Management Message

Kengo Sakurada
President & CEO
Sompo Holdings,Inc.

Preface

With COVID-19 continuing to wreak havoc worldwide, I would like to express heartfelt sympathy for those infected with the virus as well as real respect for the professionals who are risking infection daily as they struggle on the front lines of medicine and nursing care.
The spread of this virus has brought about a paradigm shift in society and in how people think and act. In a society characterized by volatility, uncertainty, complexity, and ambiguity (VUCA), the Sompo Group has sought to win out through the evolution of its businesses to realize “A Theme Park for Security, Health & Wellbeing.” For example, we have advanced digitalization, leveraged real data, and entered the nursing care business. Going forward, I believe such in-house initiatives are likely to become even more conspicuous. By taking on key tasks, we will create new value. In these efforts, we will sustain growth through the establishment of new business models and the utilization of digital technologies. Moreover, we will strengthen governance to support this growth. In addition, work-style reform will enhance productivity. Based on its solid strategy of realizing “A Theme Park for Security, Health & Wellbeing,” the Group will continue steadily moving forward with the measures required for further value creation and enhancement of corporate value.

1. The Final Fiscal Year of the Mid-Term Management Plan

Fiscal 2020 is the final fiscal year of the current Mid-Term Management Plan, which we have been implementing since fiscal 2016. The current fiscal year will be a pivotal phase in which transformation aimed at realizing “A Theme Park for Security, Health & Wellbeing” shifts rapidly into top gear.
Since its 2010 establishment as a corporate group centered on the domestic P&C insurance business, the Sompo Group has aggressively enhanced profitability and invested management resources in growth fields. These efforts have included the integration of in-house domestic P&C insurance and domestic life insurance companies and the acquisition of large-scale overseas insurance businesses. Further, the Group steadily laid the foundations for its present businesses by entering the nursing care business in earnest in 2015 and by beginning proactive investments in digital technology businesses in 2016.
Under the current plan, since fiscal 2016 we have been rigorously heightening the appeal of each business, seeking new business opportunities, creating collaborations among in-house businesses, and taking advantage of digital technologies to enhance services for customers. Aiming to help address social issues and realize a sustainable society, we will push ahead with the reformation of our business portfolio and corporate culture, establish a business scale with global reach and presence, and build unique business models that other companies cannot match.

2. A Commitment to Transformation Based on a Strong Sense of Crisis

(1) Digital Disruption
A strong sense of crisis led the Sompo Group to initiate self-transformation. We saw that the traditional P&C insurance company business model would become unsustainable.
The Group started as a P&C insurer. Our role has always been one of mitigating negative events by restoring things to their original state. In other words, when customers suffer losses due to accidents or fires, we pay benefits. We realized that the importance of P&C insurance would remain unchanged. Nonetheless, advances in solutions that use innovations in AI, Internet of Things (IoT), and other digital technologies to reduce or prevent accidents, fires, and injuries created a strong sense of crisis accompanied by a conviction that we had to transform ourselves.
Further, many different businesses and industries are getting involved in digital disruption, which gives rise to completely new business formats through innovations in digital technologies. Similarly, the Group’s mainstay insurance business will be drawn into the whirlpool of digitalization as self-driving technology for automobiles advances and as companies from other industries enter the insurance business.
If new technologies are to break up our business model, we would prefer to do the breaking up, reinventing ourselves in the process. Based on this conviction, we decided to take advantage of our core competence in digital technologies to move forward with Group-wide innovation focused on creating new customer experiences.

(2) Operating Environment
Our operating environment is changing dramatically.
As well as the effect of COVID-19 on day-to-day life, a low-interest-rate environment, more-severe natural catastrophes, and the threat of cyberattacks have become part of the “new normal” worldwide. Also, rapid globalization and digitalization have produced inequality and divisions in societies, driving the emergence of populism and authoritarianism. Moreover, divisions and conflicts among generations and between developed and emerging countries are become increasingly serious.
In response to the rapid changes in the current operating environment, we must reexamine, redefine, and rebuild existing business models based on insight into the true nature of things that is unconstrained by the past or by established practices.

(3) Japan’s Role
I feel that the volatile operating environment has set the stage for Japan to play a greater role in international society, particularly given the lessons the country has learned in the process of steadily overcoming a series of natural catastrophes and other challenges.
In my view, Japan’s companies should rehabilitate their traditional corporate philosophy and values, which focused on simultaneously benefiting three parties: the buyer, the seller, and society. I believe Japanese companies can contribute to solutions that help the world address inequality, division, and other issues inherent in capitalism. Japan is the first country to encounter certain major social issues, including how to maintain a nation’s finances and social welfare system in response to a rapidly aging population and a contracting working-age population. By implementing an optimized societal model in response to such social issues and disseminating it, Japan can make itself valuable and indispensable to the common good of the world.

(4) Concrete Action for a Sustainable Society
Every year, I attend the meeting of the World Economic Forum, often called the Davos Conference. In 2020, the forum hosted numerous discussions on sustainability under the theme of “Stakeholders for a Cohesive and Sustainable World.” The forum left me with the strong impression that, as such issues as climate change, human rights, food, energy, and loss of biodiversity become increasingly interrelated and complex, we as the Earth’s stakeholders need to take concrete action aimed at leaving a sustainable society to future generations. The discussions reaffirmed that, with 10 years remaining until 2030—by which time the sustainable society targeted through the Sustainable Development Goals (SDGs) should be realized—concrete action is expected not only from governments and citizens but also from companies.
The 2021 Davos Conference will be themed on “The Great Reset,”*in other words, a commitment to laying the economic and societal groundwork for cooperation that creates a fairer future that is more sustainable and has greater resiliency. As society undergoes significant changes and a range of social issues surface, in partnership with stakeholders we must take concrete action to build an inclusive society in which “no one will be left behind.” My sense of crisis stems from the fact that failure to do so may result in our elimination from society.

  • Source: World Economic Forum press release, June 3, 2020
    https://www.weforum.org/press/2020/06/the-great-reset-a-unique-twin-summit-to-begin-2021

3. Value Creation Story

(1) Target Profile: “A Theme Park for Security, Health & Wellbeing”
Against this backdrop, “A Theme Park for Security, Health & Wellbeing” is our target profile.
“A Theme Park for Security, Health & Wellbeing” does not only mitigate negative events by functioning as an economic backstop in the way that conventional insurance does when unlikely events occur. Before such events, we use our products and services to be a partner that remains close to and enriches the daily lives of customers. For example, our offerings help prevent diseases and dementia, reduce fires, and promote safe driving. In other words, we provide value by making a positive contribution to the quality of people’s lives. To put this another way, the Sompo Group gives concrete form to the abstract concepts of security, health, and wellbeing. Our vision entails addressing social issues and providing cohesive support by accompanying people, who are the main constituents of society, throughout their lives and by making appropriate use of digital and other leading-edge technologies. Ultimately, our vision is to contribute to the happiness of customers, society as a whole, and all stakeholders, including the Earth. To this end, in the field of security, health, and wellbeing we will continue providing solutions that bring together the expertise and real data accumulated by our respective businesses and which dovetail digital technologies with operations that call for the human touch. In this way, we will become a unique creator of new value.
Looking to the future, companies should promote growth by taking on businesses that help humanity realize its aspirations and address environmental and social issues. As a consequence of such efforts, corporate value will increase, and sustainability will spread. This is precisely the scenario envisioned when we refer to “A Theme Park for Security, Health & Wellbeing.”
By being useful when unlikely events occur and bringing happiness into lives as a result and by helping solve social issues, the Sompo Group will ensure that its presence remains valuable and indispensable to society.

(2) The Sompo Group’s Strengths
To realize the aforementioned vision, we will leverage our three major strengths.

Our first strength is sustainability. The Group’s starting point was a firefighting service established more than 130 years ago. We founded Japan’s first fire insurance company because we wanted to protect people from fires, a serious social issue at the time due to the large number of wooden buildings. This desire to help address social issues is expressed in our current Group Management Philosophy, which calls on us to “contribute to the security, health, and wellbeing of customers and society as a whole by providing insurance and related services of the highest quality possible.”
In addressing the increasingly complex social issues of recent years, an indispensable approach is the creation of impactful initiatives through cooperation that brings together the capabilities of diverse stakeholders. From generation to generation, the Group has passed down an approach to business that emphasizes such stakeholders. To date, we have contributed to the realization of a sustainable society through an array of different businesses and research activities based on industry–academia–government partnerships, tie-ups with companies in other industries, and cooperative initiatives with civil society.
For example, Future Care Lab in Japan, a laboratory that we established last year with the aim of developing new ways of incorporating technology into nursing care, is jointly conducting R&D that combines the technologies of start-ups, major manufacturers, and research bodies with the Group’s operational know-how in relation to nursing care facilities. Going forward, we will utilize leading-edge technologies to enhance quality of life and bring people happiness. By partnering with a wide variety of entities to offer products and services that enable people to be happy throughout the entirety of their lives, we will help tackle the social issues that Japan is facing as its population ages. Moreover, I believe our initiatives will win acceptance in the wider world.

The second strength of the Sompo Group is its digital strategy, which is critical in efforts to evolve and enhance the productivity of existing businesses and to create new businesses. Also, we are bringing together diverse professionals to drive our digital strategy forward. To underpin the digital strategy, we have established SOMPO Digital Labs—a trilateral structure encompassing Tokyo, Silicon Valley, and Tel Aviv. Furthermore, we have recruited our chief digital officer externally.
In utilizing digital technologies, real data is particularly important. “Real data” refers to data that is not obtainable from the Internet and is instead acquired through sensors that detect the real-world activities of individuals and companies. We will use digital technologies to gain an in-depth understanding of the actual activities and issues of society and customers as well as to conduct high-speed, high-data-volume analyses of the causes of these issues. Then, we will use our findings as the basis for solutions.
Through its insurance and nursing care & healthcare businesses, the Sompo Group has accumulated huge volumes of valuable real data on accidents, catastrophes, lifestyles, health, and nursing care. We believe that using such data will allow us to provide solutions that prevent accidents and diseases, thereby converting our real data into an invaluable asset.
With a view to realizing such solutions, last year we collaborated with a major data analysis company in the United States, Palantir Technologies Inc.("Palantir"), to jointly establish Palantir Technologies Japan K.K. When I visited Palantir, I found it shockingly different from the technology companies that I had visited in Japan and other countries. I got the clear impression that, in focusing on big data analysis, the personnel of Palantir not only take pride in their advanced technological capabilities but are also a group that emphasizes the social meaning of the company’s existence and which has a philosophy of considering how technologies can be used to benefit people and society. When thinking about Japan’s current social issues, knowledge and inquiries enlightened by such a philosophy will be important.Furthermore, this year we decided to acquire a stake in Palantir. Working with the company, we will leverage its advanced software technology to create a platform for the utilization of real data, called the Real Data Platform for Security, Health and Wellbeing.
On the other hand, real data includes a large amount of important personal information. For this reason, if we are to utilize real data successfully, naturally we must comply with statutory laws and regulations. Of equal importance, however, is an approach to real data that carefully takes into consideration concerns people may have so that they feel comfortable trusting the Sompo Group with their information. In addition, we need to market products and services with merits that engender in customers a willingness to providing information voluntarily. Through our joint venture, we will realize such products and services and develop solutions to social issues by utilizing our new partner’s big data analysis technology—which is among the best in the world.

The Group’s third strength is its human resources. This year’s Davos Conference unveiled the concept of “talentism,” meaning an approach that places importance on personnel and their capabilities. The argument put forward was that we must bring together the world’s talent to grapple with the world’s issues. I was particularly sympathetic to the view that, as talent is not limited to a small number of geniuses but is present in everyone, full-fledged measures to promote diversity and inclusion should be taken. The same can be said of the Sompo Group. Our management team has to provide strong support for the establishment of a corporate environment that is conducive to the transformation of human resources. The goal should be to enable each employee to draw on his or her talents and strengths and drive the Group toward its mission and goals.
Further, given the significant restrictions on travel and face-to-face meetings that have been introduced worldwide in response to the current COVID-19 crisis, not only business practices but also lifestyles will have to change dramatically. The crisis has provided a powerful reminder of the importance of common practices, such as ensuring employees have an environment in which they can work healthily and with peace of mind. We have to see the aforementioned changes as a rare opportunity to make a fresh start as an even better entity and as an opportunity to contribute to society.
Specifically, we want to tackle work-style reform. The Sompo Group will transition to a rigorously results-oriented corporate culture, heighten the emotional intelligence quotient of employees so that they can accurately intuit stakeholders’ varied and rapidly changing needs, and encourage behavior based on a strong awareness of productivity. Also, as factors that both support and are supported by heightened productivity awareness, we will accelerate efforts to enhance work quality and establish location-independent work styles. Furthermore, we will invest unstintingly to advance these initiatives. To realize digital transformation in workplaces, we will revamp work processes by utilizing digital technologies and AI and introducing robotic process automation (RPA) and promote new work styles by updating work rules and enabling new forms of communication. By becoming a group that achieves high levels of competitiveness and sound growth as its employees work with a sense of mission and job satisfaction, I want us to a set a favorable precedent that helps address issues in Japan’s job market.
Another of our focuses will be diversity and inclusion. It is important to establish conditions that allow us to implement the work-style reform that I just mentioned and thereby attract diverse personnel who can realize their capabilities and contribute significantly to operations. Looking back at the 30-year Heisei era, I feel that Japan ought to be chastened by the lack of innovation that was the result of excessive conformity. If I were to be self-critical, I would say that, in a similar way, we are still very much lacking in diversity and inclusion. The essence of innovation lies in gathering diverse individuals, embracing the resulting “good clashes,” and using them to find new value. Accordingly, we have to realize major innovations by achieving true diversity and inclusion through earnest consideration of each person’s talents and strengths that is uninfluenced by nationality, gender, or age.
To ensure the success of its reforms, the Sompo Group must pursue transformation that creates a mission-driven, results-oriented corporate culture. Consequently, we aim to evolve into a corporate group in which each person clearly understands his or her role, focuses on accomplishing it, and thinks and acts independently based on a strong sense of ownership. I would like our employees to consider what they can do in their areas of specialty and to hone their capabilities even further. I believe that companies that value such personnel sustain growth.

4. Accelerated Transformation toward the Future

As already mentioned, under the current Mid-Term Management Plan, which began in fiscal 2016, the Sompo Group has been taking maximum advantage of its strengths to move forward steadily with the transformation of each business and of the whole Group into a “A Theme Park” as the ultimate goal. In other words, we have been focusing on “qualitative evolution,” which refers to qualitative transformation of our business portfolio and corporate culture. Quantitatively, in the early 2020s we aim to reach adjusted consolidated profit of ¥300.0 billion and adjusted consolidated ROE of 10%.

(1) Review of the Period through Fiscal 2019
Partly reflecting the effect of a series of large-scale natural catastrophes in Japan that continued up until last year, in fiscal 2019 we recorded adjusted consolidated profit of ¥150.8 billion and adjusted consolidated ROE of 6.4%. Excluding the effect of domestic natural catastrophes, the revenue base of each business grew steadily. The original fiscal 2020 targets were adjusted consolidated profit of ¥205.0 billion–¥215.0 billion and adjusted consolidated ROE of around 8.0%. However, we have set adjusted consolidated profit of ¥187.0 billion and adjusted consolidated ROE of at least 8.1% as revised targets for the current fiscal year. These targets are based on calculations that only take into account the effects of the spread of COVID-19 on fiscal 2020 targets that, at the present juncture, have a high probability of manifestation and can be reasonably calculated.
Further, in light of thorough discussions by the senior management team about the effect of COVID-19 on returns to shareholders, we decided to pay the dividends and implement the share buybacks that were originally planned for fiscal 2019. Meanwhile, for fiscal 2020 we expect to increase dividends for the seventh consecutive fiscal year. The aforementioned decision is in accordance with our policy on returns to shareholders—which is to return between 50% and 100% of adjusted consolidated profit to shareholders through dividends and share buybacks and to continue steadily raising dividends—and demonstrates our unwavering commitment to the realization of sufficient returns to shareholders. We will continue to heighten corporate value by balancing financial soundness and investments for growth with the ongoing realization of attractive returns to shareholders.

(2) Reform of Corporate Governance
With its sights set on realizing transformation, over the past several years the Company has been steadily taking steps to strengthen its management structure. During its first 10 years, the Company had a hybrid organizational structure that combined a non-legally mandated Nomination and Compensation Committee and a Company with an Audit & Supervisory Board structure. We further strengthened this structure through the introduction of a Business Owner system in fiscal 2016 and a Group Chief Officer (CxO) system in the following fiscal year.
In fiscal 2019, we strengthened supervisory governance capabilities. At the same time, we transitioned to a Company with Committees structure to delegate significant authority to executive divisions. By separating the supervision of business management from operational execution and by clarifying positions and roles, these reforms further strengthened both supervision and execution. Under the new structure, outside directors form a majority on the Board of Directors. Moreover, outside directors serve as chairpersons on each of the new, legally mandated Nomination, Audit, and Compensation committees, at meetings of which fair, lively discussions are held. Through the aforementioned measures, the Sompo Group has built a governance structure that will facilitate high levels of transparency and enhance fairness.
As for executive divisions, April 2019 saw the establishment of the Global Executive Committee (Global ExCo) as an advisory body to the Group CEO. Unlike the former Management Committee, in which mainly Japanese participants discussed a wide range of topics, the new body includes executives from overseas and conducts intensive discussions focused on important Group-wide issues, such as strategies and policies. Moreover, Global ExCo is the Company’s highest executive committee. Having executives from overseas, including those who head overseas insurance businesses, and other senior executives who have a thorough, intuitive understanding of overseas businesses participate in management discussions enables us to discuss the best methods, systems, and distribution of resources in light of global, diverse perspectives. In the Group, the decisions of the Global ExCo are promptly reflected in strategies at the individual business level and then translated into specific business decisions and actions to speed up the entire process. To help it reach decisions, Global ExCo meetings gather all types of information from around the world, not just insurance-related information. I doubt that there is a meeting quite like it anywhere.
Also, important matters related to domestic businesses and operational management are discussed by the Managerial Administrative Committee (MAC)—established in April last year as an advisory body to the Group COO—and then steadily implemented in operations. By making maximum use of the capabilities of Global ExCo and MAC, the Group will build a robust executive structure that supports corporate growth.

In Conclusion

As stakeholders in society, companies have a duty to use technologies appropriately for the common good, create value continuously, and be of use to society. Further, companies have a responsibility to define their target profiles and then act accordingly, because by doing so they will make a key contribution to the realization of a society that is more inclusive and more sustainable.
The Sompo Group must mobilize the wide range of talented employees who support it and take concrete action to address the issues of customers and society, thereby reestablishing the kind of society that gives rise to optimism in the young people who will lead the next generation. In addition, we must redouble our commitment and forge ahead with the reform and transformation of our corporate culture. Although social issues of even greater complexity await it in the aftermath of COVID-19, the Group will make a concerted effort to overcome such challenges to realize “A Theme Park for Security, Health & Wellbeing,” and thereby ensure that the Sompo Group’s presence remains valuable and indispensable. As we move forward, we would like to ask all of our stakeholders for their continued support.