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

Good morning. I'm Nishimura, and thank you very much for attending our conference call today. So from my side, I'd like to first review the overall results for the first half of fiscal year 2025. So please turn to Page 2. The group adjusted profit reached JPY 231.1 billion, progressing steady at 56% of initial forecast, driven by higher-than-expected gains from security sales at Dai-ichi Life and reduced operating expense and the impact of agency sales at PLC. We announced on November 14 that we are raising this fiscal year's adjusted profit outlook to JPY 470 billion. Group VNB increased to JPY 106.3 billion, primarily driven by Dai-ichi Life reflecting the impact of rising interest rates. Remittance from subsidiaries projected to total JPY 830 billion with increase of about JPY 600 billion for the current and next fiscal year. And we have raised JPY 3 for share payout is expected to reach JPY 280 billion. And for the ESR as of end of September plus lapse risk was there but despite that, we had rising interest rates. And with that, we have the 8 percentage point increase from the fiscal -- previous fiscal year. And relative to ESR, we have been seventh place compared with to 14 peer companies, and we are in our range. And next to this page, this is about ESR. While lapse risk increased due to rising interest rates, eligible capital rose significantly, driven by higher domestic stock prices, higher interest rates and an increase in the value of new business and expected earnings. So this has been an increase since then. And compared with our initial plan, the environment itself has become more favorable. So we're above the range. But to the year-end, some cash outs for ESR, it could go up -- to go down by 10 percentage points. And with the volatile financial environment, this could be a factor that we have to be careful. And on the right-hand side, regarding sensitivity, the trend remains unchanged from the levels indicated in June 2025. Please refer to the next page. Next, we'll explain the group risk profile. As part of efforts to reduce market risk, we proceeded with the sales of domestic equities. However, this was offset by rising stock prices and proportion of equity risk within total required capital remained largely unchanged. On the other hand, due to the impact of rising interest rates, lapse rates have increased. So the target for this fiscal year, we are considering to increase this fiscal year's target amount for stock sales from JPY 380 billion to approximately JPY 700 billion. We'll continue to closely monitor the market conditions and enhance capital efficiency through risk reduction. Now on to the next page. This is about the supplementary information on Dai-ichi Life's asset liability duration matching ratio. During the November 14 conference call, we disclosed that the matching ratio for the individual insurance block is 104%. Dai-ichi Life holds the majority of its assets as policy reserve matching bonds. These are assets that unlike those held to maturity can be rebalanced as needed. So that's the asset classification. And in the liability block of Dai-ichi Life, the duration fluctuates due to new insurance contracts, policy cancellation, et cetera. However, since assets are held in policy reserve matching bonds, the asset can be adjusted through rebalancing and we proactively and flexibly rebalance the asset side to avoid overhedging. Furthermore, in the sensitivity perspective, we are calculating using effective duration that reflects the impact of derivative asset interest rates and the matching rate could be approximately 97%. And this page is about holding cash position. Following the upward revision of group adjusted profit, remittance for fiscal 2026 is expected to increase by approximately JPY 60 billion compared to the initial forecast. And also, in light of the planned changes to capital regulation at the fiscal year-end, certain domestic subsidiaries are considering the release of surplus capital. It is not reflected in this diagram, but we would like to provide further details on this matter as soon as updated information becomes available. Also, as announced in October, regarding the subordinated loan of Dai-ichi Life Insurance Company that reached its call date, Dai-ichi Life will repay its position. And also the Dai-ichi Holdings raised approximately JPY 210 billion in subordinated loans. Consequently, Dai-ichi Holdings cash position increased to JPY 440 billion. If there are no specific uses for this cash, such as strategic investments, deleveraging is a potential option, and we're also considering allocating this cash towards repaying some borrowings scheduled for the next fiscal year. Combined with the last fiscal year's increased profit, free cash flow is approximately increasing, as you can see in this diagram. Please turn to the next page. Under our current medium-term plan, we are actively pursuing strategic investments. We are allocating this capital surplus generated by reducing Dai-ichi Life's risks to growth businesses, particularly overseas operations and asset management. And since the launch of the plan, we have executed approximately 10 strategic investments of varying sizes, including bolt-on deals. Concurrently, we actively manage capital circulation through measures such as existing our Thai operations and selling unprofitable blocks via PLC. When executing investment projects, we set appropriate hurdle rate variables based on risk and make disciplined decisions. Going forward, we'll enhance capital efficiency through capital-light projects, pursue projects that contribute to asset formation and leverage bolt-on acquisitions overseas to realize synergies thereby driving early corporate value growth. Please turn to the next page. So this is reviewing profit contribution from overseas businesses. Since entering Vietnam in 2007, our group has expanded into a total of 10 countries. Considering each country's market environment, we have steadily grown the scale and profit of contribution of these companies. In developing overseas operations, we partner with local management teams who are deeply familiar with each country's regulations for the insurance sector, an area where we possess deep and affluent expertise. And to leverage our extensive experience in insurance, we also actively invest in human capital to achieve midterm value enhancement. While ROI figures are presented, not all projects have achieved such numbers from the outset day 1. In the regulated insurance sector, heavy day 1 cost during the initial acquisition phase often result in lower initial ROI calculation at the beginning. However, by taking time to refine these operations, we enable them to generate stable and long-term profits. Our overseas operations now generate profits exceeding JPY 100 billion, accounting for approximately 1/4 of the total group profit, we'll continue to thoroughly refine our each country's operations to drive value enhancement. Now next page. This is about the future outlook for profits at Protective in the U.S., one of the pillars of our overseas operations. Following the acquisition in 2016, PLC expanded its business scale through large-scale block acquisitions in 2018 and 2019, supported by capital assistance from our company. However, due to impacts, including the novel influenza outbreak, COVID-19 and the failure and the default of U.S. regional banks, the PLC experienced several years of persistently low profit levels. However, these were all temporary negative events. We received tough criticism from market participants regarding PLC. Amidst all this, since 2023, factors such as temporary downward pressure dissipated. And in recent years, we have actively pursued initiatives, including reducing operating expenses to improve business efficiency and driving unprofitable blocks. We focused on enhancing the profitability of existing businesses and through measures like improving investment yields through portfolio restructuring and expanding the balance of retirement products, we were able to enhance PLC's capital efficiency and also improve the contribution to Grupo RE. And we also recently announced the acquisition of portfolio, portfolio operates warranty business in the U.S. And the company is a capital-light business model, generating the majority of its revenue from fee income, including ShelterPoint acquired last year and our existing APD businesses, we aim to actively expand the capital-light businesses across in areas going forward and we'll target the generation of approximately USD 200 million in profit from these areas by fiscal 2030. To achieve its [indiscernible] profit target for fiscal 2026 and 2030 and to realize the vision envisioned at the time of PLC's acquisition, PLC will accelerate initiatives to expand earnings and shifting away from the [indiscernible]. So I would like to talk about Group EV. In addition to realization of value of new business and expected earnings, the rising interest rates and changes in the yield curve that was steepening pushed up group EV significantly. Regarding EV disclosure, we are currently considering disclosing information based on ESR. In light of the introduction of economic value regulation in the end of the fiscal year -- this fiscal year. Please note that we are considering disclosing useful information to investors so that the disclosure level will not drop. That's all from me.

Thank you, Mr. Nishimura. Next, Group CEO, Kikuta, will give a presentation.

I'm Kikuta, and thank you very much for giving us time today and participating in this meeting. So I will explain to you our growth story for 2030. Let me start by talking about the progress of the midterm management plan. As Mr. Nishimura explained, group adjusted profit and adjusted ROE significantly exceeded targets, thanks to the favorable economic environment and revised upwards. As it has already been announced, we have revised our full year forecast upwards, and we continue our efforts to enhance corporate value. We see steady progress in M&A activities in overseas and noninsurance businesses and we are taking steps to improve capital efficiency and drive growth. In Domestic businesses, the recovery trend in Dai-ichi Life's sales performance continues. At Dai-ichi Frontier Life, the sales of yen-denominated products expanded, thanks to the higher interest rates. Its AUM is growing steadily, and we can expect stable profit going forward. Dai-ichi Life is working on initiatives to improve operational efficiency. In the beginning of the next year, we will have business strategy presentation by group heads. Mr. Kai, the Head of Domestic Protection business, I will give you an overview of the initiatives there. As you have just heard, in overseas businesses, PLC Protective is driving profit growth through capital-light M&A and reinsurance of nonprofitable blocks, it is moving toward operations with focus on capital efficiency. On the other hand, the Asia Pacific region, TAL and Dai-ichi Life Vietnam are struggling. And in case of TAL, there is a bad claim environment. And in Vietnam, there is regulatory changes. And these companies are struggling to perform. TAL is repricing products with high claim payments. So we can expect some improvement with respect to claims. And in Vietnam, stagnant sales of bancassurance have hit the bottom, and we are now seeing a sign of recovery. In noninsurance business, Kepler, an investment made during the period of this medium-term plan, and DMRE for which the JV started to operate start to contribute to group profit. And the revenue of Asset Management segment is expanding. It's coming closer to JPY 20 billion. In Benefits One's, employee benefit business, the share of Dai-ichi Life channel is growing, especially the sale to the large corporations. The major sales will come next year, but we are making steady progress. As you may know, we have revised upward the fiscal '25 full year forecast of adjusted profit from JPY 410 billion to JPY 470 billion. Favorable economic environment is indeed a tailwind, but Dai-ichi Life has been generating profit steadily and both organic and inorganic initiatives have heightened our profit generation capacities, capabilities. As for group adjusted ROE, assuming the achievement of this fiscal year's full year forecast, it will be 11.8%, bringing us closer to the midterm plan target of 12% Dai-ichi Life's plan to sell domestic listed stocks is progressing according to the plan. Its ROE forecast for the next fiscal year is around 13%. So there is a high probability of achieving group adjusted ROE of 12%, and we will move forward with greater speed and steady progress toward our target of 14% or more by fiscal 2030. Considering current performance and future forecast, we have revised our fiscal 2030 profit target to JPY 700 billion from JPY 600 billion. Domestic businesses are expected to generate scalable profit. And we also take into account profit growth of overseas businesses driven by Protective profit expansion and increase of profit contribution from noninsurance businesses as the profit of Asset Management segment grows in the mid-to-long term. So in profit levels have risen under the current medium-term plan, enabling us to generate more cash than when plan first began. We will think about inorganic investment using this capital. We cannot aim to achieve JPY 700 billion only by organic growth. So we would like to allocate more capital to inorganic growth in order to achieve this target. So we will put more focus on cash flow and cash remittance. And at the same time, we'll be reviewing our KPIs. This shows the outlook for 2030. In our current medium-term management plan, we have made improvement of capital efficiency a top priority and have steadily strengthened our founding of growth by expanding profit, reducing risks and accelerating growth in our overseas business and entering adjacent noninsurance market. So the target of ROE larger than 10% and adjusted profit of JPY 400 billion have been adjusted upward to JPY 450 billion and ROE of 12%. In light of these circumstances, the most important goal of the medium-term plan, achieving capital efficiency that consistently exceeds capital cost as we approach the third year of the plan. So we have previously stated that when that is achieved that we would raise our dividend payout ratio to 50% and allocate more capital to growth investments to accelerate growth towards 2030. We believe that the time has come for that. First, we will focus on achieving our full year forecast for this fiscal year and hope to raise our dividend payout ratio to 50% as early as possible. Furthermore, we will increase capital allocation to growth investment and accelerate profit growth. However, these changes do not mean a weakening of our shareholder return policy. We expect shareholder returns to expand in line with profit growth, especially the dividends. Our basic we intend to manage share buybacks flexibly. Before that the plan has been disclosed shortly before the General Meeting of Shareholders. So as a means to improve our capital efficiency, share buyback is one of the measures -- possible measures. However, we would like to decide the timing very flexibly, taking into consideration such factors as capital and cash positions, a pipeline of strategic investments and the share price. So that is how we would like to change the announcement of share buyback. We backed by stable profit and cash generation, we have been able to steadily increase dividends for over the past 10 years. We are proud of our dividend per share growth rate of 18%. It is a very good number. And as for EPS, the growth rate is 11%, and it demonstrates a stable profit growth. So by steadily implementing our growth strategy, focusing on profit growth and accelerating our growth, we aim to further expand shareholder returns. Now I would like to conclude my explanation here. Thank you very much for listening. [Statements in English on this transcript were spoken by an interpreter present on the live call]