Dai-ichi Life Holdings, Inc. (8750) Earnings Call Transcript & Summary

Thank you very much for taking time out of your busy schedule to join us today. I would like to express and announce -- we announced our second quarter financial results, and I'd like to provide overview. Please take a look at Page 4. These are the key points of the earnings report. The Group adjusted profit for Q2 was JPY 231.1 billion. This represents 56% of the initial full-year forecast of JPY 410 billion, showing progress ahead of our plan. The main factors were in domestic business, Dai-ichi Life made significant progress in Q2 on selling domestic equities based on its risk reduction policy. And capital gains also exceeded the plan due to the surge in domestic stock prices, boosting profits. In overseas business, Protective, large in profit scale provides solid support for profit. And one-off gain on sale of a subsidiary agency drove also profits, resulting in progress in the overall overseas business exceeding the plan. Regarding adjusted ROE, starting with this earnings report, for Q2, we are disclosing adjusted ROE on an annualized basis, even though we are still in the middle of the fiscal year. The adjusted ROE at the end of the second quarter was 11.3% on an annualized basis. We believe that the expansion of the numerator driven by robust profit growth has put us firmly on track to achieve our 2026 target of 12%. Given the current profit progress exceeding our plan, we have updated our full year forecast for group adjusted profit for the fiscal March 2026 based on the economic environment assumption as of the end of September. We announced today that we revised upward our previous forecast by JPY 60 billion to JPY 470 billion. This represents a level exceeding last fiscal year's record profit. And then reflecting rise in the base 3-year average profit, we have also raised our dividend per share forecast by JPY 3 from the previous forecast of JPY 48 to JPY 51. There are 2 specific topics to share with. The first is about Dai-ichi Life's plan to sell domestic equities. Since the start of this fiscal year, the domestic stock price market has surged, increasing Dai-ichi Life's equity risk exposure. And given this and in line with the risk reduction policy outlined in our midterm management plan, we now expect trading volume for this fiscal year to be revised upward from this initial forecast. Details will be provided later. Second, regarding the bolt-on acquisition by Protective announced at the end of October. Protective has decided to acquire portfolio, a U.S. company primarily engaged in asset protection business. This acquisition will double the scale of Protective's asset protection business, and we anticipate an increase of about JPY 5 billion to JPY 10 billion in the profit level of the business starting from the next midterm plan. We will also explain this later. Please turn to the next page. I will explain the progress of group adjusted profit by business, showing the progress against the full year forecast and main factors driving the changes. The cumulative group adjusted profit for the first 2 quarters was JPY 231.1 billion, 56% against the full year forecast. Domestic business achieved 56%, a significant progress from the first quarter. Dai-ichi Life saw an accelerated sale of domestic equities and domestic stock price increase, and these resulted in an upside. Regarding Dai-ichi Frontier Life, the yen-denominated products without reinsurance ceded performed well, and this pushed up acquisition -- new business acquisition cost. So it is behind the plan. However, the AUM is increasing steadily. Next, regarding overseas business, overall profits are progressing steadily at 55%. First, with Protective, effects of operational efficiency and investment yield improvement, combined with a one-off factor from the sale of subsidiary agency resulted in faster progress exceeding the plan. For TAL in Australia, although there was a one-off gain from reinsurance review, the impact of increased income protection and TPD insurance claims payment, this resulted in profit progress roughly in line with the plan. Regarding noninsurance business in asset management field, Dai-ichi Marubeni Real Estate, which began contributing profits through equity income, saw steady profit growth. However, Canyon in the U.S. delivered lackluster performance, resulting in subdued progress. Benefit One's apparent profit progress remains low. However, it remains on track with the plan and profit level is expected to increase in the second half. Please turn to the next page. This shows the year-on-year comparison of group adjusted profit. All segments, domestic, overseas and noninsurance exceed the levels of the same period last year. Especially in noninsurance, acquisitions and JV formation led to JPY 4.9 billion growth year-on-year. Within holding other, DLRB so profit decline due to the absence of previous year's one-off gain and valuation loss because of the widening spreads in Q1, resulting in losses posted. However, the credit spreads have been tightening more recently and losses have nearly recovered. Next page, please, the one after next. This shows the domestic equity sales status via Dai-ichi Life based on economic assumption as of the end of September. Since the end of March, domestic equity market has continued to rise and Dai-ichi Life equity balance at market value as of September reached about JPY 3.5 trillion, exceeding the balance at the end of March 2025 of JPY 3.3 trillion despite the sale of JPY 300 billion worth of equity indicating an increase in equity risk exposure. Our group's midterm management plan sets a target of reducing the domestic equity balance to below JPY 2.8 trillion by the end of March 2027. So the group anticipates increasing the planned equity sales amount for the current fiscal year from the initial target of JPY 380 billion to about JPY 700 billion. So as a result, gain on sale of equity in this fiscal year is expected to have a significant upside. The increase of about JPY 500 billion in the market value will result in higher cash available for growth investments and shareholder returns compared to the initial midterm plan projections by about JPY 350 billion. Please turn to the next page.

This is Dai-ichi Life's forecast for positive spread. Dai-ichi Life aims at improving positive spread by rebalancing fixed income asset and reducing scheduled interest payment. Given the current market with rising interest rate, we have increased the size of rebalancing of yen-denominated fixed income assets to expand positive spread. As we sell stock, interest and dividend income will decrease. However, it will be offset by alternative investment expansion and yield improvement through yen-denominated fixed income asset rebalancing. So positive spread is expected to show a steady increase. So this operation is expected to improve annualized positive spread by about JPY 25 billion, including JPY 17 billion improvement from rebalancing of yen-denominated fixed income. We will continue to work to expand the positive spread, taking into account the interest rate environment and other factors. Please see the next page. The upward revision of the full year forecast. Based on the profit progress of each group company by the second quarter and Dai-ichi Life's increased domestic equity divestment forecast based on the assumed economic environment as of the end of September, we have revised up this fiscal year's full year forecast of group adjusted profit to be JPY 470 billion, JPY 60 billion higher than our initial forecast of JPY 410 billion. In line with this upward revision of group adjusted profit forecast, we are also upwardly revising our dividend per share forecast to JPY 51, an increase of JPY 3. This upward revision has been determined based on the assumed economic environment as of the end of September. We will watch closely share prices and interest rate development and aim at higher profit level. Page 12, please. New business results. The group's new business value is preliminary figure. Progress towards the full year target of JPY 190 billion for the value of new business is 56%. We believe new business performance has been solid across all domestic and overseas group companies with, for example, Dai-ichi Life's new business value increasing due to sales volume increase and rising interest rate. Next page, please. I will discuss group EV and ESR. Group EV was about JPY 9.1 trillion, an increase of 11% from the end of the previous fiscal year. Group ESR increased 7 percentage points from the end of the previous fiscal year to about 217%. Regarding ESR, while required capital for mass surrender risk increased due to rising yen interest rates, eligible capital increased more than required capital due to an increase in domestic stock prices and an increase in the value of in-force business resulting from rising interest rates. Please note that the economic value indicators presented here, such as EV, new business value and ESR are provisional. We will provide further explanation of final values, including variables and sensitives at the financial results and business management briefing on November 27. Please look at the next page. Finally, I would like to explain the acquisition deal by Protective. As we announced at the end of October, we acquired portfolio, an asset protection business in the United States through Protective. We expect this acquisition to double the size of Protective's asset protection business, and we expect this transaction to contribute $50 million to $100 million in profits from the next medium-term plan. The asset protection business is relatively capital light compared to traditional life insurance businesses. Protective is aiming for capital-light businesses, including ShelterPoint, a group insurance company acquired last year. Asset protection business, including portfolio and capital-light business, including ShelterPoint, is expected to show steady profit growth over the coming years with mid- to long-term profit contribution to be in the order of $200 million. We believe that the growth of these capital-light business lines will help us achieve our goal of improving ROE. That's all I have for the presentation. With rising interest rate and favorable economic environment, and [ tailwind ], gross adjusted profit is showing upside. To raise further the core profit level, we will contribute to take initiatives for the Dai-ichi Life's positive spread increase, DFL, overseas business, asset management and other noninsurance business growth. And this year's actuals are expected to exceed the budget for the next fiscal year. And we will continue to make our efforts as a whole group. Thank you for your attention. That concludes my presentation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]