Daiichi Life Group, Inc. ($8750)

So thank you very much for your time to join us for today's Dai-ichi Life Group Financial Analyst Conference Call for the fiscal year ended March 2026. So please turn to Page 2. I'd like to review the fiscal '25 summary. Group adjusted profit was driven by factors such as for domestic businesses and expansion of positive spread and higher-than-expected gain on sales of securities at Dai-ichi Life and also we had a strong progress at PLC. Group-wise, group adjusted profit totaled JPY 551.5 billion, exceeding the full year forecast of JPY 500 billion. So group PMD was driven by TAL's performance exceeding the previous year, partly due to the effect of repricing and reached JPY 173.8 billion. Revenues from subsidiaries with the increase in group adjusted profit is projected at JPY 580 billion for the current fiscal year. Additionally, for shareholder returns by raising the dividend payout ratio of 50%, starting with interim dividend for fiscal 2026, we expect the figure to be at JPY 260.6 billion. The final figure for ESR as of end of March rose by 10 points from the end of the previous fiscal year to 220% despite increased mass risk due to the rising interest rates, thanks to rising stock prices and increase in eligible capital driven by VNB and expected returns. The relative TSR, which indicates market valuation ranked fourth among 14 peers as of May 15, maintaining the target of being in the middle of or higher. Please turn to the next page. So I'll also explain the changes in group ESR during the period. As of the end of March 2026, the group ESR stood at 220%, an improvement of approximately 10 percentage points. So there were increased mass lapse risks, but to reduce equity risk, our ongoing efforts on the reducing of equity risk have partially offset this impact. And for increase of eligible capital had a contribution to improved ESR and with the external environment such as rising domestic stock prices and rising interest rates. So we had the increase in ESR with the contribution on to the eligible capital. And we see the overall improvement with these factors. Please turn to the next slide. [Indiscernible] Group, we define group ESR as an indicator of financial soundness. Previously, we had a target range of group ESR of 170% to 200%. Moving forward, we'll maintain the lower limit of current definition while no longer setting the upper limit for the target level. And instead, we will aim for 170% or higher. Our current ESR stands at approximately 220%, which is well above the target. This level indicates sufficient financial flexibility from the perspective of financial soundness, while at the same time, we recognize that there's a room for further capital utilization from the perspective of improving capital efficiency. Based on this understanding, our basic approach to capital policy remains unchanged. So to maintain the ESR above a certain level based on that premise, we prioritize the allocation of capital to areas that lead to profit growth and improved ROE. In practice, when the ESR exceeds a target level, we'll first continue to pay stable dividends along with our profit as a basic principle while combining this with growth investments and flexible additional shareholder returns as appropriately. So if the ESR is below 170%, we'll look at the accelerated ESR or other measures to have the increased capital strength. So going forward, by balancing disciplined capital allocation with flexible management, we will ensure financial soundness while achieving improved capital efficiency and sustainable growth. Please turn to the next page. Next, I'll explain about the group risk profile. So this fiscal year, including the sale of approximately JPY 800 billion in domestic equities, we've continued our efforts to reduce market risks. However, this was offset by increase in market cap due to the rising stock prices. And the proportion of equity risk relative to total required capital remains largely unchanged. On the other hand, due to impact of rising interest rates, mass lapse risk continue to increase. In order to keep the market cap of domestic equities below JPY 2.8 trillion by the end of this fiscal year, we expect to sell approximately JPY 800 billion worth of domestic equities this fiscal year. So we'll continue to closely monitor market conditions while working to improve capital efficiency through risk reduction. Now please turn to Page 7. This concerns new business results and its forecast. The fiscal '25 results presented here are the same as they are disclosed during the conference call on May 15. So this section outlines this fiscal year's forecast for value of new businesses. We anticipate that fiscal '26 forecast for VNB will be approximately JPY 188 billion with the factors, including TA's contribution as well. And this fiscal year, the overseas business was a driver to maintain this level. Regarding Dai-ichi Life, acquisition of new business remains on a recovery trend. And we had seen a slight increase from the previous fiscal year. For Dai-ichi Frontier Life, we have the yen-denominated products that is selling and there are some value that is not reflected to VNB, but with the increase in the excess profit, this could be a negative factor for VNB numbers, but it doesn't mean that the profitability of this business has been decreased rather that is not true. So please turn to Page 9. This illustrates the holding company's cash position. Due to increase in group adjusted profit, remittance for the fiscal '25 is expected to exceed initial projections at around JPY 600 billion. In light of transition to economic value regulation, Dai-ichi Frontier Life or DFL for short, which has reduced its capital and TAL, which adjusted its capital levels in accordance with local regulations. paid dividends exceeding adjusted profit, respectively. And we've conducted disciplined capital circulation management. As a result, group-wide dividend payout ratio for fiscal '25 exceeded 100% to reach 109%. Furthermore, our group aims to revise group adjusted profit to JPY 700 billion by fiscal '30. Free cash through fiscal '30 is expected to exceed JPY 2 trillion. So taking into account outflows associated with dividend payouts, the strategic investment for available for allocation to M&A and share buybacks is currently projected to exceed around JPY 1 trillion. Furthermore, in executing our future growth strategy, particularly strategic investments, including M&A, in addition to internal funding, we're considering the use of external funding, specifically, as illustrated in this material, including debt finance such as corporate bonds and loans, hybrid instruments such as preferred stock and other needs, our policy is to flexibly utilize a diverse range of funding methods. In doing so, we'll proceed on the premise of maintaining financial soundness and will primarily consider measures that do not result in share dilution. Through this balanced balance sheet management, including our funding capabilities, we intend to ensure flexibility in growth investment while achieving the maximized shareholder value. The holding company's cash position has been expanding and the cash position has been improving as well. So will have a solid foundation to support both future shareholder returns and growth investments. We'll continue to enhance corporate value through disciplined capital allocation and flexible funding. Please turn to the next page. On relative TSR, starting from fiscal '23 as the base year, we ranked fourth among 14 peer companies, including global top 2 firms. So with the increased share prices, we had achieved return exceeding TOPIX. So we would like to strengthen the expected returns in VNB and would like to contribute to the group's performance. Please turn to the next page. So finally, under EV, in addition to the realization of VNB and expected returns due to rising in interest rates and changes in yield curve pricing that's steepening our group EV rose significantly. For EV disclosures in light of fiscal year's introduction of economic value regulation, we're currently considering disclosure aligned with ESR and for useful information disclosure, we would like to ensure that investors does not fall short of current standards. Thank you very much. Now we'll ask Kikuta-san to give his presentation.

This is Group CEO, Kikuta. Thank you very much for your time despite your busy schedule today. So I will now explain our vision for fiscal 2030, centering on our growth story. So first, I would like to report on the progress of the midterm management plan. Please turn to Page 16. As our Group CFO, Nishimura, explained earlier, we assess that group adjusted profit and adjusted ROE for fiscal '25 are progressing smoothly supported by a favorable economic environment and are expected to significantly exceed targets set in the midterm management plan and to be achieved ahead of schedule. Taking this steady progress on the midterm management plan into account and in preparing for fiscal '26, the final year of the midterm plan, we have raised the dividend payout ratio to 50%. So first, regarding domestic business, against the backdrop of rising domestic interest rate, Dai-ichi Life's positive spreads expanded significantly. By using proceeds from the sale of domestic equities for funding and accelerating bond rebalancing during the rising interest rate environment, we're able to achieve a higher-than-expected yield improvement. The rising yen interest rate is also having a positive impact in Dai-ichi Frontier Life's distribution. Thanks to a strong accumulation of new contracts, Dai-ichi Frontier Life's AUM is steadily increasing while its profitability is also improving. So in our domestic business, initiatives to improve profitability are making steady progress. Furthermore, Dai-ichi Life's new business is continuously on a steady recovery trend. Going forward, by leveraging AI, digital technologies and other tools to further improve productivity, we aim to enhance Dai-ichi Life's profit-generating capability. I will provide a more detailed explanation for this later. In overseas business, Protective is driving profit growth and is making progress in capital-light acquisitions, reinsuring unprofitable blocks and business operations focused on capital efficiency, resulting in an improving trend in Protective's capital efficiency. In the APAC region, due to increased payment of insurance claims, TAL experienced temporary decline in performance last fiscal year. But with its revision in insurance assumptions and repricing last year, TAL for this fiscal year now sees a significant recovery in profit forecast. In noninsurance business, Capula in which we invested during the current midterm plan period and Dai-ichi Life Marubeni Real Estate, where the joint venture has been launched, have begun contributing to profits and leading to a significant expansion in the profit scale of like quadrupled asset management profit in this segment. At Benefit One, the distribution share of Dai-ichi Life's channel and employee benefits business is growing steadily and through both on M&A and business alliance, its customer base is expanding. While we anticipate launching new midterm plan starting next fiscal year, as explained, our group's profit base is being steadily bolstered. We are confident in achieving profit growth exceeding our plans and improved cash generation capabilities. Now please turn to the next page. As you heard from Nishimura, in fiscal year 2025, we achieved a record high group adjusted profit of JPY 551.5 billion as we did in fiscal year 2023 and fiscal year 2024. The adjusted ROE reached 12.7%, and we consider it quite an achievement to attain the target set in the MTP ahead of schedule for both profit levels and capital efficiency. This is due to stable profit generation in domestic business, growth in overseas and asset management businesses and steady progress in capital recycling management focused on capital efficiency. Regarding the forecast for this fiscal year, which is the final year of the MTP, we aim for adjusted profit of JPY 560 billion, marking the highest profit for the fourth consecutive term. Since the initial profit target at the start of the MTP was JPY 400 billion, this means about 40% upside in profits. Of course, there are tailwinds of the financial market. But in addition to Dai-ichi Life Insurance's ability to steadily generate profit generation, our organic and inorganic initiatives in recent years have surely expanded our profit generation capacity. Against the backdrop of profit growth, our cash generation capacity has expanded significantly and reliably compared to the start of the MTP. In light of these circumstances, we have raised the adjusted ROE target in FY 2030 to 15% or more to further improve capital efficiency. While this target is even higher than the previous level, we believe it is achievable. And by ensuring a state where we consistently exceed the cost of capital, we will continue to achieve sustainable enhancement of corporate value. To achieve a group adjusted profit of JPY 700 billion or more in FY 2030, we will transition into a growth acceleration phase. Now that we have laid the foundation, our profit and cash generation capabilities have increased. So going forward, we plan to actively execute strategic investments while maintaining financial discipline. Specifically, we are planning strategic investments of about JPY 1.5 trillion from FY 2026 to FY 2030. Among these, for the insurance and asset management business in the developed markets, we will focus on investments expected to contribute early to profits and strengthen our revenue base. On the other hand, for developing the markets and new businesses, mainly in Asia, we will expand future revenue sources with the aim of capturing medium- to long-term growth. To give you an idea, about 70% of the strategic investment will be allocated to developed markets overseas. remaining 30% will be allocated to growth markets and domestic noninsurance areas. Furthermore, considering these investment opportunities and market conditions, we will respond nimbly and flexibly to shareholder returns. We plan to optimize capital allocation while balancing growth investments by comprehensively taking into account stock price levels and the status of investment projects. As described earlier, based on the results of profit growth and capital efficiency improvements to date, our group will accelerate profit growth through strategic investments in the next growth stage and aim to achieve ambitious targets for FY 2030. Please turn to the next page. Next, I will go over our approach towards enhancing sustainable profit-generating capacities. To date, our group has used group adjusted profit as a key indicator. Going forward, we plan to introduce group core profit as well and position it as a primary management metric from the next MTP onwards. Group core profit is an indicator that expresses more aptly our group's sustainable profit generating capacity by excluding one-off factors such as capital gains and losses from group adjusted profit. The traditional group adjusted profit was subject to market conditions such as gains from sales of equities. By disclosing group core profit as well, we will clearly show trends in more fundamental earnings power. As shown in the chart on the right, there will be a certain short-term difference between group adjusted profit and core profit. Towards the end of FY 2030, where a large-scale sell-down of equities will end, we believe it is important to steadily narrow this gap and raise the level of core profit. As a growth driver for this, the deepening of organic growth in existing business is our first key measure. In the domestic business, we aim to enhance revenue generation capacity through expansion of positive spread and improvement in business efficiency. In overseas business, we will drive group-wide profit growth by expanding the insurance business and enhancing profitability. We intend to enhance capital recycling management going forward. By utilizing proceeds from planned sales of equities, we aim to accelerate the growth of the core profit through further expansion of the positive spread in the domestic business and investment in highly profitable space. We will also enhance the capital-light business so that we can switch to more optimal business portfolio. To reiterate, as a result of these initiatives, we aim to grow our group core profit approaching and eventually almost matching group adjusted profit toward FY 2030. Through these measures, our group aims to achieve sustainable profit growth without relying on temporary factors, aiming to enhance corporate value with higher quality. Please turn to the next page. Next, as a topic of interest, I will talk about our initiatives to improve business efficiency at Dai-ichi Life. First, what we recognize as the current challenges is that in addition to ongoing inflationary pressures, increased costs are expected due to expanded investment in human capital and IT DX areas. In particular, we recognize that it is highly likely that AI and cybersecurity-related investments to be expanded going forward. On the other hand, on the income side, we are facing structural challenges such as the shrinking domestic life insurance market and the trend of declining in-force policies, especially in the protection segment, making it difficult to maintain and improve profitability by simply continuing with traditional approaches. In this environment, the company aims not only to reduce costs but to transform our revenue structure itself through fundamental productivity improvements. Specifically, by maximizing the use of AI and digital technologies to advance and streamline business processes, we aim to realize operational excellence that simultaneously enhances customer convenience and internal efficiency. Through this, we will drive the transformation of administrative and operational processes around underwriting a new business and claims and benefits payments and promote automation and labor saving in areas that previously relied on manual processes. In terms of organizational structures and operational model, we are promoting simplification. Through a highly selective and focused approach to businesses and initiatives, we will turn limited management resources into greater value-added creation. Through these initiatives, we aim to maximize productivity while expanding recurring revenue and reducing fixed costs. To realize these transformations, we plan to make about JPY 100 billion of additional investments in AI and IT-related investments over the next 5 years. These mainly involve system renewal, data infrastructure development and advanced AI utilization, which in the short term will lead to higher business expenses, that is temporary cost increases. And that will have a negative impact on the value of new business. However, these are upfront investments aimed at establishing future competitive advantages and are expected to lead to significant cost reductions and improved profitability in the mid- to long term. In fact, by FY 2030, we expect a cost reduction effect of about JPY 50 billion per year, which is equivalent to about 20% of the existing cost base. Furthermore, we plan to continuously monitor the progress of productivity improvement metrics in each business process rather than the amount of cost reduction. For example, we will make it visible as a unit cost, the efficiency at each process level, such as per transaction cost of new business, premium collection and policy maintenance and claims payments to drive continuous improvement. What is meant by unit cost is a concept of managing the entire operation of the company with per transaction cost. Thus, through this approach, we intend to improve productivity by raising per transaction efficiency rather than focusing on the total cost. By setting a unit cost target for FY 2030 and transitioning to management based on that, we will establish a cost structure that can flexibly respond to changes in the external environment. The company aims to achieve sustainable profitability improvement and to establish competitive advantages in the mid- to long term accompanied by short-term cost increases through business transformation leveraged by AI and digital initiatives, investments as well as the sophistication of organizational management. Please turn to the next page. Finally, I will touch upon our group's current position in our journey to enhance corporate value and our aspirations for the future. Thanks to everyone's support, the company's market capitalization has exceeded JPY 6 trillion. It was about JPY 2.4 trillion as of April 2023. So in just over 2 years, it has grown by more than 2.5x, allowing us to achieve our initial target about 1 year ahead of schedule. By appropriately reflecting the external environment of rising domestic interest rates, we have delivered steady profit growth, improved capital efficiency and enhanced shareholder returns. As a result, we outperformed the TOPIX. However, we are not satisfied with our current position. Rather, -- we see ourselves as finally getting to the starting line. Our goal is not to gain relative recognition domestically, but to realize corporate value that rivals the global top tier. A milestone for this is to attain a market capitalization of JPY 10 trillion in FY 2030. To achieve this ambitious goal, we will be more growth-oriented than ever and will accelerate transformation. First, we will achieve sustainable and high-quality profit growth by strengthening growth drivers anchored on overseas and asset management businesses while relying on stable cash flows generated by domestic business. Regarding shareholder returns, while maintaining stable dividends, we will further strengthen total returns and further enhance market valuation by more flexibly utilizing share buybacks. Through these initiatives, we aim to simultaneously enhance profit growth and capital efficiency, and we will incessantly accelerate the enhancement of corporate value, and we will work closely together as one company to achieve a market capitalization of JPY 10 trillion in FY 2030. That concludes my presentation. Thank you for your attention. [Statements in English on this transcript were spoken by an interpreter present on the live call.]