Japan Post Insurance Co., Ltd. (7181.T) Q2 FY2026 Earnings Call Transcript & Summary

I am Kunio Tanigaki, President of Japan Post Insurance. Thank you very much for attending our financial results and corporate strategy meeting today. Please turn to Page 1. Today, I will provide an explanation in 2 parts: recognition of current status and direction of the next medium-term management plan. First, as recognition of current status, I will explain our efforts up to the first half of FY 2025, their achievements and market valuation of the company. Second, as directions of the next medium-term management plan, I will explain reversal of policies enforced through the establishment of a sales structure, strengthening asset management capabilities, take on the future and achieving stronger business foundation. Afterwards, I would like to answer any questions you may have. Please turn to Page 3. First, I would like to explain our efforts up to the first half of FY 2025 and achievements. We have taken various measures to address the 5 issues of retain and expand customer base, corporate culture reform, asset management, diversification of revenue sources and achieving stronger business foundation. First, regarding retain and expand customer base, higher interest rates in lump sum payment whole life insurance launched in January 2024, which met customer needs have vitalized the sales activity. As you can see in the graphs on the right, the number of new policies in FY March '25 has increased significantly. However, the number of new policies are declining in FY March 2026 following the revelation of the improper use of private financial information, et cetera. The entire group is working together to establish a framework as we aim to revive the Post Office counter channel and reverse the policies in force in the new category. The employee engagement score is also improving each year with the effect of the second initiative, corporate culture reform. Please turn to Page 4. Regarding the third issue, asset management. Due to an improvement in the market environment and diversification of asset management, et cetera, positive spread in FY March '26 is expected to reach around JPY 225 billion, a record high for the company. Fourth, regarding diversification of revenue sources, we are making steady progress with our initiatives, including the decision to make additional investments in a new reinsurance vehicle managed by Global Atlantic. Fifth, regarding achieving stronger business foundation, we have achieved a workload reduction equivalent to 1,500 people as of April 2025 through digitalization and improved capital efficiency through the utilization of reinsurance and other means. As a result of our efforts on the 5 issues I have just mentioned, adjusted profit for FY March '26, which is the final fiscal year of the current medium-term management plan is expected to increase considerably to around JPY 162 billion. Please turn to Page 5. This page shows our shareholder returns. Reflecting the increased profit level, we have increased the dividend per share by JPY 20 for FY 2025 and set a total payout ratio of around 55% for a single fiscal year, thereby enhancing shareholder returns and improving predictability. On November 14, 2025, the company decided to revise its financial results forecast upward and repurchase up to JPY 45 billion of treasury stocks. Please turn to Page 6. This page shows the company's market valuation. The current relative TSR of the company has improved significantly due to the higher profit level and enhanced shareholder returns that we have discussed so far. Please look at Page 7. At present, adjusted ROE has increased, reaching the 9% range, while adjusted PBR has improved to around 0.9x. On the other hand, we recognize that price to EV remains undervalued at around 0.4x below the price to EV of 0.5x that corresponds to the adjusted net worth of EV and requires further improvement. Please turn to Page 8. This page shows an overview of initiatives to further improve market valuation. In the next medium-term management plan, we will first work on the 3 pillars of our growth strategy, reversal of policies in force through the establishment of a sales structure, strengthening asset management capabilities and take on the future and our 5 measures aimed at achieving stronger business foundation in order to improve our market valuation so that we can achieve the market capitalization of JPY 2 trillion that we have tentatively indicated as a target. Please turn to Page 11. I will explain in detail the 3 pillars of our growth strategy and measures to achieve stronger business foundation that I mentioned earlier. First, I will explain about reversal of policies in force through the establishment of a sales structure. During the period of current medium-term management plan, although the number of new policies increased due to the introduction of new products that took advantage of the rise in interest rates, the number of policies in force has continued to decline. In the next medium-term management plan, we aim for the reversal of the policies in force in the new category by establishing a sales structure in each channel as well as enhancing appeal of our products to meet customer needs, et cetera. Please turn to Page 12. Now I will explain the initiatives to revitalize sales channels and accelerate their growth. Regarding the post office counter channel, based on a customer-oriented sales foundation, we aim for revival of the channel and its return to growth trajectory while enhancing synergistic effect of Japan Post Group. In addition, regarding our directly managed channels, we aim for further acceleration of their growth by streamlining sales activities and by securing and developing sales staff. By raising each channel through these efforts, we aim for the reversal of policies in force in the new category. Please turn to Page 13. Next, I will explain the pursuit of synergies in Japan Post Group. Japan Post Group has physical presence in every corner of the country and is deeply rooted in local communities. It has its own unique brand and large customer base. To meet the group's significant latent insurance needs, we will aim to expand our offering of insurance services while creating new points of contact with customers. Please turn to Page 14. I will explain about enhancing and enriching product appeal to meet customer needs. We have improved our product state to meet customer needs such as asset succession and preparation for children's educational funds by, for example, leveraging the transition to a world with positive interest rates. We will continue to work on enhancing the appeal of our flagship level premium products and further expanding our product lineups that meet customer needs, et cetera, aiming to increase new policies and ratio of medical care products and thus improve profitability. Please turn to Page 15. Lastly, I will explain evolution of services utilizing digital technologies and AI. Based on our strength of trust and a sense of proximity. Also by utilizing digital technologies, we have enhanced our aftersales follow-up activities, including continuous and regular contact with customers and achieved greater convenience such as our transition to paperless billing procedures, et cetera. We will continue to utilize digital technologies and AI to enable delivering services tailored to each customer's situation, thus enriching our follow-up activities and achieving more convenience of various procedures and seek greater improvements in customer experience. Please turn to Page 16. From here, I will explain the second pillar of our growth strategies, strengthening asset management capabilities. Please turn to Page 17. Despite the decrease in total assets, profitability has steadily improved as a result of appropriate risk-taking process based on ALM management under the ERM framework. We will continue to take advantage of the return of a world with interest rates to improve our portfolio of yen-denominated interest-bearing assets while continuing selective investment in return-seeking assets as we aim to achieve a record high profit spread in the next medium-term management plan. Please turn to Page 18. Here, I will explain earnings improvement anticipating a world with interest rates. By actively replacing corporate and government bonds held while keeping trends in interest rates in mind, we will improve future investment returns in a cumulative manner. For hedged foreign bonds, we are maintaining some of the balance while improving the portfolio through replacement trading. Positive spread is expected to improve due to lower hedging costs and earnings are expected to increase from sales when interest rates decline. Please turn to Page 19. I will explain further promotion of the diversification of asset management. Alternative assets have been in a period of full-scale revenue collection contributing to income growth as a key revenue pillar. Going forward, we will continue to implement selective investments as we aim to sustainably expand revenues by enhancing returns relative to risk. Please turn to Page 20. Here, I will explain the long-term vision of our asset management. In the next medium-term management plan, we will strengthen our operational foundations, including organization, personnel and systems to achieve both high returns relative to risk and improved net interest income. Furthermore, by promoting distinctive impact investments, we will contribute to solving social issues and discovering core companies in next-generation industries. Thus, we aim to become one of the world's leading institutional investors. Please turn to Page 21. I will explain the third pillar of our growth strategies, take on the future. Please turn to Page 22. Our attempts to take on the future through alliances and investments are positioned as a key pillar of our growth strategy. We currently capture revenue in new fields, mainly the overseas insurance market and asset management business. In the next medium-term management plan, we will strengthen alliances with existing partners and broadly explore new areas aligned with our company that offer potential synergies and profit contributions with the aim of achieving returns exceeding the cost of capital of 7% to 8%. Please turn to Page 24. I will explain about achieving stronger business foundation. The workload has undergone a steady reduction through the digitization of back-office operations, et cetera, and we expect to achieve the workload reduction equivalent to 2,000 employees as set forth in the current medium-term management plan. In the next medium-term management plan through the utilization of AI, et cetera, will further reduce workloads while shifting the freed up labor to areas that need to be strengthened such as sales support. Please turn to Page 25. Now I will explain about upgrading liability management, et cetera. To improve capital efficiency, since FY 2023, we have reinsured policies with poor risk return rates among policies in the postal life insurance category that have a high rate of policyholder dividends. To increase ESR and improve returns, we continue to utilize reinsurance while closely monitor the market environment and reinsurance market trends. Please turn to Page 26. I will now explain the management behavior corresponding to the ESR standards. The graph on the left shows the transition of ESR. The ESR as of September 30, 2025, was 208%, reflecting an increase in the amount of risk, mainly due to an increase in the risk of mass lapse due to rising interest rates, but also an increase in the amount of capital, primarily resulting from rising domestic stock prices compared to March 31, 2025. We continue efforts to ensure appropriate ESR with good stability. And if we exceed an appropriate ESR, we will consider further risk taking, such as increasing the share of return-seeking assets and investment for growth or additional shareholder return such as treasury stock acquisition. Regarding the risk amount, we aim to increase the share of insurance underwriting risk in the future by sustaining the current recovery trend in sales and maintain asset management risk taking while considering return relative to risk to enhance returns, thus aim for an efficient risk distribution. Please turn to Page 27. Lastly, I'll explain about enhancing shareholder returns. Due to the enhanced shareholder returns explained at the outset, we anticipate that the total payout ratio will rise to around 47% during the current medium-term management plan period. For the next medium-term management plan, we'll consider creating an attractive shareholder return policy considering the level and visibility of shareholder returns while confirming future profit levels. This concludes my explanation. Thank you.