Earnings Call: Q3 2026

Feb 13, 2026

Summary

9M adjusted profit was ¥122.5bn, 83.9% of forecast, with MCEV at ¥4.3974tn and ESR at 225%. Rate-driven surrenders and bond replacement remain key uncertainties, while the ¥146bn FY forecast is unchanged.

Hello, this is Ito from IR department of T&D Holdings. Thank you very much for coming to the telephone conference of our financial results. Our materials are under our website from the investor relations under IR event tab. First of all, I will be making approximately 10 minute of presentation, after which we would like to move on to the Q&A session. We'd like to move on with the presentation. Please turn to slide 3. First of all, I would like to present the key highlights of the financial results for the third quarter. Group adjusted profit amounted to JPY 122.5 billion against the full year forecast of JPY 146 billion, with a progress rate of 83.9%, demonstrating a steady progress. Sales results of new policies of all three life insurance companies progressed smoothly against the plan. Surrender and lapse rate increase in Taiyo Life, remained at the same level year-on-year in Daido Life, and declined in T&D Financial Life. Value of new business as a combined total of the three life insurance companies amounted to JPY 144.3 billion, with full year forecast as JPY 168 billion and a progress rate of 85.9%. Group MCEV amounted to JPY 4.3974 trillion. ESR was 225%. There is no change in full year earnings forecast as well as for dividends. Please turn to the next page. The key revenue and profit items of each company are shown in the table. The three life insurance companies recorded increased adjusted profits, but T&D United Capital decreased. Page 5 shows you the breakdown of group adjusted profit and difference from net income. Please turn to the next page. This page shows the key performance indicators of the three life insurance companies. The three life insurance companies saw an increase in their core profits. Taiyo Life and Daido Life recorded capital gains on sale of domestic and foreign equities. Meanwhile, Taiyo Life recorded mainly losses on sales associated with the reduction of its foreign bond holdings. Daido Life posted losses on sale of bonds, mainly due to replacement as part of its cash flow matching strategy. T&D Financial Life recorded a profit increase, mainly due to an improved insurance margins resulting from growth in policies in force. Please turn to the next page. The charts describe factors contributing to changing in core profit. For both Taiyo Life and Daido Life, decreased currency hedge costs and increased interest dividend income contributed to an increase in core profit. This effect was partially offset by an increase in operating expenses. Please turn to the next page. Average assumed investment yields of Taiyo Life and Daido Life were 1.35% and 1.21% respectively. Please turn to the next page. T&D United Capital's adjusted profit decreased by JPY 5 billion year-on-year to JPY 5.4 billion. Please turn to the next page. This page describes the quarterly trends in the profit and loss of closed book business. In its consolidated results for the third quarter, the company recorded approximately JPY 8.9 billion as adjusted profit, equity in gains and losses of affiliate related to Fortitude Re's financial results for the third quarter, July to September. The adjusted profit related to Fortitude's fourth quarter, October to December, earning is under calculation. Please turn to the next page. Viridium's fourth quarter results October to December will be incorporated into the company's Q4 financial results. In our consolidated financial results, profit and loss based on IFRS will be recognized for financial accounting purposes, while for group adjusted profit and a loss equivalent to Luxembourg GAAP will be included. Due to the acquisition of Viridium, JPY 75 billion of goodwill was recognized under financial accounting. However, as an amortization of goodwill is excluded from the group adjusted profit, it has no impact on adjusted profit. Next page, please. At Taiyo Life, annualized premiums of new protection type policies remained at the same level as the same period of the previous year. While surrender and lapse rate increased mainly due to increased surrender and lapse in the agency channel, annualized premiums of in-force protection type policies increased from the end of the previous fiscal year. Please turn to the next page. New policy amount at Daido Life continued to be strong and achieved a year-on-year growth. Surrender and lapse rate was broadly in line with the same period last year, and policy amount in force increased from the end of the previous fiscal year. Please turn to the next page. Annualized premiums of new policies at T&D Financial Life declined year-on-year, mainly due to the lower sales of foreign currency-linked products. In addition, the surrender and lapse rate declined due to a decrease in policies reaching their target values for foreign currency-linked products, resulting in an increase in annualized premiums of policies in force compared to the end of the previous fiscal year. Next page, please. Group MCEV increased by JPY 451.7 billion from the end of the previous fiscal year to JPY 4,397.4 billion, driven by the accumulation of new business value, the rise in domestic foreign stock prices, and the adoption of LDTI at Fortitude Re. The combined new business value of the three life companies increased by JPY 5.3 billion year-on-year to JPY 144.3 billion, mainly due to higher new policy amount and rising domestic interest rates. The new business margin was 9.3%. A breakdown of MCEV by company is provided on page 16. The factors impacting the group MCEV is on page 17. Next page, please. This page shows you the status of investment at Taiyo and Daido Life. The combined amount of domestic and foreign equity sales by the two companies was approximately JPY 209 billion, exceeding the full-year sales plan of JPY 180 billion that was set at the beginning of the fiscal year. We intend to continue making progress on sales in the fourth quarter as well. Daido Life's interest rate matching ratio reached 86.4%, and for Taiyo Life, it reached 96.6%. Page 19 shows you the status of foreign currency-denominated bonds. Please turn to page 22. This page is a status of net valuation gains and losses on general account assets. Realized losses in domestic bonds have increased due to rising domestic interest rates. Page 24, please. As of the end of December 2025, the ratio of strategic equity holdings to net assets stood at 19%, reflecting an increase in the market value of the holdings. The ratio of strategic shareholdings to net assets, adjusting for roughly JPY 100 billion already agreed for sale, is around 13%. We will continue to work on reducing our strategic shareholdings to zero by the end of March 2031, setting aside those for business partners and collaborators. Please turn to the next page. Sale of stock reclassified from strategic shareholdings to pure investment is in process as part of our effort to reduce equity risks. As of the end of December 2025, 57% of such shareholdings was divested on an accumulated basis. Next page, please. As of the end of December 2025, ESR declined to 225% from the end of the previous fiscal year. While surplus increased, this reflects the investment in Viridium along with increased mass surrender risks due to higher domestic interest rates. Next page, please. There are no changes to the full-year earnings forecast for the fiscal year ending March 31st, 2026. For the remaining three months of the fiscal year, the group-adjusted profit is expected to decrease by approximately JPY 0.3 billion for every JPY 1 of appreciation. A breakdown of each life insurance company is provided on page 28, significant subsequent events on page 30, and change in presentation of financial data on page 31. This concludes the briefing of financial results for the nine months ended December 31st, 2025. We would now like to move on to the Q&A session. We would like to introduce the first question from SMBC Nikko Securities, Mr. Muraki. This is Muraki from SMBC Nikko Securities. I would like to pose two questions. The first question relates to page four of the materials. The progress rate is 84%, slightly high as of this moment. If you can give us an update on the full-year forecast. I am pretty sure you have some loss from the sales of JGB and also gains from the sales of equities in Q4. What are your assumptions right now? That is the first question. Mr. Muraki, thank you very much for the question. I would like to answer that question. In terms of the performance up until Q3, it has been quite brisk vis-à-vis the full-year guidance. The group-adjusted profit of JPY 146 billion, we are confident that we can achieve this. However, there are certain factors we would like to confirm as of this moment. The first point relates to Fortitude and Viridium. The Q4 results has not been closed right now. We would like to confirm the results for Q4. The next is for Taiyo and Daido. In order to improve the investment portfolio, we are selling the equities and conducting the bond replacement for the asset liability cash flow matching. We would like to see the progress, because in terms of the loss from the sales and also the gains from the sales will be impacted by the market. We would like to assess this correctly. Of course, in terms of bond replacement, that will contribute to reduction in the interest rate risk and also enhancement of the portfolio yield. But as of the current interest rate level, we will incur some loss from the sales. In terms of group-adjusted profit of JPY 146 billion, it is not likely that we may see a significant upside given the current situation. To summarize, we would like to confirm the Q4 results for Fortitude and Viridium, and also we would like to see the progress of the sales of the equities and bond. Within the fiscal year, we would like to have a highly probable forecast and try to assess whether a revision is necessary. If it is necessary, we would like to disclose that at the earliest phase possible. That is all. Thank you very much for that. Now the second question relates to page 12, about Taiyo Life's surrender. The third quarter appears to be high. In comparison to the initial assumption, how do you assess the current state of surrender? Also, what sort of impact would it pose on EV at the end of the fiscal year? If you have the calculation, please let us know. Thank you for that question. In terms of Taiyo surrender, we have seen an increase in the bancassurance OTC channel. With the rate hike, the surrender is actually increasing more so than initially anticipated. But in terms of the surrender, we've actually conducted some risk transfer with the ceding. So the risk on the financial basis, the risk is limited. But in terms of EV, if you look at page 17, we have as one of the variance factors. So the variance between assumptions and results, you can see the number here, JPY 33.1 billion. And Taiyo accounts for minus JPY 17 billion or so. So in terms of the assumptions, we intend to update and review that at the end of this fiscal term. But in terms of its magnitude, we haven't conducted the calculation yet, so we don't know that. But on the three-quarter cumulative basis, it's JPY 17 billion. And this product has been on sales for three years up until the year 2022. So that should give you some idea. Now, in terms of the investment, given the current state of surrender and also the anticipation of the interest rate hike, as a way to conduct ALM on a forward-looking basis, we have been shortening the duration on the asset side. Specifically, we are selling the 10-year or longer bond sales and replacing those with short-term bonds or cash. So basically, that is how we're addressing the surrender situation. That is all. Very well understood. Thank you very much. Next question is from Ms. Tsujino of BofA Securities, please. Yes, thank you for this opportunity. I have one question. To date, by reshuffling your JGB portfolio, how much benefit did you reap in terms of the increase in positive spread? What would be the impact for this fiscal year and the subsequent impact for next fiscal year? Can you share your view? Yes. Thank you for your question, Tsujino-san. The impact on positive spread stemming from reshuffling the JGB portfolio is projected to be JPY 3.1 billion for next fiscal year. The final yield on EM bond on book value basis is improving significantly, and this is supporting the growth in positive spread. Looking at the results, you are enjoying a very good progress on booking the investment gains, strong distribution from the alternative investment, good dividend stream on equity holdings, lower hedging cost, and growing positive spread. So there are multiple positive factors. And I think this will make it difficult to project for next fiscal year. My impression is that the actual investment gain, driven mainly by your alternative investment, was much stronger than expected. May I ask the magnitude of that impact? Thank you, Tsujino-san. That is actually a tough question to answer. But I can comment on how much upside we had against the plan for this fiscal year. At the end of Q3, with the alternative investment, the upside was roughly JPY 20 billion. And I will not be able to reveal much more than that. We don't have the projection for next fiscal year. But the upside from our alternative exposure for this fiscal year was JPY 20 billion pre-tax. I see. Thank you. We'd like to move on to the next question. From Daiwa Securities, Mr. Watanabe. This is Watanabe from Daiwa Securities. I also have two questions. The first is related to page 30, Taiyo Life, the transfer of the loan receivables and credit guarantee company. What is the impact on Q4? Mr. Watanabe, thank you very much for the question. In terms of the transfer of loan receivables, this has already been factored into the budget at the beginning of the year. If you look at the budget, if you look at the recurrent, the profit, and the net profit, there is a variance. That is because we anticipated this transfer. We don't know the actual amount as of this moment, so we cannot comment on that. But in terms of the transfer of loan receivables, in terms of economic impact, it is quite similar to the sales of bonds. We may see some loss, but beyond that, we shall see improvement in the yield. And of course, Taiyo Life, they will continuously sell the equities after. In terms of the loss incurred from the transfer of loan receivables, we should be able to offset that with the gains from the sales of equities. Thank you very much. I'd like to move on to the second question. This is page 11, related to Viridium. Luxembourg GAAP will be included for the group adjusted profit. What sort of impact would it pose? Any difference in the definition with the Japanese GAAP, for instance, related to fair value measurement due to market fluctuations? Mr. Watanabe, thank you very much for the question. First of all, as related to Luxembourg GAAP method, basically it is very similar to JGAAP. The bonds, it will be treated under amortized cost method, and the policy reserve is under lock-in method. But in comparison to JGAAP, it is somewhat more prudent. First point, in terms of the unrealized gains from securities, it would not be recognized on the balance sheet. However, the loss from the lower of the cost method, it will be recognized. Also, at the time of rate decline, there will be a mandatory provisioning of policy reserve required. So in comparison to JGAAP, that is somewhat more prudent. However, in terms of the fluctuation in economic value, that would not be reflected on the profit. So in comparison to IFRS, there is not much less variance in comparison to IFRS. So in other words, it is quite similar to the JGAAP method. Understood. Thank you very much. We would like to move on to the next question. Mr. Sakamaki from Mizuho Securities, please. Yes, this is Sakamaki from Mizuho Securities. I have one question, and it is on something that happened during the quarter. With the significant rate spike in January, how much was your ESR pushed down? Under a scenario where the long-term rate remains high, what are the things that you are paying attention to? Can you update me on your risk management framework? Thank you for your question. We do not have the impact on our ESR stemming from the yen rate spike in January, so I will have to point to the sensitivity disclosure we made in November at the IR meeting. So with every 50 basis points increase in domestic rate, the ESR goes down by 7 points. To elaborate on the rate impact, basically, for the bond exposure matched against the policy reserve, as long as we maintain the will and ability to hold, there is no need for asset impairment, and hence we intend to hold. That said, as long as we are not confronted by mass surrender, which would force us to sell our bond holdings, the impact, that would be minimal. On the other hand, we would benefit more by capturing higher yield, by reshuffling the portfolio and making new investment. So that is all from me. I see. So just to confirm, the rate that spike in January, and that level would not require you to do asset impairment. Is that correct? Yes. Your understanding is correct. Thank you. Next, I would like to move on to the next question. Mr. Takemura from Morgan Stanley MUFG. Yes, this is Takemura from Morgan Stanley MUFG. I have two questions. I also would like to understand the impact of the rising ultra-long rate. I understand that the bancassurance products offered by T&D Financial come with MVA clause. Would that mean that even under the environment where the ultra-long end rate goes up, the MVA will be effective to prevent the surrender rate to rise? What are your thoughts around the surrender risk for your bancassurance channel when the ultra-long rate is rising? So that is my first question. My second question is also related to your investment activities, namely your PE exposure. I understand that for Taiyo and Daido, the PE exposure is 2.9% or slightly less than 3%. Nowadays, the media reports on the death of the SaaS business model, and that seems to be dampening the performance of the overseas PE funds. What is the exposure to SaaS companies or IT sector in general, and how do you manage that risk? So those are my two questions. So thank you, Takemura-san, for your question. For the products with MVA clause, basically, there will not be impact on the earnings, but there are some risk of surrenders in the rising rate environment. Regarding our exposure to SaaS companies, for foreign equities, we basically invest in ETFs, so it is part of index investment. So our exposure will be similar to market weighting. As for the private equity exposure, to the extent that we can confirm, there is no concentration to a specific sector, and we have a diversified portfolio that would assure the impact to be limited. At this point, we have not been reported on any major loss. I see. I have a follow-up to my first question, and apologies for the lack of my understanding. But is there a cap on the MVA coverage regarding the magnitude of the bond value decline? So if it crosses that threshold, the penalty for the policyholders would be limited, and we may see a rise in surrender. Is that the case? Thank you for the question again. Basically, MVA defines the change in surrender amount subject to the rate movement, and there is no concept of a cap in the coverage.