This is Ito from the T&D Holdings IR. Thank you very much for coming to the conference call for the financial results for the nine months ended December 31st, 2024. For materials, please go to our website under Investor Relations and under IR Events. I will make an explanation for about 10 minutes, after which we would like to move on to the Q&A session. So we'd like to move on to the explanation. Please go to page three. I will explain the points of the financial results. Group adjusted profit favorably progressed and increased by 44.9% to JPY 102.1 billion year-on-year, an upwardly revised from an initial full-year forecast of JPY 117 billion to JPY 130 billion. Sales results of new policies of all three life insurance progressed favorably, and full-year forecast was revised upwardly.
Value of new business increased by JPY 1.6 billion year-on-year to JPY 138.9 billion, an upward revision from an initial full-year forecast of JPY 160 billion-JPY 180 billion. Group MCEV increased by 5.5% from the end of the previous fiscal year to JPY 4,327,600,000,000 . ESR was 244%. We sold approximately JPY 157 billion in domestic and foreign stocks, combined total of Taiyo and Daido for Q3 year-to-date, while full-year plan is JPY 140 billion. In addition, in the consolidated results of the company for the fourth quarter of fiscal year ending March 2025, the company is expected to record approximately JPY 1 billion as adjusted profit related to Fortitude's financial results for the October-December 2024 period. The company expects the adjusted profit of fiscal year to be approximately JPY 16 billion. Please turn to the next page. The breakdown by company is as stated.
Three domestic life insurance companies and T&D United Capital recorded year-on-year increases in group adjusted profits in excess of double digits. The four companies revised full-year earnings forecast upwardly. Page six shows the key results of three life insurance companies. At Taiyo Life and Daido Life, positive spread and core profit increase year-on-year. Factors of increase and decrease in positive spread and core profit are shown on page seven. In addition, at Daido Life, capital gains decrease year-on-year due to losses on the sale of bonds following the replacement of bonds for the purpose of cash flow matching. Please turn to page eight. At Taiyo Life and Daido Life, average assumed investment yield was 1.16% and 1.25% respectively. Please turn to the next page. Adjusted profit for T&D United Capital increased by JPY 5.6 billion year-on-year to JPY 12.3 billion. Please turn to the next page.
The company is expected to record approximately JPY 1 billion in its consolidated results for the fourth quarter of fiscal 2024, as adjusted profit related to 42's financial results for the October-December 2024 period. For the full-year, adjusted profit is expected to be approximately JPY 16 billion. In addition, equity and earnings of affiliates of JPY 30.5 billion was recorded as accounting profit due to lower U.S. interest rates in our third quarter, but in our fourth quarter, equity and losses of affiliates of the same amount, JPY 30.5 billion, is expected to be recorded due to the U.S. interest rates rising again. Page 11 shows the status of commercial mortgage loan. We expect to record an impairment loss of approximately JPY 0.5 billion in the consolidated results for the company for the fourth quarter. Please turn to the next page.
Sales results of Taiyo Life are shown on this page. Mainly due to an increase in sales volume in the agent channel, annualized premiums of production-type new policies increase year-on-year. Annualized premiums-based surrender and lapse rate was 4.52%, an increase of 0.12 percentage points year-on-year due to an increase in surrenders in the agent channel. Please turn to the next page. New policy amounts of Daido Life progress well and increase significantly year-on-year, mainly due to attentive consulting sales activities that comprehensively cater to customers' diverse needs for coverage. Surrender and lapse rate was 8.10%, broadly in line with the same period of the previous year. Meanwhile, policy amounts in force increased from the previous fiscal year-end due to favorable performance of new policy amounts. Please turn to the next page.
Annualized premiums of new policies of T&D Financial Life for Q3 year-to-date progressed beyond the initial full-year forecast of JPY 62 billion, owing to favorable sales of single premium individual annuity. Although surrender and lapse rate increased year-on-year due to higher surrenders of foreign currency-linked products that reached target yen value as a result of the weakening yen, annualized premiums of policies in force increased. Please turn to the next page. Group MCEV increased by JPY 224.4 billion from the end of previous fiscal year to JPY 4,327,600,000,000 , mainly due to the accumulation of value of new business, a rising domestic interest rates, and a rising market value of foreign stocks and others. Total value of new business of the three companies increased by JPY 1.6 billion year-on-year to JPY 138.9 billion. New business margin was 8.1%.
The details on each of the three life insurance companies are given on page 16 in the movement analysis on page 17. Please turn to page 18. This page shows status of investments of Taiyo Life and Daido Life. Two companies sold a combined total of approximately JPY 157 billion in domestic and foreign stocks, outpacing the original full-year plan to sell JPY 140 billion. The interest matching ratio of Daido Life increased by approximately 12 percentage points from the end of the previous fiscal year to 78.5%. In addition, the interest matching rate of Taiyo Life was 87.5%. Please turn to the next page. Status of foreign currency-denominated bonds is as shown on the page. We have continued to reduce hedged foreign bonds mainly at Taiyo Life. Please turn to page 22. The ratio of strategic shareholdings to net assets was 16%.
We will continue to reduce strategic shareholdings with the aim of achieving a balance by zero by the end of March 2031, excluding those of business partners and collaborators. Next page, please. We are proceeding with the sale of the stocks that have been pre-classified from strategic holdings to share sales for pure investment purposes in the course of reducing equity risks. The cumulative total of sales came to 37% by the end of December 2024. Next page, please. ESR as of the end of December 2024 has risen from the end of previous year to 244% due to an increase in surplus as a result of the acquisition of new policies, et cetera. Please turn to the next page. Earnings for cash flow full-year was revised as stated on the page.
The ordinary revenue was revised up to exceed JPY one trillion, mainly due to the expectation of income growth from insurance premiums backed by higher sales of single premium insurance products and the impact of the seeding of policies enforced under consideration at Taiyo Life. In addition, ordinary profit, profit, and group adjusted profit were revised up mainly due to the expectation of an increase in investment earnings. We expect to achieve the final year target of the group long-term vision of JPY 130 billion in group adjusted profit one year ahead of the schedule. Breakdown of earnings forecasts of three life insurance companies are stated on page 26. Please turn to page 27. There's no change in the dividend forecast for the current fiscal year. Next page, please. We plan to disclose as stated on March 31st at 5:00 P.M. Tokyo time.
A conference call will be held on the same day at 5:30 P.M. after the disclosure, and President Moriyama will provide the explanation. This concludes the briefing of financial results for the nine months ended December 31st, 2024.
We would now like to start the Q&A session. The first question comes from SMBC Nikko Securities. Muraki-san, please.
This is Muraki from SMBC Nikko Securities. I have two questions. The first question relates to the next year's performance, if you can give us some hints as to your thoughts. So page 26 shows that this year you have been able to reach a target one year ahead of plan, and that is because of the upside of the positive spread. Next year, do we need to consider the reactionary downturns from the gains from the alternative dividend? Of course, this year we are seeing an increase in the interest rate, and also you are seeing disposal of the low-yield bonds. So, how much will the yield push up should we expect from this? And also from the core profit, if you were to look at factors outside of positive spread, I do believe Taiyo Life you have revised downwards.
So of course, the headwinds of the wage increase and inflation that will continue into next year. But what are your expectations in terms of the operating cost?
Thank you very much for that question. So the next year's outlook. So as much as possible, I'd like to explain. Now, for next fiscal term, some of the earnings driver is indeed the positive spread, same as this year.
So if you were to see the breakdown of the positive spread, so first is the increase in the interest and dividend income and also reduction in the FX hedging cost. So in terms of the increase in the interest and dividend income. So in terms of the reactionary downturn from alternatives, if you were to combine the two companies to combine together, it is not so large. Now, in terms of the replacement of the bonds, Daido's tends to have a larger duration, longer duration. So for the Q3, on the nine-month cumulative basis, in terms of the impact of replacement, it's approximately JPY 2 billion in terms of the interest and dividend replacement. So this is just on the replacement factor only. Aside from that, we have the accumulation effect and also because of the redemption of the bonds.
All in all, we do believe the interest and dividend income would increase. In terms of the FX hedging cost, the hedge cost balance is shown on page 36. For the two companies, for Taio and Daido combining, JPY 2 trillion worth of hedging balance. Basically, the improvement in the hedging cost would directly impact the improvement on the positive spread. Now, the hedging cost and the recent trend. Well, next year on a full-year basis, we expect to see below 4% in terms of hedging cost. This year, it was in the high 4% for this fiscal term. We can see a reasonable impact from the hedging cost improvement. Next, on the operating expenses, as you rightly mentioned. Of course, the increase in the personal cost, wage increase, and so forth, that will continue into next year.
But how much of an increase, we cannot comment at this moment, but that trend would continue into next year. However, if you look at the insurance income as a whole, we can offset the increase in the operating expenses. So all in all, in terms of the insurance income, we are expecting a flat trend for next year as we speak. Now, in terms of capital, just like this year, so Taiyo and Daido will continue to be engaged in disposal of equity, both domestic and overseas. And also, the bonds will be replaced, Daido for yen denominated and Taiyo for both yen and foreign bonds. But in terms of the level of capital at this particular moment, we cannot comment. So that is all we can comment for next fiscal term.
Thank you very much for that. My second question relates to shareholders' return. I'd like to prepare ourselves for the 31st of March, the meeting. Back in the IR meeting in November, some of the assumptions for the calculation of excess capital, so the ESR 225's excess would amount to JPY 330 billion. I believe there's no change as we speak. If you were to deduct the share buybacks and also redemption of the subordinate bonds, I believe you've mentioned JPY 250 billion. I'd like to know the most up-to-date number for this. Also, the investment pipeline, you mentioned about JPY 150 billion or so. Other life insurance companies, they are seeing a number of M&As. If you are seeing an increase or decrease from this JPY 150 billion, I'd like to know that as well.
Thank you very much for that question. The ESR excess amount. I'd like to explain as of the end of December. As Muraki-san mentioned, even as the end of December, the free surplus exceeding 225%, it's about JPY 330 billion. No major change here. Where the proceeds have been confirmed in terms of the interim dividend that has been paid out, we don't have to consider that. After December and onwards, we shall see the remainder of the share buyback, which is JPY 21 billion, and also the redemption of the subordinated bonds, it's about JPY 30 billion that will be expected going forward. The remainder would be allocated effectively by either the gross investment or shareholders' return. No change in terms of our general stance. JPY 150 billion was mentioned as of November of last year for the gross investments.
So there may be some ups and downs, but as of now, no major changes in terms of gross investment. We will definitely execute those with discipline. That is all that we can comment as of now.
Understood. So I look forward to end of March.
Next question is from BofA Securities Ms. Tsujino, please.
Yes, thank you for this opportunity. Regarding the surrender and the lapse amount, it went down earlier for Taiyo Life, and it was flat for Daido Life. Also, I am assuming that the deterioration has now halted. Considering the impact to EV, I believe the difference between the assumption and the actual and revisiting the assumptions are somewhat offsetting each other, but all in all, as if we're to say the impact of Q2 and the year-to-date impact to Q3 has not materially deteriorated, maybe just a modest decline of EV.
Has the rising surrender and lapse rate impacting the EV halted, or did you just not revisit the assumptions in Q3? If you do revisit in Q4, could there be further negative impact going forward? That's my first question. Earlier, there was a question around this topic. You revisited the outlook for the income from insurance premium for Taiyo Life. Can you give me the details? What are the factors behind the downward revision? Is it the impact of the mass surrender, or is it mostly due to the cost factor?
Thank you, Ms. Tsujino, for your question. First, regarding Daido Life's surrender rate impacting the EV, the assumption deteriorated modestly in Q3. The scenario for Daido Life's surrender assumption is that the last 12-month assumption will converge to the 10-year average over the next few years.
The data used has a three-month time lag. For December 2024, the last 12-month data is from October 2023 to September 2024. As you can see on page 13 of the presentation material, it declined earlier in Q3. One-year average will pick out and start to stabilize gradually. On the other hand, if you look at the 10-year average, 10 years ago in 2015, the surrender and lapse rate was at around 6%, which is lower than the current level. The 10-year average will gradually deteriorate. One-year average will start to stabilize. Also, the assumption should not deteriorate as we have seen in the first half, but the 10-year average will gradually deteriorate, and that will be reflected in the full-year assumption. Another assumption for EV is the morbidity rate, which continues to improve.
And for Taiyo Life, the assumption was revised substantially last year, but the actual for this year is slightly worse than the revised assumption, which is incurred as the difference between the assumption and the actual. The year-to-date impact due Q3 was roughly JPY 7 billion. And this is reflected as the difference between the assumption and the actual.
Also, is it fair to say that the impact on the household market is now minimal?
Yeah, so the surrender and the lapse rate for the South Asian channel is stabilizing, and it is improving earlier. And for the bank assurance channel, subject to the review in Q4, we may revise at the end of the fiscal year.
I see. Thank you.
To your second question,
The reason for revising down the income from the insurance premium for Taiyo Life is mainly because of the increase in operating expenses and the increase in the retirement benefit liability. Those are the two factors behind downward revision for Taiyo Life's income from the insurance premium.
Next question comes from Daiwa Securities, Watanabe-san.
This is Watanabe from Daiwa Securities. I have two questions. First question relates to value of new business. You have revised up the expectation for this year from JPY 160 billion to JPY 180 billion. What is the difference from the beginning of the year? What are some of the reasons for the upward revision? Also page 13, on a quarter, a single quarter basis, the surrender amount year-on-year, there is a decline. But if you can give us an update.
Second, next question is about page 26 for Taiyo. So you have other one-time gains and minus JPY 6 billion. You've mentioned about seeding of the in-force. If you can also comment on that. Also, you're seeing some positive factors between the ordinary profit and also the profit line. So if you're incorporating some new items, please let us know.
Thank you very much for the question. So first, it's related to the upward revision of value of new business. This is primarily because of the rise in the interest rate. So of course, the volume increase was contributing, but the main part was the interest rate increase. So that is all in terms of the first part of the question. And the second question in terms of the surrender situation in Daido Life. I've also explained this to Tsujino-san as well.
If you had Q3 on the standalone basis, on a year-on-year basis, there has been a decline. This was the first time in three years or so since we have seen the year-on-year decline for the quarterly basis. Our analysis goes. The surrender and lapse that is due to the zero-zero at the lending scheme has peaked out. We shall see that subsiding going forward. That has been the case January onwards. However, we do not expect to see a sharp decline in the surrender either. There will be more of a gradual trend. The next is Taiyo's profit outlook. The other one-time gains, negative factor. As we have explained within the release material, that is in page 25. I made this comment. Under Taiyo Life, we are considering the impact of seeding of policies in force.
So that is reflected in the other one-time last year. But of course, the details have not been finalized. So once they are decided, we would like to disclose and explain. Now, in between the ordinary profit and profit, we're expecting some extraordinary gains from Taiyo Life. So there will be sales of real estate. So there will be gains from the disposal of fixed assets. That is all in terms of the explanation.
Understood. Thank you very much.
We will proceed to the next question. Ms. Tak asaki from Nomura Securities, please.
This is Takasaki from Nomura Securities. I have two questions. My first question is on how I should interpret the new four-year guidance of JPY 130 billion. You will be achieving next year's financial target of JPY 130 billion one year ahead of the schedule. Listening to your presentation, you booked some capital losses.
Also considering the seeding of the existing book, which are both items that you had not booked in the past. Despite that, you are guiding for JPY 130 billion. Would you say that you could have achieved a higher profit? Was it the right number to aim for, this JPY 130 billion, as you will be achieving your financial target one year ahead of the plan? That's my first question.
Thank you, Ms. Tak asaki, for your question. We did not formulate the business plan by first setting JPY 130 billion as a goal to aim for. We are achieving that target one year ahead of the schedule, but this was set with a bottom-up approach.
The reason for this is because of making good progress on the investment activities and also the divestiture of the strategic shareholdings, which were better than what we had planned for under the long-term vision. And also, as you pointed out, Takasaki-san, we did book some losses to a certain extent. But booking the losses was not the primary goal. The intention was to stabilize and enhance the future profit by reducing the risk. So reflecting the successful preparatory steps for the future that we took and achieving JPY 130 billion ahead of the schedule, we give ourselves a high score. And I hope the market shares the same view.
I see. My second question is your view on the rising interest rate and your comment around JPY 2 billion positive impact through reinvestment. Can you quantify the impact of making additional investment as well as reinvesting impact?
I believe the annual insurance premium for Daido and Taiyo Life combined is approximately JPY 1.6 trillion. If you consider the spread between the average assumed investment yield and the yield on the 20-year JGBs, what is the expected impact? I believe you have a total of JPY 7 trillion in domestic public bonds. And assuming a duration of 10 years, JPY 700 billion will be reinvested each year.
So going forward to the next few years beyond next year, would you have slightly over JPY 2 trillion that will be benefiting from the higher interest rate? That is the image I have, but please correct me if I am mistaken. And can you give me some insight to this view?
Thank you for your question, Takasaki-san. We are now in the middle of formulating our budget, so it is a bit tricky to answer.
But just to give you some color, the additional impact for both Taiyo and Daido combined in terms of dividend and interest income will be roughly JPY 10 billion. Good differential point is from our November IR presentation, where we show the improvement on the final yield on the yen-denominated bond. If you multiply that by the balance, you can estimate the growth in the interest and dividend income. So we're still in the middle of making the budget, so it's hard to answer.
Apologies for asking this question. That's all for me. Thank you.
Next question comes from Mizuho Securities, Sakamaki-san.
So this is Sakamaki from Mizuho Securities. I have two questions. First question relates to Taiyo Life's seeding of policies in force under consideration. So the interest rate is hiking in Japan. So I do believe the seeding environment has been changing.
So if you can give us more color of the current seeding market as we speak. So is it a different level we are seeing? So perhaps the terms and contracts may be different or it was not possible in the past, now is possible. Is that the case?
So in terms of Taiyo Life's seeding, as we have mentioned in the release materials, it is under consideration. So we cannot give you any detailed answer at this moment. So once the evaluation is conducted and the resolution is made, we would like to make the disclosure and make due explanation.
Understood. The second question, so the margin, the shareholders' return policy that you expect to disclose. So what are some of the discussions underway? What are some of the progress that you have seen since the first half IR meeting? Again, this is a rather challenging question, but I would like to hear your thoughts.
Thank you very much. In terms of dividend, so this is just a repeat of what I've mentioned. So cash dividend will be strengthened. Also, the current policy is around the digested DOE. But going forward, we'd like to make sure the earnings growth would directly translate to dividend growth. Those are the two points. Unfortunately, that is all we can share with you at this moment. So we will strengthen the cash dividend. That is all.
Understood. Thank you very much.
So there seems to be no further questions. So we would like to now complete the Q&A session. Mr. Ito will make a closing remark.
Thank you very much for joining our earnings call despite a busy schedule. As shown in the presentation on March 31st at 5:00 P.M., we will be announcing the guidance for the full year and also the shareholder return policy at 5:30 P.M. President Moriyama will be making a presentation. We hope that you will be able to join our call in March. We hope to enjoy your continued support. Thank you very much.