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

Thank you very much. We would like to begin. Thank you very much for coming to the Dai-ichi Life Holdings Financial Analysts Conference Call for FY Ending March 2025. So today, we have the Group CEO, Tetsuya Kikuta, Representative Director and President; and Executive Officer, CFO, Nishimura. And also the new business division owner, Kai, will be speaking. So today, we have the online distribution and the sell-side analysts. Some of them are attending on the venue. First of all, the 15 minutes or so, CFO Nishimura-san is going to explain; and then followed by Kikuta-san, the CEO, around 10 minutes. And for the U.K. M&G, the investment projects, that will be explained by Kai-san, who is in charge of the new business. Now we will take some questions at the end, in Japanese. And maximum, we have 1 hour and 30 minutes. And the documents are available on our website. Today's session will be distributed on archive, and that will be available on our website. At the very beginning of the session -- original schedule for this session was the -- May 26, but now it's changed to today, so apology for the inconvenience. So we would like to begin. Floor is yours, Nishimura-san.

Hello. Thank you very much. This is Nishimura. Thank you very much for coming to our Earnings Conference Call. Now I would like to walk through the FY 2024 results. Please take a look at Page 4, group adjusted, the profit. Thanks to the positive uplift, the positive spread of Dai-ichi Life and -- we had a great, good result; as well as the Dai-ichi Frontier Life and the Protective or TAL had a great result. And the overall group performance was best ever result of JPY 439.5 billion. And value of new business, because of the big contribution coming from the Dai-ichi Life, sales volume increased on a new standard basis, JPY 172.4 billion. And the capital efficiency contributed basically from the group adjusted profit. And adjusted ROE surpassed 10% in March, to 10.7%, for the first time. Group adjusted profit -- and revised ROE is going to surpass the 2026 -- FY 2026 objective or target which was stated in mid-term plan. And evaluation from the market or relative TSR, against the peer, 14 companies, we ranked #5. And we were having -- or projected as a mid-tier, so it was already achieved in terms of our objective. And after April, the stock price performance still struggling, so we would like to improve our corporate value enhancement going forward. Move on to the next page, please. So next. On the left, cash holdings at the holdings company. FY 2024 (sic) [ 2025 ] onwards -- and the strategic investment was already explained, including the M&G investment. So we had JPY 275 billion. And for the shareholder with -- payout was already announced on May 15. And FY 2024 profit-based dividend is going to be the 22 -- JPY 226.7 billion, including share buyback of JPY 100 billion that was announced the same day. And the payout ratio is going to be increased to 45% since this fiscal year. For ESR, at the end of March, 210%. For the overseas subsidiaries, applying a new standard, we calculate this ESR. And MOCE-related internal model change was adopted, therefore the application of the new standard for the overseas subsidiary. And there were some reduction. And that was -- already surpassed the offsetting, and so we maintained the relatively high ESR. And DL, for the risk reduction efforts, we had the -- promoted the disposal of the domestic shares on JPY 225 billion risk reduction. And also it worked quite well, compared to the plan, because of the market conditions. And we now see the domestic interest rate is steepening, but at Dai-ichi Life, we have the insurance company specific, the approach for the bond for the liability reserve. We adopt the amortized cost method. And on the other hand, in terms of the insurance liability, do -- now promote the duration matching. And continuously we now replace the assets, and if there is any kind of decline in the market price, we need to recognize some impairments. However, against the current interest rate level, all the liability reserve bonds do not have to make the impairments. And even further interest rate rise, we will take some measures, like rebalance. Or the various reserves will be used. And also the held to maturity and other measures will be taken. So that -- at the moment, current interest rate level do not affect any kind of impairments necessity, but of course, continuously we will be prepared for the future interest rate increase and pros and cons of the -- all the measures at the moment as well as the future. And we would like to take some right approach at the right timing. Move on to the next page, 6. This page talks about the ESR and the ESR applying the new standard and compared to the previous year. And it was a 1 percentage point reduction, with 210 percentage point (sic) [ 210% ]. And the market risk reduction effort as well as the other risk reduction efforts, we now have some improvement in the value of new business and expected profit increase. However, there were some rate increase of the yen. And the mass lapse risk is increased. And the Benefit One acquisition, we recognized a goodwill deduction; and that's why the eligible capital reduced. That's affecting this ESR. And after the April -- or capital strategy policy and also shareholder payout strategy, that will be around the expected range of [ 200 percentage point ]. And then in terms of the sensitivity. Compared to the previous, the explanation, because of the Protective adopting the new standard, we saw some sensitivity changes in the U.S. dollar interest rate ups-and-down. Now move on to the next. Page 7 talks about the group risk profile. The market risk reduction effort, both stock and interest rate risks, we now move smoothly. And especially, for stock risk reduction, we promoted the -- better than the planned, disposal of the domestic shares. And on -- also interest rate risk reduction moved positively and overall market risk reduced compared to the previous fiscal year. And in the year in -- coming this year, we now see the certain level of the interest rate rise, but mass lapse risk will be -- is minimal. So we would like to explain in details in next page. Page 8, mass lapse risks. There are 2 initiatives. On the left: We now made the partial change on the MOCE calculation for the internal model. So the mass risk -- lapse risk calculation. So the immediate decline policies for the in force, when we calculate the -- such immediate decline, such scenario, MOCE, originally we did not change the policy volume. However, we now apply the -- after the decline, the in force would be adopted for the MOCE calculation. For that, we have a more accurate calculation. And also, as the in-force policies are declining, MOCE also decline. And that's affecting -- the mass lapse risk increase was relatively mild. And that's impact on the ESR at the end of March 2025 will be positive 4.6% (sic) [ 4.6 percentage points ]. Now we continue to have a study on J-ICS and mass lapse risk. And on the right, you can see the -- some studies underway with reinsurance companies and the general policy overall companies now 30% lapse scenario and the group annuity 50%. There is a current stress scenario, but compared to the past experience and by company, as you can see, the large-scale insurance companies, compared to the relatively small-size companies, the surrender ratio or lapse ratio is mild or low. But of course, this is the initial studies. Therefore, we continue to work on this study. And then eventually, we want to have a better quality so that we can adopt it on the internal model. Page 10. This is shareholder payout policy. The payout ratio is the -- against the profits generated March [ 2026 ]. And we plan to increase payout ratio to 45%. And at the moment, dividend payout is over 4 percentage point (sic) [ over 40% ]. And for the share buyback, we've already announced JPY 100 billion and that purchase has already begun. Now Page 11. This is cash position of the holdings. In November, we released the cash position outlook and already incorporating the latest strategic investment announcement. And the March 2025 subsidiary cash remittance, 86%, but especially, the Dai-ichi Life profit level was better than [ our BOY ] outlook. And the cash remittance was also uplifted, as well as the dividend availability. And the -- in U.K., Capula, M&G and holdings cash payout, we continue to have the strategic investment. And so as you can see, the position would be available -- strategic investment availability would be JPY 50 billion -- and also withdraw from the Thailand business. And there are some free cash flow already reflecting -- and continue to consider -- including the pipeline opportunities and share buyback or the shareholders' payout policies, we may consider the uplift of the strategic investment envelope [ of ] JPY 300 billion. Now move on to the next page. So this is the relative TSR. And we rank #5 against -- for the 3-year TSR starting from FY 2022. So the BOJ's domestic interest rate increase is also boosted, and we maintained the middle level. That concludes my presentation. Thank you.

Now move on to Kikuta-san.

Thank you very much. My name is Kikuta. So thank you very much for your support on daily basis. We, I truly appreciate your support. Now please take a look at Page 16. So the mid-term plan. The year 1 is now summarized as follows. Against our plan originally, we believe that the company is progressing well ahead of the plan. And the economic condition was favorable to us. And the subsidiaries profit level increased. Profit as well as capital efficiency improved. As a result, overall group profit level or capital efficiency, in the year 1 of the mid-term plan, we already surpassed the target of the mid-term plan, but on the other hand, BOJ rate increase; as well as the U.S. President, new administration, the new policies -- [ over the ] economic environment changes. And we now see the very vague situations or uncertainty in the business environment. And we believe that this is a very critical year. And last year, we had a very good, successful year, but that itself alone will not gain the trust by the investors, so towards year 2, we would like to solidify this, fortify this year 1 good result; and then try to improve the corporate value. And in terms of domestic business. We continue to dispose the domestic shares and to reduce the market risk. And the growth driver overseas business or the noninsurance business, which is -- both businesses, we need to accelerate our growth, both organic and inorganic. And capital circulation management perspective: Some business portfolio, we already withdraw. And like that, we continue to have a replacement of the business portfolio. And in terms of the selections of new organic projects, we will have a more stringent and -- discipline in the investment decision. And for the time line for the growth or -- the regional distribution or the cash generation capability will be our key focus when we make decisions. And overall, multifaceted element will be taken into consideration, and focusing on the capital efficiency oriented management. Move to the next page, please. So this section describes the direction of initiatives in the second year of the mid-term management plan. Although we have achieved our 2024 profit level and capital efficiency ahead of our 2026 mid-term plan target, there's a gap between our current position in aiming to become an insurance group that ranks among the global top tier and our current position toward our 2026 market capitalization of JPY 6 trillion, which is a gap from our assumption. As I'll explain later, we need to raise the bar and further strengthen our efforts to achieve our goal of becoming a top-tier global insurance company by 2026. If we cannot close the gap, we will not be able to narrow that gap with the global top-tier companies. And thus, this can lead to a further widening of the gap, so we will have a healthy sense of crisis to deal with this situation. Now please turn to the next page. I'd like to talk about the increase of the group's adjusted order -- profit and ROE, which are the KPIs of the medium-term management plan. First, regarding adjusted ROE, which exceeded 10% in the previous fiscal year, it is important to cultivate the ability to stably secure the same level while taking into account changes in the business environment. In addition, as I explained in my explanation last November, the global top-tier companies have reached even higher ROE than when the medium-term plan was formulated. In light of this, we believe that the level we should aim for is also required to go one step higher and further. Therefore, we have raised the level of ROE we are aiming for 2026 to 12% of (sic) [ or ] more compared with the initial 10% and have also raised our target level for 2030 to be 14%. So we will continue to make every effort to improve our capital efficiency. And this would lead to our group's revised profit forecast for 2025. And the profit plan was formulated based on the economic assumption at the end of March, so -- which resulted in a forecast of JPY 410 billion as a profit plan that reflects our conservative approach compared to other companies, but we expect to secure over JPY 400 billion as we did in the previous year. Our earnings base is steadily increasing in depth compared to a few years ago, so while encouraging organic growth at domestic and overseas companies, we believe that we can achieve the newly set profit level of over JPY 450 billion by 2026 by promoting early monetization [ of inorganic ] growth projects through careful selection and timely execution of investments in response to changes in this business environment. Also we are also considering raising the profit level to JPY 600 billion by 2030, which was originally targeted at the beginning of the plan based on the status of monetization of growth investment projects that have been -- we have been working on since the start of the medium-term management plan and change in economic environment such as inflation and rising interest rates. And we will provide a new explanation of this matter as soon as our initial study is completed. Now please turn to the next page, please, Page 20. So regarding our policy for capital strategy products (sic) [ projects ], we would like to present the current pipeline and the direction of allocation to each business -- respect to the JPY 450 billion profit target we are aiming for 2026. So our direction to expand our business domain from insurance business to insurance service business remains unchanged. And on the other hand, including investment to M&G, we'll continue to position the insurance domain in which we have expertise as our core business. And also, in addition to flexible deal execution, mainly in overseas business, leveraging Protective's acquisition business that belongs to the world's largest life insurance market, we will also carefully select projects that will contribute to strengthening our group's competitiveness. And in terms of asset management business, we are now expected to double its profit level to JPY 20 billion in 2026, so we would like to also strengthen other projects so that the customer contact points could be strengthened, utilizing the Benefit One ecosystem and -- which we consider important to our long-term business strategy. So towards the achievement of JPY 450 billion in fiscal '26, we carefully select our deal pipeline. And also we will strengthen our current cash generation and capability and long-term earnings base. Next, I would like to also give explanation about the investment in M&G of the U.K. which was announced at the end of last week, so here I would like to invite Mr. Kai, our executive officer in-charge.

Thank you very much. I am Kai, executive officer in charge of this business. So I'd like to explain about our investments in M&G in U.K., so please refer to Page 21. The acquisition of this M&G, which is engaged in the life insurance and asset management business in the U.K. and other European countries, it's expected to result in an estimated investment amount of approximately JPY 160 billion based on the current share price and exchange rates. So this is according to our decision made at the company. So this M&G was an asset management business under the umbrella of the former U.K. presidential (sic) [ Prudential ] group, 1 of the 3 largest brands in the U.K. And it became independent after a spun-off in 2019. And with regards to insurance business. It says here BPA business. From several years ago, they have been -- resumed their acquiring new policies. And other than that -- so they have closed book business that had been delegated to them from presidential (sic) [ Prudential ] group. And they have stable business foundation. Also, with the asset management business, that helps their profitability. Overall business as a group, we see high -- I mean they have their high dividend yield, so it is expected to enable the project to secure an IRR above our company's hurdle rate. And also, the reentry into BPA business and also expected continuing expansion in the U.K. life insures market is expected to offset a certain amount of closed book shrinkage and increase the sustainability of cash flow, enabling us to recover the investment amount of -- early as approximately 10 years. And specifically, since we are acquiring shares through market purchases, there'll be no premium. And also, looking at our method of acquisition of own shares, this would also be an advantage to our business. And now to the next page. Also this project will provide us with an access point in the European market where we previously did not have a business [ space ]. So M&G is a successor to the former president's (sic) [ Prudential ] group, so especially in the U.K., they have a strong brand power in the sales channel. And with that, the asset management business is also placed with a competitive edge. And also this significant advantage is also seen in the BPA business, which requires a high level of reliability. And M&G's growth capacity: They are based in an asset management business, and that's the core of everything that we are focusing on. So with regard to asset management business, M&G has a rich investment track record as well as the founding power of M&G. And in recent years, M&G has been promoting the strengthening of the alternative area, with high growth potential, including the acquisition of several alternative assets management companies. And also, our group and M&G have agreed to collaborate in terms of mutual investment management and insurance sales as well. M&G has an extensive investment track record and sales network in the European market, so -- which is a capability that the company does not have right now. And in addition, our group had asset management companies with strong capabilities in specific areas, such as Canyon at U.S. and Capula in the U.K. So these can also complement M&G's asset management capabilities as well. So as both companies are engaged in the 2 businesses of insurance and asset management, there are various possibilities for collaboration, such as product development, utilizing the resources from both companies so we can create a good synergy with deepened understanding of what we do. So through the investment into a company with high cash-generating ability, we will strengthen the cash -- [Excuse me.] profit base, increase the cash generation ability and work to enhance the sophistication of capital cycle management. That's all from my side. Mr. Kikuta, back to you, please.

Thank you very much, Mr. Kai. Now let's go forward, and please turn to Page 28. So with regard to domestic equity sales plan for risk reduction purchases. So in Dai-ichi Life's plan for equity sales, in fiscal '24, we completed approximately JPY 500 billion in sales of equity, more than our annual plan, bringing our rate of progress to 40% against the JPY 1.2 trillion in sales target for the mid-term plan period. As a result, we were able to reduce the amount of equity risks to -- by approximately JPY 200 billion, including market value fluctuations; and made steady progress towards reducing the cost of capital. We'll continue to make progress in the current fiscal year and beyond, to ensure that we are on track to achieve our plan to increase the balance of domestic equities to a maximum of JPY 1.5 trillion at the fiscal 2030 end. And the right-hand side of the material shows our domestic equity trading execution operations in light of the revised disclosure guidelines in January of this year. So the investment and the sales of the domestic stocks are illustrated here. At Dai-ichi Life, while basing ALM management [ and ] the corresponding insurance liabilities, we conduct balanced asset management, with the objective of stable investment from a long-term perspective. And also, in principle, domestic equities are held for pure investment purchases. And the investment execution department makes independent trading decisions based on an economic rationale. In light of the content of the revised disclosure guidelines, the company has now clarified the independence of the investment executives' responsibility in the disclosure as well as reiterated that the company always trades in response to changes in the market environment. In addition, in line with the intent of the disclosure guidelines, we have strengthened our internal information management system by making it even stricter. So those are the responses from our group side as well. And the information explained will be also permeated to our investee companies and will be posted on our company and Dai-ichi Life's websites in the near future so that -- we would like to have your deepened understanding of what we are promoting right now. Please go to the next page. So as I explained today, the group is steadily transforming itself to achieve its goal of JPY 6 trillion in the market capitalization by 2026 and JPY 10 trillion by 2030. And the economic and business environment is constantly changing, but as I explained earlier, we believe that this goal is not unreachable. As I have indicated, we will raise our profit target for fiscal 2026. And that gap I explained earlier can be offset. And we would like to also not only reaching the profit target for fiscal '26 and review our target for 2030 -- as well as we'll also plan to raise our capital efficiency targets as well. We'll continue to drive toward our stated goals while maintaining a balance between investment in growth and shareholder returns, in order to win the confidence of the market and the investors. So with that, we look forward to your continued support and understanding. Thank you very much for your attention. That concludes my explanation.

Thank you very much. Now we'd like to move on to the Q&A session, to be conducted in Japanese. So please raise your hand, if you are with us in this venue. [Operator Instructions] We would now like to begin the Q&A session. SMBC Nikko. Muraki-san, floor is yours.

SMBC Nikko, and Muraki speaking. 2 questions. First is about the strategic investment. So during the mid-term plan, JPY 300 billion available funds. As a few hundred billions are still available, are you going to increase these funds from JPY 300 billion to more? And M&G and others -- you have Challenger, Capula and Canyon. And there are quite a lot of investment in the minority investment. That is my impression. So Janus Henderson was also in -- had a minority investment, and you exited, right? So for those minority investment, why -- is the intention behind? And certain investment, you try. And then if you cannot enjoy some synergies -- and you may need to exit. Is that your understanding? Or are you willing, continue to have this minority investment? That is my first question. My second question is that the mass surrender -- mass lapse risks. So Page 8, on the right, you showed us the simulation like mass lapse risks. So for the -- there are some JFSA, so the reputational risks and the credit risks. So in terms of the amount to be reduced, can be considered for the disclosed figures. Can we assess that from the discussed number? And what market is concerning? It depends on the interest rate conditions. The saving type of products will go up. And there are certain existing policies, and surrender or lapse is underway. And you now have a lot of studies and internal investigation. What is -- can you please share the current status?

Thank you for your questions. So the first question, I can answer. My -- second question will be answered by CFO Nishimura-san. The first, budget for the strategic investment. Yes, at the moment, JPY 50 billion to JPY 100 billion, that will be the -- around the available funds, but we are not studying the possible increase of this budget. But this year and next year -- or FY 2024 also, we had a very strong bottom line. So FY 2025, bottom line is -- become more rich, then we may have the availability to increase such budget, but basically we don't plan to increase at the moment. But if there is any shortfall or if there is any project that needs more funds, then we may have to advance the schedule for the sell-out of the -- our domestic stocks and so forth and then try to allocate such money. And in terms of the minority investment, true. Indeed it's been a while that we have been the minority shareholder, but the asset management and the insurance, they are slightly different by nature. And for Capula, for the future, we would like to take the majority stake. So we have the option like that, but -- sorry, Canyon. I was talking about the Canyon for the future option for becoming a majority, but the -- such kind of a very characterized type of companies like Canyon. We -- Capula or type of companies, it's rather difficult to take some majority situation. So it depends on the company situation and the future option for the growth. Then we will continue to be minority, but if there is any opportunities, yes, we would like to have the majority. It depends on the nature of the company. And then the liability, for the insurance liability. As the insurance company, we can have a very precise assessment. So ideally it is better to do that kind of assessment, but in the -- recently the global strategic investment opportunity, cash opportunity is -- cash- capability is very strong. Or the [ gross probability ] is very strong. And the cash contribution will be very early stage. Those projects are not really available. So from that perspective, very promising and very productive companies needs very high valuation. And the needs or -- needs of the market is very strong. From those perspective, starting from the minority investment would be the ideal option for us. And in the future -- the life insurance companies, we already entered in the minority shareholder. [ There ] are already listed. So eventually we may need to exit if there is any kind of isolation from our expectations. And also, if there is a -- agreed by both parties, then we would like to consider next step in the right time line. So in terms of the minority shareholding -- but still, even minority -- but we are the largest shareholder, so we -- if the -- any stakes that has a more controlling shareholder other than us, then it is difficult for us to influence on such company. So no controlling shareholder and, hopefully, listed company. Those are the ones we would like to select from the insurance industry.

So your second question, for the mass lapse risks. So Page 8 graph, our analysis or study across all the insurance companies. And data was analyzed. And what was the surrender or lapse? And because of the reputational risks -- and what was the credit risks and so forth affecting such lapse? Whenever the interest rate goes up, the saving products would be more chosen. And then there will be some replacement from the existing business to new business. So we are also studying such scenarios. And Dai-ichi Life has been offering single-premium saving products. So putting certain restrictions of sales. And the Frontier life was more of a front line for the sales of such products so that we were managing the risks, but of course, Frontier or Protective, those companies who are selling single-premium products -- then when the customers are leaving, what was the increase in the principle? And when there is a churning from the existing business to new saving products, then what will be the implications? We are making such simulations as well. And we do not see the potential big risk of the lapse risk at the moment, having such analysis.

My follow-up question is that the [ not ] MVA attached to single-premium saving would be the risks, but other than that, what kind of -- the type of products, like installment or like protection type of products, whenever the interest rate goes up rapidly, some blocks from products that should do better for the policyholder to surrender or lapse.

Well, basically the protection type of products would be used as a discount for the -- whenever they hold. So I believe there is no such other blocks that must have certain risks, but basically the risk is saving products and the single premium. Then there is the potential certain risks of the mass lapse. That's why we -- in order to control that, we have the MVA and to -- not to see such -- the mass lapse at the same time.

Now we would like to invite Tsujino -- Mr. Tsujino, from BofA Securities Japan.

First of all, on Page 11, you mentioned about free cash. And you can see that free cash is compared with the fiscal '25 and '24. You have here included in the '25 and [ '25/3 ]. It have a TAL that had contributed to this high number, so I want to look at what could happen in the period ending '26 March. And you see there is a dip here. And going onward, how you plan to have this number to be evolved. And another question: for this year and interest from this year's investments that had been impacting the holdings business. And M&G, I think, itself is fine with me personally, but last year, Benefit One -- so looking at these directions, whether Benefit One is effective enough for you to execute through, I have a question for that. So cash generation and also the profitability, to the earnings, when do you expect to have the improvement effect?

Thank you very much for the questions. So on the first point, I would like to invite Mr. Nishimura. And I would like to have Kai-san, in charge of Benefit One, to explain about it. And if needed, I would like to give some supplementary explanations.

On Page 11, here the profit for the period ended March. And we have [ 46 ]. And also the free cash flow ended '25 March is [ 375 ]. And there's a gap of [ 500 ]. So for that, well, in [ March '25 ], we had a large increase because we withdrew from Thai. And this was a plus alpha effect. And Dai-ichi Life's profit was also very favorable. So we have 6%. That's an increase in the payout ratio for -- as well as TAL. We had investment in Challenger. And also there is an increase in the dividend payout ratio. And for right now we are now on the assumption [ of the ] 90% for that fiscal year, but we are going to enhance our returns from our subsidiaries. So in Dai-ichi Life's case, as Mr. Kikuta mentioned, we are going to sell our shares. And at the same time, looking at Frontier, if the change in the capital requirement happens, we may end up with some remaining cash. And for Protective, we have 50% for the payout. And also we are going to strengthen our capital; at the same time, have growth. And TAL, we are going to release some of the capitals. That's our phase right now. So we are also going to strengthen our return on the cash position as well, so we would like to set 90% for -- with regard to our profit.

The second point, as for the Benefit One's profit contribution and potential for growth. Well, on single basis, that's [ 50 ]. And by 2030, as we mentioned at the timing of acquisition's, it's like 3 to 3.8x. So the contribution would be like 2-5-0 or -- give or take. And after the acquisition, we had due diligence and also PMI. So there are some positive factors coming out, so the lapse rate is very low compared with our assumptions. And the unit price by all the contracts are also high. So on those points, we think that we can reap the benefit and secure profit. And recently, the expected synergy, the main point is that we're going to ask Dai-ichi Life's customer using Benefit One's platform -- and we had a very stretched, ambitious target. And we see -- or we are not reaching that goal, but we are seeing synergy effect, especially for large enterprise; and SME customers included as well, perhaps. Our distribution channel and sales channel are leveraged to promote the value of Benefit One. So we didn't have a relationship with certain customer level, but we are creating touch points with those kind of customer segments. And also, little by little, we are seeing the result of selling the insurance product to those kind of customers.

Okay. So from TAL, here it's like 1-3-0. That could continue.

Well, for Protective, 50% of the profits. That have been set. And we have internal communications. And for TAL, they have capital requirement locally, so we are not tying that to profit. So we don't have agreement in percentage-wise, but we are at a phase of a fairly good payout.

So Benefit One's profit. Are you expecting to have it going up at a certain timing significantly?

Well, little by little. As a growth rate, it's about 10%, give or take, like 7% or 8%. That's our overall image in terms of growth and profit. And for that, we have Benefit Station. The number of customers using that platform is going to increase. And our assumption is also aligned with this growth of ratio.

So for Benefit One, in adding to the explanations. Well, Benefit One, we are seeing a favorable movement in terms of [ receiving order ] this year. And it's a welfare program, so the systems, if we are to enter all the information, including sales, there are certain lags. So with related lags -- and at the same time, well, last year -- and also this year a little bit as well, we are now investing into systems to upgrade. So those are some of the negative factors that have reflected in this number. And Benefit One's business model, if the sales increases, of course, the cost is not going to increase with that. So if the top line is -- increases, the profit could be higher, meaning that we may have an efficient operation in place that's crucial for us for this type of business to secure profit.

From Daiwa Securities. Watanabe-san, floor is yours.

Watanabe from Daiwa Securities. I have 2 questions. So first is Page 21, M&G. So the equity holdings. So what is the -- equity method is applied. And what is the profit contribution? And asset management, you said, but they have quite unique capabilities on the risk tapering, so how do you evaluate their possibilities? Page 10 is my second question, about the buyback. So you increased the payout ratio and reduced the buyback -- reduction. So we understand that direction, but can you please share more color on the buyback policy? So in the past year, [ 275 billion ]; and now JPY 450 billion. That is a new -- the target you have, 50% of that. Then the buyback will be JPY 50 billion reduction. So that is my view, but can you please clarify that?

Thank you. So first question is answered by Kai-san. And second question, Mr. Nishimura-san can answer. If necessary, I can add.

Thank you. Number one, M&G. So the adjusted profit and how to incorporate that, from M&G. So in the next page, you can see in details -- sorry. Next page, Page 23 [24, 23.]. So on the left, you can see the adjusted operating profit. This company's profit level is shown, and this is IFRS 17 basis. Profit is shown. So IFRS 17 incorporates various elements. So as I said, the reason why we wanted to have this company is that JPY 16 billion or so, quite a big profit that they can generate. And how we adjust that profit into our book, we are now studying that. So the cash generation capability that they have, JPY 16 billion -- so that will be also the good attractiveness. And the next one is BPA business. The -- so this is BPA. Because this is the annuity buyout and asset management capability as well as brand capability, well, brand equity is very essential. So we can leverage on this, Prudential's brand equity. And then 3 years or so, they restarted to sell these products. Already market share is 3%, so this is quite promising for the growth. And the annuity buyout business: So for the future, uncertainty is relatively high. Therefore, whenever we make decision for investment, we -- rather than having the assessment that the BPA business will grow -- but rather, they have a more stable cash-generating capability. And we were -- we have that kind of simulation for their future growth, but still this is very promising for the future growth.

Second question, which is the share buyback indication. So in terms of the share buyback, what is the level that the company is implementing? I'm sure the market is interested in that. And I know that this is a big responsibility. And the total share -- payout ratio is 50%, but the payout ratio is already reaching 45% target, so what will be the share buyback? We need to explain in details and tenaciously.

Yes, we acknowledge your needs, but in terms of the more concentrated period -- that our ROE will be surpassing our cost of capital. Until that, we will focus on implementing that share buyback in a large scale -- and then FY 2024 surpassing the ROE, surpassing the cost of capital. And EPS 10 percentage point increase or ROE between 10% to 12% and eventually 14%, that is our expectation. So to do that, share buyback is implemented. Then those will -- contributing for both ROE and cost of capital. So that would, of course, accelerate our achievement of that target. So while we are focusing on the payout ratio increase -- and we know that we need to have a more tenacious explanation on every period for the share buyback.

And how about the EPS growth rate 2 percentage point? That will be contributing for the buyback -- coming from the buyback, so do you have a kind of idea? So EPS and -- in breakdown. And we will achieve the EPS, a 2 percentage point increase through the buyback. We don't have that kind of understanding.

Well, thank you. In terms of the buyback approach, this year, cost of capital and 10 percentage point or above ROE achieved, but this positive equity spread will be continued. With that assumption, we can reduce the buyback. In other words, on a single year basis, we are not able to assess that this market condition continues, so we would like to monitor carefully whether we can maintain this ROE and cost of capital and then make decision.

Now we would like to invite Mr. Sato, JPMorgan Securities Japan, to have his question.

I'm Sato from JPMorgan. I have 2 questions. First: So fiscal '26 target has been revised. On that, for the profit, it's going up. And with that, ROE target is over 12%. So this is just for our confirmation of the numbers. So if you look at the profit and the revised on -- average of -- to the end, the denominator side, that has been a slight decrease from the previous explanations, according to my understanding. So is there some hindrance or some kind of factors that may suppress the profit? So is there an effect after 1 year of the reduction? And with that confirmation: As Mr. Kikuta had been repeating, the profit of JPY 400 billion and also JPY 6 trillion as a market cap. And the latter target may see some distance in order to achieve that. So this distance or buffer, what is the main reason behind this? So I would like to confirm on those points. And having said that, the second question is how are you going to look at ESR in the future? So target range. It's like 170%, 200%, give or take. It has been going. And I know that there are, of course, some revisions and adjustments to be made. And this time, the change itself has been incorporated in this. And you see 210%. And buyout is still upward range. And going forward, the ESR, in the future, it's above 200%. Well, compared with the past, is it -- and can be considered that it's constantly maintained at this number, as the number illustrates and indicates. Or are there anything that could be other factors and you have to wait for the final -- this number at the upper end. So I want to confirm about your interpretation on [ ESS ].

Thank you very much. ESR. So first of all, on your number, I can invite Nishimura-san. And aspiration story that I have been explaining on the latter half of the question, maybe I'll give some explanation. And ESR, maybe we can ask Nishimura-san to have explanation again.

Yes. So the confirmation of the numbers. So we are not incorporating major factors for the denominator. So if the profit is JPY 400 billion, maybe 2% ROE could be achieved. So that's our overall plan. And going on ESR side, first, especially with the accounting method changing and overseas, there was a onetime downward change. And of course, that number is not set, so we are setting some buffers. And relative numbers include that, with the expected and strengthening, ESR could be deteriorated for a slight portion, so we need that buffer to be set. For ESR, generally speaking, in Dai-ichi Life, if the ESR goes upward, how we can release that portion to use for our capital circulation, that's being considered internally within our company, but it's separate from cash. So we cannot use that for investment in a full amount, so we have to look at buffers and also time lines so that we don't invest that in excess. So we can use other tools, including reinsurance and other factors relevant, to control this number.

And the rest of your question. As you have rightly pointed out, right now, [ TR ], if we are to use that fully, this adjusted profit about JPY 400 billion -- there is a gap against JPY 600 billion. Of course, we admit that. And in that sense, we would like to continuously look at this target that could be going upward, excess of JPY 450 billion. And at the same time, [ TR ] should be increased, so we're going to improve the portfolio. And that's very necessary and important. As for profit, in that sense, right now what we are doing is organic as well as inorganic deals and projects. And also a yen potential strengthening could be following. And [ PR ] portfolio and also Japan's domestic insurance business, we have a potential for growth. And as a result, the [ TR ] is not that much high. In that sense, how we can have [ PR ] high -- with the growth potential and the capital-light business, that portion can be increased. That's crucial for our business. So asset management and also nonlife insurance business and overseas business, these weights can be increased so that we can have more higher valuations, with the higher profit. So the valuation and the profit should concurrently be improved. And with that effort, we can achieve the aspiration. In order to do that, we will do everything we can to implement this.

So ESR range. Of course, the yen strengthening. Of course, you can be in a better position, but maybe in that sense, rather than verbally speaking about the buffer, maybe you should revise your target. So are there any discussion on changing this range?

Well, recently we do not have a specific topic that we can communicate here, but with the yen appreciation potentially in the future, what we can do or we have to consider is, of course, in our review process internally -- and if we could give updates, of course, we will communicate that to you.

For the next question, Tokai Tokyo Intelligence Lab, Mashima-san, floor is yours.

Two questions about -- finance related. So Page 5. In your explanation, interest rate rise. And there is a possibility of impairment and the liability reserve-related bonds. So to some extent, there is no immediate future to do the impairment. That's what you explained, but on the other hand, Dai-ichi Life, the securities they have in others, they have the securities at -- like JPY 2 trillion worth of the securities they have. What kind of securities, like 10 years or 20 years? That will be naturally affecting the impairment. So over JPY 2 trillion other securities, they hold. Can you explain in details? And number two. At the last page, Page 28. Dai-ichi Life Group domestic stock investment stance is shown on the right. And so it says the pure investment objective for holding, it says, as the number one bullet point. What is the -- affecting in the corporate accounting or corporate -- so as you say, like equity stake company -- are there any -- like, a joint investment or -- that will be -- also be recorded in corporate accounting? So I just want to understand whether this is long-term assets holding for the pure investment purpose.

Well, thank you. So Kai-san, he used to be the -- investment management division, so he can explain for the number one.

So the other securities in Dai-ichi Life, the short-term bond -- corporate bonds, mostly. And then partially, the structured finance is also included in this. So the duration is very short, so the rate hike impact would be minimal. And that means no impact on -- negative impact on the impairment, as well as the loss of profit, but of course, if there is, any kind of spread would be improvement. And whenever it's necessary, there should be some replacement of the securities.

So my -- I can answer for the second question. So in corporate accounting -- so this is the holdings -- or cross-holdings. Other than that, all the pure investment -- so that is linked to the funds for insurance. So the cross-holdings -- so the Dai-ichi Life corporate accounting, the largest portion would be the cross-holdings like Mizuho and Resona, their shares. Other than that, for the -- at the holdings level for the corporate, not the general accounting, so corporate accounting. So they have the -- some business related and some minor cross-holdings. There are some small balance. Basically, majority would be the ones that I gave you earlier for the banking names, banking stocks.

Now we would like to invite Takemura-san from Morgan Stanley.

So I'm Morgan Stanley MUFG Securities' Takemura -- sorry. I'm attending through online. I have 2 questions here. So there may be some overlap with the previous questions. The first point, as mentioned, Page 5, this is about the risks associated with the loss on sales. So you are declaring that you're going to hold this up to maturity. And that is, of course, to avoid a loss on sales. And is that a viable option for your company? So I want to confirm on that point. And if not, are there any things like limitation? Or from the audit company side's, there's an advice. Or maybe there's a decision to avoid the damage on flexibility. So I want to know about the background of this. The second point is also covered in the previous questions, M&G and how it's going to contribute to your profitability and earnings. So adjusted profit, I think you are going to look into the actual situation. And looking at JGAAP standard, this payout of JPY 16 billion, this is included, reflecting the profit. And it will be taxed. And then the rest would be the profit according to JGAAP. Is my understanding correct? And if, this [ 15% ], that exceeds 20%, there could be specific special treatment that it's not going to be taxed, so I want to know about how it's going to be taxed under JGAAP.

Thank you very much. So on both points, I would like to ask Nishimura-san for the explanation.

Yes. So right now, for this bond for -- there is a distance for loss deferral, in terms of these bonds held, to match the policy reserves, so there are many treatments in terms of accounting. And if -- at this time, if the interest risks -- interest rate rises up to the year-end -- and how it's going to be reflected in our numbers, for that, [ until prepared ] for this type of bond. On certain condition, we have the intention to hold it until maturity. And whether we have that capability, even in various stress scenarios, we're going to confirm everything. And if there is a potential for recovery in the time lines, if that's proved, we think there is a way to avoid loss here. And M&A and contribution to profit, as Kai-san mentioned, IFRS 17-based profit could be volatile, so -- of course, it's a holding company, so on adjusted profit basis, it's more relative to cash condition, in the cash. It's about JPY 16 billion or so in terms of looking at the payout, so that could be close to [ or ] actual situation. And as for tax, you are right: So in the U.S., it's not going to be incurred in the profit. That would be under the potential taxation in JGAAP.

So we are still opening the line for your question. It looks like there is no more questions, so we would like to close today's session. Thank you very much for your attendance today. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]