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

It is now time to begin Daiichi Life Group, CFO Dialogue. Thank you very much for taking time out of your busy schedule to join us today. Today's speakers are Mr. Taisuke Nishimura, our Managing Executive Officer and Group CFO; and Mr. Paul Wells, President and CFO of Protective Life Corporation. Today's event is being streamed online with simultaneous interpretation in Japanese and English. Regarding the agenda, Paul will first explain about Protective's strategy, followed by a panel discussion. After the panel discussion, we will take questions. Then Nishimura will provide a brief update on briefly ESR, after which we will take questions for that update. The total duration is expected to be up to 1 hour and 30 minutes. Please also note that an archived recording of today's event will be posted on our website at a later date. Now we'll ask Paul to explain about Protective's strategy. Paul, please go ahead.

Good afternoon, and thank you for the opportunity to spend time with you. We appreciate Daiichi's support and partnership, and we recognize the importance of Protective's role in Daiichi's long-term growth ambitions. My goal today is to give you a concise update on where Protective is today, progress we have made, and the path we see to continued growth toward 2030. For clarity, I will not address all information included in my slides during this presentation as we will get into much more detail during the question-and-answer session. On this first slide, I'd like to characterize the last few years as a period of deliberate repositioning for Protective. We have been actively reshaping the company so that the earnings profile, capital position, and operating model are better aligned with where we need to go. First, we have taken several strategic capital actions, including the sale of Concourse, the Resolution reinsurance transaction, and the expansion of Protective Life Re in Bermuda. The purpose of these actions was to improve capital efficiency and reduce risk in areas that were not core to our future growth. Second, we have added scale and diversification through the acquisitions of Portfolio and Obsidian. Third, we have continued to evolve our investment strategy. Finally, cost efficiency remains a major focus. We have improved our expense efficiency, and that discipline gives us more capacity to invest in important areas of growth. All of these actions are part of our strategy to improve the quality of earnings, improve capital efficiency, build scale and position Protective to deliver sustained growth. Moving forward to the next slide. In the near term, our 2026 goals are very important because they show the progress that is already underway. Our 2030 goals that are shown here are ambitious, but they are not dependent on a single lever. They are driven by a combination of retail growth, investment strategy, operational efficiency, and disciplined acquisition execution. Moving forward to the next slide, we describe our strategy broadly as achieving Competitive Fitness. Within this broad strategy, we have 4 key pillars: cost efficiency, investment returns, strong product management, and capital utilization. We have 7 individual focus areas, and they are intentionally a mix of business initiatives and enterprise enablers. On the business side, as examples, we are focused on protection growth and growing our Asset Protection division profitably while integrating the Portfolio acquisition. In terms of enablers, we are optimizing our investment strategy and embedding operational excellence through data analytics and automation. We have a clear vision, a strong financial foundation, and scalable businesses to support our 2030 vision. We are now very focused on execution. Moving forward to the next slide. This slide provides a high-level overview of our 4 retail businesses. In Protection, our focus is on accelerating earnings growth, improving profitability, and creating embedded value. In Retirement, we continue to pursue a multiyear organic growth plan with fixed and variable annuities along with bank and company-owned life insurance. In Employee Benefits, the opportunity is to accelerate and diversify growth, diversifying growth outside of the state of New York while also improving our expense ratio. Finally, with Asset Protection, the priority is improving our loss ratios, improving cost efficiency, and integration execution. Moving forward to the retail earnings growth, this provides a more detailed view of our path forward to 2030. You can see in the chart to the left, our pretax adjusted operating income is growing significantly for each of these 3 categories of businesses between 2025 and 2030. Retirement is the largest earnings contributor with fixed annuities as the primary driver. As I mentioned earlier, our investment strategy is critical in supporting the competitiveness of our spread-based products. In the Protection division, earnings are accelerating as the block continues to grow and earnings outpace the cost of issuing new business. Term Insurance is the primary earnings driver within the Protection division. As you can see, the biggest step change is in our capital-light businesses. Portfolio doubles the size of the Asset Protection division. We are also expecting that ongoing rate increases will continue to improve loss ratios on our legacy business. Through ShelterPoint acquisition from 2024, our Employee Benefits division, we expect to see continued premium growth on paid leave products. And then finally, the recently announced acquisition of Obsidian, which we expect to close later this year or early next year, will expand our presence in the P&C market with opportunities for further growth. The path to 2030 depends on disciplined execution across several growth drivers, as you can see detailed out on this slide. Moving forward to the next slide, as I mentioned previously, evolving our investment strategy continues to be a key area of focus. We have evolved the asset mix to improve risk-adjusted returns, including a prudent increase in private and less liquid assets. Importantly, we are pairing the evolution of our investments with enhanced risk management. This includes stronger exposure limits, credit surveillance, look-through monitoring for private assets, expanded liquidity monitoring, stress testing, and tighter concentration risk oversight. We have also continued to add outside asset managers. As you can see, we call out here currently 13 firms managing approximately $6 billion of our investment portfolio. We have also made a significant investment in an enterprise data platform called Aladdin Enterprise that will improve our portfolio management, and liquidity oversight, and broader ALM capabilities. It's important to note that while we are improving our investment competitiveness, we are doing it in a measured way to ensure ongoing risk management and business success. Moving forward to the next slide. This slide covers our 2 most recent acquisitions, Portfolio and Obsidian. Portfolio closed on January 1, 2026. And the strategic rationale behind this acquisition was to create a scaled business, combining with our legacy Asset Protection division to create more modernized operations and a broader set of dealer wealth platforms. Over time, we expect this acquisition will increase earnings, ROE and ESR. Obsidian was signed in April of 2026, and again, we expect it to close pending regulatory approval later this year or early next year. Obsidian is an opportunity for us to add another fee-based, and short-tailed P&C business specializing in the excess and surplus, or E&S market within the U.S. As with portfolio, we expect over time, Obsidian will increase earnings, ROE as well as our ESR. That concludes my prepared remarks for my presentation. And I think with that, we'll move into Q&A.

Thank you very much. So we'd like to move to the panel discussion. Panel discussion we like to start san Nishimura now would be the moderator for panel discussion. So please held via Zoom simultaneous interpretation in Japanese and English. Please go ahead.

And before moving on to Q&A with participants, I want to go through 8 questions from myself to you to deepen the understanding on Protective strategy. So let me go on to question number one. What is the greatest challenge to achieving $1 billion operating income target for 2030? And what actions are you taking to address it?

First, I would say we acknowledge that the $1 billion target is ambitious, but we certainly view the target as achievable. I would describe the primary challenges as 3 primary areas. First, the competitive dynamics within the fixed annuity and term insurance markets. These -- both of these markets are important to our growth and also very competitive. We are addressing these risks by pursuing expansion of our distribution sources and actively enhancing the underlying customer experience. Second, achieving planned growth in our capital-light businesses. As I discussed earlier, that is critical to our long-term plans towards 2030. We are addressing the risk of growth in these businesses through active monitoring of each business, investments in technology to improve our efficiency and customer experience and then also ensuring each business has the appropriate resources they need to properly grow. Third, challenge I would mention are external or macro factors. This would include financial market conditions as well as regulatory risks, and we are actively addressing these risks through monitoring as well as scenario planning for each of our business units.

Okay. So this is a follow-up on question number one. And the plan you showed today seems to be more favorable than prior year plan. So what are the principal drivers of this step-up to 2030? And how confident are you in achieving it?

Yes. I'm going to talk through really 3 primary drivers of our increase that we've showed towards 2030. But maybe first, I would say we have confidence in our plans. As I mentioned earlier, we have not just one, but multiple levers that are in place and being actively worked on to drive towards the performance that we've outlined. The first driver, I would talk about is our recent acquisitions, that being ShelterPoint, from late 2024 in the employee benefit space, portfolio, which I just discussed as well as Obsidian. And ultimately, all of those businesses as they become more operational within the Protective platform, we expect to see significant growth and that growth really leveraging 4 key elements. One, we think there are a set of internal capabilities that Protective can bring as the owner of these businesses to help drive growth. One example of that is Obsidian, we expect will benefit from being part of a much larger, more diversified and highly rated company like Protective. The second area of support for these businesses is synergies and synergies both on the revenue side and the expense side. For example, on the expense side, we see opportunities to replace legacy technology resources with a more modernized set of technology platforms. The portfolio acquisition we did earlier this year is a good example of that. On the revenue side, we also expect to see significant revenue synergies within the Asset Protection division from the recent acquisition of Portfolio as well. The third supporting capability for the capital-light business growth is improved loss ratios in our legacy asset protection business. As we've commented previously, we have seen higher loss ratios over the last few years due to heightened inflation in the auto parts and labor, and we've progressively taken steps to increase those rates to improve loss ratios over time. The fourth supporting item, I would mention for the capital-light businesses is external factors. I would mention 2 examples there. One, with our Employee Benefits business, we are seeing continued momentum with more states adding the mandatory paid leaf products. And then the second example would be with Obsidian in the broader market growth that we're seeing in the E&S space. So that's the capital-light businesses. I'll move now to the retirement division, which is another key area of growth, as I showed on the earlier slide. Our retirement division sales are continuing to grow, and that's, again, been supported by our enhanced investment strategy, as well as we have an ability to continue to increase and maintain our market share in those markets over the coming years. And then finally, our Protection division earnings is a key driver of the growth towards 2030. That's primarily a function of our term insurance product and our sales levels there, and we expect earnings will continue to increase as that term block grows and the earnings outpace the cost needed to issue new policies.

Okay. So in your explanation, so annuity business is one of the key drivers to grow. And how does Protective plan to grow annuity business while remaining competitive in very crowded market?

The annuity market, as you noted, is very competitive. But I think it's important we start framing the opportunity here with our current market share and some of the recent initiatives that we've undertaken. So let me take a minute and kind of walk through what I mean by that. Currently, we have a fairly small market share, even though our sales have grown significantly over the last 3 years. When we look back to 2023 up to 2026, we have seen a significant growth in sales. However, we started this path of growth at a relatively low level of account value. And so even at current sales levels with no growth, we do see earnings momentum continuing on for several years. Secondly, with respect to the broader fixed-annuity market, our market share is relatively small. It's approximately 1.1% for fixed annuities. It's approximately 2% for traditional variable annuities. So as you can see, we have an opportunity to continue to increase our market share and potentially increase sales significantly over time as we take advantage of opportunities, including broader distribution, which is the last important point, I'll make on the fixed annuity business. Even though it's very competitive, there are some significant distribution channels that we do not participate in today that we think could be an opportunity for us to take advantage of over the next few years.

Thank you, Paul. So, I understand you don't necessarily have to grow in terms of new business. You can grow in terms of in-force even though you maintain the current level of new business. Okay. Next question #4 is how do you assess the risks arising from the market environment and the investment portfolio? And how are those risks being managed?

Maybe just to start as a reminder, our investment philosophy and strategy really has evolved over the last few years. More specifically, we have added several outside managers as was described on the slide earlier. That has allowed us to shift our asset mix, we have expanded our allocation to private credit. However, we have done so in a diversified and prudent manner. In addition, we have repositioned our portfolio with 6 separate portfolio trades since 2023. Those trades have, on a cumulative basis, served to strengthen our overall capital, ALM and also enhancing overall investment income returns. With respect to risk management around investments, we have undertaken a variety of measures to ensure that the evolution of our portfolio strategy is appropriately supported to optimize our overall risk-adjusted returns. A few of the measures we've taken, I'll just mention -- I mentioned this earlier, but we are currently in the process of implementing what I would describe as a best-in-class centralized data platform with one of the largest platform providers in the U.S. to improve our overall portfolio management, liquidity oversight, and ALM capabilities. We think that's a very important investment that we are putting in place that will give us a much stronger infrastructure as we grow the company and broaden the asset sources that we bring into the portfolio. The second measure I would mention is we are utilizing an enhanced investment risk framework. That framework includes stronger exposure limits, credit surveillance, look-through monitoring of our private assets. And then finally, we are strengthening our external manager due diligence and ongoing performance monitoring, including adding additional resources within that area.