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

Well, thank you very much for coming to this conference call. Well, today, we disclosed our financial year '25 earnings results. So I'd like to give you a summary of the earnings results. Please go to Page 3. So first, I'd like to begin with the highlights. The first on the group consolidated results. Adjusted profit is JPY 551 billion, way over the estimate announced in February, which was JPY 500 billion. Due to favorable economic conditions such as interest rate hikes and stock performance, particularly in Dai-ichi Life, we saw yield improvement in alternative and yen bonds, resulting in better than estimate number. And also for international business, PLC's earnings was stable. For core business, we -- the renewed record profit for 3 consecutive years. Adjusted ROE is 12.7%. And we achieved the goal of fiscal year '26, which is 12%, earlier than planned. Now the second highlight is outlook for fiscal year '26. For full year estimate of group, the adjusted profit, that is JPY 560 billion, the record high for 4 consecutive years. Domestic business is expected to be flat, including Dai-ichi Life. Higher positive spread offset lower insurance profit and loss. For international business, profit recovery in TAL and Vietnam will contribute to substantial profit improvement. Last year's upside wanes off, and non-personnel expenditure will rise due to inflation. But still, we are confident enough to exceed the profit of this fiscal year, which is record high. Now on return to shareholders. In response to increase in group adjusted profit, dividend per share for fiscal year '25 is JPY 54.5, which is an increase by JPY 2.5 from estimate in February. Regarding DPS for fiscal year '26, as we planned, payout ratio will be raised to 50%. So from fiscal year '26 interim dividend, the dividend will be JPY 72, which is a 32% increase. So this is about the situation since the estimate revision in February. As you can see, all segments exceeded full year estimate. For domestic business, Dai-ichi Life's yen bond and risk assets contributed to increase in positive spread. And insurance profit and loss was higher than expectation, resulting in better than revised estimate in February. For international business, for TAL in Australia, as of February, we priced in deterioration in claims. However, after reflecting fourth quarter actual number, claim situation improved from the third quarter, resulting in higher profits than estimate in February. For noninsurance business, real estate asset management business contributed. And for Canyon Partners, earnings recovered in Q4. Achievement ratio in noninsurance business, including Benefit One, was higher than expected. Please go to the next page. So this is about group adjusted profit compared to the previous year. Profit rose 25%, mainly driven by Dai-ichi Life and Protective's higher profit and a higher contribution from asset management business. At Dai-ichi Life, positive spread increased, and we saw increasing gain from domestic share sale as well. For Protective, cost reduction and investment yield improvement led to organic growth of profit, more than JPY 20 billion increase. For asset management business, Capula and real estate asset management started to contribute to the profit, so noninsurance business as a whole generated more than JPY 20 billion profit. Domestic, international, noninsurance, all of those businesses, we saw increase in profit. With stable domestic business as a foundation, international and noninsurance businesses will drive growth, the group's results as a growth driver. So this is a little bit technical, but well, I'd like to explain about net income decline. On the left-hand side, you can actually see the difference between net income and adjusted profit. For adjusted profit, MVA and temporary evaluation profit and loss was excluded. Particularly, PLC Protective's net income is incurred based on new accounting standard. However, adjusted profit is calculated under old standard. So impact of new standard application, which is about JPY 30 billion, was removed from adjusted profit. Due to accounting standard change, fiscal year '24 net income was revised. As a result, fiscal year '24 net income increased JPY 28.8 billion. Consequently, net income declined by JPY 21.8 billion. However, well, the JPY 7 billion increased actually from pre-revision number. So fiscal year '24 net income increased, and the fiscal year '25 net income declined. However, excluding impact from accounting standard change, Protective's sustained growth trend is intact. Please move to the next page. This is the impact of higher interest rate. In Japan, interest rate is still increasing. Higher rate is positive for our business, particularly on mid- to long term. When rates are rising, we can flexibly rebalance yen bond portfolio to expand spread. In fiscal year 2025, impact from positive spread improvement was JPY 30 billion. Out of that, JPY 21 billion will contribute to the profit of fiscal year '26. Matching ratio by flexible operation on asset side remained below 100%. For lapse, the details are described in other pages, so please refer to that at your leisure. But it remains at low level, including lump sum saving products. Please move to the next page. This is our plan for sale of domestic shares. Fiscal year 2025 saw substantial rally of Japanese equities. We sold JPY 800 billion, which is double the expectation, so we're steadily reducing equity risk amount. Japanese equity continued to rally, and our goal of equity balance in the end of March '27 is JPY 2.8 trillion, and we plan to sell JPY 800 billion in this fiscal year. So these are the initiatives to improve positive spread. Based on gain from Japanese equity sale, for fiscal year 2025, we rebalanced JPY 1.3 trillion yen bond portfolio. Together with lower liability costs, we saw JPY 44 billion improvement in positive spread. For this term, our rebalancing will be a similar level of last year, and we continue to rebalance bond portfolio. Positive spread of fiscal year 2030 will be more than JPY 100 billion higher than fiscal year 2025. Please move to the next page. This is our outlook for fiscal year '26. The group adjusted profit outlook for 2026 is up JPY 10 billion from last year. The international business is a main driver. Particularly for TAL, we expect V-shaped recovery from impact of claim worsening last year. Good progress in repricing negotiation in group business contribute to the recovery, so we expect an improvement of JPY 25 billion. For adjusted ROE, our estimate is a similar level of this fiscal year. So this is about our return to shareholder initiative. DPS for fiscal year '25 increased by JPY 2.5 from February estimate, resulting in JPY 54.5. For fiscal year '26 DPS, we formally decided to raise payout ratio. So starting from interim dividend for fiscal year '26, we apply 50% payout ratio. That means that the dividend will be 72%, which is 32% increase. Traditionally, we announce annual share buyback plan disclosed together with the earnings results, but we haven't decided share buyback. ROE is steadily exceeding cost of capital, so we are now more flexible about share buyback plans. For the future, we will grow DPS further through EPS growth. Now on Page 14, this is about group ESR. This is a rough estimate. Higher interest rate increased mass lapse risks. However, that was offset by increase in capital due to Japanese equity rally. So ESR increased by 10% to 220%. Now with the introduction of J-ICS, we are going to disclose regulatory ESR in the future. However, we continue to disclose this internal model-based ESR as well. Move to the next page. This is group EV and value of new business. These are rough estimates. For group EV, because of Japanese equity rally and also rate curve steepening, and also, we actually updated the model as well. As a result, the group EV is JPY 9.7 trillion, which is a JPY 1.5 trillion increase. For value of new business, driven by Dai-ichi Life's improvement due to sales increase, rose from previous year. Now Dai-ichi Life's value of new business is below full year estimate. This has been influenced by the assumption and also model changes. Incident rate update and annuity calculation model change led to decline of about JPY 40 billion. For value of sales revenue, the recovery trend still continues. However, for value of new business, in the fourth quarter, we reflected the higher interest rate. So we changed the model to a more conservative one. Page 17. This is Protective acquisition. Protective announced the acquisition of Obsidian, which is a hybrid fronting company which is operating in admitted and E&S market in the United States. Well, they're actually based on the fee business based on the fronting fee received by providing license and reinsurance, and they underwrite about 5% of the total risk by themselves. This business gives a diversification effect to life-centered Protective business and contributes to Protective's capital-light strategy. So we expect Obsidian generates $30 million to $40 million profit in next midterm plan period. That's all I have today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]