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

So for fiscal 2030, we have the challenging target of market capitalization of JPY 10 trillion. We are well aware of the market and how are we going to fill the gap to achieve this target is what we are now being asked for under scrutiny. So I'm from Tokio Marine, as I said. So what I have been doing, including M&A and other deals, it has actually impacted the business results, and we had increased market capitalization. Well, I already left Tokio Marine, but I have those experiences in my career path, meaning that what you have done and as a result, you get returns and that would ultimately be reflected to share prices, and there could be some time lag. I'm well aware of that. So I may be repeating myself, but we should be as fast and quick as possible to show that we can do what we had promised to market participants and shareholders. So Dai-ichi Life portfolio, if you look at it closely, by fiscal 2030 in order to achieve the target set, what kind of business portfolio is required. And with that, ultimately, how can we reflect that to our share prices. So we need to have the future ideal of our business portfolio. So that design could be crucial for what we are doing as a business. So looking at domestic as well as international and protection, savings and investment and asset management, insurance. So how are we going to align all this together and also annuity as well as noninsurance, new businesses. So these are all important pillars, all the domains we are covering. We are looking at the broad horizon. So in each domain, what would be the ideal business that we can construct. And then as a total, like we can maximize our return, looking at the risk allocation as well. So those are the perspective we are applying. But inside the Board and the company, whether our discussion is full-fledged, well, maybe we can do more. That's my opinion. So in each deal, of course, we are discussing it in the Board of Directors. But on these each points, looking at the entire business portfolio, what is the ultimate goal, what we have to focus right now. And then we are always emphasizing on those points. And looking at the mid- to long-term plan, we are looking at each list items and having detailed discussions and going to have a good result looking at the overall portfolio.

Thank you very much. Okay. So let's go into the second theme. So here, in fiscal 2024, as we may be repeating, but capital efficiency exceeded the cost of capital for the first time. To further enhance capital efficiency in 2025, we have implemented and announced multiple M&A deals. Regarding these initiatives, please share with us what discussions have taken place at the Board of Directors' meetings and what governance aspects are prioritized in decision-making processes for M&A transaction, along with areas requiring improvement perhaps. Additionally, so currently, we have Challenger, Capula, M&G in 2025, we have been investing. But how do you perceive the recent series of minority investment deals with regards to each deals? So first, Ishii-san, please go ahead.

Yes. Thank you very much. So as I mentioned earlier in this session, so the total business portfolio by fiscal 2030, how are going to compile that? And in each items, how should we have it aligned? So Challenger, Capula, and M&G, all these deals are under discussion. Challenger, as you may know, in Australia, we have TAL, the top player, our subsidiary. And so the Australian market and we have the presence as a top player. We're going to expand that to have more synergy, and we want to expand our business more and more. So as a piece of our small steps with Challenger, we have been holding strategic discussions already. And at Capula as well, how are we going to expand globally for asset management businesses? What are promising, for example? And what could contribute to our group revenue as a total portfolio? And how can we maximize our skills and capabilities? And what are the lacking points we have to fill the gap, for example, we're also discussing on that. And for M&G, U.K. and Europe, where we haven't had that much presence back then, we're going to focus on insurance products and also M&G itself is a very impactful asset management company in that market. So we can combine both the insurance and asset and what are the potentials that we can expand and further go into this important market. So inside Japan, we have synergy yet to come from fledged bases. But the U.K. market compared with Japanese market, maybe they are more advanced, so to speak. So what's happening in the U.K. market can also be taken for Japanese market as a good example. So those are the perspectives we are looking at. Regarding the minority investments, Well, it's not actually the decision from the beginning. But in principle, whatever the suitable transaction for us, we'd like to take majority. But it's not necessarily the case that we are going to take a majority from the beginning because it could be risky. So we can start with minority and build a relationship and to confirm the chemistry of -- with the company and at the appropriate timing, we can actually take a minority. That's the process. So from that perspective, we do the minority investment. Regarding M&A deals, well, in Board of Directors' meeting, we had a lot of discussions. Last year and this year, if you read the minutes, I think there are many discussions about M&As. So for each deal, we have a good discussion with this deal, what's the impact on ESR and what will be the relationship with the company and also what kind of risks relating to the deal. And of course, legal investigation has been done as well. So very high caliber CXOs actually monitoring all the information relating to deals and everything is actually checked and investigated before we make final decisions on M&A. Sorry for long answer.

Thank you very much. So, Nagase san.

Thank you. Well M&A deals, you read on the screen, of course, we can actually improve the capital efficiency. But in addition to that, for example, we can use reinsurance arrangement to improve the capital situation. So we are working on many initiatives, and this should continue. For Insurance business, for example, we still have room for growth. For example, we can expand our asset management capability like our alternative asset capabilities such as private debt, then we can improve the spread, then the capital efficiency will be raised. And for Dai-ichi Life, which are working on the domestic business might be able to see productivity increase through those deals. And for Noninsurance business, for example, Capula is an asset management company. So we can increase investment in asset management business and also Benefit One that we are already working on the PMI, we can actually improve the profitability of the kind of business, and that's quite useful to improve capital efficiency. Regarding the minority investments, in principle, well, it depends on the sector that we invest. When something happens in that company that we invest in, well, that company has to have -- I mean, we have to have knowledge to save the company in that segment. If that's the case, we can actually take a majority. However, in other segments that we don't have enough experience and expertise, probably through minority investments, we can actually learn the business model and deepen our understanding about the segment and confirm the chemistry with the management of the investee. And in that way, it's sometimes useful to start with minority investment. Thank you.

Thank you very much. So this will be the last question for the panel. This is about the monitoring of our existing business. In Board of Directors meeting, how do you actually understand and supervise the status of the existing business? And in the current business environment, do you see any particular risks that we should pay attention to? Ishii san.

Thank you. Regarding the monitoring of our existing businesses, every quarter in Board of Directors meeting, Nishimura san, CFO, report us the performance and also the status of the ESR and other financial ratio. And Ohashi san, CRO explains about the risk management from various perspectives. So we have a full report. For a group as a whole, we can actually monitor the situation. And the major group entities status can be confirmed every quarter through those reports. So we have a clear view about the status. CXO function has been strengthened those CXOs come from the Dai-ichi Life, but the other CXO actually came from outside. So we have a horizontal access. The CXO system is functioning very well. And for individual entity under the group, with the other companies with the status of the monitoring needed, we actually check whether the action plans are being progressed for those entities that is being confirmed and followed up by Board of Directors. There are several risks to be monitored. But as a framework, risk reporting system is there by CRO, ERM, integrated risks, various risks are explained. And what kind of risks they are actually prioritizing every year, including emerging risks that is actually explained to us. So by this system, we can actually have a good view of the total status. And interest risk or interest rate-related indices might actually change depending on the environment and sensitivity analysis is actually being shared with us with what kind of interest rate change, what kind of impact on the ESR well, by forecasting the change in the future, they make analysis and that is reported to us at BOD so that we can actually confirm the current status. Regarding the most recent risks that we should pay attention to is the information security and compliance-related risks and also IT, DX and AI responses, if there are some delays in those responses, that would be quite risky. So DX and IT risks for those areas, the high expertise CXO and some of them are not Japanese, but by having those high-caliber CXOs, I guess that we can actually cover important areas in timely manner. But of course, this is quite complicated and difficult challenging themes. So I cannot safely say that perfect system is established, but actually, they are making good progress as a work in progress. Thank you very much.

So Nagase san, what's your view on this?

As I said in the beginning, monitoring of the existing businesses is important to recover investment. As Ishii-san said, in BOD and mid- to long-term strategic sessions, we actually check the capital adequacy and the capital efficiencies for each business. We actually set the KPI. And on those numbers, we reported on a regular basis. Before I came here, I was the outside Director of Frontier Life. And at that time, sometimes I felt that too much intervention from the parent company. However, now I'm serving as an outside director of the parent company. And now I understand that as a group, it's important to improve the enterprise value and the capital efficiency of each company and the governance is very important. And for that purpose, monitoring function has to be at a high level very well. And there are some good areas. So as you may know, in Thailand, there was this Life Insurance business that we have withdrawn already. We have exited there. And Protective in the U.S. we had a thorough dialogue with them. And through reinsurance, we have been adding more capital. So these are backed by a good monitoring system already within our company and group. So the risks in the current environment. Well, within our group, it's not an immediate risk, but those are the risks that I have personally focused and is aware. But as Ishii-san mentioned, cybersecurity, so Asahi Group is now closed. Looking at those situations, I think these kind of risks cannot be underestimated. And also geopolitical thinking, the uncertainty from the Trump administration, we have to also look carefully about what kind of impact that could give to our business and I have been also looking at market. So the yen interest rate is also point of my concern.

Thank you very much. So Ishii san,Nagase san, thank you very much for sharing your insights today. So we hope that this session provided everyone with an opportunity to directly confirm how highly effective our group's directors are functioning. So I hope this could be a good experience for investors and analysts as well. We will now begin the CFO update by the group CFO, Nishimura san. Nishimura san, please proceed.

Okay. So maybe only 10 minutes left. So I have one slide. So we have been discussing about domestic interest rates that's rising, and it may continue to rise. So given those situations, it could be a positive factor for insurance providers, but there could be a surrender risk potentially damaging our profit. So with those one on one and also the frequently asked question from investors, I have summarized this point. So starting from today with breakdown, especially for in-force policies, what are we going to control the recovery risk? I would like to give some additions. So looking at the left-hand side, there is the line graph. And you can see I have been repeating that the surrender risk is limited. And focusing on fiscal 2019 and afterwards, we have been looking at more detail, and we have been showing the transition. You can see the spike here. And looking at the entire in-force policies in the past, there is this -- we didn't see that much significant jump. But if you look closely, so latter half of fiscal 2023, we have seen the U.S. interest rate roads. And with that, there was people that switched to foreign currency-denominated products, and it went up less than 1%. So that was about JPY 70 billion impact. On the other hand, we have the other line that for single premium single type insurance surrender rate, and it's fairly stable. So the reason behind this, we believe that the background factors preventing a significant increase in surrender rates are for products purchased through Dai-ichi Life sales rep channel, customers choose us after receiving consulting tailored to their family structure and lifestyle and the products incorporate insurance protection functions. So based on these actual performance and also the characteristics, we recognize that even if domestic interest rates rise further and likelihood of a significant increase in the surrender rate for our in-force policies, it could be low. Furthermore, as shown on the right, we have portion of saving type products, which are relatively more susceptible to increased cancellations and surrenders during rising interest rate environment. Within Dai-ichi Life in-force policies is limited. So volume-wise, it's about JPY 7 trillion. And looking at those entire volumes, you can see that the saving type products account for only about 20% to 30% of the total volume of individual insurance and individual annuity policies as well. Particularly for single premium saving type products, which are prone to increased surrenders and cancellations, the duration of bonds held is shorter compared to other segments. And this keeps the product at a relatively mild level against unrealized loss ratio on JGBs, et cetera, which has expanded due to rising domestic interest rates. And furthermore, we have established measures such as constructing hedging positions using interest rate swaps for a portion of these holdings. So we have those initiatives in place. So based on these factors, we believe the surrender risk for saving products is being managed at a controllable level, and we'll continue to closely monitor market development and take timely and appropriate actions as necessary. So that's briefly from my side. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]