A Message from the Group CFO

Based on our Enterprise Risk Management (ERM) framework, we aim to provide attractive shareholder returns and maximize corporate value based on a balance between profit and capital.


Masahiro Hamada
Group CFO and Group CIO
Executive Vice President and Executive Officer

Basic Capital Policy

The basic capital policy of the Sompo Holdings Group entails appropriately controlling the balance between capital, risk and returns and maintaining adequate financial soundness based on the Enterprise Risk Management (ERM) framework. Our basic policy for shareholder returns (shareholder dividends and share buybacks) is to provide an attractive return commensurate with profit and capital levels, based on our targets for growth in adjusted consolidated profit to ¥300 billion, steady improvement in capital efficiency to an adjusted consolidated ROE of 10.0% or more, and expansion driven by investments in growth businesses.
In accordance with our basic capital policy, we apply management procedures for financial soundness based on international capital regulations and evaluate and utilize criteria based on adjusted consolidated ROE and return on risk (ROR) for making management decisions in a wide range of fields, including investments and performance evaluation. We also strive to enhance capital quality on a continuous basis and to promote capital policy that facilitates the acquisition of returns in order to maximize corporate value.

Improvement of Capital Efficiency

Sompo Holdings has an operating cycle for improving capital efficiency (ROE) sustainably that was established on the basis of its ERM framework. The Group appropriately controls its balance sheet through such measures as continuing to reduce its cross-shareholdings, increasing shareholder returns, and managing financial leverage while maintaining and enhancing its systems for generating stable cash flows in each of its businesses. On this basis, we will allocate management resources toward growth fields (through M&As, for example) and conduct forward-looking strategic investments in various fields with the potential to bring about new businesses and to revolutionize industry structures, such as digital technologies and advanced sciences and technologies. In addition, we will work to achieve drastic improvements in business efficiency and profit levels by transforming our business portfolio and business models. As a result, we intend to achieve sustainable growth in adjusted consolidated profit and adjusted consolidated ROE and reach our medium-to-long-term targets.
In fiscal 2018, adjusted consolidated profit was ¥113.5 billion and adjusted consolidated ROE was 4.5%, reflecting the impact of larger-than-expected damage caused by natural disasters in Japan. In fiscal 2019, the Company anticipates a normal level of damage from natural disasters, and thus it expects profit levels and ROE to improve. We are working diligently to steadily improve capital efficiency in order to quickly achieve our targets.

Policy on Cross-Shareholdings and Their Reduction

The Company’s subsidiary Sompo Japan Nipponkoa Insurance Inc. engages in cross-shareholdings for the purposes of receiving investment returns in the form of dividend income and share price appreciation, enhancing relations with the insurance sales channels and business partners, and maintaining and strengthening insurance transactions with corporate clients. The Board of Directors annually examines the economic rationale for continuing to maintain cross-shareholding accounts. These examinations consider the future use of the shares based on the cross-shareholding objectives, such as supporting insurance transactions and strengthening alliances, review the long-term outlooks for unrealized gains from value appreciation and the share value, and set quantitative risk and return assessment benchmarks for the associated insurance transactions and share values.
As part of the Group’s capital policy, the Company implements a management policy of allocating a portion of the capital gains generated from the continuous selling of crossshareholdings to investments in growth businesses, such as M&A activities, with the aim of ensuring financial soundness and improving capital efficiency. These activities are conducted in accordance with the mid-term and annual retention and disposal plans for cross-shareholdings.
Under the current Mid-Term Management Plan, we plan to reduce cross-shareholdings by around ¥100.0 billion per year. The amount reduced in fiscal 2018 was ¥158.0 billion, a greater reduction than in previous fiscal years, and a total of ¥371.9 billion in cross-shareholdings has been reduced over the three years ended fiscal 2018. We will continue to reduce the overall balance of cross-shareholdings going forward based on quantitative evaluations and extensive discussions with counterparties.

Shareholder Returns

Sompo Holdings’ basic policy on shareholder returns is to steadily increase dividends during the latter half of the Mid-Term Management Plan (fiscal 2019 and fiscal 2020) based on evaluations of the Company’s financial position and the outlook for the operating environment. We seek to provide attractive shareholder returns with a flexible approach to share buybacks as an option that depends on the Company’s stock price and capital condition.
Based on growth in adjusted consolidated profit, we plan to proactively increase total shareholder returns (total dividend payments + total share buybacks). In the latter half of the Mid-Term Management Plan (fiscal 2019 and fiscal 2020), as a target for shareholder returns, we aim to attain a total payout ratio*1 of between 50% and 100% of adjusted consolidated profit.
As shareholder returns based on our performance in fiscal 2018, we have chosen to pay an annual dividend of ¥130 per share, consisting of an interim dividend and a year-end dividend of ¥65 each, which will represent a year-on-year increase of ¥20 per share. In addition, we have announced a share buyback program for up to ¥33.5 billion for the purpose of enhancing shareholder returns. In fiscal 2018, the Company’s total payout ratio was 72% of adjusted consolidated profit.
As for fiscal 2019, we intend to raise dividend payments for the sixth consecutive year with a ¥20 increase per share over the level from fiscal 2018, for an annual dividend of ¥150 per share, comprising an interim dividend and a year-end dividend of ¥75 each.
Going forward, we will continue to use internal reserves and capital gains generated from sales of cross-shareholdings to conduct promising growth investments in pursuit of rapid business growth. By allocating the additional profit generated through such growth to the enhancement of shareholder returns, we will maximize shareholder value.
The Company’s total shareholder returns*2 have comfortably exceeded performance on the TOPIX since the Company announced its Mid-Term Management Plan, underscoring the steady increase in shareholder value.

  1. The total payout ratio is an indicator of the weight of shareholder returns on the profit of each period and is calculated using the following formula.
    Total payout ratio = (total dividend payments + total share buybacks (for shareholder returns) / adjusted consolidated profit
  2. Total shareholder returns is the ratio of return after the reinvestment of dividends.

Maintenance of Financial Soundness

To maintain financial soundness, we manage capital based on the economic solvency ratio (ESR), determined by comparing economic value based on capital and risk.
Capital management is carried out by establishing a target capital level (ESR: 180% to 250%) and a risk tolerance level as indicators of the amount of capital necessary for advancing Group strategies. When calculating ESR, we employ capital management methods based on international capital regulations in order to increase global comparability, taking into account recent regulatory trends and the disclosure status of insurance companies in Japan and overseas. Financial soundnessis maintained and managed in this manner.
With an ESR of 227% as of March 31, 2019, the level is within our target capital range, indicating that we are maintaining adequate financial soundness.

Improvement of Return on Risk

We use the return on risk indicator of ROR for making various management decisions in order to operate our businesses in a manner that ensures returns match or exceed the level of risks. By improving capital efficiency and maintaining financial soundness through improvements in various performance metrics, we seek to sustainably enhance corporate value.
When formulating business plans, the Group confirms the validity of plans in terms of outlooks for the Group’s overall capital efficiency, financial soundness, and earnings stability as well as quantitative analyses of risks and returns of each business unit and line of business.
Not just limited to these areas, ROR functions as a yardstick for management in a wide area of individual policies. This indicator is utilized when selecting stocks as part of reducing cross-shareholdings, formulating natural catastrophe risk reinsurance strategies, making investment decisions regarding M&A activities, setting insurance product underwriting strategies and premiums, and evaluating officer and employee performance.

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