Hello, everyone. Thank you very much for taking the time out of your busy schedule to attend this briefing session on the Overseas Insurance Business of Sompo Holdings. I'd like to be the moderator of this briefing session. My name is Nose. I am Head of the IR office. Due to the current situation, unfortunately, we are holding this session remotely. Let me introduce the participants from our side. First, we have Mr. James Shea, CEO of Overseas Insurance and Reinsurance Business. He is the main speaker today. We also have Mr. Michael McGuire, CFO of Sompo International Holdings. We have Mr. Mikio Okumura, Group Co-CSO. We also have Mr. Masahiro Hamada, Group CFO. We have Mr. Yuji Kawauchi, Executive Vice President and General Manager of Global Business Planning Department.
As you know, on the 1st of September last year, Jim has become the CEO of Overseas Insurance Business. Today, as the CEO of Overseas Insurance and Reinsurance Business, Jim will talk about the initiatives and also the future direction. First of all, Jim will speak for about 15 minutes using the presentation material and entertain questions from all of you. We plan to spend about 60 minutes for this session. Before we start the presentation, I'd like to invite Mr. Okumura, who will become the Group COO and the President and Representative Executive Officer in April, to say a few words of greetings to you. Mr. Okumura, over to you.
Good morning to you all. Thank you very much for the introduction. My name is Okumura. As head of the operation, I am very much focused on the business results.
There are geopolitical risks, which are emerging, and we are all very concerned. Society and also the impact on the insurance business as well as the financial business is very grave. We need to watch the situation so that we can take the appropriate measures. In February, I came back from Bermuda. Until February, with Jim and Mike, I was involved in the operation of the Overseas Insurance Business. Today, we have an opportunity to directly hear from Jim, so you can get to know about Jim and about the development of the Overseas Insurance Business outside of Japan, and also about the future. I hope you will deepen your understanding about this. Thank you.
Thank you very much, Mr. Okumura. Without further ado, we'd like to hand over to Jim.
Thank you very much. [Non-English content] , everybody. I'm very pleased to be able to speak with you today with respect to the Overseas Business. I do wish it was in person, and hopefully the next time we do this will be in person. I'm going to begin looking through the presentation, if we could show slide number two, please. I don't want to go through each name on this slide and give some backgrounds, I think you will note the depth of experience that I inherited here at the Overseas Business in terms of the management team. There are representatives from the large multinational organizations such as Chubb, AIG, Allianz, as well as global brokers. There is a strong global business acumen amongst the leadership team and is derived from a strong underwriting pedigree of the majority of the organization in the market-facing roles.
I'll give you a little bit about my background. I've been in the industry for over 25 years. I've worked with two of the large global multinational organizations in their commercial insurance business. I've held underwriting and management positions and lived and worked in New York, London, Paris, Zurich, Singapore, and Tokyo, and I'm very pleased to be part of the Sompo organization based here in Bermuda, leading the overseas business. We can move to slide number three, please. The business that you see today of the overseas operations is unrecognizable from what that business would've looked like five or six years ago. I think it's important to spend a little bit of time on the past, then we'll spend the majority of the time talking about the future. I think what we've accomplished over the last number of years is broken down into three items.
We've built a brand, trust, and reputation within the commercial insurance market. 95% of our business is intermediated through some of the global brokers. The relationship is based upon, and our strength and our success is based upon a number of items, including the financial strength of the Sompo group. However, it is also the people that we hire, the relationships they have in the industry, the expertise, the service, and the commitment that we have to this business that enables us to penetrate some of the markets and customers that have historically been held by some of the larger, more global multinationals. The second most important thing that we've accomplished is we've expanded our global underwriting capabilities. Over the past number of years, we have acquired expertise in the crop insurance business to expand to become one of the largest global crop insurers in the industry.
We've acquired a general aviation portfolio in the United States, where we are in the top three general aviation insurers in the United States. We've acquired surety expertise through the acquisition of Lexon, we've expanded our GRS portfolios to focus on global corporations and certain industries, focusing on their property and casualty exposures. We've become a leader in financial lines business in the United States and in the U.K., we've invested in risk engineering to bring additional services to our customer base. The third item on this slide is how we've brought the organization into a common management. Over the past few years, the legal ownership and the management oversight of all business outside of Tokyo has been moved into Sompo International Holdings.
The largest of these operations is our operation in Brazil, Turkey, our consumer business in Southeast Asia, a number of joint ventures and positions around the world, we'll speak more about that later on in the presentation. What I'd like to focus on for the next hour is to talk about the future. As you see on the slide to the right, we focus on what are some of the next steps and opportunities that we see within Sompo overseas business. The first point I'd like to make is a cultural shift. We are a large global organization. However, as we've grown, it's grown through acquisition of some smaller businesses.
The opportunity for us is to create a mindset amongst our employee base and also a reputation with our customers and with our distribution partners of a global P&C organization that when combined with our domestic Japanese business, places us amongst the global leaders in this sector. We need to incorporate what Sompo stands for across the entire organization. Underwriters and employees in Atlanta, in Los Angeles, in London, Singapore, São Paulo, and Tokyo have an understanding of the organization that they're part of, who their colleagues are, and what they stand for in the communities in which they operate. We will focus on coordinating more closely with my colleagues within the domestic P&C business in Japan, and we'll focus on training, consistency with respect to ESG underwriting initiatives, internal communications, and our reinsurance strategy.
We have a tremendous opportunity to promote the Sompo brand, both within our organization and to our customers and distribution partners and all stakeholders in all geographies that we operate in. This, while easy to explain on a piece of paper, does take time and effort, but I can confirm the commitment of the organization, not just of the overseas business, but of my colleagues at Sompo Holdings in Japan. The other focus we have is a geographical shift. You will see in further slides that the majority of our business in the commercial space does come from the U.S. and the U.K. The consumer business is dominated by Brazil, Turkey, and Southeast Asia. We will continue to look at M&A opportunities to see how we can move in an inorganic fashion to increase our footprint and our portfolio around the world.
However, the market is challenging, so we're not going to wait to depend on an acquisition. We will continue to look for opportunities to invest in our business in an organic way. We have several countries that are significant portfolios in the industry, where Sompo has limited to no presence. This will be in places like Canada, in Mexico for North America. We'll look into continental Europe, and we will look to expand our business in Asia Pacific with the focus through Southeast Asia in both the commercial and consumer business, inorganic and organically. The third is a structure and service shift, and I think it's important to understand why Sompo has been successful in building businesses in these markets over the past several years.
We have been an alternative to some of the major carriers who have a history and a legacy of portfolios that needed to be re-underwritten and repositioned. Sompo did not have that legacy, and therefore, was able to take advantage of the shifting market in 2019, 2020, and 2021, and to continue to expand our presence. We did it through strong relationship with our distribution partners and our customers. We did it through delivering on commitments and consistently maintaining our position in the various markets that we've chosen to operate. As we look to the next five years, my goal is that the portfolio and the business of the overseas business is as unrecognizable in 2027 as the portfolio in 2017 is when we look back at it today. The decisions we make today will influence the success of what we do in the future.
You have heard and will hear our comments around One Sompo. It means different things to different people. For me, where I believe the priority is having One Sompo within the international organization. How we approach our customers, how we approach our markets, will be in a more simplified, consistent manner, and we will approach that through geography with all of Sompo offered through that brand and that management leadership. We believe this will simplify our position in the market. Despite the changing in market conditions and cycles, we have a tremendous opportunity to attract top talent into this organization, and to build on that business in an organic fashion.
We will be making announcements in the coming weeks about structural changes that will simplify the organization and will facilitate our communication and our coordination with our colleagues in Japan and moving in the same direction towards One Sompo. If you could turn now to slide four. You will see in this slide is our goal as we continue to move from the 2016 year up until looking forward, is to continuously increase the percentage and contribution of the overall group profit coming from the overseas business. We will continue to support the goal for the midterm of the JPY 300 billion of profit. As you can see over this period of time, the international business continues to improve and to increase its contribution. This will come from continuing to do what we do today, in the markets that we operate.
It will come from inorganic opportunities, from new products, new geographical expansion, and it could come from some M&A opportunities that we will find in the marketplace over the coming three years. I would ask you now to turn to slide five. What we are highlighting here is the growth and the change in the portfolio from 2016 through to the 2021 draft actuals. As I said, the business is unrecognizable, and the growth has come primarily, you can see, through the acquisition of Endurance. However, we have made certain divestitures and certain acquisitions over the years. I do believe it is important to see the organic growth that has been achieved in the marketplace, both from new business and from rate increases as the market has permitted.
We have been able to do both over this period of time, resulting in a compounded annual growth of 28% over the period.
If you turn to slide number six. The major points I would like to have here is, as you can see on the left-hand side, the portfolio has grown, and we have increased the diversification of our products. We have increased the diversification of the segments in which we operate in. The opportunity for us going forward is what you see on the right-hand side, where the opportunity to diversify and grow outside of North America and the U.K. present great opportunity for us for the next three to five years as we continue to expand the portfolio, both on a geographic basis, both on a customer segment basis and industry basis, and throughout the different geographies. I will then turn to the next slide, to slide number seven. I think this slide is a very important slide when looking at the progress.
I know that many people like to see how the portfolio, the underlying business, has improved over the past number of years. Because our portfolio is made up of a number of different businesses, which is insurance, reinsurance, and the acquired and much larger crop portfolio, I think it's important to look at them separately. The graph on the left-hand side represents the insurance portfolio. You can see on the current accident year loss ratio, a decline from 2017 from 77.4% to 55.2%. This, to us, is the measure of the improvement of the underlying portfolio of the current accident year. It's looking at the underlying business excluding the CATs. This has a tremendous improvement driven by a number of factors that would include improved risk selection, improved terms and conditions, and improved pricing that we've seen in the marketplace.
I know the industry tends to focus on price because it's the metrics that is the most easiest to measure. However, the most important aspect is risk selection and terms and conditions. We can continue to move the price, but I believe the hard market that we've experienced and are currently in the middle of, was an opportunity to improve risk selection and terms and conditions. It is those improvements that will see the portfolio continue to be sustained over the longer period of time. You will also see an improvement in the efficiency and the expense ratio over this period of time, and I would draw your attention to the CAT numbers. 2017 and 2021 were considered some of the largest CAT years in the past decade.
You can see the continued improvement through the different risk selections of our portfolio and the reduced exposure with respect to CAT when we look at the performance and the operating results of the business. The middle column is a representative of our crop business. As you can see, in 2021 with draft actuals, having a 93 combined, you can see the loss ratio is significantly higher on an average basis than the non-crop insurance business. This is the nature of that portfolio. It is dependent upon weather, it is dependent upon commodity pricing, and I don't believe there's an ability in the industry to have a much lower, significantly lower combined ratio in that sense. We have made this acquisition, but I believe it's important to look at it separate from the insurance business to understand the underlying improvements in our overall portfolio.
The columns on the far right side are representative of our reinsurance business. Reinsurance, if you look, the loss ratio has increased from 48.3 to 58. Why have we increased almost 10 points? It's important to understand the shift that we've made within that portfolio. Since 2017 and 2018, we've made a conscious decision to reduce our exposure to North American property CAT, and we've shifted that portfolio more towards European risks and on the liability side. That business does carry a higher loss ratio and a higher acquisition cost, but significantly reduced volatility. Again, when you compare 2017 to 2021, you can see the performance is driven by the substantial reduction of the CAT loss ratios. A 92.9, anything in the low 90s, in the reinsurance business in 2021 is considered market leading.
I'd take a pause there and see if, Mike, if there's anything that you would like to add or perhaps that I've missed in looking at these portfolios.
Jim, I think you summarized the results very well. The key point that you've made, I'll reiterate, is the significant improvement that we've made in the underlying profitability of our portfolios, both insurance and reinsurance, as well as a reduction in the volatility of the business. The agriculture business, the crop insurance business, has been a notable success for us. We more than doubled the size of that business over the last year and still managed to generate improved underlying margins and profitability with that portfolio. We expect to continue to gain expense efficiencies in that business, and we're extremely well-positioned now with our global agriculture insurance business.
Thank you, Mike. I would ask everyone now to turn to slide number eight, where we will look at the consumer business that is made up, which was called the retail operations, but primarily consumer business. We break it down into three geographies: Turkey, Brazil, Asia. There's a unique story and opportunity to all of them. I know that you are aware that we've announced a sale of our health business in Brazil, which is proceeding. The Brazilian market has been challenging. I believe unlike some of the commercial business, it's difficult to build a global scale of consumer business. It's important to have market share and be market leaders in each market, and how they operate is very different. We are looking at our portfolio in Brazil and making decisions on how to proceed.
I would confirm that we are committed to Latin America, and we are committed to Brazil as a market. We will continue to look to re-engineer that portfolio and move it forward in a manner that is consistent with where our expertise is and where we can bring value to that marketplace. Turkey is a very different story. We do have a market-leading business there. We have a very strong brand. The portfolio is primarily auto insurance. It is considered market leading as it beats out the competitors. However, it does operate in a very challenging environment, particularly in terms of the volatility resulting from inflation and from the foreign exchange impact. I think what I like about the slide that I've presented here, if you look on the right-hand side and you look at the dots, this is at a constant foreign exchange rate.
You can see the blue dots are consistently showing a good local portfolio. However, it is in an environment that we need to manage, and we can provide more details on how we're addressing that during the question and answer period. The third element of the consumer business is Southeast Asia. We have strong portfolios throughout Malaysia, Indonesia, and growing portfolios in other parts of Southeast Asia. It has shown some consistent growth. The volatility is managed, and I think there is tremendous opportunity for us to continue to explore new opportunities in Southeast Asia, both from a consumer and from a commercial platform through our Singaporean team. I will ask you now to turn to slide number nine. This is the final slide before we enter some questions.
You can see the continued march to increasing of the contribution from the overseas business to the group in terms of profit. 2021 certainly has been impacted negatively by the performance in Brazil, and the impact in Turkey. The commercial business remains strong. We're confident with respect to our Midterm Plan. I'm excited about the future and the opportunities that we have here at Sompo. Thank you for listening. I look forward to questions and answers. Thank you.
Thank you, Jim, for the presentation. That will conclude the presentation from the company. We'd like to move on to the Q and A session.
The first question is from Mr. Muraki from SMBC Nikko.
This is Muraki from SMBC Nikko. Jim, thank you very much for your presentation today. I have two questions. My first question is on page seven, the combined ratio for SI. To date, SI was able to beat the revenue target, and I think your top line was strong, but the loss ratio was not able to meet the plan in the past. That was my impression. For the whole group, for FY 2023, the combined ratio for the overseas business is planned to be below 93%. Looking at FY 2022 and beyond, how will the loss ratio trend?
With the recent increase in the portfolio, what you are expecting in the Midterm Plan, the loss ratio may look slightly lower in the plan versus the portfolio that you're currently expanding. Do you need to revise the plan? That's my first question.
Yeah, Jim. Jim, can you answer that question?
The question that I was waiting for. Yes. I think the loss ratio that we saw in 2021, we had an extraordinary CAT season, much like much of the industry. So that is always going to be difficult to plan when we have above average CAT seasons. I believe that the CAT seasons and the CAT results for the industry over the past five years have been much higher than the industry had anticipated. So I would continue to see a focus on reducing exposures, in particular the U.S. North American property CAT area. I am confident that the portfolio, the terms, the conditions, and the earnings pattern that we've seen over the past year and two years will continue. The opportunities for growth, the underwriting discipline that has been brought back into the market, will continue to improve.
I think when you look at a straight insurance portfolio with a current accident year combined loss ratio of 55% and a market-leading expense ratio, I think we're extremely well-positioned, when I think about loss ratio and combined ratio for the next several years. However, CAT seasons, CATs do happen. So we'll watch that closely, and we're managing and mitigating that as best we possibly can.
Yes. Thank you for that answer. My second question is a little bit specific. In Russia and Ukraine, so in your presentation earlier, you talked about the general aviation portfolio and surety insurance business. I think you have been containing the risk, but with what's happening recently in the two countries, would that trigger further claims payment, or will there be any change in the underwriting principles or pricing? Thank you.
Thank you for the question. I would clarify that the acquisition that I talked about of aviation business in the United States is general aviation, and so it's more small, light aircraft, and it's almost exclusively in the United States, smaller airports. It might extend into Canada slightly, but the exposure from that portfolio to anything happening currently in Europe, specifically the Ukraine and Russia, would not be impacted. The surety business that we acquired was also a domestic U.S. surety business. Nonetheless, to get to the broader point of your question, when we look at what's happening, how do we look at the exposures across our portfolio? It's I think absolutely ourselves and every participant in the industry has been looking at this for several weeks, and we look at it through the insurance and reinsurance portfolios.
I think the industry as a whole has been reducing its exposure significantly to Russia and the Ukraine for a number of years, which we're comfortable with. We're very comfortable with our own portfolio. There will be some multinational customers in continental Europe and from the United States who may have some physical property in the Ukraine, and it's still too early to tell what impact that would be. Even in that case, in previous scenarios, our exposure, as we model that, would be relatively insignificant. We will continue to look and monitor it through the reinsurance. We're constantly in contact with our customers from the reinsurance side, and they're evaluating their exposure. It's changing every day, but everything we've seen to date leaves us to believe that any exposure we would have would be extremely minor.
That was very clear. Thank you very much for those answers.
Thank you, Mr. Muraki. Now, next, from Mitsubishi UFJ Morgan Stanley Securities, we have Ms. Tsujino.
Thank you. About the natural catastrophe risk, I'd like you to talk about that further. On page seven, the past accidents in catastrophe and the impact is explained. More recently, in the insurance, straight insurance, the impact from the CAT is mainly in the United States. As for the reinsurance, impact is less. This year there were many things, but this is not a large number. Does it just happen that in the reinsurance you did not have much CAT related loss? In the reinsurance net CAT risk, is it small or very small? Is that how we interpret this? That's my first question.
Jim, please could you answer that?
Thank you for the question. Specifically on the reinsurance portfolio, we manage our overall exposures and Probable Maximum Loss based upon the portfolios of the companies and the lines of business that we reinsure. We had taken a conscious decision over the past several years to reduce those limits, and provide less reinsurance capacity for our customers' property exposures and CAT exposures. That was a conscious decision. The exposure is less, and where we write it, the attachment point is higher. We've shifted that capacity, to provide more capacity towards non-CAT exposures or non-North American CAT, more focused on continental Europe and a greater shift towards the liability side. It was a conscious underwriting decision over several years to shift the capacity and the capital that we deploy to reinsure property CAT.
Thank you very much. Second question. I have only two questions. About the Sompo Group domestic business, commercial business, and how are you aligned to it as Sompo International? What have you done, and what can we expect happening in the future? Thank you.
I would probably defer to Okumura-san at the end of my response, if he would like to add something to this. What I can tell you what we've done, the commercial portfolio of the Sompo domestic P&C business is much smaller than the personal lines business in Japan. However, a very important part of that portfolio are the Japanese multinational customers. We work very closely with our colleagues in Japan, to make sure that we're providing that level of service and underwriting and support to those Japanese customers. I have begun conversations previously with Nishizawa-san and the new CEO of the domestic business, Shirakawa-san, as of April 1st, to work closely with them on various strategies including underwriting, training of individuals, how we buy reinsurance in a more consistent fashion. The challenge has been, I have not been able to be in Japan.
We've had video calls like this and work groups. I am looking forward to the opportunity to spend more time in Japan and work more closely with our colleagues at Sompo Japan. If Okumura-san would like to add anything to that, I would appreciate it. Thank you.
Well, thank you for the question. Yes, as Jim said, if I may make some additions. There is a centrifugal force that we can take advantage of, but in the commercial area, there are many things that we can do together. As One Sompo, we are going to accelerate our efforts in the area of the culture, communication, different aspects. More specifically, what we have been doing so far, the scale and diversification, the effect of them in the underwriting and the capacity and the reinsurance, we want to apply that into those areas. As for the commercial business, what we have built as SI, we want to provide that to the Japanese and non-Japanese customers. We want to build the global network. With Jim and Shirakawa-san, we are trying to do that. Thank you very much.
Thank you, Ms. Tsujino, for the questions. Next, from Daiwa Securities, Mr. Watanabe, please.
Thank you. This is Watanabe from Daiwa Securities. I have two questions. My first question is on page five, the sustainability of the growth. The growth premium written, I think organically, you have been growing quite significantly. You mentioned that you were an alternative to the large carriers. Was there any personal impact from the previous CEO, John Charman? Would you be able to continue on that kind of personal influence to grow? If you were to grow geographically, what other areas are you looking for? My second question is regarding exposure to Russia and Ukraine. You mentioned about the underwriting portfolio earlier, but do you have any exposure in terms of investment in those two countries?
Maybe would you have some indirect impact also, for example, if the financial market fluctuate with the Ukraine and Russia, what kind of concerns do you have in mind? Those are my two questions. Could you start with the first question, Jim?
Thank you very much for the question. What I take away was, will I be able to continue the work and the presence that Mr. Charman had in the marketplace? I think I would be the last person to say that I'm going to replace him. My challenge, he was a strong personality and a big personality in the marketplace over many years and is responsible for bringing the business to where it is today. I can tell you that we have a very consistent and similar approach with respect to underwriting, and how we manage with our customers and our distribution, and what's important in the quality of the people and the quality of the business that we underwrite.
My experience of having worked in many of these markets over the last 25 years, we have many similar relationships, many similar contacts, similar knowledges of various markets. I am confident that I, along with my team, who bring lots of experience in the various geographies, will continue the work and the good work that Mr. Charman did. I hope that he will be proud of the business over the next five years of what he created and laid a very strong foundation for. Your second question, with respect to Russia and the Ukraine, I might defer to Mike on that with respect to the investments. Before so, I would say that I think everybody watches very closely what this means for financial markets, what it means with respect to supply chain, what it means to the cost of inflation and energy.
I don't think that there's anything unique about our portfolio or our position. I think we all watch it very closely for a variety of reasons, both professional and personal. With respect to the investment portfolio, Mike, perhaps you could give your views on that.
Yes. Thank you, Jim. Similar to the comments that Jim made with respect to our underwriting exposures, we have very limited asset exposures in Russia or Ukraine. The vast majority of our asset portfolio is U.S. dollar, U.S.-based investments, largely fixed income. About 80% of our portfolio is investment-grade fixed income securities, and the balancing 20% would consist of mainly U.S. higher yield debt securities, private equity, alternative investments, and a small component of equity investments. Our asset allocation is quite conservative, tends to be U.S. dollar based, and we will be subject to market variability in terms of interest rate changes and spread changes to the extent that we're in non-governmental investments. I wouldn't view these as being significant in the context of what's going on in Russia and Ukraine.
The markets will do what they will, our portfolio is quite conservative, and we don't have specific named exposure of any material sense in either Russia or Ukraine. As Jim said on underwriting, it's something we're monitoring daily, and as we work with our managers managing our portfolios, we'll be very responsive to the markets on a day-to-day basis.
Thank you for the question. On the first question, I think you mentioned the growth opportunity geographically and also in segments. Can you elaborate on which areas you want to expand and also which areas you want to expand?
From a geographical perspective, I do believe that although we have a significant percentage in the U.S., it is the largest market, and that we will continue to see growth in the U.S. as we look into different segments, the E&S market in the U.S. Our focus on specialties of products, and continuing to grow in that space more in the middle market, will continue to provide opportunity for us through the coming years. When I look in terms of geography, we have branch representation to support Japanese business in Canada, but we don't have indigenous Sompo Canada market. I believe there's an opportunity, for example, in Canada. I know that my colleagues in Europe, in the U.K., are looking at different European marketplaces that we should expand into.
I don't intend, and I don't think it would be wise to enter into the large multinational property casualty, and try to compete with the large European carriers. I do believe that there's opportunity on the niche products, on some of the property programs. I think that will be derived from building out, and investing in people and relationships and continuing to deliver the Sompo brand and the Sompo level of service that the market has come to know. We have very strong relationships with brokers, I've been very pleased in my first six, seven months in the conversations that I've had, the view of Sompo. I do know that the large distribution partners do view One Sompo, and they recognize the importance of Sompo in the marketplace generally and also to them.
I would see us continuing to look for niche markets to partner with our distribution to build on the expertise by hiring known and respected people in the industry in those markets, and continue with that investment. I do think at the very beginning, I said that M&A, as you can see, has been a part of our strategy over the past five years, and I expect it to continue. I'm not going to wait for the M&A opportunities to come. We're going to move out now and continue that expansion in this marketplace today. Thank you.
Thank you. Those are very clear. Thank you very much for the answers.
Thank you, Mr. Watanabe.
Next, from Citigroup, we have Mr. Niwa.
Yes, thank you very much. My name is Niwa of Citigroup Global Markets Japan. I have two questions. First is about the attractiveness of Sompo Holdings, including Jim. You have world-class executives, and I wonder why you decided to come to Sompo Holdings. My interest is that Sompo Holdings, whether it becomes one of the global players, and if that is the case, when? Could you once again talk about the attractiveness of Sompo Holdings? That's my first question. The second is about the large-scale M&A. Generally speaking, Japanese companies, they are said that they are always late in doing the M&A, so they buy it at the high price. Do you think that is correct? Can we say that about Sompo Holdings? To have a good discipline of the M&A is important in Japan.
From the U.S. perspective, do you think that Sompo Holdings is doing this well? Jim?
Thank you for your questions. I guess to your first question, what attracted me to Sompo Holdings? I have worked and lived in Japan, and I always had an interest in the Japanese business, Japanese society. I think it's been interesting over the years how some of the largest organizations, particularly in the financial services industry, didn't have that global presence. During the process, I had an opportunity to spend time with Okumura-san, with Sakurada-san, and I was very impressed with their vision of what they wanted Sompo to be on a global basis. I think it's a real opportunity for a large company. I think we already are a large global P&C player. I just don't think we promote it as well as we should. I think that was a conscious decision, at least overseas, to grow quietly.
If you combine the P&C portfolio of our domestic and our overseas business, it does rival many of the large global P&C companies. I believe we already are significant. I think how we behave and how we move in the culture as Okumura-san refers to One Sompo, I think it presents a great opportunity for us. I'm very excited to be part of an organization that is investing and growing and wants to be something bigger and more relevant in the future. I think regardless of the industry you're in, I think there are very few opportunities like that that come along. I was very excited to join. Your second question about is Japan always late in acquisitions? I've been here six months, seven months, so it's very difficult for me to make a really informed comment on Sompo.
I think when you look at the acquisitions that we've made to date, I think those have demonstrated to be probably done at the right time and were done at the right price and are going to be accretive in value to the organization over the short, medium, and long term. The fact that we haven't jumped into any M&A, major M&A in the past 12 months is because it is very expensive, and it's very difficult to find the right opportunity. I think we're being very diligent. I think we're being very expansive in terms of what we look at. I think we are being very open to how it would add value to the organization.
We want to make sure that we're not going to be used as an example of how you just described companies coming in too late and buying at the top. We're conscious of that. To say that Sompo or other Japanese companies have done that in the past, I'm not in a position to comment. Thank you.
Jim, maybe I could add a little bit of additional color on M&A, having been involved in virtually every acquisition that the overseas businesses have done since Endurance was acquired by Sompo. We have an extremely disciplined approach that is uniformly supported by our colleagues at head office in Tokyo and our global M&A team. We have done a small number of acquisitions, but each have added significant long-term sustainable businesses to our portfolio, and we are very patient. The acquisition of our crop insurance business started in 2007 with an acquisition, and we looked to add and acquire additional businesses in that space for the last 15 years. It wasn't until last year that we found a company that was the right size, the right mix, at the right price.
We were patient, and that patience has been supported by Sompo Japan, and I think it's a cultural aspect that is very important to consider. That we're not going to overpay things for the sake of doing an acquisition. The discipline always needs to be whether we're going to have the right cultural fit, whether we're going to have the right business fit, and whether we're going to be able to deliver something of great value into the future. Those are high hurdles to overcome. Most companies don't overcome all those hurdles, and that's why we haven't done much M&A, but we'll keep looking. We'll keep trying to find the right fit. As Jim said earlier, we're not going to wait for that magical acquisition to happen.
We've got a business to continue to build, and we will make investments to build and grow our business organically, like we have done for the last five years.
Thank you very much for the details.
Thank you, Mr. Niwa, for your questions. Next is Mr. Sasaki from BofA Securities.
My name is Sasaki from Bank of America Securities. Thank you very much for your presentation, Jim. I have three questions. My first question is, what is the ROE of SI? If you were able to achieve this level of growth, I think it's better for you to double or triple your capital. Within the group, how is the capital budgeting discussed? That's my first question. On the first question.
Jim, please answer, and later Mr. Hamada will make some additional comments.
I would probably ask Mike would be in a better position to answer the question on ROE and perhaps Okumura-san with respect to how at a group level, we look at capital and capital allocation.
Sure. The return on equity of Sompo International consists of many parts. We have our consumer retail businesses, as well as the commercial P&C businesses. The commercial P&C businesses over the last year has generated an ROE pushing close to 10%, slightly under, but pushing close to 10%. On a long-term basis, we target ROEs in excess of 10%, even as we're growing the businesses. We've made good progress on improving the ROE of the business. An important consideration, though, when you think about the ROE of SI, is the fact that we do not hold any substantial debt leverage. The vast majority of the debt leverage of the group sits at a group level in Japan, and we have been delevering financially the balance sheet of Sompo International for the last five years.
On an unlevered basis, we're still generating that return on equity that's pushing towards 10% and beyond. The retail businesses or the consumer businesses have had a lower performance, given some of the restructuring and performance challenges that we're managing through, in particular in Brazil. The combined businesses are still generating attractive returns on equity, and those are expected to improve through the next several years of our Midterm Plan.
Mr. Hamada, please.
Hello, this is Hamada. I'm the Group CFO. Regarding the group ROE management, let me add some comments. The group ROE target in the previous MTP was set, and we are also setting a 10% ROE as the group. From the current Midterm Business Plan, we also have set the group business-based ROE. Also for the overseas business, the target was explained by Mike. It's a little bit technical, but for the denominator of ROE for the overseas business, they have their net asset and the return basis, which is well-balanced. Every year, they're looking at the growth plan, and the necessary capital is allocated. As needed, the equity will be increased.
On the other hand, for the domestic business, for Sompo Japan and Himawari Life, there's a little bit of a surplus on the capital, and that is regarded as the group's surplus capital to be deployed for the growth. It's not just deployed for Himawari Life or Sompo Japan's business growth, but it can be deployed for other type of growth. For Sompo Japan, we're not using the action announcement, but we are using a virtual capital to calculate the ROE. There's some difference in the denominator, but each business lines have a target ROE, and the combination of those will be 10%, which is our target. We are monitoring our group ROE in that way to be closer to the target.
Thank you very much. My second question is on page six. In North America, your market share is 0.6%.
In U.K., your market share is 1.8%. Especially in North America, you're growing, but you're still a niche player based on these data points. In terms of scale, is scale important for your business? I was looking at Chubb or Travelers or AIG versus the large players. How are you different? What are the pros and the cons of being smaller compared to the other large players?
Jim, can you answer that question?
Yes, a very good question. I don't want to get into comparing our business to specific competitors. I think that we have very much a niche portfolio focused and growing primarily out of the specialties marketplace. That would be from financial lines, from surety, from the credit lines, the general aviation, the crop. Many of the companies that you referenced, with all three, the U.S. is their home market. They have been operating in that market for decades, and have built up a brand in the insurance sector. I don't think it's easy to compare, or I don't think it's something that we try to compare. We do compete with those companies, along with several other companies in North America. I think the opportunity, because of our small market share, is a continued opportunity to grow.
However, given the number of players in the United States, I don't think you'll find many players with market shares, what we do see in Japan as a very large insurance marketplace. You won't see the level of dominance of companies in the United States to that level. We will compete with some of those companies in the United States. As I said at the very beginning, the majority of this business is intermediated. It is about relationships. As the nature of how portfolios and programs are put together, typically you have multiple carriers on single programs. It's not a question of choosing one or the other. There will be different participations on the program. We work and coexist with many of our competitors on some of our larger insurance risks.
Thank you. That's very clear. My last question is looking at the global market, there's pandemic and there's the war, and then cyber attack to Toyota, and risk is diversifying and becoming more complicated. Looking at this global trend, what kind of impact would you see for your business? Is this an opportunity? Is this a risk? Can you share your long-term view on what's happening in the global trend?
Can you take that question, Jim?
Yes. Thank you for the question. I think you are correct. We are seeing more and more challenges and changes in the marketplace. I think when I look at insurance, perhaps 20 years ago, we looked at actuaries to look at historical loss trends and believed that the last 100 years would predict the future. I believe what the industry has seen is that's no longer the case or it's much more difficult to do, and we need to be looking at different aspects of our risk and portfolio. My view is that these risks will continue. We will continue to see challenges in the marketplace, whether it's from cyber, whether it's from geopolitical conflict, whether it is climate change. The challenge for the industry is to continue to adapt. To my view, there is a strong underwriting.
It's strong management of portfolio capacity deployment, and diversification. As you can see, we have lots of opportunity to diversify, continue to diversify our portfolio from a geographical perspective and from a customer perspective. I believe that that what is going to take to navigate through the coming 5 - 10 years. I think the investments that Sompo has made in digital platforms will continue to be a significant part of how we look at the future, how we look at it to provide different products, how we look at it to provide our customers with better risk insight, how we look at it to improve the efficiency of our business, and how we look at it to help us select risks in a better way.
I think the way that we evaluate risk and predict risk is changing faster than it ever has in this industry. I think that Sompo is well-positioned with the investments that it's made, and the portfolio and the approach to underwriting that we've taken. Yes, it is challenging, but yes, it is also an opportunity.
Thank you. Those are very clear. Thank you very much for your answers.
Thank you very much. Next, Mr. Ban from Jefferies Securities.
Hello. Thank you. One question. You talked about the fiscal FY 2023 target and direction or the path to get to that target. I'd like to make some point of clarification. About the increase of the profit is about JPY 30 billion. Brazil is going to be breakeven and through the reorganization, there will be a tax effect accounting. Aside from that, underwriting and management, what kind of increase and contribution of the profit increase do you expect? Also, is this something that you can achieve organically, or do you need some inorganic contribution? You don't have to give us any specific numbers, but if you can give us some ideas.
Depending on the- s orry?
Sorry, go ahead, please.
Depending on the time horizon that we're looking at, I think it would depend. If we look at short, long, medium term, I definitely believe that although we will continue to achieve the growth and diversification through organic investments, I do think that it is important that we look to inorganic and M&A opportunities. They don't have to be big. What they need to be is complementary, and they need to give us footholds into different segments and industries and the acquisition of talent. I absolutely feel that we will continue to do both, and we will continue to increase the contribution to the group's overall profit coming from the overseas business and the overseas marketplace. In terms of, I'm not sure if your question was asking about timing. It's very difficult, and I don't want to really get into committing what percentage by what date.
I think directionally, as you can see, we've delivered over the past three years, and our expectation is that trajectory will certainly continue in the coming years. Perhaps, Mike, you wanted to add something. I think there was a question with respect to the reorganization and the impact on taxes.
I believe that would be a Sompo Japan tax restructuring. Jim, I think you spelled out the points, I think appropriately. Our plans for 2023 are not based on a specific number of acquisitions being done. It is largely an organic plan. As Jim said, we will continue to invest in hiring and building infrastructure and building new geographies, which in a way is inorganic but is not buying new companies. It's really building brick by brick, person by person, locations and capabilities, which we have an exceptional track record of doing over the last now 20 years.
I would also add, I think it's important to highlight, I don't want to leave you with the impression that it's all about top line, we will continue to make underwriting changes. We're not averse to exiting lines of businesses. We're not averse to cutting lines and capacity as we see trends in the marketplace and in the portfolio. However, we do believe that the net of the portfolios we continue to correct or change or re-underwrite will be offset by those opportunities that we see across other lines and segments and geographies.
Thank you very much.
Mr. Ban, thank you for your questions. Morgan Stanley MUFG.
Next, Nagasaka-san from Morgan Stanley MUFG.
Hello. This is Nagasaka from Morgan Stanley MUFG. Thank you for the presentation. I have two questions. For your FY 2023 target, JPY 100 billion for the overseas business. You have laid out the external risk factors, but on top of that, there be some internal risk factors that may hinder you to achieve the target of JPY 100 billion. My second question is, out of this JPY 100 billion coming from overseas, what is the geographical split, and also what is the. I think you will be investing more in North America and other specialty. Looking at the geographical expansion, can you point out some of the specific countries or markets that you plan to expand when you see opportunities? Jim, please.
Thank you for the question. The first point I think you're asking about when we look to 2023, there's obviously external risks and environments that we operate in that some we control, some we don't. The internal risk factor, and I think like any organization, the challenges are ourselves. It's about culture, it's about people, and it's about motivation. I think I don't see any internal factor that would inhibit us or prohibit us from growing, other than we're not able to address and control ourselves. I'm very optimistic about that from the internal side. I think the external is the marketplace, which you mentioned, which will always be a risk to every market, and how we progress.
I think on a geographical split, based upon the current portfolio. When you think about 2023, much of the earnings that come through in 2023 are what we do in 2022. The majority of the portfolio today is, as we showed on slide six, is in the United States and in the U.K. Those two markets will continue to dominate. We will invest in people in places I mentioned would be Canada. I believe we're looking closely at Germany, in Switzerland, Spain, in different markets in Asia Pacific through Singapore as a hub for the commercial business. The timing of that is such that, as Mike said, most of this growth will come organically by hiring the people, putting the business on the portfolio.
The majority of or a vast amount of the business in continental Europe is a January 1st renewal portfolio. To be ready to capture that for January 1 in 2022 would be critical, or in 2023. The ability for that to grow and earn through our numbers in 2023 is still going to dominate from the United States and the U.K. Thank you.
Thank you.
Thank you, Ms. Nagasaka. We'd like to take the next question as the last question.
Okada-san from UBS.
My name is Okada from UBS Securities. One question about the inflation potential impact from the inflation and how you deal with it. I think part of it is reflected under a higher pricing. I think it could lead to the worsening of the loss ratio in the future. How do you plan to deal with this? Could you share with us your thoughts on this? Thank you.
Jim.
Then Mike, perhaps you can add to it at the end. I believe, I think if we look at inflation, the majority of the questions center around the cost of claims inflation or what the terminology social inflation that we see primarily coming out of the U.S., but also existing in other parts of the world. I think that the rate increases that we've seen over the past two to three renewal seasons have certainly outpaced where we see the inflation in the claims side. We're comfortable with the rate that we're achieving in the portfolio. We also continuously review old portfolios and look to reserve levels and are comfortable, again, that the position that we have and the rates that we're achieving on the current portfolio are more than sufficient and outpacing. I do agree with you.
I think that it will continue to be a challenge to the industry and one that you need to be in front of. Mike, from your perspective?
Jim, I agree entirely with what you've said. The two key things that I would focus on when thinking about inflation is, one, how are you pricing your new business and your current business that you're putting on the books? Equally, and perhaps more importantly, how are you reserving for your past exposures in your balance sheet? What are your inflation assumptions? We've taken a very hard look across our portfolio and making sure that as we establish our loss reserves, that we give weight to what we would consider to be an elevated social and economic inflation trend that we've seen over the last few years, particularly for our most recent accident years. That's put some pressure on our loss ratios, but we felt that was important to make sure that we're recognizing, in our reserves, the current as well as potential inflation into the future.
To the first point, as we write new business, we need to make sure that we're getting a level of rate that at least covers the level of inflation that we expect, as well as hopefully driving increased margin in the portfolios. So it's a very, very keen focus for our underwriters, for our pricing actuaries, and our risk teams to make sure that we have a very strong sense of what our balance sheet risk is, but also that we are pricing the new exposures that come into our balance sheet every year to make sure that we're staying ahead of inflation trends and the price that we're charging for the risk that we take.
Thank you for your answers. Mr. Okada, thank you very much for your questions. We have passed the allocated time, but thank you very much for your active questions. With that, we'd like to end today's session. If you have any follow-up questions, please get in touch with the IR team. Thank you very much indeed for your participation.