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

Hi, I am Senda Tetsuya, President of Japan Post Insurance. Thank you very much for attending our financial results and corporate strategy meeting today. I would like to present a review of the period of previous medium-term management plan; a summary of the financial results for the fiscal year ended March 31, 2021; as well as explanations of the new medium-term management plan that started this fiscal year. Afterward I would like to answer any questions you may have. Please look at Page 3. First, I would like to give a review of the period of the previous medium-term management plan. Under the previous medium-term management plan, we have been working to strengthen sales with an emphasis on protection and diversify asset management, aiming to improve profitability in both sales and asset management and to recover and increase annualized premiums from policies in force. However due to the solicitation quality issues, we have been refraining from proactive sales activities from fiscal year March 2020 and plays highest priority on efforts to regain our customers' trust through FY March '21. As a result, of the 3 targets set in the previous medium-term management plan, the annualized payment from policies in force fell short of the target. We achieved our target for net income per share, but this was due to a decrease in operating expenses due to the influence of refraining from proactive sales activities following the solicitation quality issues, in addition to a steady increase in investment income. We have decided to pay a dividend of JPY 76 per share, and that is the amount we aimed at. The period of the previous medium-term management plan was 3 years when our business activities were greatly affected by events that we have never anticipated at the beginning. The spread of COVID-19 has had a significant impact, not only on Japan Post Insurance but on society as a whole. Even in COVID-19 pandemic, we have been continuing appropriate business operations initiatives to support customers in order to fulfill our mission and role as a life insurance company. Please look at Page 4. I would like to explain the solicitation quality issues. Since FY March 2020, we have made company-wide efforts to policy investigations in order to recompense for customers' disadvantages and implemented measures to prevent recurrence. We began policy investigations at the end of June 2019, and we have largely completed response to customers and sales personal investigations. In addition we have been steadily implementing the measures to avoid recurrence, as set forth in the Business Improvement Plan we submitted to the Financial Services Agency of Japan on January 31, 2020. As of April 30, 2021, most of the measures have been implemented. As for these initiatives, the JP Reform Execution Committee, an organization that consists of external experts concluded that the necessary conditions for the restart of sales activities have been met. Based on this conclusion and confirmation that the purpose of our operations aimed at regaining customers' trust has penetrated the entire company. We began operations aimed at regaining customers' trust on October 1, 2020. Now that these operations [ forecast ] and many customers understand their initiatives, on April 1, 2021, we, therefore, began providing all customers with information and proposals on financial products and services that meet their needs and shifted to a new sales trends that promotes business operations aimed at building trustful relationships with customers. As the Japan Post Group, we will continue to do our utmost to regain our customers' trust so that they can once again use our products and services with a peace of mind through our operations aimed at regaining customers' trust. Please look at Page 5. This page shows the trend of new policies and policies in force. As I explained earlier, giving the priority to addressing solicitation quality issues, Japan Post Insurance in Japan Post co had been refraining from proactive sales proposal since July 2019. As a result, the number of new policies underwritten since the second quarter of the fiscal year ended March 2020 decreased compared with the previous period, and the policies in force as a whole has been declining as well. The solicitation quality issues have caused a great deal of concern to our customers and other stakeholders, but many of our customers have continued to subscribe to our products. By steadily implementing the new medium-term management plan, which I will explain later we will expand our customer base from existing customers to their families and acquaintances as well as to the community and society as a whole. Please look at Page 6. I would like to explain the results of asset management. The left chart shows the amounts of, return-seeking assets and the ratio of them to total assets. We are expanding investments in return-seeking assets, [ business ] risk buffer and the risk appetite policy principally based on ALM. At the end of March 2021, the amount of return-seeking assets, such as stocks and foreign bonds, was JPY 11.1 trillion, which accounts for 15.9% of total assets. As a result, financial results for the fiscal year ended March 2021, we achieved 1.82% investment return on core profit and secured JPY 76.3 billion positive spread. Please look at Page 7. This page shows the trends of EV and ESR. Due to the improvement in the market environment, EV, which represents future profits increased by JPY 701.9 billion from the end of the previous fiscal year to JPY 4.026 billion. Meanwhile, the value of new business was negative JPY 12.7 billion due to the influence of refraining from proactive sales activities. ESR, as of March 31, 2021, increased to 205%. As the capital amount, the numerator of ESR increased. And the integrated risk amount, the denominator ESR decreased due to changes in the market environment. We recognize EV and ESR are important in management. By steadily implementing the new midterm management plan that I will explain later, we will aim for medium- to long-term growth in EV and medium- to long-term stability in ESR. Please look at Page 8. Earnings per share and dividend per share are shown here. As I explained earlier, earnings per share exceeded the target throughout the period of the previous medium-term management plan, and we have decided to pay an ordinary dividend of JPY 76 per share for the fiscal year ended March 31, 2021. We will steadily implement the new medium-term management plan, which I will explain in order to generate stable profits over the medium to long term and provide a return of profits to our shareholders. Please look at Page 10. From now on I'd like to explain our new medium-term management plan. While the midterm plan up until now was based on the existing business model, the new midterm plan is designed to fundamentally change the existing business model in order to revitalize Japan Post Insurance and achieve sustainable growth. Under this new medium-term management plan, while we return to our management philosophy, which is our origin, we make it clear that we will fulfill our social mission as we will remain trusted and selected by customers, thereby protecting their lives by providing life insurance product. Please look at Page 11. Here is the basic policy of the new medium-term management plan. We will reconstruct ourselves as a life insurance company by engaging in sales activities with quality and regaining our customers' trust. And by shifting to our business model, that gives top priority to customer experience value. We aim to achieve sustainable growth so that customers can feel they have been pleased to enter into Japan Post Insurance and choose us. As foundations for reconstruction and sustainable growth, we will work on corporate culture and work-style reform and reinforcement of governance, et cetera. Please look at Page 12. I will explain primary targets. In this medium-term management plan, we set customer evaluations as the main target and aim to improve customer satisfaction and Net Promoter Scores or NPS. In addition, we emphasize the continuation of policies in force and set the number of policies in force as a stock-based target. As for net income it is expected to be JPY 91 billion in fiscal 2025. The company recognizes that the shareholder return is an important policy of management and in principle, aims not to decrease, but to increase dividend per share for the period of the midterm plan. As for EV growth or RoEV, we aim for 6% to 8% growth, which exceed estimated capital costs in the medium to long term. Please look at Page 13. I would like to explain numbers of policies in force and net income forecast, which are primary targets of the new medium-term management plan. In the medium to long term, we expect a decrease in policies in force. However, we intend to gradually increase our sales capability so that we are able to sell new policies that are equal to or greater than the number of canceled policies as well as reduce the number of canceled policies through surrender as much as possible by providing meticulous follow-up services to our customers. As a result, we aim to secure more than 20 million policies in force in the final year of the medium-term management plan. In addition, although a large portion of canceled policies are savings-type products sold in the past, in the future, the proportion of protection-type products will increase relatively as a result of proactive sales of protection-type products that meet customers' protection needs. And thus, even if new policies and premiums per policy decreased, profitability will increase. So we believe that we can generate stable net income of around JPY 80 billion to JPY 90 billion from FY March '23 onward. As for net income for FY March '22, we forecast it will be around JPY 118 billion. Please look at Page 14. I will explain relaxation of additional restrictions under the Postal Service Privatization Act. On May 17, 2021, the company acquired its treasury stock with the aim of improving capital efficiency, enhancing shareholder return, further advance in the privatization of the postal service and relaxation of certain legal restrictions under the Postal Service Privatization Act. In addition, Japan Post Holdings will dispose its shares of Japan Post Insurance through a trust for share disposal. Thus, the voting ratio of Japan Post Holdings will be 49.9%, and additional regulatory restrictions related to the new business would be changed from approval system to notification system. We will further promote the provision of products and services that contribute to customer-oriented business operations, which will lead to the enhancement of the corporate value of Japan Post Insurance and Japan Post Group. Please look at Page 15. Firstly, I would like to explain reconstruction outlined in the basic policy of the new midterm management plan. Due to the solicitation quality issues, we have been refraining from sales activities for about 1 year and 9 months. And in April 2021, we resumed our sales proposal to customers. In FY '21 onwards, we will continue to thoroughly implement customer-oriented business operations and work to regain our customers' trust. Furthermore, throughout the insurance period, we will be engaged in meticulous follow-up services for strengthening ties with our customers based on the concept of providing services in the form of life insurance. Please look at Page 16. I would like to explain establishment of new Japan Post Insurance sales system. Based on the premise of sales activities based on appropriate solicitation quality, Japan Post Group as a whole will strengthen its efforts to address the diversifying protection market through comprehensive consulting services that combine expertise in a wide range of financial products. Specifically, Japan Post Co.'s consultants are sent to Japan Post Insurance and will focus on proposals for life insurance products and follow-up services. They also provide our customers with attentive and high-quality follow-up services by introducing a customer assignment systems. Personnel at counters or post offices with the nationwide network are assigned a role to propose and offer a wide range of financial products, including life insurance to customers over the counter by identifying their needs. Through this establishment of new Japan Post Insurance sales system, we will be responsible for directly managing consultants and ensuring sales capabilities in conjunction with the solicitation quality. Please look at Page 17. This slide shows initiatives of virtually managed channels to strengthen system for providing services to corporate clients. At directly managed channels, we will improve customer experience value and productivity through needs-based product revisions and administrative and system improvements. Please look at Page 18. I would like to explain enhancement of insurance services. We will progress the development of insurance services that respond to the protection needs of customers of all generations in an age of 100-year life. We are considering a revision of medical riders in order to reduce insurance premiums and enhance coverage, mainly for young and middle-aged customers. We will also examine products and services that contribute to healthy longevity by accumulating and utilizing health promotion data. In addition to our existing insurance services, we will consider the services to support the lives of our customers, which we will explain later. Please look at Page 19. I would like to explain boosting efficiency of business operations. Under the new medium-term management plan, we will also work to speed up and improve the efficiency of back-office operations as we promote transformation through digitalization. Specifically, we plan to reduce the workload of approximately 2,300 employees through the promotion of digital transformation or DX and other measures so that we reduced the number of employees by approximately 1,500 due to natural attrition and shift approximately 800 employees to customer support operations. In addition, we will accept employees [ seconded ] from Japan Post Co. In order to establish a new Japan Post Insurance sales systems, which will significantly change our cost structure. As for expenses, personnel expenses are expected to increase by about JPY 95 billion, while property expenses, such as commissions paid to Japan Post Co. are expected to decrease by about the same amount. While promoting efficiency in order to achieve a management structure like a firm body, we will make necessary investments in areas to be strengthened, such as promotion of DX. At the same time, we aim to reduce necessary expenses by JPY 28 billion in FY '25 compared to FY '21 as a whole by striving to reduce system and policy expenses. Please look at Page 20. As for asset management, we will achieve greater depth and sophistication in terms of both portfolio building in each investment field, such as alternative investment, while responding appropriately to the introduction of the new solvency regulation scheduled in 2025. Specifically, in order to improve return against risk, we plan to gradually expand investments in return-seeking assets within the scope of risk buffer so that the ratio of return-seeking assets to total assets is expected to increase to around 18% to 20% during the period of this medium-term management plan. In addition, from April 2021 onward, we consider various ESG elements for all investment assets, along with theme-based investment and financing that focus on priority areas of well-being improvement, regional and social development and contribution to environmental conservation, including climate change. Through these efforts, we aim to contribute to achieving sustainable development goals or SDGs on a wider scale, give solutions to social challenges and progress ESG investment that create a sense of warmth unique to Japan Post Insurance. Please look at Page 21. Next, I would like to explain sustainable growth outlined in the basic policy of the new midterm management plan. From the perspective of improving customer experience value or CX, we will fundamentally review our insurance services and make a major shift to a business model that prioritizes CX. Specifically, starting in fiscal 2022, we will gradually commence efforts to introduce new applications to provide optimal proposals that are solid to each and every customer's needs and to build a customer database that allows the entire team, the consultant, staff of customer service center and post office counter employees to provide support for customers based on the same customer information. Furthermore, we will develop a system to enable families living in remote areas to attend contract classes online and expand the functions of the customer service center to complete various procedures on the spot. In this way, we will aim to ensure the solicitation quality and improve customer convenience. By promoting DX and combining the Japan Post Group's strength in face-to-face and new digital technologies, we will provide services that elderly customers and their families can use with peace of mind and services that exceed their expectations, whereby improving customer satisfaction. Please look at Page 22. We will make necessary investments as improving CX will determine our future competitiveness and growth potential. We will make strategic IT investment of JPY 100 billion over 5 years for the building of a system infrastructure to enhance customer support and will provide services that integrate face-to-face and digital elements. These initiatives enabled us to provide simple procedures that can be completed on the spot with a wide range of channels as well as to improve productivity by streamlining back office administrative operations. We will shift the management resources generated by the streamlining to focus areas, such as customer support operations. Please look at Page 23. In addition to our existing insurance services, we will provide services that are close to customers to increase contact points with them. By providing these services, they will contribute to solving social issues surrounding sustainability and aim to secure a competitive edge that only Japan Post Insurance can offer and that no other company can match. Specifically, we will promote a wide range of studies towards providing services that can respond to the diverse concerns of our customers regarding social issues, such as health promotion and nursing care consultation. Please look at Page 24. The company is promoting ESG management that contributes to solving sustainability related to social challenges through fulfilling our social mission to protect customers' lives by providing life insurance product. Specifically, in order to solve 5 social challenges that we address with priority, we are setting goals for the progress of CO2 reduction targets set to achieve carbon neutrality and for female manager ratio targets as well as making efforts to support the task force on climate-related financial disclosure proposal. We will issue sustainability reports to proactively disclose the status of these initiatives. Please Look at Page 25. I would like to explain reformation of corporate culture and work style, which is the foundation for reconstruction and sustainable growth, as I explained so far. We aim to be a company where employees and management share the future vision, and each and every one goes together with the company, while feeling employee satisfaction. We also promote diversity by establishing an environment that allows diversified human resources to choose various work styles. Through these efforts, we will realize a company in which all officers and employees across the company work together by facilitating internal communication and mutual understanding and act autonomously and independently based on the customer-first principle. Please look at Page 26. Strengthening of governance, which is the foundation for reconstruction and sustainable growth is shown here. We'll conduct sound business operations by ensuring greater transparency and fairness as an organization through strengthening governance as well as by increasing the sensitivity of each and every employee to risks. Please look at Page 27. I would like to explain our ERM and capital policy. Based on ERM under our Risk Appetite Statement, we will ensure soundness in business operation and secure profit while achieving sustained growth in the medium to long-term enhancement of corporate value. Specifically, we aim to improve return against risk by shifting to our portfolio centering on protection-type products, achieving greater depth and sophistication of asset management and promoting improved efficiency in business operation. We will also improve capital efficiency by aiming for growth, exceeding estimated capital cost in the medium to long term as well as considering optimal capital structure. Additionally, in order to maintain financial soundness, we aim for the medium- to long-term stability of ESR through reduction of interest rate risks in response to the introduction of new capital regulations. Please look at Page 28. Finally, I would like to explain shareholder return. The company in principle aims not to decrease, but to increase dividend per share for the period of the medium-term management plan while considering earning prospects and financial soundness. As for the dividend for the fiscal year ending March 31, 2022, we plan to pay an ordinary dividend of JPY 90 per share based on the dividend policy and the acquisition of treasury stock. As for the shareholder return for the fiscal year ending March 31, 2022, for the purpose of enhancing the opportunities to distribute profits to shareholders. The company plans to provide cash dividends twice a year as the interim dividends and year-end dividends. To conclude, as we enter an age of 100-Year Life in Japan, we are faced by social issues, including the declining birth rate and aging population, health and ESG. By contributing to the resolution of these social issues and achieving sustainable enhancement over corporate value, we will meet the expectations of our shareholders, investors and other stakeholders. This concludes my explanation. Thank you for your attention.