making the steady progress going down the road. As you see on that right-hand side, we want to strengthen engagement with investor companies, which is quite an important initiative. We're planning to set up an organization specializing in engagement, and by getting firmly aligned with corporate sales. Our corporate sales activities, per se, will be highly specialized and consultation-oriented. That's all from myself. Okay, thank you very much. James, over to you.
Thank you very much. Our objective over the next midterm plan is to continue to increase our adjusted profit. Our goal is to generate a double-digit return every year. There are many levers that we can pull to achieve this. We can change our reinsurance structure. We can focus on our expense ratio. We can continue to try to reduce the loss ratio, but there's a floor in what the market will sustain. Ultimately, we need more customers, and we're going to achieve that through writing more customers, and I'll explain in the different geographies, but that will help to generate the organic growth that we're going to need to continue to generate the growth in the operating income. On the right-hand side of the slide, it's really talking about how we anticipate the market changing to become what we call a softer market.
Not a soft market, but a softer market than what we've experienced in the last several years. We still anticipate that rate increases and pricing will continue to cover loss trends. We continue to retain the premium that we've shown on the reinsurance basis, but we will not focus on top-line growth or expect to see the same level of top-line growth that we've seen over the past three years. We will continue to expand our global footprint and thus generating more working with more customers and continue to improve the profitability. Our reinsurance business is global, but our insurance business has historically been dependent on the U.S. and the U.K. If we turn to the next slide, please.
As you see the map of the world, I think it's important to distinguish between how we will continue to grow organically and where we will invest to grow organically. In countries like the U.S. and the U.K., we focused on certain geographies within those marketplaces. I'll use the U.K. as an example. We were very much focused on the London market. There's a very large market outside of London that we have historically not focused on. We will continue to invest in those mature markets. In the U.S., we continue to open offices in different cities, whether it's Houston, Miami, expanding our footprint in existing cities to access different markets and to grow in those mature markets.
In addition, we have been investing in expanding into new markets, that would be within continental Europe, focusing on Spain, Portugal, France, Germany, Switzerland, and Italy, as well as into Canada, which is one of the, I believe it's the seventh largest P&C market in the world in which we had virtually zero presence. We will continue to make these investments. We will also maintain a focus on M&A opportunities. The focus over the next years in order to expand our customer footprint will be both from an organic and inorganic perspective.
Thank you, James. Moving on to page 35. The other initiatives, the third axis is the wellbeing initiative. The purpose of it, or the objective, maybe I don't need to, but for Japan and other advanced markets, we are entering into the era of the age of the nursing care for, and by all citizens. In the last 50 years, the number of the people who are in need are getting more in the number. The Insurhealth that we have talked about, that's a combination of the health promotion and the insurance. We won't be able to bring a solution to this social issue by having those two respectively.
In order to have the age of the aging society, Japan has been becoming much less active because there are a lot of the concerns, the concerns of health, nursing care, and the retirement finances. For those three concerns, we're going to tackle directly. What we want to do is, as you see on page 36. As people grow aged, we want to create a society where people will be positive and people will be able to live positively. That's what we want to do. With that evidence, we're going to establish the business model to be extended to overseas market where the aging society will probably be hitting as well after Japan. Group and the business partners, number of the customers will be expanded, and also the database of the customers will be connected. Insurhealth and the healthcare services.
From the services of the medical checkup, for example, together with the customers, we will promote the behavioral change among the customers and the build of services that meet the needs for the long time. By using the data, by using technologies, we shall create the business model of the sustainable nursing care. By doing so, we'll be able to provide and build up services that meet the customer's needs for a long time and in depth. By doing so, we'll expand lifetime value per customer, leaning to mid to long-term base. Lastly, I will touch on the foundation which is going to support the next midterm plan. As I mentioned earlier, the capital circulation management is going to be enhanced. Specifically, the enterprise value will be enhanced through ROE enhancement, that we're going to be working on both denominator and the numerator.
The concept is that the 100% base remittance ratio was that the company will consolidate excess capital into the holding company, and then do the allocation of that capital to areas of high capital efficiency. Also, we want to continue investing in human capitals. By doing so, we want to grow sustainably. The details of this plan is going to be shown in the investor relations meeting coming in May. There are various stakeholders, including customers, business partners, employees, and shareholders, and societies who want to meet the expectations of all of them, and to achieve sustainable growth, even in a difficult business environment, and then make contribution to the society. That concludes my presentation. Thank you.
Thank you. Now we would like to take your questions. Muraki-san, followed by Watanabe-san, and Sakamaki-san. Muraki from SMBC Nikko.
Thank you. I have two questions. First question about the strategically held shares. On page 32, you are showing your thought. Starting with assumptions, I'd like to have some clarification. Why are you reducing those shares? In the past, as I understand, is that, say, from risk perspective, there is some concentration of risks, and from capital efficiency, though we are going to reduce strategically held shares. Going forward, this type of share, as you said, will inhibit fair competition in the market or through your client, the companies, the overall Japanese governance is in the question. That's why you would like to aim at zero of this type of shares. Depending on the purposes or objectives, I think the meaning is different.
The positioning of the strategically held shares will be different going forward? That is the first question. On page seven, the governance for domestic operating companies, my question is as follows. The group management regime and governance under Mr. Okumura, new Chief Executive Officer, would it change? Because the holdings resources or the Chief Executive Officer and the management interest was on overseas rather than domestic and the nursing care and also digital business. This issue of double standard, I think also exists.
There are other companies saying that they are integrating their businesses. Sometimes what is not admitted when it comes to overseas P&C business, it's admitted in domestic P&C. SJ and holdings, you were talking about double-hatting. That would reduce the gap between or distance between the holdings and the domestic P&C. What about with the overseas insurance business and how you conduct business overseas and also the development of human resources. Are there any changes from what you have explained so far? That's my second question.
Muraki-san, thank you for the questions. As to strategically held shares and how we consider this type of shares, it's not that there has been a big change, but by holding those shares, there are some disadvantages or some governance issues, and we have re-recognized them. As a group, as each company, efficiency and risk reduction should continue. Because of the issue of adjustment of premiums, and there have been some challenges emerged as issues for the whole industry, and overall Japanese governance issue, which it's said to be deformed, and we have re-recognized those issues.
As Ishikawa said earlier, we know our principles, we know our direction, we aim at zero of these shares. How to do it and what is the schedule for that? For that, now the problem is very obvious, I think that we should not hesitate to decrease it. In reality, how are we going to proceed? It's not only about Sompo Japan, but as a group, we would like to have some discussions on how to do it. Of course, after the discussions, we would take actions, and that is my responsibility. Hamada-san, do you have any additional comments?
Here is Hamada speaking. Okumura-san is right, completely. Every year that we have been discussing how to reduce strategically held shares, the capital efficiency and risk reduction and corporate governance and the transparency of governance in Japan. As far as transparency is concerned, then the strategically held shares should not exist. That said, we thought, and that's why we came up with this issue, which is distorting, if you like, the practice in the industry.
We have been lenient to ourselves in the past, but now that era is gone, and that's how we came up with this new direction. It's not that our direction or our way of thinking has drastically changed. We are committed to this initiative. Operating company, the Sompo Japan, and I would like to make some supplementary comments about Sompo Japan. Of course, strategically held shares is one thing, but this premium adjustment issue. The fact is that there is no appropriately competitive market out there.
The mechanism to produce those issues, for example, the rule to contact with the peers was not clear or coinsurance, the rules were vague and they did not offer appropriately the price of the product to our customers. There were all of these issues, and one of them is kind of dictated by holding those shares of client companies, and that it was a trade-off opportunity for the premiums. To set the premiums at the appropriate level, then the reducing strategically held shares will contribute to creating appropriately competitive market, and that's how we decided to reduce those shares. That's my understanding. As to your second question, namely group governance and how we think about it. The things were pointed out, including communication or the internal control in the context of Bigmotor and other issues. There are newly recognized issues.
To connect with customers, connected services and so on. We have been operating in such a way that each operating company is doing things on their own. For example, between Sompo Japan and Sompo International, the underwriting center of excellence, and what about reinsurance or the Sompo Japan's database and well-being, how are we going to coordinate all that? Between businesses, there should be more collaboration to improve enterprise value. This time, the holdings and Sompo Japan. Now that we are clearly seeing what the problems are, the concurrent servicing or the double-hatting, this idea that came out. I myself think how we can improve the enterprise value most in terms of how we utilize our time.
Currently, between Sompo Japan and Sompo Holdings, we would like to make the distance between the two entities shorter, and we would like to regain trust, and I would like to use my own time for that purpose. Growth driver, SI. As to SI, I would like to have more communication with Jim, and I would like to be more committed to overseas business. It's not that the governance itself that will change for the governance significantly, but maybe the time allocation and small things could change.
Thank you. As to strategically held shares, I'd like to have some financial clarification on page 37. 100% remittance will be the basis you said, meaning that at Sompo Japan, you sell strategically held shares, and you have excess capital. Basically, 100% of it will be collected by the holdings company. Is that what you mean? Or will it be remitted to shareholders 100%? With this sentence, am I right to understand that the strategically held shares proceeds will also be subject to this comment?
Hamada-san, 100% remittance ratio in the next midterm management period, that's what we would like to achieve. We are still reviewing details. The real 100% remittance will not be achieved overnight. While Sompo Holdings has the money, how will it be managed, for example, on the life side, the 100% that will be difficult to be achieved. As a concept, 100% the Sompo Holdings company that will collect it. In May, when we talk about a new plan, we would like to give more details. As to strategically held shares, as a concept, of course, excess capital that will be collected by the Sompo Holdings. As is written here in the middle, ROE global peer level, it says.
That we have been targeting at 10%, in the next plan, we will go beyond that, much higher than that. For example, ESR range ceiling should be lower than the current level. We would like to make some specific actions. Preaching to the converted. We sell strategically held shares. The numerator of the ROE will be smaller u sing the denominator, you will make an adjustment, or the numerator itself that should be reduced. The ESR range going down, the capital adjustment will increase more than in the past. When it comes to additional return to shareholders, we were not hesitant. Even if it is not at the ESR, at the limit, we were not hesitant to give additional return. That stance will continue. 100% or not, here, I cannot make any promise. We would like to strike a good balance.
That's clear. Thank you. Muraki-san, thank you very much. Now let's move on to Watanabe. Please go ahead.
This is Watanabe of Daiwa Securities. I have two questions. First one is regarding that disposal gain of the strategically held shares and the return. That is going to be positive for the returns, the other companies are saying like 50% for their shareholder returns. Well, in that case, I think the impression that I get from yourself is actually lower, and that is making the difference in terms of the stock price compared to the competitors. Can you quantifiscal year how much of the update that you will be able to add by coming from the disposal gain?
The second is the domestic P&C forecast. Can you grow the domestic P&C? At page 23, in auto insurance, you are talking about the premium increase. Can you talk about the timing and the size? The second is about the initiatives that you're going to enhance for the claim payment division in order to work on the countermeasures. On page 31, the segment information for the profitability. In the reporting, you said that you want to make the judgment of the values from the customer-centric perspective, and you're talking about the main ratings and so on. Are you able to manage it?
Okay, thank you very much. First of all, about the strategically held shares, Hamada-san is going to answer. For the domestic initiatives, Ishikawa-san. Also I am going to answer your questions. Hamada-san, please go ahead.
First of all, the policy of the shareholder return in the next mid-term plan, the policy itself is still in examination. We want to talk about the foreseeability, and we want to see much more high visibility. The adjusted profit, however, the definition of that, we do not have a plan to change it. If we're going to adopt the IFRS, of course we have to discuss that.
For the time being, we currently have no intention of changing it. The disposal gain, it's not going to be included in the return for the shareholders. That's the current situation. The base profit from the life insurance, the definition of the adjusted profit is different, so that the total share or the total return or the dividend ratio, we want to come to the level not that bad compared to the competitors. In that regard, of course there are a lot of difference in the definitions. However, the weighting or the reflection into the return to shareholders from the disposal gain, we want to make sure to see to that. That is not going to be including the adjusted profit.
What we want to make it easier for people to understand of the underlying reason for what we have come up for the level of the return. Okay, let's move on to the next question about the profitability for the auto and also the countermeasures for the recurrence of the issues. Maybe we could talk about the digital for that question, and also the behavioral change and the human resources systems in order to bring about the transformation.
Okay, Ishikawa-san.
First of all, regarding the auto insurance, as Okumura-san mentioned in the very beginning, the Big Motor issue and the response to that, we need to prioritize on the people who got the hit or the impact, so that we decided not to have the rate hike for that reason.
In the meantime, for this rate hike or the rate change, in the mid to long-term basis, when we look at the current environment, we have to seize the opportunity to do the price hike sometime. The tolerance from the society needs to be judged first of all. If we think there is a tolerance from the society, we want to take that action. For example, in accordance with the inflation, the repair cost per unit is going up. It's up by about 3%. In the performance reporting to the 5.3% of projection, the level of 5% was within the scope. We can say the increase was somehow in line with our projection. However, the unit cost, the repair cost, is up. The other one is the accident rate, which is also rising. Our assumption was about 3% increase.
After that, in the post-pandemic, the revenge driving has already had an impact, and the impact is now that being appearing, and the traffic is already back on the street, so that accident rate is up by about 3%. Including that, the premium should be hiked. I may be repeating, but we have to see the tolerance of the society for the price hike. To get that, we need to make sure the response to that Bigmotor issue, first of all. I think that's about the auto side. Now, about the prevention of the recurrence of what had happened as an event. As I mentioned earlier, this is the first priority that we have to take up. Otherwise, we won't be able to regain the trust. This is the priority issue that we have to tackle with.
The cost for these countermeasures to prevent this from happening again, the impact on the financial term is not that big. The staff of about 250 people are working on, for example, the process for the contracts or changing the agents, the agencies. In their responses or in their workload, are there any big impact?
When we think about that, for example, the excessive claims to come, if there'll be any revision to be made or the change to be made, then what happens is that we have to return the premium back because the claims is not going to be used. Sorry, correction. When the claim is not being used, then the grade is not going to be damaged, so that the premium is not going to be there, but there will be offset because the claim is going to be paid back. That's the mechanism.
A certain response to the customers does exist, but the impact, the financial impact is not likely to be that big. The human talents, whether we have enough. We're thinking about the culture to change and to transform. I think the human capital is deeply related to the culture. The sudden change in the culture is not likely to happen. However, the culture change have to happen, and we have to work on this. The cure will be, first of all, to change the merit system. For example, the sales top line or the market share has been highly prioritized, and that was the big issue that we needed to refocus, that to think about. We have to sophisticate the expertise.
If something wrong is happening or something strange happening, we need to have an expertise to detect that something wrong or something strange, so that the claims side or the claims department team will be able to also detect that. We want to make sure that to happen. Sometimes the, for example, the human resources rotation may be the other opportunity, or the job type kind or the mid-career hiring will be another thing to think about. Also more diversity. Something wrong, the people has to speak up when they find out something wrong. Well, I want to add something here then. Well, at the back of a lot of events that have happened recently, we need to allocate some human resources to respond to those issues.
Well, as Ishikawa-san mentioned, without the regaining of the trust from the customers, we won't be able to take on any initiatives. Well, Narasaki-san is going to talk about this from the underwriting by utilizing digitals, for example. What kind of digital technology are going to be implemented to get an higher efficient business model. Well, he's going to talk about this.
Talking about the human resources, the appropriate KPI setting is very important. With that, each business unit and the business entities do have their merit rating system or the valuation system to promote the behavioral change among the staff.
The Holdco, the Sompo Holdings, does support and supervise the businesses, and then also set up the appropriate KPI. It's not only about top line or the bottom line, but for various stakeholders, what has been done, what kind of trust to regain, what kind of branding, what kind of employee engagement needs to be done. Those things need to be clarified more so that we'll be able to make a clear revision or revisiting of the KPI. Narasaki-san, please.
Yes, this is digital business owner Narasaki. Okumura-san just mentioned about the utilization of the digitals for underwriting. Well, in the Nikkei financial, which was released today, I just saw the article relating to this subject. Just simply say, as you may know, the underwriting judgment for each prospective business or contract is. We have a data analytic system called the Foundry of the Palantir, and the rule-based AI is also deployed.
Well, in the past, when we did not have this analytic system or tools, the average of four hours were taken for making the judgment for underwriting. The underwriters, the experts in the underwriting division, were working on making the decision and the judgment on whether to underwrite a particular case or not, and also do the test calculation of the premium. Now, that is done on the rule-based AI and also the Foundry. The average of four hours that it took is reduced down to almost zero. We have seen a lot of those cases. Well, we have not utilized and deployed the system for all the way through. However, although we have a lot of dependence in the human manual intervention, still we want to expand more of this system. Also this is going to be an augmented intelligence.
This is not a replacement of the human labor, but this is going to be a support and augmentation of the human labor, especially the innovation by using the Foundry and the AI. For a lot of lines of businesses and also the other business units will also be able to leverage this advantage, and that is going to be much more better underwriting environment for the people who are working in this area and also the prospective customers as well. That's what we are doing as the digital initiatives.
Watanabe-san, thank you very much. Sakamaki-san, please. Sakamaki from Mizuho Securities.
I have two questions. First, about strategically held shares. At this timing, you're saying that you aim at zero, and that is written in the presentation materials, but there are some barriers to do that, regardless of your intention. In a discussion, why couldn't you reduce those shares? Because there are counterparties, is it really possible to reduce it to zero? What is your thought on that right now? That's my first question.
The second question is about overseas business and the growth in the next midterm plan period. Could you please elaborate on the bottom, the growth, because in the past three years, in organic growth strategy, there was not so many. Do you think organic growth alone can you achieve the growth target? Could you please elaborate on how you achieve the target growth for double-digit growth? What kind of support do you expect from the holdings for you to achieve double-digit growth?
Sakamaki-san, thank you. As to your first question, strategically held shares, myself and Hamada-san will answer your question. For the second question, James will answer your question. Let me repeat that theoretically speaking, it should be zero. As you pointed out, the question was that there were many reasons for us not to make it, and they probably still exist. As on each company, we will not hesitate to do whatever we have to do. In the industry level, there are some discussions that are going on about the reduction of strategically held shares. Rather than saying that the other way could not do it, we had no other way to go.
We're not thinking like that. We are going to watch closely the trend in the industry and in other industries, and we are going to aim at zero. How to do it, that design is yet to be developed.
As is written here, eventually it should be zero. We aim at zero, and the management has confirmed that, and we would like to review the timeline to do that. On a technical side, the definition should be worked out as well, probably. What is the definition of strategically held shares? Do we need to have more discussions? There are some unlisted shares, and then there are some work collaboration or alliance-related strategically held shares. We need to clarify the definition. In any case, whatever we call strategically held shares will be reduced to zero t he timeline is yet to be determined. Thank you.
Now, James, could you please talk about the future growth strategy and probability of achieving targeted growth?
Well, I think the probability of achieving it is very strong, as I wouldn't have put it as my target. I would not put a growth initiative that was based upon M&A activities and inorganic growth. Those would be on top of that. I think that the organic growth that we've seen in the markets that we're in today, we still have a relatively small market share. We still differentiate ourselves from our competitors through the people and relationships that we have and the services that we provide. We continue to see that as an opportunity for us to grow and to grow the portfolio, and in turn, the operating income. In the markets that we expand in, we're already seeing substantial growth in those markets, simply because those markets are looking for alternatives, and the brokers that we have relationships with and the customers already.
I'm quite optimistic about our ability to achieve the plan. I wouldn't sit here at the beginning of a three-year plan and say I was concerned. I think that the foundation that we've put in place, the people that we have, and the relationships we've established, I think it's an achievable goal. What I would look towards Holdings is to help and continue to provide the capital that we need to grow, that continues to maintain the ratings that we have and the surplus we have vis-à-vis the local capital requirements in the different legal entities. The support that we've received through Okumura-san, Hara-san, and others who sit on our board of directors, and continue to monitor closely and work closely with the management team to continue to invest.
Thank you. Next year and onwards, the growth, I think probability is very high. I myself very confident. Preaching the converted, the written premium is increasing and under James leadership, portfolio management is happening. In the environment, ratings are increasing, and for reinsurance, attachment point can be raised. For investment, AUM is increasing and the yield is going up. If the market yield becomes flat, our yield will continue to increase for another one to two years. In 10 years or 20 years' time, would it be okay? Well, of course, I would not know. But for the several years to come, I think the probability is very high. Thank you.
Sakamaki-san , thank you very much.
This is Sasaki of Nomura Securities. Thank you. First one is a question to James. In the presentation, you were talking about the softer market, not that market is soft, but it's a softer market as a projection. Meaning that the rate is going to increase, however, the increment is going to be slower than the past. That's my confirmation. If that's the premium cycle projection, then a large-sized acquisition may be difficult. Am I right to understand that? That's the first question. On the global base, the PFAS chemical has been quite important for the risk management term. For the overseas business, is it going to have an impact on your business? Is it going to be an opportunity for the overseas business? Two questions to you, Jim. First of all, the second one is to Ishikawa-san.
When James was making the presentation, the explanation was very simple, the focus on the bottom line, not top line. Ishikawa-san, are you thinking the same? As simple as that? If that's the case, that loss-making underwriting can be stopped, so that is going to hike the bottom line. Berkshire Hathaway or Scor or some companies that are just making exit out of a certain underwriting. Can James make the same kind of an action?
Sasaki-san, thank you very much. First of all, let's have Jim take a turn, the meaning of the softer market, and also the possibility of the M&A. That was the first set of the question, and the second set of the question was later. James, please.
Thank you. Very good question. I did indicate it was a softening market, but not a soft market. In a soft market, we see terms and conditions expanding, and we see prices decreasing. What we're seeing today is that over the last, say, two to three years, the terms and conditions have gotten to a place that the market is comfortable with. The rate increases have slowed down, what I could still see in the first quarter was certain rate increases around the 1/1, not as high as we'd seen in the past. However, if you look, it varies from line of business to line of business. You may see, for example, directors and officers liability premiums were decreasing quite a bit in 2023, and we're seeing them still decreasing, but not to the same extent.
It seems to moderate in that sense. Do I think it makes it more difficult for an M&A transaction? I don't think so. I think that when the market was growing and people were looking at different market opportunities, the price was quite high because the expectation was of the strong earnings going forward. I think while it varies on different companies' business models and portfolios, I don't think it changes, and I think that there will still be opportunities. The question is it a good fit to our business and does it make sense? That's what we continue to look at. If you could repeat the second question, sorry.
[inaudible]. Sorry, I did not clearly understand. You were talking about the PFAS, the chemical. Like U.S. and Europe, this nitrogen kind of the chemical is getting much tighter for the regulation. That is going to have some impact in the insurance business. I was just wanting to know whether there will be any impact on your business.
As of today, that it's something, but something I would get back to you on. We can come back to you. Yeah.
The second question is for Ishikawa-san about the initiatives for the loss-making underwriting or the businesses. Well, I think the concept is basically the same as what James said. We want to focus upon the bottom line. In the past, top line or the market share, those two have been quite biased. As a result, the contract was quite questionable in terms of the profitability. Sometimes we did not really think about the profitability, and then underwritten so that the loss was made. That was something that we have learned as lessons.
There was some inappropriate competition in the top line. The appropriate underwriting is something that we were not able to have, and as a result, we had some losses. Going forward, the bottom line will be the basis to expand the profit from insurance business. In relation to that is, for the loss-making lines, are we going to exit from that?
Well, for example, that's what the overseas are doing from, for example, the loss-making or the low-profit geography. We are not thinking about the pulling off from those market or the business unit, the line of businesses. When we think about the Japanese line of businesses, we have the social responsibility or the social mission to pursue. At the same time, well, before even thinking about that, as I mentioned at the explanation of the SJ-R, we need to first of all review our portfolio to think about the appropriate coverage or appropriate premium to charge to make sure the appropriate profitability to gain from the portfolio.
Did we not do that in the past?
Well, we did tackle with that, for the reasons that we mentioned earlier, we were not able to pursue that in full swing. As Narasaki-san explained, the usage of the Palantir's Foundry, we need to work upon the countermeasures against the high loss ratio items, and we want to work upon that. The countermeasures started by using the Palantir in 2021 to fight against that high loss ratio. There was a merit of about JPY 10 billion size in 2021. We had expanded that to other lines of businesses. In 2023, over JPY 20 billion of the improvement was seen. The human capital and also the Foundry were the new combination or the new technology perspective that we incorporated to fight against the losses and fight against the high loss ratio. Well, you were talking about the strategically held shares.
I just want to have one further question. What you are saying that you want to target at bring this level down to zero. Your target is to bring this down to zero because your judgment is that realistically, zero is hard, but now your description is much more appropriate to say that target is zero. Is that what you have thought?
Well, just Hamada-san mentioned that there are a lot of things that we have to decide, we will aim at bringing this down to zero. Well, the methodology, definitions, and so on needs to be discussed further. Whatever we will do in our portfolio, whether we'll be able to down this to zero or not, the feasibility, we don't think this is not going to be impossible. That portion, we thought that because there are a lot of things that we have to solve now, we won't be able to say bring it down to zero firmly. That's what we said.
Well, it's already time, from the online participants, we have received some questions. First, Sato-san of JP Morgan, you can ask questions.
This is Koki of JP Morgan. Can you hear me?
Yes, we can hear you.
Thank you. Time is running out. I just have one question. Today, you would like to get out of the old trade practice. I think you showed that commitment. Along with strategically held shares, another unusual practice is the agent system within the other company. When that system is revamped, what would happen? Already, the FSA is requesting for that, according to the mass media. As to the limitations on the contracts which only exist in the form that will be revamped, and the low-quality agents you pay commissions, it would be absurd to continue to pay the commissions to them. Once it is normalized, the expense side that will be slimmer will be reduced. Could you please elaborate on that, probably talking also about the productivity?
Sato-san, thank you. That is double structure. We did have some discussions, but we could not take both actions. The challenges are clear, issues are clear. There are things that should be discussed on the industry level and those discussed on the company level. It is not that all the corporate agents are not good. That is not the case. There are things that should be discussed on the industry level. Ishikawa-san, do you have any comments?
Thank you for the question. As to this issue, internally, HR and the other preparatory department is discussing that, but as to specifics, the end of this month, business improvement plan will be presented, I refrain myself from talking about specifics today. As Okumura-san said, as the whole industry, because there was a request from the FSA, the industry level, there have been some discussions on this issue. There are different grades or qualities of the corporate agent. As an agent, they should function as an agent, not just sticking to the other agents within the corporation. The overall practice of the industry should be changed, as I said in the presentation. There should be some rippling effects toward, for example, shares in the coinsurance.
If we work appropriately on the industry practice, I expect that we can achieve our ideal picture, that would lead to improved profitability. We talked about Palantir and digital and human resources development. Those things included, the commercial or retail insurance market should be changed based on these elements. I don't know if I have answered your question. Again, I cannot talk about specifics today, but we are going to take necessary actions for improved productivity, for improved profitability, and for that, we are going to take steps using digitalization and human resources development. May I? I mean, have we answered your question?
Yes.
If you have any supplementary comment. To the question of Futoshi Sasaki, Jim would like to answer your question as well.
Thank you. Just with respect to that and the PFAS issues, it's an industry issue that we don't see any issue today, but we continue to monitor it. We participate in industry panels, we share information, there will be industry-wide exclusions moving into policies. As of now, we don't see the issue in our portfolio.
Yes, please. Wait for the microphone.
The risk of asbestos, for example, could it be something like asbestos, which was in the past?
I think i t'd be wrong for me to say that this is the new asbestos. I think the industry's gotten ahead of it. I think that, as of today, you could say the same thing about the opioid issue in the U.S., and was that the new asbestos? I think the industry's responded faster than it has in the past. We'll keep you informed.
Thank you very much. Lastly, Niwa-san, because you are on the floor, do you want to ask questions?
This is Niwa of CT Group. I have one question then. On page 29, corporate culture. There were some discussions, I think, that you have had. When you talk about the corporate culture on the group base, what is the image that you want to have? Anything that you want to change? I think the point is, for example, the sell-down of the shares or the global peer level of the ROE, you are probably passing the Rubicon River. You are only showing the overall picture or so. When you talk about the sketching a scenario of the next midterm plan, according to what you have said, it does not really give me the impression of a whole change compared to what happened in the past. Do you think the corporate culture is going to be something that is going to be a real benefit for you?
I think this is going to be the real cornerstone for our company. When we talk about the transformation of the corporate culture in a broader way, it's not going to be the enterprise culture or not. First of all, we have to think about the backdrop of why the problems have happened. I think there are things that are changing drastically, and there are things that have changed little by little. There are a lot of diversity in the change of speed. We were not sensitive to see that. Probably the reason is because we did not have enough diversity. We are not able to respond enough to the change.
For example, being open so that we are able to speak up, or the diversity, it was not really enough. It is not only about the nationality, not about the gender, not about the age brackets, but the uniqueness of each and every person, and also respect for each and every person, including myself. I think the people alike were just getting together. We were joined by the overseas people, and we had a lot of people, like the nursing care businesses as well, a lot of the diversity. However, we just wanted to make sure where we had the barrier of not being able to utilize those diversity, so that by changing ourselves, by tackling with the social needs, we need to come up with the launch of the new products to meet the needs.
The initiative of the wellbeing is going to be going beyond the boundary of what we have done. Also the silo that we have worked upon will be able to have the vertical connection and to deliver the new policy or the new value.
Okay. Niwa-san, thank you very much. We do not see any more questioners from the online participants either. Let us close and wrap up the meeting with this. If you have any further questions, please contact Investor Relations Department. Thank you very much for your participation today, and this is the end of the meeting.