Dai-ichi Life Holdings Inc

TSE:8750

Earnings Call Analysis

Strong Recovery with Positive Earnings Guidance and New Initiatives

In the latest earnings call, the company reported a group adjusted profit of JPY 245.2 billion for the second quarter, achieving 70% of its full-year forecast of JPY 340 billion. Dai-ichi Life's sales surged 24%, bolstered by new products and rising dividend income. The company introduced an interim dividend of JPY 61, effective December 5. Additionally, the acquisition of ShelterPoint is expected to contribute JPY 4 to 5 billion mid- to long-term. The projected group value of new business for the fiscal year is JPY 105 billion, reflecting strong performance across domestic and international business segments.

Strong Performance in the Second Quarter

The company reported a robust performance in the second quarter, achieving a group adjusted profit of JPY 245.2 billion. This accounts for about 70% of its full-year forecast of JPY 340 billion, surpassing expectations. Key drivers for this success included increased dividend income from risk assets and strategic asset sales at Dai-ichi Life, particularly in Japanese stocks.

Sales Growth and Market Recovery

Dai-ichi Life experienced a remarkable recovery in sales, attributed to the successful launch of new products. The company reported an annualized new premium (ANP) of JPY 304.3 billion, reflecting a sharp 24% increase compared to the same period last year. The positive sales momentum is expected to continue, driven by improving hiring practices and effective training for their sales representatives.

Value of New Business (VNB) and Future Outlook

The group’s value of new business reached JPY 89.9 billion, achieving 86% of its full-year forecast of JPY 105 billion. This growth is attributed to Dai-ichi Life's strong performance coupled with overseas entities benefiting from favorable currency exchanges. Despite the anticipated gradual decline in the positive impact from new products, the company remains optimistic about reinforcing its recovery through targeted marketing efforts.

Introduction of Interim Dividend and Future Acquisitions

The company has introduced an interim dividend, marking the first payment scheduled for December 5 at JPY 61 per share. Additionally, Protective finalized its acquisition of ShelterPoint, a significant move aimed at expanding its group insurance business. Over the mid to long term, this acquisition is projected to contribute JPY 4 billion to JPY 5 billion to profits, although initial years might incur integration costs.

Challenges and Operational Adjustments

Despite impressive profits, some segments faced difficulties. For example, Protective’s profit was impacted by rising claims and inflation pressures in the asset protection business. However, improvements in investment returns and expense management have helped mitigate these challenges. Future operational adjustments, including a careful approach to risk management and product offerings, are pivotal as market conditions evolve.

Stable Economic Value and Shareholder Returns

The preliminary economic value (EV) stands at JPY 8.8 trillion, remaining flat from previous measurements, with contributions from new business acquisitions offsetting some losses due to shareholder returns. The company is focusing on maintaining a balanced approach to shareholder returns while ensuring stable and sustainable growth through new business strategies.

Forecasts for Fiscal Year 2024

Looking ahead, the company anticipates extraordinary losses of approximately JPY 15 billion from implementing a special support framework for second-career participants. However, they reaffirmed that this will not affect their overall forecast for the full year profit of JPY 340 billion. Continued focus on restructuring and optimizing the staff will be crucial as the company aims to adapt to ongoing market changes.

Earnings Call Transcript 2025-Q2

[西村 泰介, executive]

Well, thank you very much for your time today to participate in this telephone call or conference call.

So we released the second quarter results, so I'd like to give you the some -- the explanations based on the materials.

So please look at Page 3. These are the highlights for results. There are 3 major highlights. First, on consolidated business performance, group adjusted profit for the second quarter is JPY 245.2 billion. So compared to the original full year forecast, which is JPY 340 billion, achievement ratio is 70%, which is the -- above plan. At Dai-ichi Life mainly, the dividend income from risk assets increased. Thus, positive spread expanded. And also we accelerated sale of Japanese stocks, and these are the factors for a good result. And for international business, Protective and TAL, which are large parts of our profit, incurred stable income.

Now on top line. For first half, at Dai-ichi Life, the sales have recovered quite drastically because of new product launch. And Protective's product which leverages U.S. interest rate change sold well. And TAL won large group insurance mandate, so ANP is JPY 304.3 billion. Compared to the same period last year, that's actually an increase of 24% in income.

And VNB. And because of the recovery in sale at Dai-ichi Life, the high rate in Japanese market contributed to the numbers. And overseas entity is performing very well. As a result, group's VNB is JPY 89.9 billion. Compared to the original full year forecast, achievement ratio is quite high at 86%.

Now on EV. Well, this is a preliminary number. For final number of EV, that will be disclosed in the financial analyst meeting on 29th of November. For this preliminary EV, the number is JPY 8.8 trillion or so. [ It's ] almost flat from the end of March. New business acquisition plus lower yen contributed, with some offset by return to shareholder and change in [ noneconomical ] assumptions.

Now I'd like to give you some 2 specific topics. First one is interim dividend. We decided to introduce a interim dividend scheme, and the first interim dividend payment become effective on December 5. And that will be JPY 61, as we expected.

And also, the Protective completed its process to acquire ShelterPoint. This company is a group insurance-oriented company with a focus on income protection policy in the United States. And we received the approval from the authority, so starting from fourth quarter, revenue will be recognized. However, its contribution to our profit over mid- to long term is expected to be JPY 4 billion to JPY 5 billion, but for initial few years, because of the costs of integration, the recognition will be after that.

So please go to the next page, on group adjusted profit. I just want to give you the achievement ratio for each entity. The group adjusted profit up to second quarter is JPY 245.2 billion, 70 -- 72% of the achievement ratio; for domestic business, 70%, which is a quite high level.

As I said in the beginning, at Dai-ichi Life, sale of Japanese equity was accelerated. And dividend from -- dividend income from the risk assets improved, and also fixed-income asset increases. Those actually contributed to the number. For Dai-ichi Frontier Life, progress rate in second quarter is negative because of the replacement of the foreign currency bond in order to adjust duration. So the progress rate actually slowed down. However, in the progress rate for up to second quarter, that is actually about 64%, which is still very high.

For international business, the progress ratio, achievement ratio, is about 60% in total. For Protective, their loss ratio in the asset protection business deteriorated because of the inflation. However, there was improvement of investment return in retirement business. And the control of non-personnel expense has been seen. For TAL, there was claim payment which has been increasing. However, high investment that -- performance contributed to the profit.

And as you can see on the right-hand side of this slide, at Dai-ichi Life, the -- it has been actually accelerating the replacement of reserve requirement bonds since BOJ's rate hike in July. Subject of replacement is mainly 20- to 40-year bonds we bought since 2016, when negative interest rate policy was introduced. And we replaced about JPY 500 billion bond in book value. As a result of this replacement, there was a loss from sale of JGB which is about JPY 140 billion. However, that was offset by other capital gains by risk reduction such as risk assets replacement and mutual fund redemptions, thus no impact on full year forecast of JPY 340 billion. And as of now, there won't be any, another large-scale bond replacement in the second quarter -- second half.

Please go to the next page. This is about the group adjusted profit compared to the same period of last year. For domestic business, Dai-ichi Life saw positive spread expansion; and the profit increased by JPY 55.5 billion. For international business, PLC or Protective has no impact from bank failures like last year. And TAL's profit declined due to change of definition of adjusted profit. However, if you apply new definition to last year's number, there was a slight increase.

Please go to the next page. This is about result of new business, group value of new business. Because 3 domestic entities moved to ICS-compliant standard, it's kind of difficult to make apple-to-apple comparison. However, it already exceeded at fiscal year 2022 number, which is JPY 77.7 billion. And also it exceeded the number of the fiscal year 2023. Although there was a positive support from TAL's win of large contract, we are quite confident about the situation. Particularly for Dai-ichi Life, since the launch of new product in January, we saw activities by sales rep increasing. So regarding the favorable factors for Dai-ichi Life results, we are going to give you more detailed explanation later.

Well, Protective made a huge improvement from last year. At Protective, well, they actually curtailed the sale of stable-value balance, which was the -- actually dragging the performance in 2023. And catching up with the -- at a high U.S. interest rate, they timely updated [ annuity ] products, leading to good performance.

And also, our full year forecast for group VNB is JPY 105 billion. And at the end of the fiscal year, we are going to apply new criteria or new standard to overseas entities, so there won't be any upward revision. If we continue to the -- use current method, the estimate as of now -- for full year, the estimate as of now will -- actually above our forecast. And as I explained before, the new business performance of Dai-ichi Life has been performing very well. The positive impact of new product will decline gradually as marketing run its course. However, even with that, Dai-ichi Life's new business fares very well, so from now on, by marketing our own and main products to new customers, we'd like to reinforce the recovery trend that we see now.

So in this environment, at Dai-ichi Life, the number of sales reps actually turned positive for the first time in 3 years. Well, there was a fraud incident in 2020; and we took some -- the measures subsequently. And because of that, the retirement increased. And we have been actually selectively hiring, but we could achieve about 1,000 hiring per quarter. And we actually saw the declining trend stopped. And we continue to be selective in hiring and to provide good trainings to employees so that we can organize efficient sales force.

So sales policy and future initiatives by Dai-ichi Life will be explained in the financial analyst meeting on 29th November by Sumino-san of Dai-ichi Life.

Now please see the next page. This is about group EV. Well, this is a preliminary number, and the final number will be explained on November 29. Group EV is JPY 8.8 trillion. That is actually flat. At group level, well, VNB increased. And overseas entities benefited from lower yen. On the other hand, cash-out due to return to shareholders and the change in economic assumptions offset numbers somewhat, so compared to the end of March, it's almost flat.

Please go to the next page. This is actually the fiscal year 2024 group earnings forecast. Well, today, we released our decision together with financial result today. And that is actually our decision to implement second career special support frame [ framework ]. It depends on the number of participants, but we expect extraordinary loss of [ JPY 15 billion ] or so. So when we know for sure the number of participants in this program, we are going to give you update. And even considering this extraordinary loss, there won't be any impact on the probability to achieve full year forecast, which is JPY 340 billion, so there is no revision of performance forecast.

That's everything that I have.

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