Dai-ichi Life Holdings Inc

TSE:8750

Earnings Call Analysis

Strong Q1 Performance and Stable Full-Year Forecast

Dai-ichi reported a strong first quarter with group adjusted profit reaching JPY 144.4 billion, driven by solid domestic and overseas performance. The company's new business value for its three domestic companies hit JPY 30 billion, showcasing solid progress. Despite market fluctuations affecting stock prices and yen values, full-year profit guidance remains unchanged at JPY 340 billion. Foreign exchange rates and interest rates posed some challenges, but overall, business units, including Protective and TAL, performed well. Significant efforts in new product introductions and achieving sales targets have laid a strong foundation for continued growth.

Introduction and Financial Highlights

The recent earnings call for the company provided a comprehensive analysis of the financial results for the three months ending June 30, 2024. Nishimura, an executive with the company, began by acknowledging the ongoing support from stakeholders. The standout figure from this quarter was the adjusted group profit, which reached JPY 144.4 billion. This strong performance was primarily driven by the stable progress in both domestic and overseas segments. A significant contributing factor was the preemptive sale of domestic shares by Dai-ichi Life, which bolstered profits.

Domestic and Frontier Business Performance

The three domestic companies under the group reported a combined new business value of JPY 30 billion, achieving 38% of the annual target. Dai-ichi Life launched new products in January, which were particularly well-received, and the activity volume saw a dramatic increase. Products like FIA and annuities surpassed market expectations. Although Dai-ichi Frontier Life experienced a temporary dip in new business sales due to rising interest rates, the figures remain promising.

Overseas Operations

Overseas operations also showed solid performance, particularly in Australia. The company recorded a 150% year-over-year growth on an annualized ANP basis, primarily due to Australia TAL securing a substantial group business contract. However, the full new business value for the overseas segment in this quarter was not disclosed.

Economic Indicators and Market Impact

The Economic Solvency Ratio (ESR) witnessed a reduction to 214 points, down by 12% from the previous quarter-end. This was influenced by risks like mass surrenders and shareholder returns, which impacted the capital position. Additionally, the yen's depreciation buoyed the Embedded Value (EV), but this was offset by rising business costs, shareholder payouts, and inflation. The financial market faced turbulence on August 2 and 5 due to U.S. employment statistics and a significant drop in the Tokyo Stock Exchange, respectively.

Profit and Performance Outlook

Despite market volatility, the group adjusted profit has progressed significantly ahead of the plan. The overall progress rate stands at 42%, with the domestic business contributing 43%. Notably, Dai-ichi Life’s advance sale of domestic shares further boosted profits. Dai-ichi Frontier Life reported a favorable 70% profit progress rate, benefiting from increased FX and asset custody alongside yen depreciation. The Protective segment in the overseas business outperformed expectations as claims and benefit payments were lower than planned, driving strong operating profits.

Conclusion and Future Expectations

The company remains confident in its performance and does not anticipate revising its full-year forecast despite the economic fluctuations. Nonetheless, the company acknowledges the need for cautious monitoring of future economic conditions. The overall sentiment conveyed during the earnings call was positive, driven by strong profit margins, strategic product launches, and favorable market conditions, both domestically and internationally.

Earnings Call Transcript 2025-Q1

[西村 泰介, executive]

Hello, everyone. Thank you very much for your attendance today. My name is Nishimura. So thank you very much for your ongoing support to our company. So today, we released the financial results for the 3 months ended June 30, 2024. I would like to walk through the document.

Please take a look at Page 3, the highlight of Dai-ichi's financial reports. The first one is about the first quarter results and the group adjusted profit was JPY 144.4 billion. So domestic and overseas profits is moving stably, especially for domestic businesses quite well. In Dai-ichi Life, the -- we sold the domestic shares in advance. Therefore, that -- this is pushing up the profit and against the plan. And Dai-ichi Frontier also have a very favorable result for the new business value and also the Frontier [indiscernible] in overseas is also moving well because of the claims payment was a little lower than our original plan. So the overall group against the plan, against the full year, the progress rate was 40%. So it's quite working well.

Next is the new business value and the -- we are showing the overview of the 3 domestic companies, new business value, JPY 30 billion overall for 3 companies. Against the full year, 38% progress to date, which is a very solid progress. In Dai-ichi Life, after the January this year, we launched new products and channel activity volume increased dramatically. That is also yielding, especially the FIA products or annuity products launched in January was well received by the market compared to our plan. And including the protection products, not just new products that contributed greatly to the business. Dai-ichi Frontier Life because of the -- we saw the interest rate in the overseas hit the ceiling. And after 2022, the new business sales was a very -- now seeing some temporary low but still, the number is promising.

In terms of the overseas, in the first quarter -- third quarter new business value disclosure is not available but the new business sales is solid. In the local currency basis, 150% of the year-over-year growth in the annualized ANP basis, especially Australia TAL undertook the large-scale group business that contributed greatly. Next, economic indicator, ESR, this is the [indiscernible] disclosure, the 12% reduction as compared to the end of March, 214 points. And the interest rate increase has the risk of the mass surrender and also the cash for the shareholder return and that deteriorates some capital position that pushed down the ASR to some extent. And I would like to elaborate on this large-scale surrender risks later on.

Next EV, towards the end of June, the foreign exchange rate dramatically deteriorate in terms of the yen depreciation and that's positively affecting the EV. But that was offset from the increase of the business costs as well as the cash-out to the shareholders as well as the increase of the inflation rate. So as a result, year-over-year, it was a flat. And August 5, there was a market changes, so I would like to explain the impact. And August 2, when the employment statistics in U.S. was released, the market trembled dramatically. And August 5, the Tokyo Stock Exchange had marked the largest ever reduction. And then that also affected the exchange rate as well.

Therefore, the impact of this economic conditions, especially as of the August 5, economic environment would be the assumptions. And I would like to explain the impact on our business. In terms of the impact on profit, group adjusted profit because of the stock price -- market price reduction, loss of the capital gains and also the -- because of the yen appreciation, a certain profit reduction in the overseas subsidiary on a yen currency basis. But as I said at the very beginning, the -- at this point in time, the profit progress rate is quite in advance compared to BOI plan.

Therefore, given such market conditions, we believe that the full year forecast should not be changed -- not necessary to change. But later, I would like to touch on this. ESR and EV impact because of the low stock price as well as the yen appreciation, there should be some reduction of the asset price value. However, ESR maintained 200% or more. And it's already confirmed. And the market statistics certainly rebound. But still, we need to monitor carefully about the economic conditions fluctuations. Please take a look at the next page.

So this is the group adjusted profit fluctuations and then some impacts. Overall group, so 42% -- 43% progress to date -- sorry, overall 42% as a group and then especially group business -- domestic business, 43% progress. Dai-ichi Life in the midterm plan, we sold the domestic shares in advance to our original plan. So that pushed up the profits. Dai-ichi Frontier Life, the progress to date of the profit was 70% or so. This is quite favorable. And FX and assets under custody is increased and also the yen depreciation also affected positively on a positive spread. And the overseas business, the first quarter saw a very good result. In Protective, claims and benefit payment was lower than our original plan. Because of that, operating profit moved quite favorably.

In FY '22 and '23, Protective profit was pushed down because of the realized loss of the securities. That impact is now lower than the original expectation and because of that 37% progress to date against the plan. And TAL, because of the increase -- the claims payment, the progress was slower than last year. However, versus the plan, it's 30%. And August 5, market fluctuation is embedded on the adjusted profit of the group business. On the right, you can see the stock price and yen appreciation, JPY 50 billion or more push down of the profit. But derivatives used for the hedge position, will generate more profit. And also the first quarter uplift of the profit is given.

With that, we believe that there is no -- not necessary to change the JPY 340 billion for full year forecast. Now moving on to the next page. The group -- year-over-year changes of the group adjusted profit, Dai-ichi Life and Dai-ichi Frontier Life and Protective profit will be the main source of profit level and maintaining the same level of the last year. And in the middle, as you can see the, in May, we had a fully, make it the subsidiary, Benefit One, PPA, purchase price allocation is now completed and the goodwill amortization policy is now fixed.

And beginning of the year, in our plan, benefit plans stand-alone, as well as amortization value, on a net basis, this year's profit was originally very conservative, like minus JPY 10 billion. However, as you can see here, every year's intangible assets and amortization costs was lower -- largely lower than our expectation. This year also Benefit One business can generate JPY 2 billion profit contribution.

Move onto the next page.

Next, new business performance. The value of new business of the 3 domestic companies have reached 40% of the full year forecast, thanks to the recovery of the sales volume of Dai-ichi Life. In the next page, I will explain the factors. But the -- among the new products released in 2024, the annuity product is doing well. And in overseas businesses, Protective & TAL are doing well. Protective has revised the products in a agile manner and captured the needs of the customers and the fixed annuity sales was especially well. And TAL obtained a large-scale group insurance contract. So they have the top share in the protection products and they have a negotiating power.

Please go to the next page. This shows the factors of the sales rep channel sales. And all indicators on the left-hand side exceeded the level of the first quarter 2022, especially the value of the sales revenue exceeded the level of the first quarter 2022 for the first time and all the indicators are improving. Taking advantage of the effect of the annuity products, we can introduce the major products to the same customers and we can improve the new business performance further. And as for the sales force, we could hire more than 1,000 new recruits in April, exceeding the target. And we can hire 1,000 people in July as well. So we expect there will be a stability in sales force.

Please go to the next page. It's about ESR. The ESR at the end of June is approximately 214%, which dropped 12 percentage points from the end of March. And one of the factors is the increase of the mass lapse risk due to the increase of the interest rate and also the investments return, which reduced the capital. You can see the estimates reflecting the market volatility on August 5. Because of the decline in share price, the eligible capital drops. But at the same time, the share risk will reduced and the mass lapse risk was also reduced. So that would offset the reduction of the capital. And thanks to the appreciation of the yen, the ESR would face a single-digit decline.

In order to reduce the share price risk, we are planning to sell a JPY 1.2 trillion worth of cash stocks in the current medium-term plan but we are planning to reduce the balance of domestic equities' holdings in DL after the next medium-term plan, considering the capital efficiency, cost of capital and strategic asset allocation to less than JPY 2 trillion. We are still examining this matter and we will explain it in the IR presentation in November. We will continue the simulation and examination and continue to think about this.

Please go to the next page. This shows the mass lapse risk. We would like to explain it. In May, we disclosed the ESR at the end of March 2024. We explained that under the new ESR based on J-ICS, the mass lapse risk will be recognized. To calculate the risk based on the new standard, the in-force policies need to be reduced by 30%, except for certain products. The result that you can see in the middle bottom, the mass lapse risk is calculated this way. And there is a significant difference in interest rate sensitivity between protection products and other products.

So in case of the protection products, the source of risk is the missed future profit and there is no interest rate sensitivity. So the risk is -- does not linked to the amount but it does not linked to the interest rate. However, in case of other products, which require incremental policy reserve, the risk will increase if the interest rate rises. The J-ICS standard is expected to be finalized by summer 2025. So until it is finalized and the regulation is applied, we will continue to examine what we can do for our products and also the [ ISR ] internal model and our policies.

And that is all from me. Thank you very much, [ Kai-san ], can you say a few words.

[Unknown Executive]

This is [ Kai ]. Last night we released an information about the leak of information from our employee to the agencies. And we apologize for the concerns and inconvenience caused by this incident. Dai-ichi Life Group deeply take this matter very seriously and we will quickly investigate the matter and the whole company will take measures to prevent the recurrence of this -- such incidents. Thank you very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]