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

Thank you very much for coming to this conference call. So today, we released first quarter results. So I'm going to give you some overview on the numbers. And starting from today, we are using new format for materials using our new corporate color blue. Sorry for the inconveniences caused by the change of the format. So please go to Page 3. So I will cover 3 main points. First, on group consolidated results. The group adjusted profit for the first quarter was JPY 74.2 billion. Progress rate for full year budget is 18%. Due to related seasonality of the interest rate and dividend payment, this progress is as expected. And domestic business adjusted profit was JPY 42.7 billion, a 14% achievement to full year forecast. However, with the higher rate, we front-loaded the sale of bonds that impacted and also seasonality of the interest rate and dividend payment impacted as well. And there's no serious impact on full year target. For international business, profit was JPY 33.3 billion. Higher yen has pushed down the profit; however, Protective had a high achievement ratio because of the sale of subsidiary agent. And for overseas business as a whole, it's a good progress rate. Now regarding the ESR, June end ESR is about 204% increase in mass lapse risk due to higher rate. The number was pushed down by 6 percentage points from the previous term; however, sufficient level is maintained. Now TAL investment in Challenger update. When this deal was announced, we were waiting for the approval from the authority, but now we got the approval. So starting from August 1, this has been the equity method affiliate company. So we expect about JPY 10 billion per year contribution. For this -- relating to this deal, there has been a collaboration agreement among TAL MLC and Challenger. So we expect the further expansion of the synergy impact. Please go to the next page. Current status towards annual profit target and its background. For domestic business, progress rate is 14%, as I said. For Dai-ichi Life, for yen bond rebalancing, which will make JPY 80 billion loss from sale because of the current interest rate environment, we front-loaded selling of bonds. So as of first quarter, about JPY 40 billion valuation loss from sale was booked, which is about half of the annual budget of selling. Regarding the buying, that will be executed on a timely basis. So losses recognized before buying activities. And also interest and dividend income from risk assets concentrate in second and fourth quarter. That impacted as well. However, we are on track for achieving the target. For Dai-ichi Frontier, because of yen's appreciation, dividend income declined and unreinsured products sale increased and that impacted to the loss to some extent. Now regarding international business, adjusted profit was JPY 33.3 billion and the progress rate towards the full year outlook is 29%. Higher yen pressured; however, it's a favorable situation. For Protective, because of the sale of the agent and its initiatives to make business efficient and investment portfolio transformation, they're consistently generating profit. Regarding TAL, well recently, Australian market has been witnessing the increase in the IP claims. But through repricing and other initiatives, we are going to control risks. For noninsurance business, for asset management business, recently announced Capula and AndDo, the deals started contributing to our profit. Progress rate is 14%. But second quarter, we expect the contribution from the Dai-ichi Marubeni Real Estate collaboration. Now regarding the sale of domestic equities to reduce equity risks currently under the current midterm plan, we actually sold JPY 480 billion, which is higher than the plan. And for this fiscal year, we expect to sell JPY 380 billion; however, the stock market has been rising, and that is actually negatively influencing on the risk reduction activities. Well, it depends on the stock price level. But as long as July and stock price level is maintained, we believe that we have to add the sale in addition to JPY 380 billion. And the proceeds from the sale will be partially used for rebalancing of domestic bonds, and we will keep watching closely the stock and rate trends. Next page. This is adjusted profit versus the same period of last year. Group adjusted profit is JPY 74.2 billion compared to the same period of last year. It declined 49%. The domestic business and the lack of temporary effect of Dai-ichi Re, the Bermuda last year impacted. And for Dai-ichi Frontier, higher profit from surrender and lower yen impact we saw last year were eliminated, and it declined by about JPY 10 billion. For international business, as I said, TAL suffered from increasing IP policy claims, but Protective increased its profit. So for international business as a whole, the profit was actually better than last year. For noninsurance business, the new companies from asset management and the new business, the fields contributed to the profit. For Holdings and others, in Dai-ichi Bermuda, the one-off accounting income of JPY 7 billion was eliminated and also expansion of the credit spread in the United States negatively impacted. Please go to the next page. So based on the increase of the super loan rate, this is our update for outlook for positive spread of Dai-ichi Life. Well, our interest rate risk is already very low. And in the past, we have been accumulating JGBs, and we did rebalancing of the portfolio. So our fixed income asset yield steadily improving. And for future, with the further improvement of the portfolio, we expect further yield enhancement. Regarding the liabilities average assumed rate, high-cost policies attrition and the legacy reinsurance arrangement contributed to the lower assumed rate, and we expect that this continues to lower. Regarding the positive spread, the asset yield declined because of the sale of domestic stocks, but that is actually offset by JGB rebalancing. So on a net basis, underlying yield will be positive. Regarding the yield for risk assets, there is some impact from sale of stocks, but with more allocation to alternative assets and with the fixed income rebalancing, we expect that the positive spread will improve by JPY 10 billion per year. Please go to the next page. This is the outlook for insurance P&L of Dai-ichi Life and explanation on the factors. The insurance P&L for 2025, declined by JPY 40 billion compared to the previous year. And for this fiscal year, the one-off factors like the economic environment has been discounted and the decline is rather large compared to the previous or the average years. In-force business, the decline that impacted. But since last fiscal year, there is a recovery of the new policy acquisitions. So impact of in-force reduction will actually be smaller because of the new business acquisitions. And last year and 2 years ago, we conducted wage hikes and that contributed to the increase of the cost in the personnel expenditures. And those temporary factors will wane next year. So for those factors, over time, we expect that the impact will be much lower after 2026. On the other hand, there is a change in the external environment. For example, reserving burden increased and the nonpersonnel expenditure increased and this -- the situation would continue for some time, pushing up our nonpersonnel cost. And in order to respond to the possible worsening of insurance P&L, we actually will consider the initiatives to make our business efficiencies separately from cost reduction projects that we announced in the previous midterm plan. Regarding the details of those initiatives, we will report as we progress. Next page. This is about difference between adjusted profit and net income. Consolidated net income is lower than adjusted profit, particularly valuation loss at Dai-ichi Bermuda was rather substantial. I just want to explain on this. In Dai-ichi Re Bermuda, we use U.S. GAAP. And on U.S. GAAP, only risk-free rate changes is recognized as net income, not reflecting credit spread changes. It's actually recognized as a book loss again. On the other hand, all changes in asset market value is recognized. This accounting mismatching leads to valuation gain or loss on P&L. And this is quite similar to Frontier's MVA gain and loss and noncash items of PLC. So over time, this will go away, and this will be the subject of group adjusted profit reconciliation. This is a noncash item. So there's no direct impact on the remittance. Please go to the next page. This is about new business results. For domestic 3 companies, value of new business declined slightly, and it's JPY 27 billion. The first half in Dai-ichi Life, VNB increased because of the launch of new products. But without new products this year, I think that the sales results of Dai-ichi Life has been favorably developing. For new business A&P, it declined, especially the huge decline in TAL. That is because of the elimination of impact of large group mandate of last year. Please go to the next page. ESR. ESR is 204%. Qualified capital was flat, but required capital increased because of the increase of the mass lapse risk. So ESR declined. But even considering the future investments, we expect that capital adequacy can be maintained. This concludes my explanation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]