I'm Moriyama of T&D Holdings. Thank you very much for joining us at today's IR meeting. In my presentation, I will cover the achievements under the group's long-term vision to date and the direction of the next long-term vision starting next April. Please turn to page four. The financial KPIs are generally progressing steadily. Adjusted ROE and group-adjusted profit targets set under the group long-term vision were achieved in the previous fiscal year ahead of schedule. Furthermore, the full year average ROE through the previous fiscal year has exceeded the medium to long-term target of 7.5%. On the other hand, new business value did not reach the initial target of JPY 200 billion. This is our challenge in our next group long-term vision. Please turn to page five. Supporting these solid financial KPIs is the robust performance of the three life insurers.
Each leverages its specialized business model tailored to its respective market, delivering strong new policy sales results and steadily expanding its in-force policies. The rising interest rates create an environment where the accumulation of in-force business can more readily lead to profit growth through the expansion of positive spread. We take pride in our robust policy performance as a major strength of our group. Please turn to page six. This page summarizes various capital management initiatives in a timeline format. Under the current group's long-term vision, we are significantly enhancing shareholder returns while executing investments in closed book businesses, which we position as growth investments. We are also enhancing efforts to reduce asset management risks and utilize insurances. Please proceed to page seven. Risk reduction measures resulted in a reduction of approximately JPY 160 billion.
Combined with solid insurance sales results and investments, the group's MCEV increased by approximately JPY 890 billion. Please turn to page eight. In response to rising interest rates, we will increase the ratio of yen-denominated interest-bearing assets to approximately 70% to ensure stable projected interest income. Meanwhile, from a risk diversification perspective, we will continue holding risk assets such as equities, but reduce the weight of domestic and foreign equities to around 5%. The reduction of domestic interest rate risks and domestic and foreign equity risks is disclosed in May 2024. While the domestic interest rate risk reduction target was achieved ahead of schedule, for equity risks, despite progress made, only 11% reduction was achieved against the 20% target due to market value increases. The reduction of equities for the current period is explained on page nine.
Against the full year sale plan of JPY 180 billion, approximately JPY 143 billion was sold in the first half. In the second half, we plan to sell additional JPY 100 billion under pure investments. Regarding strategic shareholdings, the ratio to net assets rose to 18.6% due to market value increases. However, approximately JPY 100 billion of the JPY 282.7 billion in strategic holdings has already been agreed for sale. We will continue to steadily reduce holdings by setting interim targets, aiming for a zero balance by the end of March 2031, excluding stocks held for business alliances and collaborations. Page 10 shows the status of cash flows for assets and liabilities. We will continue to promote cash flow matching going forward, while avoiding over-matching during periods of increased policy surrenders. The Daido Life durations are 22 years for liabilities and 13.1 year for assets.
In Taiyo Life, they are 12.3 years and 10.5 years respectively. Page 11 shows the yield trend. Due to portfolio rebalancing and rising interest rates, the yield on Yen denominated bonds has begun to increase from the previous year. Additionally, strong performance in alternative investments has significantly improved the yield on core profit. The assumed interest coverage ratio from Yen assets has risen to 80% range. Our policy is to be able to cover 100% with Yen interest assets by the fiscal year end, March 2031. Page 12 details dividends from subsidiaries and capital allocation. Over four years, we received JPY 466.4 billion in dividends from subsidiaries and concentrated our capital to the holdings. The total amount returned to shareholders was JPY 395.5 billion, resulting in a total payout ratio of the group's adjusted profit of 106%.
Furthermore, in addition to internal funds, external financing was utilized, allocating JPY 221.5 billion to growth investments, including planned investments. Page 13 and 14 cover the status of the closed book business. To diversify our business portfolio and establish a new revenue pillar, in addition to our core life insurance businesses, we have been making investments in the closed book businesses since 2020. Fortitude's cumulative adjusted profit since investment reached approximately JPY 72 billion by the end of the previous fiscal period, accounting for about 16% of the group's adjusted profit. Starting in the fourth quarter, we will also begin recognizing profits from Viridium. Fortitude and Viridium differ in geographic focus, as well as their approach to value enhancement. We believe that we have successfully achieved the portfolio expansion and risk diversification we have been aiming for in the closed book business.
I will also explain our investment in our reinsurance sidecar announced in October. As part of our support for Fortitude's growth as a strategic investor, we have made a commitment to invest in its reinsurance sidecar. Specifically, we committed up to $250 million, equivalent to JPY 37.5 billion at the exchange rate of JPY 150 per dollar, to this reinsurance sidecar specializing in Japanese and Asian insurance liabilities. By reinsuring a portion of the liabilities underwritten by Fortitude, the underwriting capacity of Fortitude will be further enhanced. Through these initiatives, we will further strengthen our collaboration with Fortitude and pursue sustainable growth for both parties. We would like to report the preliminary third quarter results for Fortitude. Some of you may be concerned about the performance of the company up to the second quarter.
The JPY 8.9 billion in adjusted profit will be recognized by T&D Holdings in the third quarter for the three-month period of July to September. The impact from the reserve valuation method for universal life insurance, which was a negative factor in the second quarter, has been resolved in the third quarter. Under our current group's long-term vision, we have implemented a significant increase in shareholder returns. Regarding cash dividends, we are projecting our 11th consecutive annual dividend increase, with a dividend per share of JPY 124 for the current fiscal year. Alongside dividend increases, we have also continued to carry out share repurchases. As shown on page 17, the number of shares outstanding decreased to 490 million shares as of the end of October, completely eliminating the dilution caused by the two capital increases in 2009.
Through the combined effect of the reduction in the number of shares and the increase in adjusted profit, adjusted EPS has grown dramatically, approximately 2x from JPY 130- JPY 295 during the period of our group's long-term vision. We believe that these enhancements to shareholder returns and EPS growth have significantly improved our valuation in the stock market. Please turn to page 18. As a result of our efforts to date, the PBR, which stood at 0.54 times as of the end of March 2021, has risen significantly to 1.18 x as of the end of September 2025.
In addition to improving capital efficiency, our stock's beta has declined for all periods, one, three, and five years, and PER has also increased, and capital cost is gradually declining. From the start of the current group's long-term vision to the most recent period, TSR has expanded to offer 2.5x .
Although the trend has been soft since September, our fundamentals remain solid. We will pursue further improvement of capital efficiency and profit growth and enhance our stock valuation through the next group long-term vision. Please turn to page 21. Let me now explain the direction of our next group long-term vision. First, our recognition of the business environment surrounding the group. The business environment is currently at a major turning point. From the medium-term perspective, we now operate in a world with interest rates, and as an insurance company, we can expect increase in policy spread and stable and sustainable profit growth. The environment is highly favorable. This also serves as a tailwind for insurance sales. On the other hand, from an extremely long-term perspective, there is a progression of irreversible mega trends such as low birth rate and longevity, demographic shifts, and climate change.
We must view these as opportunities, leveraging them to meet growing demand in products for seniors and health management services, or to enhance customer satisfaction through AI. Simultaneously, we must respond appropriately to risks such as a shrinking workforce and intensifying competition. Based on this understanding, we have formulated our next vision. Next, I will explain the positioning of the next group long-term vision. As explained thus far, the current group long-term vision has delivered results centered on improving capital efficiency. The next group long-term vision, spanning from 2026 - 2030, aims to achieve stable profit growth through core business expansion. Building on this foundation, we position this five-year period as five years to solidify the next growth phase, addressing future challenges while accelerating capital circulation and creation through group synergies.
As a corporate group contributing to people and society, we will respond to these continuous environmental changes and continuously enhance corporate value. The next group long-term vision will be a crucial period for stepping up our efforts to achieve this. On page 22, I would like to talk about the three key pillars of the next group long-term vision.
The first is for us to further strengthen the existing businesses. By expanding our portfolio of contracts, we will maximize the tailwind of a world with positive interest rates. Leveraging the strength of our market-focused strategy, we will provide products and services that contribute to solving societal challenges, thereby further solidifying our customer base and revenue foundation. The second is new value creation and growth investment driving this continuous growth. While the domestic market will mature over the long term, societal challenges will diversify. We will achieve this continuous growth through investments in growth sectors domestically and internationally, and by creating new value in non-insurance areas. Third is to make management base more resilient to support these initiatives. Beyond advanced capital management that combines stable shareholder returns with growth investments, we will thoroughly advance group synergies to leverage scale advantages.
This includes capital generation through reinsurance, consolidation of asset management, standardization of administrative processes and systems, and data utilization. We will build a solid management foundation. By organically integrating these initiatives, we will establish a framework that maximizes the power of all capital held by the group, thereby maximizing the corporate value. Generating stable profits by strengthening our core business is fundamental to our group. We can now enjoy stable growth in positive spread as well as profit, thanks to rising interest rates. The key here is the in-force policies, the source of future profits. The group's greatest strength is steady sales results of new policies. The three life insurance companies will strengthen their unique business models, thereby steadily increasing the in-force policies. We recognize improving Taiyo Life's profitability as paramount. I will give you more details on the next page.
Furthermore, in asset management, we will continue portfolio improvements in light of rising interest rates to steadily expand positive spreads while continuing to reduce asset management risks. Page 25 illustrates the revenue structure reform at Taiyo Life. While our revenue and profit levels are trending toward recovery, thanks to our past efforts, challenges as outlined on the left-hand side of the slide remain. Improving insurance earnings takes time, but to sustain continuous growth in response to environmental changes, we will tackle revenue structure reform as a key theme in our next group long-term vision. Specific details will be presented in the next group long-term vision, but the key point is to decompose the revenue structure by element, set measures corresponding to each element, and implement a transformation process that quantitatively links these measures to their effects.
By implementing and monitoring this transformation process with Taiyo Life and T&D Holdings fulfilling their respective roles, we aim to steadily advance the process and achieve visible transformation. Page 26 explains capital allocation under the next group long-term vision. The pie chart illustrates the capital allocation concept. Our dividend payout ratio target is set at 60% of the average adjusted profit over five years, returning more than half of the profit as cash dividends. With highly reliable profit growth, we will achieve sustainable dividend growth. The remaining portion will be prioritized for growth investments, but executed with discipline by setting a hurdle rate. As the ROE is now above our capital cost, we will make sure that the investment is done with discipline with hurdle rate. Also, as needed for capital efficiency, we will be looking at the capital level to consider additional shareholder return, including share buybacks.
In the last few years, we have announced our share buybacks at the fiscal year-end, but we intend to conduct share buybacks more flexibly and effectively going forward. Specifically, we will not fix the timing. Instead, we will comprehensively assess our financial position, the growth investment considerations, financial market conditions, and stock price levels. We intend to execute share buybacks flexibly and effectively when we judge the impact to be significant. By executing share buybacks at effective timing, we can absorb a larger number of shares from the market, enabling us to deliver higher quality shareholder returns. Fundamentally, the group's asset management involves each life insurance company managing ALM assets according to liability characteristics. For liquid traditional assets, T&D Asset Management serves as a platform. For overseas credit and alternative assets and others, T&D Investment Management, established in September, serves as a platform. This completes the group's asset management framework.
Under this framework, we will advance the strengthening and streamlining of the group's asset management structure, as well as the development and enhancement of asset management professionals. Furthermore, in July of this year, we transferred Taiyo Life's domestic stocks, excluding strategically held shares, to TDAM. We have signed an MOU with Car in the area of reinsurance and related areas. To further enhance capital efficiency, we will explore optimizing risk and improving capital fungibility through the utilization of intra-group reinsurance. Furthermore, we will consider having TDIM manage the assets of capital insurance subsidiaries, leveraging Carlyle's asset management capabilities in areas such as overseas credit and alternative assets. Regarding the standardization of system processes for policy management operations, we are proceeding with the feasibility verification as planned. Currently, we are formulating a concrete plan based on the verification results.
While this plan was scheduled for development after fiscal 2029, following the completion of the idealized migration, we are now also considering the possibility of accelerating the implementation of contract management efficiency improvements. This could be achieved by leveraging rapidly developing new technologies, such as AI, during the verification period. Doing so may enable earlier realization of benefits and greater efficiency in the standardization efforts. Furthermore, from a similar perspective, we aim to advance the enhancement of management control through their utilization across our entire group and the establishment of efficient operation frameworks by leveraging AI technology on a group-wide basis. We consider these DX and AI strategies to be crucial as a future foundation for group management and plan to incorporate action plans into the next group long-term vision. Next, let me share our initiative on corporate governance enhancement, a cornerstone of the management base supporting our long-term vision.
Please note the initiatives to date on this slide. Please turn to the next page. During the next group long-term vision period, we will further evolve governance to support proactive management. Specifically, there are two points. The first is strengthening the board of directors' functions. To enhance its role as a monitoring board, we will further separate oversight and execution, including securing a board composition where maturity is independent outside directors. The second point is revising the executive compensation system. Page 32 shows the compensation breakdown. We are revising the system to be more aligned with our shareholder and strengthen sound incentives for the management. Last but not least, our approach to achieve further increase in share price. Basically, EPS growth and PER improvement are key factors for stock price appreciation.
We aim to enhance EPS through profit growth and improve PER by boosting market expectations and confidence through disciplined growth investment and strengthening the group's resilience. Furthermore, our revised dividend policy has strengthened dividends while significantly increasing predictability. We believe this provides strong underlying support for our stock price. We ask for your continued support for our group. Thank you for your attention.
We would like to move on to Q&A session. If you would like to ask a question, please press raise hand button. We will send a request to unmute. When you receive the request, please unmute and ask your question. I would like to introduce the first person, Muraki-san of SMBC Nikko Securities. Please unmute and ask your question.
I am Muraki of SMBC Nikko Securities. I have two questions. Both of my questions are related to the next group long-term vision. First question is related to the investment. JPY 116 billion was invested in Viridium. Next fiscal year, how much profit contribution are you expecting? On page 23, there was a hint Viridium sidecar investments will be made. What will be the next aim and what is the scale you are expecting? That is my first question.
My second question, you referred to, in your presentation, the integrated group synergy, sharing the synergy. The reinsurance subsidiary was mentioned. I think it was page 28. From Taiyo Life and Daido Life, there will be a large volume ceding to be done. Through that, how much Japan's regulatory capital release is going to be possible in this scheme? The investment is done separately by Taiyo Life and Daido Life, but one of the points you raised is to commission to Carlyle on integrated manner. What will be the credit alternative investment overseas? Are you going to have your asset management company do that, or are you going to ask Carlyle to do? What will be the ultimate form?
First question I will reply, and the scale. I will answer first.
Muraki-san, thank you for your question. Your first question on the profit contribution by Viridium. In the past, I already explained Viridium already has operational structure, including a system and back office. It is an established platform by acquiring run of life insurance. They are going to raise the opportunities. Their business model is very stable. In the past two, three years, what was the profit contribution? Hypothetically, calculating based on our holdings ratio, on average, it is going to be around EUR 100 million. This year, October end, Forex was JPY 178 to the euro, so the profit contribution was JPY 17.8 billion. Stable profit at this level is expected, but the management cost and the borrowings, the interest expense will be deducted from here. That will be the final amount. Investment amount is JPY 120 billion.
From that perspective, the capital cost and interest rate gap will the profit beyond 10% can be expected. The investment scale of Viridium, currently, we have not set any concrete target in our long-term vision of in the framework of the long-term investment, we would like to consider investment into Viridium, additional investment.
The second question, this is Nagai. I will answer the second question on the reinsurance and investment asset management. First on reinsurance, concrete objective and the liability block to be transferred and the impact. After transfer, what will be the investment style or portfolio? Those are the things we are currently reviewing. Once we have the concrete plan on these points, we intend to disclose. Also, the investment overseas, the relationship with Carlyle for reinsurance.
The joint operation with Carlyle is considered, but the other asset management in the U.S. with asset management companies, we will choose the optimum partner to aim at improving the investment impact.
Thank you very much. On page 27, JPY 2.7 trillion is mentioned related to investment. What about the schedule and content of this? Any additional information you can share?
Joint investment JPY 2.7 trillion, as was explained previously, out of the total asset, ALM asset that is linked to liabilities, that part will be handled by each entity according to the characteristics of each liability. For other assets, the traditional Japanese and foreign equities and bonds for them. Mostly T&D Asset Management will do the investment overseas credit and alternative investment. We are looking at using the subsidiary in the U.S. Other than ALM asset, the amount will be JPY 2.7 trillion for this fund in stages.
The capital transfer or commissioning of the investment will take place.
Understood. Thank you very much.
Now we would like to move on to the next question. Ms. Tsujino from BofA Securities, please.
Yes, thank you. I have three questions. Also, in the second half, you have increased the sales plan of the strategic shareholdings by JPY 100 billion. Also, in Q3, the Fortitude profit is recovering. That said, there is a potential for upside. Is that the right understanding? That is my first question. My second question is, for reinsurance, the sidecar issue, you are committed to the book that is focused on Japan and Asia. Did you create this vehicle because you already have some visibility for potential deal? Within this scope, would you be ceding out your own book? My third question is, earlier, you talked about improving Taiyo Life and reviewing. It does not include reviewing the bancassurance channel.
I think the annualized new premium from the new policies, I believe more than half of that is coming from the bank insurance channel. I think you need to do a decisive reform. Also, maybe you need to include the NVA clauses. What are the considerations for those, and what is the progress that you are making?
Yes, thank you for your question. As you said, for the sales of the strategic shares in the second half compared to the first half, we can expect a higher sales gain. Also, for Fortitude, in Q3, the profit is recovering to a certain extent. We have those positives, but with the rate rising, we have some unrealized losses that are increasing. For the write-down of those unrealized losses of the bond holdings, we would like to improve the investment profit.
At this point, for your guidance, we have decided not to change the guidance. As we monitor the actual profit level and also watching the financial market, we will continue to consider if we need to revise up the guidance.
Yes, thank you for the question. Regarding the sidecar reinsurance scheme, first, as you pointed out, for the sidecar vehicle, it is going to focus on Asia, mainly Japan. That is how the vehicle is designed. Fortitude, from the past, has been focused on North American business. As a next step, they were looking at Asia, including Japan. They have been pursuing that strategy from the past. Now the preparation has been completed, and there are potential deals which have become more visible, and that is the reason why this sidecar reinsurance scheme was set up this time.
Thank you, Tsujino-san.
Regarding the third question regarding the bank insurance channel for Taiyo Life, on page 25, bottom right, we do show that we are going to review the bank insurance channel strategy at bottom right. I will make some additional comments. Earlier, as I said, the current profit structure, we are going to decompose the elements of the profit, and that is now underway. The measures that is underway by Taiyo Life and initiatives that we plan to implement going forward. We are now setting up the KPIs to measure the benefit, and we are planning to monitor those progress. Also, regarding the bank insurance channel, on page 25, this is just a part of how we have decomposed the earning structure. We have the product portfolio and sales channel.
For product portfolio within Taiyo, we are trying to figure out what is the best product mix for Taiyo Life, including the risk tolerance. We are trying to consider how the portfolio should be designed. That will be incorporated in the product portfolio strategy. In addition to that, we will look at the bank insurance channel as we think about the optimal sales channel structure. In the group long-term vision that we will unveil next spring, we will offer you more details then. Thank you.
Thank you very much.
Moving on to the next person, Watanabe-san from Daiwa Securities. Please go ahead.
This is Watanabe of Daiwa Securities. I have two questions. First is on page 22, the adjustment of the capital level, the timing will become flexible. What is the guide on the scale under the current long-term vision? You have aimed at the improvement of capital efficiency, and the total return was higher than 100%. On page 17, you have progressed with eliminating the negative impact of the dilution, and buyback of JPY 80 billion or more shall be possible. I would like to confirm the scale.
Second question is the definition of the adjusted profit.
Fortitude is creating the volatility, and large P&Cs and life insurance companies have announced their adjusted profits. Dai-ichi Life excluded the valuation profit and loss proactive from the adjusted profit, and it is only T&D that includes the valuation gains and losses in the profit. Why do you not exclude?
Thank you for your question. Firstly, the scale. Basically, net profits, 60% is returned through dividend, and remaining 40% is allocated to the growth investment. That is the primary allocation. But in such a case, basically, which contributes more to EPS growth, we consider that element. When it comes to the scale, it is balanced with the growth investment. If we do not have investment opportunities, then additional return will be made. Naturally, the capital level will be taken into account. From that perspective, it is going to be case by case. This concludes my answer.
On the second question, let me answer. At T&D Group, on adjusted profit, as the profit to be returned, it links to the profit to be returned to the shareholders, ultimately, in the valuation gains and losses. Domestically, if valuation profit or loss is a tentative one, then that will not be included. Through final adjusted profit, it will link to the reduction of the dividend. Only the substantial valuation and profit and losses will be included in the adjusted profit.
One additional question. You referred to EPS growth rate. Other companies say that 2% or 3% of the growth will be realized by buyback. Do you have any quantitative guide on your buyback? Is it possible that you are going to set a quantitative target?
Thank you for that. The KPI of next fiscal year is under review right now, that is also taken into consideration.
Basically, EPS growth is very important, so we need to continue to monitor them. But first of all, we need to extend the profit, and that in the medium to long term can be returned to the investors. From the medium to long term perspective, the profit growth from the core business is to be aimed at, and in addition, non-linear growth is pursued through the growth investment. On the other hand, we need to continue to strongly monitor the quality of the capital efficiency, and we will conduct buyback from such perspective. Next fiscal year's long-term vision, when we announce the vision, we will include a KPI in the announcement, and also we would like to be able to present the growth, including capital efficiency. Thank you very much.
Next question is from Sato-san, from JPMorgan Securities, please.
Yes, this is Sato from JP Morgan. My first question is, as you mentioned that the KPI for the next group long-term vision is subject to future consideration. But in your presentation deck today, the adjusted profit EPS, those are highlighted. That's my impression. In the current group long-term vision, when you announced that, you were more focused on economical value based on EV and value of new business, and aiming for 0.05 x EV multiple. Also, the KPIs are more focused on the economical value-based figures. So regarding the KPIs that you're going to be focusing on, what is the reason behind the changes in the KPIs?
On a related note, regarding ESR, regarding the optimal level of ESR, regarding the range of the target, you had tried many things in the past, but looking at some of the P&C companies, some have decided to lift the upper limit.
Also, you have 225% as target right now. Also, would you consider just presenting the minimum that you would like to achieve and not set the target or the range? My second question is regarding the governance enhancement initiative in the next group long-term vision. On page 31, you talk about the further separation of oversight and execution. Right now, the subsidiary's CEO also serving as a director of the holdings. When activist mentioned that, I think a few months ago, the serving of the IT system in order to integrate the management structure, it's optimal for the president of Taiyo and Daido to also serve as directors of T&D Holdings. Has this remained unchanged?
Yes, Sato-san, thank you for your questions. First, regarding the KPIs that we are now working on.
We are looking at both the financial accounting basis and also the economic value basis, especially for the economic value based figures. Especially for Daido, we sell many long duration products, so steady profit will be generated from there. Also, it's going to be the big pillar of the future stable profit. But on the other hand, for EV, for the share price to look at the EV, it cannot incorporate the long-term future profit for the next 30 years or so. But expanding our EV assures the longevity of our business. Also, the KPIs on economic value basis and financial accounting basis will both be important. But we are now discussing what is the best KPI for us to target. Regarding the level of ESR, as insurance company, this is the yardstick of soundness, and we believe ESR is important in that sense.
Also, at this point, we will keep 225% considering the default probability of triple A rating company, and we have no intention to change this. Regarding the governance structure, of course, the separation of oversight and execution. What we show here is just a part of what we are trying to do. Regarding the organizational structure, we will be considering many different options. For one, we are going to focus on things that we show on this slide. For example, constitute the majority of BOD with independent outside directors, and also the subsidiaries president serving as the directors. On that point, right now, as we discussed, in the next long-term vision, these two companies which has the biggest chunk of the managerial resources, the holdings has an important role to optimally allocate those resources. But we need to also act with speed for executing the strategies.
Also, we still believe that having the president serve as the directors of the holdings still is important, but that will not be the case forever. As we try to enhance the governance structure, there is a possibility for us to change this. But at this point, we have not made any change to this structure where the presidents are serving as the directors of the holdings.
I see. Thank you.
Next, moving on to the next question. Sasaki-san of Nomura Securities, please go ahead.
This is Sasaki of Nomura. I have two questions. First question is that this time, listening to your presentation, you talked about domestic non-existing business, overseas wholesale or closed book, overseas insurance risk is to be incorporated. That is the message I received. On the other hand, Western countries closed book businesses, there are comments saying that there are various issues. The credit assessment of the insurance companies holding private equity, some say that it's too lenient. So in next five years and next 10 years, do we need to consider any risk in investing capital? That is my first question. My second question, the message in the past was to sell the equity and to reduce the interest rate risk, and you will not take investment risk. On the other hand, overseas, the foreign currency denominated investment asset is to be increased.
Generally speaking, for asset management of insurance company, in addition to asset side, you need to consider liability. In your case, mostly the JPY-based liabilities are the core. As such an insurance company to utilize overseas asset, how do you consider? Why did you come to such a judgment?
The first question. Sasaki-san, thank you for your question. The comment was raised on closed book. Our company's understanding is that in the beginning, as it was referred to in the presentation, the investment to Fortitude we have made, in addition to that investment to Viridium, and also to the sidecar. By investing in these, we have come to a certain level when it comes to closed book investment for Viridium. The geographical properties and business model is different from Fortitude. So we were able to diversify the risks of the closed book business.
Through these two investments, we can expect a stable profit contribution in the future. For other growth investments, this time we discussed on Viridium Group long-term vision and currently we are reviewing various angles. Basically, we have not determined the region, but rather we are pursuing high-growth domain and also areas where we can leverage the life insurance business and other capabilities and track records, and we are currently reviewing concrete policies. That is the current situation. On the second question, please turn to page eight of the presentation material. Here we show the investment policy in the future. The numbers are presented here. As you pointed out, Yen-based liabilities. For this, we match with JPY capital and through ALM we cover the liability costs safely. That is the first target.
Excess capital is to be utilized to aim at higher return, and that is the basic concept. As you pointed out, the equity risk is reduced, and the interest rate risks are also to be reduced. On top of that, utilize the capital we hold to aim at further higher return. That is the policy in focusing on the overseas investments.
Understood. Thank you very much.
Next question is from Mr. Sakamaki from Mizuho Securities, please.
Yes, this is Sakamaki from Mizuho Securities. I have two questions. My first question is regarding page 26. Also regarding the KPI, you have not really made any update, but for March 2031, JPY 200 billion and higher for this target. Are you going to be revisiting this target as you make the long-term vision? In the last six months or so, you have benefited from the higher equity price to reshuffle the bond portfolio and set up the sidecar. Environment is changing. If you could refer to a potential revision of this target. My second question is regarding the growth investment. Could you elaborate on what you intend to do on the closed book? I think you have one full cycle, but regarding the future investment, is it going to be a small-scale investment, like a share investment overseas? Or are you also considering large-scale investment?
Those are my questions.
Yes, thank you for the question. This target over JPY 200 billion, this was a rough concept when we were considering the plan. When we make the long-term vision, we probably should be able to show you more specific vision. Also, compared to when we started to consider our plan, the interest rate is increasing and the share price of our equity holdings is increasing, so the unrealized gain is going up, and inflation is also persistent. We will be looking at those factors and also the sales results of the policy, so that in March or April next year, we will be able to offer you more specific picture. Yes, and regarding the growth investment, as we presented, the investment for closed book has run its course. Going forward, basically as we look into the future, in order to achieve the future profit target,
As a part of external growth, the new investment will have to make sufficient contribution for us to achieve future profit growth. We are looking at the investment where we can enjoy a certain level of return. Basically, we will look at the objectives and the intentions of the investment, and also the terms and conditions of the counterpart. Scale is not the only factor we will be looking at. It will be considered on a case-by-case basis. Also for the profit and the return, the investment may be seeking for short-term return, or as you have said, we may be making some seed type of investment for a longer-term return. We would also have to start looking to see if there are opportunities that could be included in our pipeline.
Going forward, we will have a further, deeper discussion to consider what can be done. If I may add, regarding the first question, as Nagai-san explained, going forward, we will be more specific about our target. This JPY 200 billion just reflects the existing business. Any new investment that we are planning to make are not reflected in this figure. With the existing business, we want to achieve JPY 200 billion or higher. Regarding the growth investment, we are looking at opportunities overseas, and the size will depend on the opportunity. We may consider raising funds. Also in the domestic market for the non-insurance areas, the size of the investment may not be huge, but we will be looking at opportunities. We would also consider how to create a new value proposition by complementing our core business.
That means the option is not limited to investment, but we can also consider alliances.
Thank you. That's very clear.
Moving on to the next question, Morgan Stanley MUFG Securities. Takemura-san, please ask your question.
Thank you for the opportunity. I'm Takemura of Morgan Stanley MUFG Securities. I have two questions. First question is related to page eight, domestic risk and equity risk outlook. I would like to form an image of the risks. For domestic interest rate risk for the current period, the reduction pace will be JPY 10 billion or so. Going forward, Daido Life's duration matching will be done, and cash flow matching will be done. Shall we have the similar pace image in terms of interest rate risk reduction? On the right-hand side, there's equity risk. JPY 17.8 billion risk reduction is planned for the current period. Shall we expect a similar pace going forward? If that is the case, when the share price goes up and risk increases, then are you going to accelerate the sale?
Are you going to look at the risk amount to consider the sale of equities? My second question, the share price evaluation or assessment in the future, how are you going to evaluate? In the discussion, you talked about embedded value. That is important in the long term. Looking at the share price, that will be an indicator, and financial indicators are also important. Price to embedded value of 0.5 x was mentioned from before. But that indicator is less important going forward, or are you going to fill this embedded value part using reinsurance? I thought that this relates to share buyback. Those are my two questions.
Thank you for the question. The first point, the risk amount, the outlook going forward. The interest rate risk, the absolute amount-wise, when the policy in force increases, considering that will increase, the absolute risk will not significantly go down, but the ratio can be reduced. For domestic equities, 20% is the target. Market value-based sale was actually 20% because of the stock price increase of the shares held. This is the number right now. For equity in the portfolio, we are going to reduce to roughly 5% on market value based. So absolute amount-wise, we will further reduce.
On the second question, I think I've mentioned before EV, the ultra-long future profit, the value of this in-force is included. So there's uncertainty due to the fluctuation of the assumptions used for calculation. So partially, the share price is discounted due to that. For share price valuation indicator, one indicator is PER on page 18, right-hand side bottom, there's a mentioning based on the period's net income, EPS is at JPY 295, and PER is 11x-1 2 x based on the current share price. In the medium to long term, sustainably, we are to increase EPS and DPS, and also the growth investment with discipline and strengthening the group's resilience. Through these measures, we are to foster the expectation from the market and increase the trust. That is how we want to increase the share price and PER.
As I mentioned under the topic of KPI, future source of the profit is the in-force policies. We, at the same time, would like to aim at increasing EV share price, EV ratio through the measures I just mentioned. The share price and the value of the company shall be raised. Through that, we would like to increase the ratio as well.
I understood very clearly. Thank you very much.
Next question is from Mr. Majima from Tokai Tokyo Intelligence Lab.
Yes, this is Majima. First, on page eight, there were a number of questions on this page. For March 2030, you're going to reduce the equity portfolio to 5%. If we can achieve that, the risk will be reduced, but you will also be losing the unrealized gains on the equities, although that will be subject to the equity market situation at that point. So beyond this, you will have to manage your business, not relying on these unrealized gains. Of course, there is a risk with the equity holdings, but looking at the history of the life insurance companies, you were able to realize the unrealized gains on the equity holdings to deal with the issues. You used that benefit this year to reshuffle your bond portfolio.
Considering that in March 2032, you will not have huge unrealized gains, what kind of a business model are you going to pursue? Are there not going to be a material change? My second question is on page 25 regarding the sales reps for Taiyo Life. You talked about that. Because they have a performance-based pay, they don't need a lot of fixed cost. But recently, given the current labor market situation, I think the other companies are also seeing an increase in the fixed cost for their sales representatives. I think you will also have to follow suit, which means that how are you going to maintain the profitability of your sales representatives? Because if they continue to sell the same product, this channel may not be as profitable.
You may have to conduct some reform for the employees that's working in the office of Taiyo Life. How would you address these concerns?
Yes, thank you for your question. As we have been explaining, as the goal of investment for the insurance liabilities, we will cover the liability cost with the Yen interest asset. We will try to achieve excess return with that. Also, in order to cover for the assumed investment rate, it's going to be stable. We will not have to rely on the unrealized gains on the equity holdings. In the past, when we had negative spread, we had to use the unrealized gains to cover for that. That is true. But going forward, we will be able to cover for the cost of liability by the Yen interest asset. Also, we will not have to rely on the unrealized gains on equity holdings anymore. Also, we will not have those unrealized gains, but that risk will have to be considered on a mark-to-market basis.
If the exposure is 10% like today, then the volatility will be bigger. But by reducing that exposure to 5%, then the volatility of risk will be mitigated, and the risk on the portfolio will be smaller compared to today.
Thank you, Tatsuo-san. Regarding the sales representatives, the biggest strength of the sales channel is the hospitality as a face-to-face channel. They only sell their captive products. This is a unique sales structure in Japan, and I believe this is one of our strengths. With that said, the performance-based compensation exists, but we also have the fixed salary base. Given what we are seeing in the market, we expect the fixed cost to go up. As to Taiyo Life, what are the countermeasures? For one, as we said earlier, we will be changing the product portfolio to enhance profitability. For that, how do we incorporate the more profitable products? We also are looking at the assumed business expenses, which is reflected in the policies. We will raise that so that the policy design will be more profitable.
That is how we try to deal with the rising wages. On page 25, we have not been able to present the details, but when we decompose this earning structure, we are doing this at a very granular level. One thing that we are trying to do is to enhance the productivity of the sales representatives. Those KPIs will be monitored to respond to the rising cost. Of course, it takes a while to train the sales representatives, but after the training is completed, the sales rep will be quite productive. Transforming the training structure is also something that will be considered to implement. Thank you.
Moving on to the next question. This will be the last person to ask questions. Thank you for your understanding. Tsujino-san of BofA Securities, please.
I have two questions. First, interest rate risk. The absolute amount will not decline. On page 10, Daido, on the left-hand side, there is a blue bar that is quite large. It may take long, and the unrealized loss that you have here to write off or, change to long duration vehicles. Through that, you can reduce interest rate risks. Will this not go down significantly? Another point, selling Japanese and overseas equities. Right now you have large hedge position, and that will also decline. Am I correct?
Right now, hedge cost is quite high. Looking at the macro perspective for a certain time, hedge costs will likely go down. If you continue to hold the hedge position, at some point, cost will go up again. When you look at the U.S. interest rate level, then that can happen. If the profit is JPY 100 billion, then the volatility may be minor, but there will be some impact. So hedge position, what are you going to do with this? First, on interest rate risk of Daido, page 10, upper part shows the cash flow from assets and liabilities of Daido. As you say, 10 years or less duration, the asset is bigger, and after that, the liability is bigger. This is the intentional position for 40 years or longer. Then the cash flow 40 years later will largely differ depending on the current trend.
Currently, there is no cash government bond for 40-year duration. In this area, we have not allocated the assets. For 10 year or shorter in this area, by taking more credit risk, we are to expand our profit. 10-year, where we can take credit, we have larger position versus liability. Currently at Daido Life, rather than conventional interest rate matching, we are recreating based on cash flow matching. From that perspective, for 10-year period to 40-year period, we have made progress. This area is where we are to proceed with cash flow matching 40 year and longer and 10 year and longer. We are to look into a review
On case by case basis. The second point on hedge, utilization of the hedge, depending on the market condition as the optimum method, we will be using hedging to reduce the position. On page eight, towards 2030, the concept of portfolio by using hedge. This is not the perspective to use hedge, but the cash position is what this is talking about. Depending on the market environment, we will utilize hedge position, but it is not that we are going to constantly use the hedging in developing the portfolio. Absolute hedge position, will that decline or will it be kept at the similar level, just some increase or decrease?
Let me repeat. Depending on the market environment, if it is more efficient to utilize a hedge position, we will do so.
Also we will use our market outlook to make the judgment, and we may increase the hedge balance, but in the major investment policy, we do not assume that we are going to use hedge to reduce the position.
Understood. Thank you very much.
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