This is Ito. I am your department from T&D Holdings. Thank you very much for coming to the conference call for the financial results for the three months ended June 30, 2025. Please refer to our website, Investor Relations IR News, and the materials. From my end, I would like to make a presentation about 10 minutes, after which we would like to move on to the Q&A session. Please turn to page 3. I would like to present the key highlights of the financial results for the first quarter. Group adjusted profit amounted to JPY 39.4 billion, favorably progressing toward the full-year forecast of JPY 146 billion. Progress rate: 27%. Sales results of new policies of all three life insurance companies showed growth year-on-year and performed well compared to the plan. Surrender and lapse rate has decreased across all three companies.
Value of new business, combined total of the three life insurance companies, amounted to JPY 47.2 billion, while the full-year forecast is JPY 168 billion. Progress rate: 28.1%. Group MCEV amounted to JPY 4.1216 trillion. ESR was 237%. There is no change in full-year earnings forecast. Please turn to the next page. Before moving on to the detailed explanation of the Q1 financial results, I would like to briefly provide supplementary information regarding the completion of minority investment into Veridium, which was announced on August 4. The deemed acquisition date is set as September 30, 2025, and the group's adjusted profit will begin to reflect Veridium's financial results starting from the Q4 of FY 2025, based on Veridium's December quarter of 2025 performance. In the current fiscal year, initial investment-related expenses are expected to be recorded, and the contribution to consolidated profit for the year is anticipated to be limited.
In addition, we have decided to include goodwill-related income and expenses as items to be excluded from the group adjusted profit. Please refer to page 53 for the revised calculation formula of group adjusted profit. Please turn to the next page. The breakdown of key income and expenditure by company for Q1 is as shown. Taiyo Life and Daido Life recorded increased profits, while T&D Financial Life and T&D United Capital posted lower profits compared to the same period of the previous year. Although group adjusted profit declined year-on-year, adjusted EPS increased due to a reduction in the number of shares outstanding following the share buyback. Please turn to the next page. This page presents the breakdown of changes in group adjusted profit and the reconciliation with quarterly net income.
A gain on negative goodwill was recorded in connection with the consolidation of All Rights Small Amount and Short-Term Insurance, formerly Aflac PET Small Amount and Short-Term Insurance. This item has been excluded from the group adjusted profit. Please turn to the next page. This page presents the key performance indicators of the three life insurance companies. Taiyo Life recorded higher earnings due to an increase in core profit, while Daido Life saw profit growth driven by an increase in capital gains. Both Taiyo Life and Daido Life recorded gains from the sale of domestic and foreign equities. On the other hand, Taiyo Life posted losses due to the reduction of foreign bonds, resulting in a slight year-on-year decline in capital gains.
Daido Life's capital gains increased, reflecting a rebound from the bond replacement losses recorded in the previous fiscal year as part of its cash flow matching strategy, as well as gains from the redemption of domestic equity investment trust. T&D Financial Life recorded a decline in profit due to a reactionary downturn from the increase in surrender-related gains in the same period of the previous year. Please turn to the next page. The factors contributing to changes in core profit are as described. For both Taiyo and Daido, a decline in currency hedge costs contributed to an increase in core profit, although this effect was partially offset by an increase in operating expenses. Interest and dividend income is generally on an upward trend due to increased holdings of yen-denominated bonds and improved yields.
However, at Daido, it has decreased due to a reactionary downturn from strong alternative investment returns in the same period last year. Please turn to the next page. At Taiyo Life and Daido Life, average assumed investment yields were 1.33% and 1.22%, respectively. Please turn to the next page. T&D United Capital's adjusted profit decreased by JPY 6 billion year-on-year to JPY 1.3 billion, mainly due to a reactionary downturn from the increase in variable annuity block earnings recorded in the same period of the previous year. Please turn to the next page.
Fortitude has adopted the U.S. Accounting Standard Update for Long Duration Insurance Contracts, LDTI, starting in fiscal year 2025. For details, please refer to page 45. Please turn to the next page. Sales results of Taiyo Life are shown on this page. Annualized premiums of new protection-type policies increased year-on-year, driven by the promotion of hybrid sales, combining face-to-face and non-face-to-face approaches in the sales representative channel, as well as higher sales volume in the agency channel. In addition, the surrender and lapse rate declined year-on-year. Please turn to the next page. New policy amount at Daido Life continued to be strong, supported by thorough consulting-based sales that effectively addressed a wide range of customer protection needs, resulting in year-on-year growth. Sales of the new product, Advanced Cancer Coverage J Type, launched in June, have been steadily strong.
The surrender and lapse rate declined, and the amount of policies in force increased compared to the end of the previous fiscal year. Please turn to the next page. Annualized premiums of new policies at T&D Financial Life increased year-on-year, driven by strong sales of single-premium individual annuity products. In addition, the surrender and lapse rate declined due to a decrease in contracts reaching target values for foreign currency-linked products, resulting in an increase in policies in force compared to the end of the previous fiscal year. Please turn to the next page. Group MCEV increased by JPY 175.9 billion from the end of the previous fiscal year to JPY 4.1216 trillion, driven by the accumulation of new business value, rising domestic interest rates in equity markets, and adoption of LDTI at Fortitude. The combined new business value of the three life companies increased by JPY 4.3 billion year-on-year to JPY 47.2 billion.
The new business margin was 7.8%. Until the end of the previous fiscal year, group MCEV was calculated after reflecting adjustments related to Fortitude. However, due to the adoption of LDTI at Fortitude, this calculation is no longer performed from this fiscal year onward. A breakdown of the three life companies is provided on page 16, and the factors contributing to changes in group MCEV are shown on page 17. Please turn to page 18. This page presents the investment status of Taiyo Life and Daido Life. The combined amount of domestic and foreign equity sales by two life companies, Taiyo Life and Daido Life, totals approximately JPY 100 billion against a full-year sales plan of JPY 180 billion. The Daido Life interest rate matching ratio rose by approximately 4% from the end of the previous fiscal year to 83.9%. Taiyo Life interest rate matching ratio stood at 99%.
Please go to the next page. Status of foreign currency-linked products is as shown on this page. The reduction of hedged foreign bonds continues, primarily at Taiyo Life. Please turn to page 21. This page presents the status of net valuation gains and losses on general account assets. Unrealized losses on domestic bonds have increased due to rising domestic interest rates. Please turn to the next page. Starting from this disclosure, figures for strategic shareholdings include not only those held by Taiyo Life and Daido Life, but also shares held by other consolidated subsidiaries. As of the end of June 2025, the ratio of strategic shareholdings to net assets stood at 17%, reflecting an increase in the market value of the holdings.
We will continue to reduce strategic shareholdings, aiming to achieve a balance of zero strategic shareholdings by the end of March 2031, excluding those of business partners and collaborators. Please turn to the next page. Stocks reclassified from strategic shareholdings to pure investment purpose are being sold as part of efforts to reduce equity risk. As of the end of June 2025, cumulative sales have reached 45%. Please turn to the next page. As of the end of June 2025, the ESR ratio declined to 237%, reflecting an increase in surplus on one hand and a rise in mass surrender risk due to higher domestic interest rates on the other. Please turn to the next page. There are no changes to the full-year forecast. Earnings forecast for the fiscal year ending March 31, 2026. A breakdown of the forecast by each life insurance company is provided on page 26.
For the remaining nine months of the fiscal year, the group's adjusted profit is expected to decrease by approximately JPY 0.67 billion for every JPY 1 appreciation in the yen. This concludes the briefing of financial results for the three months ended June 30, 2025. Now, we'd like to start the Q&A session.
Please, Muraki-san from SMBC Nikko Securities, please.
This is Muraki from SMBC Nikko Securities. I have two questions. First of all, this relates to page 5 of the materials. When we look at the progress rate for T&D Financial Life and also T&D United Capital, the progress rate is somewhat low. I would like to know the reasons behind that and also the outlook for Q2 onwards. Also, for Fortitude, the interest, the dividend, the payment is on the decline. I would also like to hear the reason behind that. That is the first question.
Thank you very much, Muraki-san, for your question. I'd like to talk about T&D Financial Life. Why the progress rate is low vis-à-vis budget. T&D Financial Life, they are considering seeding of the in-force policies partially.
Of course, that would generate profit, but in terms of the timing, it has been pushed out in Q2 onwards. If we were to exclude this factor, actually, T&D Financial Life is pretty much in line with our expectation. Next is about T&D United Capital. The Fortitude's alternative assets, the performance has been sluggish. This is centered on the private equity funds. Some of the factors behind that, the interest rate continues to hover at the high line. However, in terms of the acquisition and IPO execution, it's been sluggish, and the exit has been prolonged. In terms of US GAAP, the mark-to-market analysis is conducted, but in terms of the stock market multiples, that has also pushed down the performance. The expectations going forward, if you look at Q1 only, it has been quite challenging, but we still have nine months to go.
We're hoping that we can actually achieve the guidance number. The second quarter onwards, we shall see subsiding of the tariffs issues, and likewise, the equity market is somewhat favorable. We are expecting some recovery, but we don't have the most up-to-date information in Q2. We'd like to refrain from actually making a clear response at this moment. That is all in terms of my explanation.
Thank you very much. Second question relates to the asset management. For Taiyo and Daido's holding of JGBs, I'd like to hear about this. Of course, the pricing has come down by more than 50%. How much has there been an increase in terms of the volume? If you look at page 34, you have it really booked on loss and sales on securities or devaluation losses on securities. I believe you are holding those without making a decision on the loss, the impairment loss. If you can give us the magnitude, that would be helpful. Also, Nippon Life mentioned JPY 200 billion in terms of loss and sales. Daiichi Life, more than JPY 40 billion of the loss and sales of JGB has been conducted in Q1. The second quarter onwards, through the rebalancing of JGBs, how should we look at the loss and sales given the most up-to-date interest rate situation?
Thank you very much, Muraki-san, for that question. As of June end, the unrealized loss situation, given the current interest rate level, the 40-year bonds, some of the names, we are seeing more than 50% of the evaluation loss, but we would not disclose the actual number.
In terms of whether we will conduct impairment or not, first of all, in terms of the standard for impairment for the policy risk of matching bonds, it has not been clearly stated by the accounting standard. We are actually consulting the auditors in that sense. In our case, first of all, whether we have the capability to fully hold on to the bonds and also whether we have the intent to hold on to these bonds until they recover. By satisfying these two levels, we would actually make the decision on the impairment loss. Whether we conduct the asset replacement or not for Daido Life, cash flow matching has been conducted. Accordingly, we are looking into the asset replacement. Having said that, in terms of the asset replacement, there are some requirements that we need to fulfill as part of the policy risk of matching bonds.
It is not likely that we would conduct any large-scale asset replacement within the same term. At this moment, we cannot clearly state how much we will conduct the asset replacement, but as we conduct the cash flow matching, accordingly, we will do so. That is all.
Thank you very much. Very well understood.
Hi, thank you so much for taking my questions. My first question is on Veridium. Is the goodwill negative or positive? That's my first question. Also, would you please indicate the image of the amount of the goodwill to the extent you can disclose, please? My second question is on the movement analysis of EV. There's a negative figure coming from variances in assumption and the result. Also, there's a negative impact from assumption changes coming from the increase in the mortality rate. For those factors, why is it so negative from the increase in the mortality rate from the assumption changes? That's my first question. Also, surrenders are down, but there are variances in assumption and the result coming from the surrender. Are we not going to see those negative factors anytime soon?
Thank you so much for your questions. First, goodwill from Veridium depends on the balance sheet at the end of September. We don't know at this point the amount, but is it positive or negative? Probably it's going to be positive. Understood? As I explained in the presentation, it's going to be excluded from the adjusted profit. To your second question, variances in the assumption of EV, variances in assumption and result, mainly this is due to the increase in the surrender, as you mentioned. Mortality and expense ratio are the reasons for the assumption changes. This is not coming really from Taiyo Life, but mostly from Daido Life and T&D Financial Life. Mostly Daido Life. The biggest factor is the expense ratio factor due to the base salary increase, therefore the human resource cost increase. Also, the second largest one is the mortality rate increase. The factor from the surrender ratio is not so large.
Now, going forward, with regards to the expense ratio, our assumption of the inflation ratio is 1.2% for the expense ratio. In the future, if the wage increase is over 1.2%, it's going to worsen the EV. Next, mortality rate. For Daido Life, they take the mortality average over the past three years. However, after the end of the pandemic, mortality rate has been flat, but there's always a fluctuation in every quarter. They use the moving average over three years. The quarter with low mortality has been removed from the calculation. That is the reason for the deterioration of the mortality rate. In Q2, there is going to be one more quarter with low mortality rate to be removed from the calculation, but in Q3 and Q4, quarters with high mortality are going to be removed. For the four-year basis in total, we are not anticipating any major deterioration.
However, we are going to see how the actual result trends. For Daido Life, they assume surrender is going to be converged into the 10-year average. That is the assumption. Surrender now compared to surrender 10 years ago, surrender now is worse. We expect surrender to gradually deteriorate over time. About variance in assumption and the result for the surrender ratio, for Taiyo Life, the surrender at the bank assurance channel is staying at a high level. There is a possibility that there may be some variances in assumption and result. Depending upon the result, it may lead to the assumption changes. This completes my answer.
Thank you. My next question may relate to the mortality rate, but for Daido Life, profitability from the insurance business for the past three months has been low. Is it because of the impact on the wage increase, but still profitability decline is large?
Is this simply the quarterly fluctuation? The mortality rate was high, but it does not concern us. Compared to the full-year projection, your progress is 25%. Are there any one-off or swing factors?
Ms. Suzino, thank you so much for your question. The reasons are all the factors that you mentioned, expense rate, deterioration, and in this quarter, mortality rate deteriorated, but this is within the regular swing or regular fluctuation. It does not concern us so much.
Understood.
Watanabe-san from Daiwa Securities, please start your question.
This is Watanabe. I have two questions. First question relates to the performance of Fortitude. You mentioned you do not have the most up-to-date number. Going forward, will you not be doing those disclosures on a preliminary basis? Also, for page 45, as I look at the LDTI adoption, you mentioned the number of volatility may go up, but the impact of LDTI on distributable cash flow is limited. You mentioned that. Is there a chance that you may change the definition of group adjusted profit?
Thank you very much for that question. Normally, we would give the preliminary results for Q2. Of course, LDTI adoption is taking some time for the calculation. We cannot actually meet the deadline for the disclosure. Going forward, we will not be able to give you the preliminary results for Fortitude. Next, about the LDTI.
Whether we will change the definition of group adjusted profit, no, we do not intend to do so. I'm pretty sure you understand this point. With the LDTI adoption, the main changes are how we evaluate the liabilities. In terms of the interest rate, discount rate-related changes, it would not actually hit the PL, but actually it would hit the OCI. Therefore, in terms of the interest rate changes, it would not impact the adjusted profit and others. That is my explanation.
Understood. Understood. Thank you very much. The second question relates to ESR. Veridium investment and buybacks impact. On a pro forma basis, what is the most recent outlook in terms of ESR?
Thank you very much for that question. In terms of Veridium's investment, as well as the share buybacks, if you were to take those into consideration, it's just slightly below 225%.
Even with the increase in the mass surrender risk, you're still near the top end of the target range, then.
That is correct. Thank you very much.
Next questions are from JP Morgan Securities. Mr. Sato, please go ahead.
Hi, Sato from JP Morgan Securities. I have two questions. My first question is, what you mentioned three months ago when you announced your full-year results for the year that's ended, you talked about upside factors to offset the downside factor from the exchange rate. You gave us your expectation towards upside factors to offset the exchange rate factor. Is there any change to your view? Specifically speaking, in the previous presentation, you mentioned upside factors such as for Daido Life, return from the alternative assets, and also JGB yield improvement on the back of higher interest rates, and also upside from capital gains from equity sales. You talked about those upside potential factors. For Fortitude and Daido Life, probably the situation is different.
For alternative assets, in particular for private equity assets, there are probably more uncertainties compared to three months ago. Judging from the current environment compared to what you said three months ago, is there any change to the upside potential factors you mentioned to offset the negative impact from the exchange rate?
Mr. Sato, thank you so much for your questions. No, there is no change to our view of upside factors that we explained in May. For Q1, for Taiyo Life and Daido Life, for both, return from alternative assets has outperformed compared to the assumption in the budget. We expect a strong momentum to continue in the first half of this year. In addition, this is something that we didn't mention in May, but dividends are increasing. In general, Japanese companies are paying more dividends, so we now see the upside factor from the higher dividends.
Other than that, due to the higher interest rates, yield from JGB is increasing. For Taiyo Life, they are replacing lower yield foreign bonds by JGBs, higher yielding JGBs. Those are the positive factors, upside factors, which could offset the negative impact from the stronger yen. That completes my answer.
Understood. Thank you. My second question, you may have probably explained this already in your presentation, but I'd like to get more color on the risk amount for ESR. For three months, risk amount has increased by a little bit more than JPY 100 billion. Would you please give me more color? Breakdown, please. Thank you.
First, as I mentioned in the presentation, the biggest factor is the mass surrender. The value of policies in force has increased on the back of higher interest rates, so mass surrender has increased. That's the biggest factor.
The second factor is a technical reason, but for Fortitude, because of the adoption of LDTI, net assets of Fortitude that we account for as the risk amount have increased. As a result, risk amount has increased. Those are the major two reasons why the amount of risks have increased.
You are selling down stocks. Including that, would you please give me the indication of the size of those factors? In particular, for the mass surrender, which is probably the largest factor, would you please give me the indication of the image of the amount?
Mr. Sato, thank you so much for your question. Mass surrender risk has increased by about JPY 100 billion, but there's a diversification effect, so not the whole JPY 100 billion is going to impact. If you take out the risk increase by the mass surrender risk increase alone, it's JPY 100 billion or so.
Understood. Thank you.
Next, Sakamaki-san from Mizuho Securities, please.
I have two questions. The first question relates to the progress of profit. I'd like to hear more about the positive spread. You mentioned the alternatives vis-à-vis guidance. It is trending well. How well is it in terms of the alternatives? Especially the progress is well for Taiyo Life. I'd also like to hear about the progress for Daido Life as well. What are some of the reasons for the upside?
Thank you for that question, Sakamaki-san. In terms of alternatives for Taiyo Life, it's about JPY 1.8 billion. That is above the budget right now. That is the current state. In terms of the equity, that is the dividend, just short of JPY 1 billion of an upside that we are seeing. For Daido Life, for alternatives, similar magnitude as Taiyo Life in terms of the upside.
Those are the two major factors behind the stronger trend.
Thank you very much. Thank you. My second question relates to Daido Life's surrender situation. On a year-on-year basis, you are seeing an improvement. Given the changes in the macro environment, are you seeing some signs of deterioration in terms of the surrender and lapse? If you can give us the most recent situation in the field.
Thank you for that question. In terms of Daido Life's surrender, since the second half of last year onwards, it has been on the decline. That is still ongoing for the first quarter. Within that, back in 2017 to 2018, we saw the nursing care term insurance. There's been a rise in the surrender, but we have been able to absorb that. At this moment, the surrender rate has been on the decline. It's pretty much subsided right now.
However, the economic sentiment within the SMEs, we are seeing a dichotomy. The new business has been favorable, but at the same time, we're not expecting a significant decline in surrender either. Unless there's a significant change in the external environment, the surrender for this year will be somewhat similar to last year. That is all.
Thank you very much.
Please go ahead. Hi, my name is Sasaki from Nomura Securities.
Thank you so much for taking my questions. Two questions. First, because of the increase in the interest rates, are there any policyholders surrendering their policies? That's number one. Because of the increase in the interest rates, there are some voices who are saying that it is the opportune timing for you to increase your investments in super long-dated JGBs. Because of the higher interest rates in the near future, are you going to change your investment plans?
Mr. Sasaki, thank you so much for your questions. First, relating to the surrender ratio, the only channel where we see the increase in the surrender ratio is the bank assurance channel. For the sales reps channel and agency channel, no, we are not really witnessing any increase in surrenders.
Next, are we going to change our investment actions on the back of higher interest rates? No, not at this moment. For Daido Life, there's always new money coming in. In a planned manner, for the increase of the new money coming in, they buy super long-dated JGBs. That completes my answer.
Thank you so much. My next question is on the mass surrender risk, how you are going to disclose, how you are going to incorporate in your disclosure. Now this is becoming the discussion point. In your company, are you discussing the potential change, how you disclose the mass surrender risk? Do you have any plan to change your disclosure?
Mr. Sasaki, thank you so much for your questions. First, for the mass surrender risk, we disclose mass surrender based upon the regulated ESR. For us, there is no track record of the increase of the mass surrender.
Therefore, it's difficult for us to change the assumption for the regulated ESR for the mass surrender. If that's the case, then you're not discussing to potentially change how you disclose, excluding that, or are you going to disclose two levels, like surrender ratio based upon the regulated ESR and also IR disclosure type of ESR? Thank you for your question. At the moment, no, we don't have any plan to change. We are going to see how the surrender ratio trends, and we are going to review appropriately.
Understood. Thank you.
Next, Majima-san from Tokai Tokyo Intelligence Lab, please.
This is Majima. Thank you for the opportunity. My first question relates to equity investment. At the annual shareholders' meeting, Falleron has a number of shareholders' proposals about higher risk and the worsening of the return and so forth. Based on that proposal, this fiscal term, in page 23, you stated that you are increasing the net investment names. This year, based on the shareholders' proposal, of course, that was rejected. What are some of the initiatives you have in mind in terms of equity investment? That is the first question. The second question relates to Taiyo Life's nursing care products, which they assumed the yield of 2%, which is fairly high. I believe you are selling these sort of products. Are they selling well? The higher they assume the interest rate, is it selling? Or is there not much of a relationship? That is a second question.
Thank you very much, Majima-san. In terms of the equity, in the IR meeting back in May, we have made an explanation. The equity risk will be reduced. Right now, it accounts for 9% of the portfolio, but we intend to lower that to 5%. That is currently ongoing. Also, in terms of equity, T&D Asset Management will conduct the group joint investment of the equity. As of July 2025, since last month, Taiyo Life also started to join the joint investment management. Now we have the Taiyo and Daido both being invested within the T&D Asset Management. By consolidating within the T&D Asset Management, we can improve the return and also make the operation more efficient and also develop the talent. We intend to strengthen our group-wide investment.
The second point related to Taiyo's nursing care products, the Q1, we were able to generate a certain amount of sales. You mentioned about over 2% in terms of the assumed investment yields. Back in August, it has actually come down to 1.7% or so. For these particular products, we would like to control the assumed investment yields so we can also control the sales. That is our intention. That is all.
Just an additional question then about the Falleron. They mentioned about you are lagging behind TOPIX Index performance. Do you believe starting this year you can beat it?
Thank you very much, Majima-san, for that. In terms of the strategic shareholdings, we are transferring those into net investments, and we are divesting those shares. With the improvement of the portfolio, we would like to generate the excess return above the TOPIX.
Understood. Thank you very much.
Next questions are from Ms. Suzino from DOB Securities. Please go ahead.
I'm sorry, my next question is not related to Q1, but you have just published a disclosure report, and I read it, and I looked at policy reserve for March 2025 by contract year. I actually discovered something surprising. For policies underwritten in March 2021, policy reserve for March 2024 was JPY 330 billion, but that got reduced by as much as 80% to JPY 77.9 billion. Policies underwritten in March 2022, policy reserve was JPY 320 billion in the previous year, but in March 2025, policy reserve was reduced to JPY 75 billion or so. For later contract year policies, policy reserve got almost halved. That's probably due to the surrenders from bank assurance channel products and also surrenders from pandemic-related medical policies, which means the surrender has increased already so much.
We will not see so much increase in surrenders in coming years. Probably the surrender risk from those policies is now lower. I wonder, on the other hand, it makes me wonder why are you selling those policies at the bank assurance channel? For what purpose? If the policy reserve is reduced by this amount, like policies underwritten in 2020, in that year, policy reserve was as much as JPY 350 billion, but now it's down to JPY 77.9 billion. For what purpose are you underwriting those policies at the bank assurance channel? I'm sure you are going to review strategies for the bank assurance policies in the next medium-term management plan. I look forward to hearing from you the details about the future strategies.
Ms. Suzino, thank you so much for your questions. First, about the disclosure report, policy reserve is down. That's because of the reinsurance. At Taiyo Life, last year, they have reinsured bank assurance channel products out to reinsurance companies. That was the reason. Thank you so much for giving me that reason. However, we are reviewing and studying strategies, business strategies for bank assurance products. At the appropriate timing in the future, we are going to announce our strategies for the bank assurance channel.
Thank you. Policies underwritten in 2022, policy reserve is reduced so much. That's because of the impact from the reinsurance?
Exactly. That's right. For these three contract years.
Understood. Thank you.