Daiichi Life Group, Inc. (8750) Earnings Call Transcript & Summary

Hello, everyone. Thank you very much for your attendance today. My name is Nishimura. So thank you very much for your ongoing support to our company. So today, we released the financial results for the 3 months ended June 30, 2024. I would like to walk through the document. Please take a look at Page 3, the highlight of today's financial reports. The first one is about the first quarter results, and the group adjusted profit was JPY 144.4 billion. So domestic and overseas profits is moving stably, especially for domestic group business is quite well. In Dai-ichi Life, we sold the domestic shares in advance, therefore that is pushing up the profit against the plan, and Dai-ichi Frontier also have a very favorable result for the new business value and also the forecast in overseas is also moving well because of the claims payment was a little lower than our original plan. So the overall group against plan, against the full year, the progress rate was 40%. So it's quite working well. Next is the new business value. And we are showing the overview of the 3 domestic companies new business value, and JPY 30 billion overall for 3 companies against the full year, 38% progress to date, which is a very solid progress. In Dai-ichi Life, after the January this year, we launched a new products, and channel activity volume increased dramatically. That is also yielding, especially the FIA products or annuity products launched in January was well received by the market compared to our plan. And including the protection products, not just new products, that contributed greatly to the business. Dai-ichi Frontier Life because of -- we saw the interest rate in the overseas hit the ceiling, and after 2022, the new business sales was a very -- now seeing some temporary lull, but still the number is promising. In terms of the overseas, the first quarter, third quarter new business value disclosure is not available, but the new business sales is solid. In a local currency basis, 150% of the year-over-year growth in the annualized ANP basis, especially Australia TAL, undertook a large-scale group business that contributed greatly. Next, economic indicator, ESR. This is the fresh base disclosure, the 12% reduction compared to the end of March, 214 points (sic) [ 214% ]. And the interest rate increase has the risk of the mass surrender and also the cash out for the shareholder return, and that deteriorates some capital position that pushed down the ESR to some extent. And I would like to elaborate on this large-scale surrender risks later on. Next, EV. Toward the end of June, the foreign exchange rate dramatically deteriorate in terms of the yen depreciation, and that's positively affecting the EV. That was offset from the increase of the business cost as well as the cash out to the shareholders as well as increase of the inflation rate. So as a result, year-over-year, it was flattening. And August 5, there was market changes, so I would like to explain the impact. August 2, when the employment statistics in U.S. was released, the market trembled dramatically. August 5, the Tokyo Stock Exchange had marked the largest-ever reduction, and then that also affected the exchange rate as well, therefore the impact of this economic conditions, especially as of the August 5 economic environment, would be the assumptions. And then I would like to explain the impact on our business. In terms of the impact on our profit, group adjusted profit, because of the stock price -- market price reduction, loss of the capital gains and also the because of the yen appreciation, certain profit reduction in the overseas subsidiary on a yen currency basis, but as I said at the very beginning, at this point in time, the profit progress rate is quite in advance compared to [ BOY ] plan. Therefore, given such market conditions, we believe that the full year forecast should not be changed -- not necessary to change. But later, I would like to touch on this. ESR and EV impact, because of the lower stock price as well as the yen appreciation, there should be some reduction of the asset price value. However, ESR maintained 200% or more, and it's already confirmed. And the market statistics certainly rebound, but still, we need to monitor carefully about the economic conditions fluctuations. Please take a look at next page. So this is the group adjusted profit fluctuations and then some impacts. Overall group, so 42% -- 43% progress to date -- sorry, overall, 42% as a group, and then especially group domestic business, 43% progress. Dai-ichi Life, in the midterm plan, we sold the domestic shares in advance to our original plan, so that pushed up the profits. Dai-ichi Frontier Life, the progress to date of the profit was 70% or so. It is quite favorable, and FX -- and assets under custody is increased and also the yen depreciation also affected positively on a positive spread. In overseas business, the first quarter saw a very good result. In Protective, claims and benefit payment was lower than our original plan. Because of that, operating profit moved quite favorably. In FY '22 and '23, Protective profit was pushed down because of the realized loss of the securities. That impact is now lower than the original expectation, and because of that 37% progress to date against the plan. In TAL, because of the increased the claims payment, the progress was slower than last year, however, versus the plan is 30%. And August 5, market fluctuation is embedded on the adjusted profit of the group business. On the right, you can see the stock price and yen appreciation, JPY 50 billion or more, push down of the profit, but the derivatives is used for the hedge position, will generate more profits. And also the first quarter uplift of the profit is given. With that, we believe that there -- not necessary to change the JPY 340 billion for full year forecast. Now I'll move on to the next page, the group -- year-over-year changes of the group adjusted profit. Dai-ichi Life and Frontier Life and Protective's profit will be the main source of profit level, maintaining the same level of the last year. And in the middle, as you can see, in May, we had a fully [indiscernible] subsidiary, Benefit One. PPA, purchase price allocation, is now completed, and the goodwill amortization policy is now fixed. And beginning of the year, in our plan, [indiscernible] planned stand-alone as well as amortization value, on a net basis, this year's profit was originally very conservative, like minus JPY 10 billion. However, as you can see here, every year's intangible assets amortization cost was lower -- largely lower than our original expectation. This year also, Benefit One business can generate JPY 2 billion profit contribution. Move on to the next page. Next, new business performance. The value of new business of the 3 domestic companies reached 40% of the full year forecast, thanks to the recovery of the sales volume of Dai-ichi Life. In the next page, I will explain the factors. But among the new products released in 2024, the annuity product is doing well. And in the overseas businesses, Protective and TAL are doing well. Protective has revised their products in an agile manner and captured the needs of the customers, and the fixed annuity sales was especially well. And TAL obtained a large-scale group insurance contract, so they have the top share in the protection products, and they have a negotiating power. Please go to the next page. This shows the factors of the sales rep channel sales, and all indicators on the left-hand side exceeded the level of the first quarter 2022, especially the value of the sales revenue exceeded the level of the first quarter 2022 for the first time, and all the indicators are improving. Taking advantage of the effect of the annuity products, we can introduce the major products to the same customers, and we can improve the new business performance further. And as for the sales force, we could hire more than 1,000 new recruits in April, exceeding the target, and we can hire 1,000 people in July as well. So we expect there will be a stability in sales force. Please go to the next page. It's about ESR. The ESR at the end of June is approximately 214%, which dropped 12 percentage points from the end of March. And one of the factors is the increase of the mass lapse risk due to the increase of the interest rate and also the investment return, which reduced the capital. You can see the estimate reflecting the market volatility on August 5. Because of the decline in share price, the eligible capital drops. But at the same time, the share risk will reduce and the mass lapse risk would also reduce. So that would offset the reduction of the capital. And thanks to the appreciation of the yen, the ESR would face a single-digit decline. In order to reduce the share price risk, we are planning to sell JPY 1.2 trillion worth of cash stocks in the current medium-term plan, but we are planning to reduce the balance of domestic equities holdings in DL after the next medium-term plan, considering the capital efficiency, cost of capital and strategic asset allocation to less than JPY 2 trillion. We are still examining this matter, and we will explain it in the IR presentation in November. We will continue the simulation and examination and continue to think about this. Please go to the next page. This shows the mass lapse risk. We would like to explain it. In May, we disclosed the ESR at the end of March 2024. We explained that under the new ESR based on J-ICS, the mass lapse risk will be recognized. To calculate the risk based on the new standard, the in-force policies need to be reduced by 30%, except for certain products. The result, you can see in the middle bottom. The mass lapse risk is calculated this way, and there is a significant difference in interest rate sensitivity between protection products and other products. So in case of the protection products, the source of risk is the missed future profit, and there is no interest rate sensitivity. So the risk is -- does not link to the amount, but it is not linked to the interest rate. However, in case of other products, which require incremental policy reserve, the risk will increase if the interest rate rises. The J-ICS standard is expected to be finalized by summer 2025, so until it is finalized and the regulation is applied, we will continue to examine what we can do for our products and also the ESR internal model in our policies. That is all from me. Thank you very much. Kai-san, can you say a few words?

This is Kai. Last night, we released an information about the leak of information from our employees to the agencies, and we apologize for the concerns and inconvenience caused by this incident. Dai-ichi Life Group deeply take this matter very seriously, and we will quickly investigate the matter, and the whole company will take measures to prevent the recurrence of these such incidents. Thank you very much.