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

I am Senda Tetsuya, President of Japan Post Insurance. Thank you very much for attending our financial results and corporate strategy meeting today. I will provide a summary of the financial results for the 6 months ended September 30, 2021, and explain progress of the medium-term management plan and future initiatives. Afterwards, I would like to answer any questions you may have. Please look at Page 3. First, I would like to explain our initiatives in the first half of the current fiscal year. Since fiscal year ended March 2020, we have made company-wide efforts to the solicitation quality issues. From April 1, 2021, we began providing all customers with information and proposals on financial products and services that meet their needs and shift it to a new sales stance, in which we build a relationship of trust with customers through sales activities. We will continue to thoroughly implement customer-oriented business operations and work to regain our customers' trust. Furthermore, while the COVID-19 pandemic persisted, we have been continuing appropriate business operations and initiatives to support customers in order to fulfill our mission and role as a life insurance company. Since the additional restrictions under the Postal Service Privatization Act relaxed in June 2021, it has become easier for us to provide products and services meeting customers' needs. We will steadily proceed with our initiatives set out in the medium-term management plan to reconstruct and resolve as a company that is truly trusted by customers and shift to a business model that gives top priority to customer experience value. That will demonstrate the quality unique to Japan Post Insurance. Please look at Page 4. I would like to explain a summary of the first half financial results. Net income was JPY 80.5 billion due to a decrease in core profit, reflecting a decline in policies in force and et cetera and an increase in other one-time losses caused by excess provision for contingency reserves. EV decreased by 5.8% from the end of the previous fiscal year to JPY 3.7914 trillion, mainly due to the decrease in net assets resulting from the acquisition of treasury stock in May 2021. While a certain amount of operating expenses is required for new policy acquisition, regardless of the amount of new policies sold, we have not been able to acquire as many new policies as to turn the body of new business positive. As a result, the value of new business was negative JPY 5.2 billion. An annual dividend for the fiscal year ending March 31, 2022, is scheduled to be JPY 90 per share. In the previous fiscal year, we had paid only the year-end dividend as it was necessary to carefully identify the impact of the spread of COVID-19. However, we plan to provide cash dividends twice a year as the interim dividends and the year-end dividends in this fiscal year. The interim dividend per share is JPY 45. Please look at Page 5. The page shows the trends of EV and ESR. In regards to EV, it is just as I explained earlier. ESR as of September 30, 2021, decreased 10% from the end of previous fiscal year to 195% due to the decrease in the capital amount, a numerator of ESR. Looking back at the movement of ESR over the first half of this fiscal year, the decrease in EV resulted from the acquisition of treasury stock in May 17, 2021, accounted for the majority of the decrease in ESR. We recognize EV and ESR are important in management. By steadily implementing the medium-term management plan, we will aim for medium to long-term growth in EV and medium to long-term stability in ESR. Please look at Page 6. Thanks to investment income exceeding our expectations and operating expenses lower than them, the financial results for the 6-month ended September 30, 2021 progressed steadily compared to our full year financial results forecast. Our financial results forecast, however, remains unchanged because we do not expect any significant difference between the forecast and actual results at this point in time. Going forward, we will probably make announcements when revisions to the forecast become necessary. Please look at Page 7. Under the circumstance that the impact of COVID-19 pandemic is persisting, we have been implementing initiatives to support customers, such as emergency handling for insurance payment, doubling payment of insurance benefits, and omission of part of necessary documents at the time of claim. As for the payment of insurance claims for COVID-19 in the first half of the current fiscal year, we paid a combined amount of approximately JPY 8.9 billion of death benefits and hospitalization benefits, which accounted for approximately 0.3% of the insurance claims for the company as a whole. Therefore, we recognize that its impact is quite minor. Please look at Page 9. From now on, I would like to explain the progress of our medium-term management plan and future initiatives. In the first half of the current fiscal year, we continue the initiatives to regain our customers' trust and steadily provided follow-up support through the policy coverage confirmation activities. Although we shifted to a new shelf stance in April 2021 and resumed proactive sales proposal to customers, the follow-up support have not led to a new policy proposals. Therefore, the recovery of new policy sales has remained slow, which was about 10% of the level before the solicitation quality issues surfaced. On the other hand, we have been making steady progress with preparation for the new Japan Post Insurance sales system, which will start in for 2022 and new product launches as well. We will surely proceed with these initiatives and address sales activities in the second half of this fiscal year, which I will explain later, aiming at early recovery of new policy sales. Please look at Page 10. This page shows the trend of new policies and policies in force. As I explained earlier, new policy sales in the first half were still about 10% of the level before the solicitation quality issues surfaced. As a result, policies in force also remain on a downward trend. In the next page and after, we will explain our efforts to achieve the goal for policies in force set under the midterm management plan. Please look at Page 11. I would like to explain our sales activities from FY 2021. In the first half of the current fiscal year, we created contact points with approximately 2.5 million customers, steadily carrying out follow-up support through the policy coverage confirmation activities. However, the follow-up support did not lead to new policy proposals. Considering current situation, we will thoroughly respond to customers with insurance reaching maturity whose coverage will be interrupted unless necessary procedures are followed and to customers whom we contact with the policy coverage confirmation activities. We will also proactively communicate with customers by using tools to grasp their needs and leave them to proposals. In addition, we will thoroughly implement management focusing on the process of sales activities in cooperation with Japan Post Co., with measures such as visualizing each process in the activities from approach to application and supporting post offices to solve their issues. And this way, we will make steady efforts to revitalize sales proposals. The preparation for establishment of the new Japan Post Insurance sales system starting in April 2022 has been steadily progressing. Since October 2021, consultants have been specializing in handling life insurance. Furthermore, from January 2022, consultant operation basis will be gradually consolidated. With such measures, we believe that we will be able to shift to the new sales system smoothly from the next fiscal year. Also by pushing ahead with development of new products and taking the opportunity of the shift to the new sales system, we will try to revitalize the entire sales activities. Please look at Page 12. I would like to explain the new Japan Post Insurance sales system. From April 2022, consultants of Japan Post Co. will belong to the services department of Japan Post Insurance and work as employees of Japan Post Insurance. Accordingly, sales channels managed directly by Japan Post Insurance will expand. We will improve expertise of consultants through meticulous training and guidance by managing consultants directly, aiming at provision of comprehensive consulting services by Japan Post Group as a whole. Furthermore, by introducing a customer assignment system, we aim to provide attentive customer service, leading them to a good provision of products and services. Please look at Page 13. From now on, I would like to explain our product strategies. In the midterm management plan, we will progress the development of insurance services that respond to the protection needs of the customers of all generations in an age of 100-year life. We will aim for sustainable growth by connecting existing customers and policies to the next generation. We will enhance everyday contact points with customers by introducing the customer assignment system and leveraging DX as well as improving products and services in order to develop new products. Please look at Page 14. This page shows the details of revisions of medical riders scheduled to be launched from April 2022 onwards. Another revised medical riders, we will provide enhanced medical coverage with lower premiums than before by allowing policyholders to set higher rider benefits for the basic policy. In addition, we will increase the amount of lump-sum hospitalization benefits to be paid at the time of hospitalization and pay benefits multiple times. In this way, we will make customers' needs for eliminating anxieties about financial burden caused by hospitalization and surgery and allow customers to receive generous coverage, whether it is short-term hospitalization or long-term hospitalization. This revision will allow us to widely satisfy protection needs of the customers, especially young and working age customers. Please look at Page 15. As shown in the graph on the level, the increase in new policy sales remained slow in the first half of the current fiscal year and policies in force were continuously on a downward trend. However, we aim recover sales volume with the revisions of medical riders and the shift to new Japan Post insurance sales system, et cetera, so as to achieve the target to the number of policies in force set in the midterm management plan. Also, as shown in the figure on the right, the revision of medical riders will not only recover the sales volume, but also increase the medical care ratio to annualized premiums for the new policies. Thus, we expect this revision to expand the value of new business. The revised medical riders are the first products to be launched after the relaxation of additional restrictions and the shift to the notification system. The style of adding medical riders to a basic policy remains unchanged, but products with an increased proportion of riders and enhanced medical coverage will not only satisfy customers' needs but also increase our profitability. That is why we regard these product as important ones to take the first step towards our reconstruction. We will continue to provide new products and services that satisfy the protection needs of the customers of all generations in the age of 100-year life. Please look at Page 16. Next, I would like to explain CX and DX initiatives. We aim to shift to a business model that prioritizes customer experience value, i.e. CX through DX promotion. Specifically, we will gradually implement initiatives, such as, one, a system to enable families living in remote areas to attend contract process online. Two, step up customer service center support to complete various procedures on the spot. Three, do the customer database that allows all employees to respond to customers to provide personalized heartfelt support as an entire team. And fourth, to enhance follow-up support through various methods, such as telephone, TV conferences, e-mail, SMS, et cetera in addition to face-to-face responses. By promoting DX and combining the Japan Post Group's strength in face-to-face and new digital technologies, we will provide services that exceed customers' expectations. Therefore, we will improve CX and achieve our sustainable growth. Please look at Page 17. I would like to explain boosting efficiency of business operations. Our necessary expenses have been on a downward trend in recent years. In this medium-term management plan, we aim to reduce them by JPY 28 billion in FY 2025 compared to FY 2021. Specifically, we will streamline personnel expenses by reducing the workload of approximately 2,300 employees through DX promotions and shifting employees to customer support operations. Furthermore, we would also streamline nonpersonnel expenses through productivity improvements in system development and maintenance, streamlining administrative operation and work style reform. By these initiatives, we will promote reduction of costs. Please turn to Page 18. I would like to explain the results of asset management. The left chart shows the amount of return-seeking assets and the ratio of them to total assets. We are expanding investments and return-seeking assets within the scope of risk buffer and their risk appetite policy, principally based on ALM. At the end of September 2021, the amount of return-seeking assets, such as stocks and foreign bonds, was JPY 11.3 trillion, which accounted for 16.7% of total assets. As a result, financial results for the 6 months ended September 30, 2021, we achieved 1.89% investment return on core profit and secured a JPY 58.6 billion positive spread. Please turn to Page 19. As for future asset management, we will achieve greater depth and sophistication in terms of both portfolio building and 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 and 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. As for return-seeking assets, we will watch the market environment carefully and plan to take risks cautiously. In terms of alternative investment, we will accumulate balances while diversifying strategies and regions and expect to double balances during the period of the current midterm management plan. Please look at Page 20. I would like to explain ESG investment. From April 2021 onward, we consider various ESG elements for all investment assets, along with theme-based investment in financing that focus on priority areas of well-being improvement, regional and social development, and contribution to environment to conservation, including climate change. To be more specific, we are promoting investment financing in the following style. During the period of the midterm management plan, we aim at expanding a total power generation output from renewable energy facilities that we lend money to in the investment to 1.5 million kilowatts, about 2.5x compared to 607,000 kilowatts at the end of March 2021. We assess organizations that we lend money to and invest in them by looking at their business activities to contribute to transition towards realization of a low carbon society, and we financially support them to help the society achieve carbon neutrality. Please look at Page 21. I would like to explain promotion of ESG management. We strengthened our system to promote ESG management by setting up the Sustainability Committee as an Advisory Committee for the Executive Committee and the Sustainability Promotion Office in 2021. In addition, the Sustainability Committee had discussions and enhance the system to promote sustainability. For example, formulating a plan for which officers are responsible and creating a project management function that supervises the entire plan in a cross-sectional way. We are striving to instill the idea of sustainability into the company through various training and education. As an approach to the social challenges to address with materiality, in the first half of the current fiscal year, we took measures for climate changes in accordance with the TCFD proposal and started a joint research toward verification of health effect of radio exercises. We will continue to address the materiality toward the company's sustainable growth in the achievement of SDGs. Please look at Page 22. I would like to explain our ERM and capital policy. To cope with the new solvency regulation scheduled in 2025, we will address both capital and risks to stabilize ESR in the medium to long term, while refining our ESR measurement method. As for capital amount, about 90% is EV and about 10% is subordinated bonds. We will aim for EV growth by generating stable profit as well as optimization of the balance between soundness and capital costs by incorporating capital raised through debt financing. As for risk amount, insurance risks and market-related risks are almost the same. We aim to maintain risk appetite for insurance risk by shifting to a portfolio centering on protection-type products. Market-related risks will be addressed by reducing interest risks to cope with the new solvency regulation scheduled in 2025 while maintaining other risk appetite based on return against risk. With these initiatives, we will raise the ratio of return-seeking assets to total assets and make stable profits. Effective from the values measured at the end of March 2022, we will apply a refined ESR measurement method in a phased manner. In addition, we will gradually shift to the economic value-based business management and capital management so as to complete the shift by the time of introduction of the new solvency regulation scheduled for 2025. Please look at Page 23. I would like to explain shareholder return. In principle, we aim not to decrease, but to increase dividend per share for the period of the medium-term management plan while considering earnings prospects and financial soundness. As for the dividends for the fiscal year ending March 31, 2022, we plan to pay an ordinary dividend of JPY 90. As a result of the acquisition of treasury stocks in May 2021, the total amount of dividend is expected to decrease through a decrease in the number of issued shares. So we will allocate more funds to increase the total amount of dividends. Using the increased funds, we will identify a pace at which we will increase dividends per share, taking account our dividend policy, recovery in volume of new policy sales and an improvement in profitability. Please look at Page 24. Lastly, we intend to aim to distribute stable profits to shareholders by steadily carrying out the initiatives focusing on reconstruction and growth set under the medium-term management plan and improving corporate value through the generation of stable profits. This concludes my explanation. Thank you for your attention. [Statements in English on this transcript were spoken by an interpreter present on the live call.]