Sompo Holdings: Strategic Buybacks, Dividend Growth, and the Case for Long-Term Value

Sompo Holdings (SOMPO), Japan's third-largest non-life insurer, has emerged as a standout in shareholder returns, leveraging a disciplined capital allocation strategy anchored by its 50% profit reinvestment rule. Recent buybacks totaling ¥31.66 billion in May and June 2025 highlight management's commitment to this policy. Yet, concerns linger over the sustainability of such returns amid rising operational headwinds. This analysis explores whether Sompo's valuation and dividend trajectory justify a long-term investment despite near-term challenges.

Capital Allocation: Buybacks Aligned with Policy, but Risks Lurk

Sompo's shareholder return policy mandates distributing 50% of adjusted consolidated profit as dividends, supplemented by 50% of net capital gains from strategic stock sales. For FY2024, adjusted profit rose 14.3% to ¥334.3 billion, enabling a ¥167.15 billion base dividend. However, total shareholder returns soared to ¥385.9 billion—a 54% jump from FY2023—thanks to aggressive buybacks (¥260 billion) and capital gains distributions.

The May–June 2025 buybacks of ¥14.16 billion and ¥17.5 billion, respectively, reflect ongoing execution of this strategy. However, the 54% drop in FY2024's core insurance profit (excluding capital gains) raises questions. Domestic auto insurance faces 7.5% higher repair costs, while natural disaster losses are projected to rise ¥26 billion in FY2025. These pressures strain operational profitability, raising concerns that buybacks may increasingly rely on non-recurring gains—such as the planned unwinding of strategic stock holdings—to ¥200 billion annually by 2030.