This is Moriyama from T&D Holdings. Thank you very much for taking the time out of your busy schedules to attend our group's long-term vision briefing today. Today, I will first review our previous group long-term vision and then explain our new group long-term vision. The content I will cover today includes the KPIs and an overview of the key initiatives. Details of specific initiatives by each subsidiary will be explained at the IR briefing scheduled for June 5. Now I will begin with a review of our previous group long-term vision. Please turn to page four. The financial KPIs under the previous long-term vision have been progressing generally in line with the plan. Adjusted ROE and group-adjusted profit achieved the targets one year ahead of schedule in the fiscal year ended March 2025. We expect further progress in the fiscal year ending March 2026.
As for ROEV, although there are year-to-year fluctuations, the average up to the third quarter of the fiscal year ended March 2026 exceeds our medium to long-term target of 7.5%. On the other hand, for new business value, due to factors such as changes in insurance assumptions, revisions to the ultimate forward rate, and the introduction of mass surrender risk, achieving the initial target of JPY 200 billion will be difficult. Progress on non-financial KPIs will be explained at the IR briefing scheduled for June. Please turn to the next page. Supporting the steady progress of our financial KPIs are the solid performances of our three life insurance companies. Although the first half of the previous long-term vision period was affected by COVID-19, each company has fully leveraged its strengths through business models tailored to its respective market.
As a result, new business performance has remained solid and our in-force business has steadily expanded. In addition, amid the recent rise in interest rates, the buildup of in-force policies is creating an environment where positive spread expansion is more likely to drive profit growth. These solid policy results are evidence of our group's strong competitive advantage and represent a key strength. Please turn to the next page. Under the previous long-term vision, we have worked to enhance capital efficiency by reducing investment risk, including promoting ALM. Specifically, over approximately four years and nine months, from the end of March 2021 to the end of December 2025, Daido Life purchased JPY 1.3 trillion of ultra-long-term bonds. In addition, Taiyo Life and Daido Life combined have reduced domestic and foreign equities by JPY 760 billion and reduced hedged foreign bonds by JPY 2.3 trillion.
Regarding the risk reduction targets disclosed in May 2024, domestic interest rate risk has been reduced by approximately JPY 135 billion more than the target. On the other hand, for domestic and foreign equity risk, partly due to rising stock prices, the reduction fell short of the target by approximately JPY 65 billion. Under the new long-term vision, we will continue to work on reducing investment risk to enhance capital efficiency. Please turn to the next page. The effects of our efforts to reduce investment risk are steadily emerging in the form of lower EV sensitivity and a decline in equity beta, as shown on this page. On the other hand, amid the recent rise in interest rates, the cost of equity based on CAPM is around 9%, and we recognize that our cost of equity remains in the range of approximately 8%-10%.
Under the new long-term vision, we will continue to pursue further improvements in capital efficiency and reductions in the cost of equity. Please turn to the next page. Next, I will explain capital allocation and shareholder returns under the previous long-term vision. Under the previous long-term vision, we positioned improving capital efficiency as the top priority. Profits generated by the domestic life insurance business and capital released through the reduction of investment risk were upstreamed to the holding company and allocated to growth investments and shareholder returns. Cash dividends have been increased from JPY 46 in the fiscal year ended March 2021, just before the start of the previous long-term vision, to JPY 130, approximately 2.8x higher. In addition, regarding share buybacks, we executed a total of JPY 250 billion over the four years through profits for the fiscal year ended March 2025.
As for growth investments, over five years, we have made total investments of JPY 198 billion, mainly in the closed book business. Please turn to the next page. Next, I will explain the diversification of our business portfolio under the previous long-term vision. Under the previous long-term vision, we promoted investment in the closed book business with the aim of building a new earnings pillar alongside the life insurance business. Specifically, we executed investments in two companies with different regions and business models, Fortitude and Viridium Group. Equity method income from these investments totals approximately JPY 93 billion on an adjusted profit basis, and we have also received approximately JPY 30 billion in dividends to date. As outlined, alongside the diversification of our business portfolio, we believe the establishment of a new earnings base next to the life insurance business has been steadily progressing. Please turn to the next page.
The results of the various initiatives under the previous long-term vision, as explained so far, are clearly reflected in our share price and TSR. TSR expanded to approximately 3.3x over the five years of the previous long-term vision period. In addition, PBR has recovered from 0.54x at the end of March 2021 to a level above one time. We recognize that our efforts to improve capital efficiency and reduce the cost of equity have led to a certain level of positive evaluation from the market. On the other hand, although the PEV multiple has improved, it remains at around 0.4 times. Under the new long-term vision, we will continue to improve capital efficiency and advance initiatives for growth. This concludes the review of the previous long-term vision, and next, I will explain the new long-term vision. Please turn to page 12.
First, I will explain our thoughts behind the formulation of the group long-term vision. Under the group long-term vision, Try & Discover 2030, our group management philosophy to contribute to people and society through value creation under the spirit of Try and Discover remains unchanged, a principle we have upheld since our founding. On the other hand, against the backdrop of megatrends such as a declining birth rate, an aging population, and a shrinking workforce, the market will contract over the very long term. To remain competitive in this environment, the group must act as one and transform into a more efficient and highly productive organization. While the life insurance business will remain our core, to build a foundation for sustainable growth beyond 2030, we must view the diversification of social challenges as an opportunity and take on new business domains.
In light of these environmental changes, our direction, and our group's purpose, we have revised our management vision. Our new management vision is, one, Try and Discover for sustainable growth. Centered on the spirit of Try and Discover, which we have upheld since our founding, we are more clearly articulating our direction of advancing value creation as one unified group. Please turn to the next page. Next, let me explain the positioning of Try and Discover 2030. In our previous long-term vision, we successfully improved capital efficiency by strengthening capital management. Guided by our corporate philosophy, which remains the unchanging purpose of the group, Try and Discover 2030 will build on these achievements to transition into a new stage of growth.
Try and Discover 2030 is our new long-term vision, which encompasses the group management vision, our target state for the next five years, as well as the group growth strategy and group KPIs, which are based on the three basic principles designed to achieve this vision. The three basic principles will be explained on the following page. To achieve the to-be state after five years outlined in the group's management vision, the group's long-term vision sets forth three basic principles. The first basic principle is to further strengthen our core life insurance business. By enhancing our sales and investment capabilities, steadily growing in-force policies, and advancing our ALM initiatives, we will achieve a stable profit growth in an environment with higher interest rate. The second basic principle is growth through the creation of new value.
We will focus on areas where we can leverage the group's strength and make disciplined growth investments while paying attention to the cost of equity. The third basic principle is enhancing group resilience. To ensure we remain a winning company even amid disruptive environmental changes, we will transform ourselves into a strong and resilient group. Building on our DX strategy, we will promote more integrated group-wide management than ever before, circulating not only financial capital, but also human capital and other resources to generate group synergies. Please turn to the next page. This outlines our overall group growth strategy for enhancing corporate value centered on three basic principles. Guided by these three principles, we will strengthen our management foundation, starting with our DX strategy, and promote integrated group management. We will enhance corporate value by creating value through the circulation of financial, human, and intellectual capital.
By doing so, we will not only enhance shareholder value, but also deliver value to a wide range of stakeholders, including our customers, employees, and society. Please go to the next page. Next, I will explain the KPIs for our new long-term vision. Regarding the group's adjusted profit for the fiscal year ending March 2031, which is the final year of the new long-term vision, we have revised our forecast upward from the JPY 200 billion disclosed at the end of March last year to JPY 230 billion, up by JPY 30 billion. This revision takes into account the current economic environment and the effects of the portfolio improvements we have been implementing, while also factoring in the profit-building effects of future growth investments.
Similarly, regarding the adjusted ROE for the fiscal year ending March 2031, we have set a target of 15%, which clearly exceeds the 8%-10% range we recognize as the cost of equity, as explained on page 7. We aim to achieve a new business value of JPY 200 billion. Additionally, as five-year targets under the new long-term vision, we have set an annual EPS growth rate of 10% or more and an annual ROEV of at least 8%.
Please note that these figures do not represent targets to be achieved in each individual fiscal year, but rather targets we aim to achieve over the entire five-year period. As for the non-financial KPIs, they are listed on the slide. However, due to time constraints, I will refrain from providing a detailed explanation today. Please go to the next page. Next, I will explain the capital management cycle outlined in our new long-term vision. As shown in the circular diagram on the left side, the core of our capital management lies in a cycle where we allocate the stable profits generated by our core domestic life insurance business to gross investments and shareholder returns, thereby further improving capital efficiency. The driving force behind this cycle is the cash allocation shown on the right side of the slide.
Under our new five-year vision, we plan to generate cumulative adjusted profits of over JPY 900 billion, approximately 1.7x the target under our previous long-term vision. Backed by this robust cash inflow, we will accelerate both growth and shareholder returns. There are two policies guiding our approach to cash usage. First is disciplined growth investment. Instead of simply pursuing scale, we strictly set a hurdle rate based on factors such as the cost of equity and the international interest spread. Furthermore, we invest capital only after determining whether a project will contribute to EPS growth over the medium to long term as compared to share buybacks. Disciplined growth investment contributes to increased future returns through profit growth. Second is the shareholder returns in line with profit growth. Our basic policy is to return 60% of adjusted profit on five-year average as cash dividends.
We will steadily increase the dividend payout level in line with profit growth. Furthermore, we will conduct flexible and efficient share buybacks, taking into account the ESR and other factors. Please go to the next page. This page describes the first basic principle, strengthening of core businesses. For Taiyo Life, we have set the theme of transforming our revenue structure through measures such as improving productivity. For Daido Life, the theme is expanding corporate insurance coverage and venturing into new business areas. And for TDF, the theme is the rapid expansion of products and agency channels. We will provide details on the specific initiatives of each subsidiary at the IR briefing session scheduled for June 5th. Please turn to the next page. This page explains the second basic principle, growth through new value creation.
In addition to strengthening our core business, we have positioned external growth as the second pillar of value creation. With the goal of raising the ratio of adjusted profit from non-domestic life insurance operations to 20% or more by fiscal 2030, we have established a new investment capacity of JPY 500 billion. Our investment strategy prioritizes quality over quantity and is based on disciplined capital allocation. To achieve external growth, we will focus our efforts on the following areas. One, life insurance business in developed markets to generate stable cash flow. Two, life insurance business in emerging markets that contribute to capturing medium to long-term growth potential. Three, investment opportunities in sectors related to life insurance and the broader financial industry that contribute to strengthening the group's business.
Through these initiatives focused on external growth, we aim to diversify and stabilize our revenue base and achieve sustainable growth in corporate value. Please go to the next page. Next, I will explain the third basic principle, enhancing group resilience. Prior to formulating the group's long-term vision, we have been conducting studies aimed at sharing systems and standardizing administrative processes among the three life insurance companies with the goal of improving efficiency and enhancing workforce mobility. The feasibility study confirmed that standardization is achievable, but since this is contingent on the shared use of Daido Life's next generation system, scheduled to go live in 2029, its implementation will not take place for several more years. Meanwhile, digital technologies, including AI, are evolving at a pace beyond expectations, and the adoption of AI is advancing across all industries and business sectors.
Consequently, we updated our initiative to standardize systems and administrative processes across three life insurance companies and incorporated it into our DX strategy as full-scale AI utilization across the entire group, which is an approach expected to yield significant results sooner. This is placed at the heart of our efforts to enhance group resilience. We will rapidly advance AI adoption tailored to each company's operations, while also leveraging synergies by building a shared group-wide platform that serves as the foundation for AI and data. Please go to the next page. Earlier, I explained how we have positioned our DX strategy as the cornerstone of our efforts to strengthen the group with the theme of full-scale AI utilization across the group. As shown in this diagram, our DX strategy will first improve profitability by reducing operational costs and strengthening our sales capabilities.
In other words, we will enhance our ability to generate financial capital and further promote the circulation of financial capital through the capital management we have strengthened over the previous long term. In addition, the adoption of AI will significantly transform the roles of employees in the group's talent portfolio. We will review our organizational structure to maximize human capital and strengthen the allocation of resources toward areas that create value for the group. Furthermore, by leveraging data across the group, we will make management decisions in a way that optimizes outcomes for the entire group and ensures speed.
In this way, by organically integrating the various effects stemming from our DX strategy with our ERM and asset management strategies, as well as our organizational and human resources strategies, we aim to maximize not only financial capital, but also the group's intellectual and human capital, thereby accelerating the flow of value across the entire group and maximizing group synergies. Next, I will outline our DX strategy. Please turn to the next page. To date, our companies have been actively leveraging digital technologies such as AI in areas such as claim assessment to maximize the strength of our respective business models. Under this long-term vision, we have established a group DX strategy aimed at fully leveraging increasingly advanced technologies such as AI agents across all business operations throughout the group.
By building a common group-wide AI and data infrastructure, we will achieve enhanced customer value, the establishment of efficient operational systems, and the advancement of group management. In addition, regarding frameworks such as AI governance, which are critical to advancing AI adoption, we will work collaboratively across the group to establish a governance infrastructure that supports the sustainable use of AI while keeping future regulatory trends in mind. Please go to the next page. Also, as we try to fully leverage AI through our DX strategy, business operations will become more automated and unmanned. We believe that the roles expected of people will shift greatly in the future, and we view this as a key management issue for the group.
In light of these changes, we will proceed with restructuring our organizational framework and talent portfolio, including transforming the quality of our workforce to accommodate AI adoption and formulating long-term staffing plans while aligning our DX strategy with our organizational and talent strategies to foster employees' willingness to take on challenges and pursue growth, thereby promoting group-wide optimization. Please go to the next page. Next, I will explain the risk profile outlook. While focusing on the growth of the domestic life insurance business, we will clearly distinguish between areas for appropriate risk-taking and continued risk control. Specifically, for underwriting risk, we anticipate a certain increase in line with the growth of our policy amount in force. However, we will continue to reduce the investment risk through measures such as a further sophistication of our ALM.
As a result, while increasing the proportion of risks that contribute to growth, we will maintain the group's overall risk profile at a controlled level in total. Moving forward, we will continue to manage the business by always paying attention to the balance between risk and return, achieving both the softness and growth. Next page, please. Next is asset management strategy. Our group's investment strategy is fundamentally centered on earned interest assets. Our top priority is to aim for covering 100% of projected interest costs with earned interest assets alone, thereby solidifying the foundation of our insurance business. Risk assets such as domestic and foreign equities and alternative assets are intended for risk diversification and inflation hedge, as well as complementary strategy for profit generation to achieve sustainable growth. We will conduct prudent and disciplined investment management with a focus on risk return efficiency. Next page, please.
Next, our efforts to strengthen the group's asset management framework. T&D Asset Management serves as the core asset management platforms in the group, and we will promote collaborative management across the group. By integrating management expertise and resources across the entire group, we aim to enhance and streamline our asset management framework while striving to improve investment returns. To drive these initiatives, we established a Group Asset Management Strategy Committee starting this fiscal year. Under the leadership of this committee, we will set up the integrated asset management across the group. Please proceed to the next page. Next, our policy on reduction of the strategic shareholdings. Our group has established a reduction policy aiming to eliminate strategic shareholdings, excluding those related to business alliances and partners by the end of March 2031.
As an interim target, we have set a new goal to reduce the holdings by 40% by the end of March 2028 compared to the end of March 2026. This 40% figure is merely a guideline. Taking market conditions into account, we intend to further reduce holdings where no business partnership nor strategic rationale is recognized. Next, the group governance. Effective April 1st, we changed the chair of the board of directors from the president to the non-executive chairman. Furthermore, during the early part of the new long-term vision, we aim to have the majority of the board represented by outside directors. By enhancing oversight functions in the three areas, namely the board structure, nomination, and compensation, we will further improve the effectiveness of group governance. In addition, we plan to revise the overseas compensation structure intended to augment sound incentive and further align the value with stakeholders.
We will also expand capital management to cover human and intellectual capital from simply focusing on the financial capital and build a management foundation to ensure the solid execution of a growth strategy. Next page, please.
For the formation and disclosure of the new group long-term vision, we allocated significant time during board meetings and established discussion forums outside of the board meetings to thoroughly deliberate on management strategies from a medium to long-term perspective. In addition, we have engaged in more frequent dialogue with the market than ever before, including having outside directors attend one-on-one investor meetings and conducted discussions from the shareholders' perspective. We will continue our efforts to further enhance our governance structure to ensure the board effectively fulfills its supervisory role with the aim of further increasing corporate value. Last but not least, our thoughts on enhancing the stock price. We conduct dual-track business management by monitoring both the economic value and financial accounting. EV is the source of the future profit, and we believe that EV growth leads to the mid to long-term and sustainable improvement of financial accounting profits.
As illustrated in the slide, the accumulation of new business value and improvements to our asset management portfolio leads to higher EV, and in-force policies in the asset management portfolio generate stable accounting-based profits. The value of our in-force business within EV is the present value based on best estimate assumptions, and its value fluctuates with changes in these assumptions. We believe a decent certainty is one of the major factors causing the stock price to trade at a discount to EV. Therefore, to achieve share price appreciation, we believe that it is crucial to enhance the quality of EV so that we can steadily realize financial accounting profits. Please proceed to next page. This slide outlines how we regard share price appreciation and TSR improvement. This may be stating the obvious to investors and analysts, but the stock price is essentially determined by EPS and PER.
EPS growth is part of the equation that can be achieved by company initiatives. As a group, we will strive to grow EPS primarily through steady profit growth in our existing businesses, coupled with accumulating profits through growth investment and flexible and effective share buybacks. As we cannot expect high multiple with short-term EPS growth alone, medium to long-term sustainable EPS growth is essential in our view. While price to earnings is determined by the market, we intend to take actions to raise the growth outlook and lower the cost of shareholders' capital, thereby enhancing market expectations and trust to improve the PER. We also believe that initiatives aimed at improving the PER will lead to sustainable EPS growth over the mid to long term. Furthermore, with the revised dividend policy introduced last year, the profit growth will directly translate into dividend growth.
Under the new long-term vision, we will also strive to improve TSR by achieving steady dividend hikes underpinned by medium to long-term sustainable profit growth. Please turn to the next page. Next, our thoughts on EPS growth. As shown on page 16, under the five-year period of our new group long-term vision, we are targeting annual EPS growth of 10% or more. Of this EPS growth, we anticipate approximately 8% to be achieved from profit growth in our domestic life insurance business and our existing closed book business, among others. In addition, we plan to achieve approximately 2% through new growth investments and execution of capital policies. While building on steady profit growth from our existing businesses, we will strive to deliver more than 10% EPS growth by combining strategic growth investments with capital policies. Please proceed to the next page.
This page illustrates the concept of share price appreciation driven by EPS growth and an improved PER. Our price-to-EV ratio stood at 0.4x as the end of December 2025. Given the current profit levels, achieving a price-to-EV ratio of one time will require a price-to-earnings ratio of roughly 30x . Therefore, it is not easy to achieve one time price to EV at this point. Based on this understanding, by executing the measures outlined today, we aim to achieve annual EPS growth of 10% or more driven by an increase in adjusted earnings. At the same time, we will seek to further improve our price to EV by enhancing market valuation. We are fostering growth expectations and reducing the cost of shareholders' capital, thereby boosting the price to earnings ratio. Next page, please. Lastly, I'd like to share our shareholder return policy.
We have clarified our approach to total shareholder returns, which includes share buybacks in addition to traditional cash dividend as a form of returning the annual profit. We set the total shareholder returns against adjusted profit during the long-term vision period at approximately 60% over the medium to long term, taking into account opportunities for growth investment and the level of ESR. Please note that page 37 contains slides regarding credit investments for your reference. Thank you very much for your attention today. We will now move on to the Q&A session.
We will now introduce the first person to ask a question from SMBC Nikko Securities, Mr. Muraki. Please unmute and then proceed with your question.
Thank you. This is Muraki of SMBC Nikko Securities. I have two questions. First, regarding investments on page 19. You show investments of JPY 500 billion allocation. I would like to understand the background to setting this allocation. Fortitude and Viridium, I believe cumulative investment was about JPY 260 billion, so it would be almost double that. Also for the emerging markets, I believe you mean emerging countries, these are included. So what has been the discussion that took place to come to this allocation and target? That is my first question. The second question is on page 18. It is mostly for Taiyo Life. You talk about profitability, structural reform and the specifics are to be shared in the next division.
That was what we heard before. If you have any updates that you can give us at this time, we would appreciate it. Also for the 5-year period, what kind of KPIs were set at Taiyo Life? How was the progress managed? How will this be used for executive compensation, if there is any plan for the KPIs and performance to be used for executive compensation? Thank you.
Thank you, Mr. Muraki. This is Moriyama of T&D Holdings speaking. Regarding your first question about growth investments, the JPY 500 billion allocation and also the target domains, how we discussed to determine those, I believe was the question. At the board of directors meetings, there were discussions about the aspiration for the group, mainly focused on the domestic life insurance business and the need for developing a new earnings pillar. That was a challenge identified through the discussions.
Based on the previous long-term vision, we are now entering a phase where we can expect sustainable growth. We determined that it would be necessary for us to discuss the new areas for investments. Of course, looking at the previous growth, previous long-term vision levels, we target a JPY 500 billion allocation for growth investments as we pursue higher growth than the previous period. As you can see, number one, two, and three, the advanced markets, the other domains as well as the emerging markets. So we have a certain expertise. We have strengths in certain areas, and we believe it is necessary for us to focus on those domains to further achieve growth. That is why we have identified the three areas.
For the developed markets, advanced market life insurance business, we will leverage the closed book business and demonstrate our strengths based on our experience and expertise. We will also work with partners and utilize the network in order to further pursue optimization. For the emerging markets, for the closed book, this is a business domain where we expect a high growth potential going forward. But due to the characteristics of the business, because it is the closed book, we expect this to continue to eventually decline. We determined that it would be necessary for us to also make investments into the growing markets, growing areas. As for the others category, we would like to leverage the strengths held by the operating companies within the group, and we will look to other possible areas for investments. These are the areas that we've identified for future growth investments.
As to the priority and the size and the allocation priority, we will refrain from making comments on that at this time. That's my response to the first question.
Mr. Muraki, thank you for your question. I would like to give additional information on the first question. Regarding the background to setting the allocation of JPY 500 billion. In the previous long-term vision, we have worked to enhance the capital efficiency to a degree, and over the next five years, profits to be generated cumulative, we expect over JPY 900 billion of profits to be generated over the five-year period, including the total payout ratio. We are targeting 60%, as was mentioned before. As the next growth stage, we need to consider investments to achieve growth. That's our primary objective.
Calculating this, of course, this does not add up to JPY 500 billion, but including external funding, that's the level of investments that we would like to execute. Also, over the past several years, we have executed several growth investments, and we have now been able to consider various projects and opportunities. In the previous long-term vision, we set a certain size, and now we are pursuing even bigger growth. That's at the basis of our thoughts behind the growth strategy. We would like to have growth even beyond the five-year period under this new long-term vision. That's the background to setting this. As for the domains in which investments will be made. Basically, for the advanced markets, currently we are making investments into the closed book business. We have the existing platform, and of course, investments and reinvestments are possible options for us.
Having said that, whether we will make new investments into new closed book, that would not be the case. We have decided not to make any new investments into the closed book, as was explained previously. As for the emerging markets, we look to areas with sound population growth. These are contributing to economic growth, income level enhancements, and in the future where we can expect life insurance needs or protection-type asset formation needs to expand. These are areas that we are targeting. Thank you. As to the second question.
Regarding the profit structural reform at Taiyo Life, do you have any updates? How will KPIs be set? Will performance be considered for compensation?
As for Taiyo Life, as we have been mentioning, we've identified the challenge of transforming the profit structure, the earning structure. More than anything, Taiyo Life is very much focused on recovering the sales agent channel in improving profitability. That is the challenge that we've identified for the Taiyo Life. As was mentioned this time, products and productivity improvement and enhancing underwriting, these are the areas of focus. Especially for products, of course, we need to review the mix going forward more so than ever. Even after this, we assume the business expense ratio has been increased, and this contributed to improved profitability. With more in-force policies accumulating, we should see positive results in terms of profitability. So it does take time.
On the other hand, responding to customer needs is another area. Also based on changes in the financial environment, we are now reviewing or considering the review of product portfolio.
In addition to the third sector, including death protection, we hope to develop a more balanced portfolio so that we can get more stable mortality gains and improve profitability going forward. With higher interest rates in the environment, through the sales agent channel, we would like to have more of savings-type products. Hope to have the balance of managed assets in order to expand a positive spread. Also as for the organization or structural reform, we have been implementing reform of the branch organizations and sales organizations, particularly at the branches. They were more focused on sales administrative work, and we are shifting to sales support. With improvement seen in productivity and better performance, we would like to roll this reform to other organizations throughout the nation. As for underwriting, we hope to establish a sound policy base, a customer base.
After the COVID-19, there was an increase in payment of insurance claims, and we hope to strongly link this to benefits and policies and enhance our underwriting operations. Through comprehensive measures, we will not see immediate results, but we hope to steadily improve insurance profitability and earnings going forward. That is the kind of structure that we hope to develop. As for the business expenses, it's not just Taiyo Life on a standalone basis, but as a group, we hope to promote the DX strategy that was covered today. As for the earnings structural reform, as it's covered in the presentation, as for the bancassurance channel, in the future, there is a latent surrender risk. So from expansion focus to risk control, that is the shift that we are making.
We have clarified that policy, shifting from that, and we will closely monitor the policies and their situation and exert control properly. As for KPIs, as product mix will shift going forward, protection type A and P has been the focus before. But as I said, death protection and also through the sales agent channel, asset formation type of products, savings type of products, will also be offered through that channel. As for executive compensation, this is currently being considered as a part of the performance evaluation. Given the characteristics of the Taiyo Life sales agent channel, whether it's growing or not will be key, and also profits, whether core profits are increasing or not, will be something that will be evaluated on. That concludes my response. Thank you very much.
This is Moriyama. I would like to give a brief additional comment. Regarding growth investments, I hope to come back to that. Investments will be made with discipline, as we have done so in the past. This is needless to say, but we will follow that approach. As for Taiyo Life, improving profitability. For KPIs, after June, we hope to provide a more detailed explanation on that. At present, as I mentioned previously, we need to have more scrutiny and detailed analysis of the current profit structure.
The sales department and the actuaries at Taiyo Life will need to be deeply involved, and we need to do a factor analysis to identify how these variables factors will be improved. So we are implementing very detailed analysis as we speak. By setting each KPI and indicators, this will help us do more monitoring in a scientific manner. Some areas may take longer, but we are following through with these initiatives, and I hope to share more at a later date. Thank you.
Thank you very much.
Now let us move on to the next question. If you have any securities digital form, please go ahead with your question.
Thank you. First of all, JPY 230 billion by March 2031. You said that 20% or more is supposed to come from non-domestic life insurance business. That is the JPY 4.6 billion. For example, TDAC was JPY 16 billion for this fiscal year, and that means that you already have JPY 16 billion of a non-domestic life insurance business and a JPY 30 billion increase to come.
You have made investments into Viridium Group, so non-domestic life insurance operations is expected to increase from there as well. 20% or more, so it should be more than JPY 46 billion. So maybe 20% of JPY 130 billion is not so large. On the other hand, if you are to invest JPY 500 billion, the core business needs to grow more. So this JPY 500 billion, maybe I wasn't being attentive, but does this include investments related to domestic life insurance business? Otherwise, this JPY 500 billion doesn't sound like you're contributing to the growth. That's my first question.
My second question is, medium to long-term total payout. Did you say it's supposed to be 60%? I think it doesn't make sense. Three-year average, 60% of group-adjusted profit, that's to be used for the dividend. You said that, well, even if you do actual buybacks, it's not going to be zero. Based on the profit target, if you are to achieve 15% ROE, if you do a simple math in the back, I can assemble what kind of capital there is in the back. The JPY 190 billion is the expected capital growth behind all these calculations. Group-adjusted profit, you said, is expected to grow more in the latter half of the long term. So total return, isn't it supposed to be close to 80%? Or am I missing something?
This is Honda speaking. I would like to respond to the question. First of all, profits from overseas, which is basically from the closed book business. On page 19, we are showing 20% or more. That is the total figure, and this is roughly correct. But there are profits from new businesses and profits from existing businesses altogether included in this number. To be more specific, 210 and 230.
So we are showing the breakdown on this slide. In order to achieve this JPY 30 billion full contribution from Viridium and growth of Fortitude, and sidecar investments are included. The total amount, JPY 500 billion new investment budget. This includes domestic and overseas investments. This is the total figure. Profits will not be recognized from the moment we invest, so that needs to be taken into account. JPY 20 billion growth investment is something we would like to achieve as a minimum. That is my response to your first question.
To your first question, maybe I am going to repeat him, but profits from returns from investments, well, there is some uncertainty as to the timing of when those returns will start coming in. So we are taking a conservative view in forecasting the return, and it really depends on the timing of the investment. This JPY 500 billion, this is our outlook as of today.
Let me answer your second question. This is Honda speaking again. Regarding shareholder returns, on page 35, we are outlining our policy. So I may be repeating some of the explanations given already, but in last March, we made an announcement. We are going to use the five-year average of group-adjusted profit to calculate the 60% dividend payout ratio. That is what we announced last March, and this is the cash dividend we are planning to pay out. Additionally, we added a new policy here. Profit, if it is to grow, the total return concept will give us a lower amount. Taking that into account, during the new long term, we will look at the total amount of profit for five years, and then 60% total shareholder return will be achieved.
That includes the cash dividend that I explained earlier. However, on a cumulative basis, we will be taking a medium to long-term approach. We are planning to allocate some cash flow to the JPY 500 billion in growth investment that we explained earlier. So from a holistic point of view, cash flow for the growth is going to be taken into account whenever we will execute shareholder returns. So JPY 900 billion on page 17, that is adjusted profit, right? Cash, is it equal to the adjusted profit? It is. This JPY 900 billion, are you talking about 60% of this JPY 900 billion, or is this a different concept from the group's adjusted profit? What is it? Yes. Regarding this JPY 900 billion, this is adjusted profit. The concept is the same as the group's adjusted profit.
There is a portion of cash dividend that is going to become a cash flow, definitely. The portion to be allocated for growth investment, it is recognized as capital. But as we execute this, there will be a portion to be paid from profit, which will then be recognized as cash flow. That is it. Thank you.
Yes. Then ROE, is it expected to improve? But capital is only going to grow by JPY 200 billion. That means, are you expecting acquisitions with substantial goodwill? But the denominator, is it tangible? Yes. In our investments, in terms of the amount of goodwill based on the value of the counterpart, that is not factored into our forecast. So if you just can calculate based on the amount of capital, that will be great. But the capital is only going to grow by JPY 200 billion. Is that the right assumption? The adjusted ROE is going to be 15%, and capital is expected to grow only by JPY 200 billion. Is that fair to say? Is that the right calculation?
Yes. Well, there are various factors used for the calculation of capital, but as you said, in the background, capital is expected to grow by JPY 200 billion. That is the right assumption.
Understood. Thank you.
We would like to take the next question. Kazuki-san from Daiwa Securities, please.
Yes, this is Kazuki from Daiwa Securities. I have two questions. The first point is the target for adjusted profit for 2030. You have raised the target by JPY 30 billion compared to a year ago. Can you give me the breakdown? On page 33, you have JPY 46 billion for the domestic life business, CD JPY 16 billion, a new investment of JPY 20 billion. Compared to a year ago, what increased by JPY 30 billion as your target? My second question is regarding share buybacks. I want to confirm the source of the share buyback. I believe there are three. One is the annual profit and losses that you just explained. The average of five-year dividend payout and also the total shareholder return ratio of 60% per year, so the gap on a cumulative basis.
Under the five-year long-term vision, are you committed to conducting share buybacks that is associated with the annual profit? For the growth investment, if you are not going to be using JPY 500 billion, when would you decide to use that amount to share buybacks? The third point is the web gene access or the ESR. Japan Post Insurance showed the ESR that was broken down by different surrender rate. The nominal ESR may be coming down, but the negative impact may not be as severe as how it seems. Would you also consider that as a potential source of share buybacks? Yes. Thank you for your questions. First, on adjusted profit, the new target is JPY 230 billion as the new KPI.
Previously, we were stating JPY 200 billion as a target. As you pointed out on page 33, these are the figures that we have in our mind. The first one is the JPY 20 billion coming from the growth investment. So that's a bigger boost. The remaining JPY 10 billion is mostly coming from the life insurance business. With the rate increasing and the environment changing and also further matching of the cash flow, we are able to project a steady dividend and interest income. So that's why we have reset and revised up the guidance for the target. In the last year or so, the ultra long rate has increased significantly, and you have also repositioned your portfolio.
So that impact is JPY 10 billion as opposed to spread. Is that correct? On a net basis, I would say that we do have a positive impact of JPY 10 billion. On the other hand, we do have a higher earnings, but with inflation and higher wages, the business expenses are also going up. So considering those factors, we have projected a positive net impact of JPY 10 billion. I see. Thank you very much. Can you respond to my second question, please? Yes. Regarding share buybacks? Yes. Thank you. Regarding the share buybacks, you pointed out the other three sources of the buybacks. The first one is from the annual profit. This time, the TSR is 60%, and that was communicated from us.
I think that's what you're referring to. I may be repeating myself, but for the average of 5-year adjusted profit, we've been using that to make the calculation. Also we have newly presented the TSR target of 60%. But as I mentioned earlier, we're not just looking at a single annual year. Under the current 5-year period of the long-term vision, this is the comprehensive payout that we would like to achieve. It's not like we are going to pay out 60% each year. We will be looking at the level of the growth investment to be agile in achieving that target. You also mentioned the growth investment budget of JPY 500 billion.
If this was not fully executed, this could be reallocated for share buybacks, and I think that was what you were referring to. For the JPY 900 billion of cash flow, which I mentioned earlier, within this JPY 900 billion of cash flow, we have the shareholder return and the rest will be growth investment. For JPY 500 billion, we are also looking into external funding, and that is also included in this investment budget. It's not that we are just subtracting JPY 500 billion from the profit. That is the meaning behind this JPY 500 billion budget.
If the growth investment is not fully used as budgeted, then we will be looking at the capital level and the ESR at that point to reconsider how we would like to use the capital for shareholder returns. For anything that is in excess of ESR that is related to the mass surrender, we understand the other company's activities. Basically for our case, the surrender of translation risk is reflected as it is depleted by the regulation in our internal model. At this point, we are not making any changes to that policy. Going forward, for anything that is in excess of the appropriate ESR, we will be looking at that excess and magnitude as we consider the share buybacks. If I may confirm.
For those three sources of the share buybacks, if you reflect back the share buybacks of 5 years, can I assume these sources to be independent sources for share buybacks, or should it be regarded in aggregate? When you do that buybacks, would you be able to indicate for what reason you will be doing the share buybacks for using different buckets of the sources? Yes. For the first two buckets, the annual profit and also the JPY 500 billion growth investment, that will be coming from a profit. That is a little bit of a duplication there.
For the unused portion of the JPY 500 billion, that will accumulate on a capital base, that would also impact the surplus capital. It is not as if they are standing independently, but they are linked. There is a link to the capital and the cash and the cash flow. I would say that these factors are related and correlated. If we were to announce a buyback
We will try to, of course, consider or we would like to specify the reasons behind the share buybacks, because that will be discussed under the consideration. But looking at the five-year TSR target, if we are not able to make the growth investment in the five years, but maybe after that period, there could be an opportunity. We would also consider that factor to determine the shareholder return and explain our commitment. Thank you very much.
We will now move on to the next question from JPMorgan Securities, Sato-san. Please ask your question.
This is Sato of JPMorgan Securities. My first question, I apologize to still be on this topic, 15% adjusted ROE. This was mentioned by Tsujino-san's question. If you break this down on a single year basis, interim average of JPY 1.5 trillion will be the figure if we calculate, and you said forecast 10.9%. This is a forecast as of the beginning of the year. The net assets, I believe, is already exceeding JPY 1.5 trillion. If the numbers are solid, then the assumption is that the net assets would not increase further. Otherwise, 15% would not be achieved. Is my understanding correct? Also, more simply, on a five-year period, how much buybacks have been incorporated as per the simulation? If you can disclose that information, of course, we will basically take it as an assumption.
If we can share with us the assumptions, that would be helpful. That's my first question. The second question is this is not related to the midterm plan, but on page 37, there is a page on credit investment, and you've included the slide once again, perhaps assuming that there will be questions on this topic. Regarding the latest status of credit investments, if you see any concentration in terms of industry or anything at all, any updates, any new developments with respect to credit investment, particularly not necessarily on this table, but credit investment exposure at Fortitude and Viridium. If you have any updates from the previous earnings briefing, please share. That's all for me. Thank you.
Thank you for your questions.
Going back to the adjusted ROE of 15%, the assumptions of the net assets, we talked about how we expect about JPY 200 billion increase in net assets. I will skip the details, but during this vision period, of course, we will have a sale of stock holding as part of reducing exposure. Realizing the unrealized gains, and gains will be returned as a part of cash flow. All these factors have been considered in our assumptions. That's my response to your first question.
Pardon me. So you said JPY 200 billion increase in net assets. Where will that come from? What's the baseline? As of December end, you have about JPY 1.6 trillion. It's just net assets without adjustments. That's my understanding. But I apologize if I misunderstood the definition.
Thank you. At present, as of the forecast at the end of March, net asset assumptions are as follows. Basically, interest rate situation as of the end of December, and given the economic conditions back then, those are the assumptions. Those are different from March end, and those are different slightly from what we have at present. As for the differences from the end of December, that explains the differences, I hope.
With that difference intact, the level of commitment to the 15%, this is my last part of the first question. I would like to know the level of commitment with the difference intact. Will that require additional capital adjustments? Will such a decision be made?
As for future capital, of course, due to various factors, given the current economic environment and how profits will be generated, of course, these will all have a bearing on the future capital. Inclusive of these factors, even with the changes in the economic environment, our KPI ROE 15% remains our target as per our plan. That remains our target.
This is Moriyama speaking. If I may. Basically, five years from now, we have our targets as well as forecasts into what level we can take on this challenge. Of course, these are all considered. And of course, there have been some calculations or simulations to back those numbers. But in more detailed areas, there may be some differences arising. Of course, for share buybacks, there is nothing planned, nothing decided at this point in time, so I cannot say about the future. But of course, needless to say, we will look at the overall capital efficiency, and there may be some portions that will be executed beyond the basic part as part of the management decision. That is all I can say at this point in time.
Thank you. Please respond to my second question. Thank you.
I believe the question was about credit investment. This certainly, I believe, is an area of interest for you, and that is why we have included page 37. From the figures shared in IR briefings, we have updated the numbers. Currently, credit investment by Taiyo and Taiyo Life is shown on page 37. Basically, these are the investments. At present, IT-related sectors has been very much talked about in the credit investment context, but generally, 10%-20% of the total comes from that sector. Through asset management, of course, we are implementing monitoring measures. As for the content, we try to diversify through seniority and setting covenants, we manage the risks. Even if losses are incurred from credit investment, they should be within a manageable range.
As for Fortitude and Viridium, the situation of exposures, I believe, was another part of your question. As for Fortitude, 11% or so of the total assets are private investment, and direct lending to SMEs only account for about 1% of the total assets. Of course, we will continue to make these investments to use excess capital. But diversification, stress testing is of course being executed by Fortitude, and this investment is properly managed. As for Viridium, due to our arrangement for information management, I will refrain from making comments on details. But compared to Fortitude, as for credit rating and other areas, Viridium is taking more risk relative to Fortitude. But of course, the borrowers, the diversification, setting default ratio, they are all within the expected range. For both companies, we do not have any specific risk at this time.
Thank you.
Thank you.
Now let us move on to the next question. Nomura Securities, Sasaki-san, please go ahead with your question.
This is Futoshi speaking. I am from Nomura Securities. I have 2 questions. First of all, regarding new investments, you talked about external procurement. Does that mean increasing the leverage on balance sheet as for debt? That is my first question. My second question is, the new midterm plan have been formulated to 225% ESR. Was there any opportunity to discuss this level, whether to increase it or decrease it? Was there any discussion on this point? Those are my two questions. Thank you.
Yes. Thank you. Regarding new investments, external procurement, I think the question was on our policy. As we said earlier, while there are certain numbers, rather than calculating based on those, we have discussed whether we should use profits from our new businesses or should we rely on debt by taking into account risk factors. That is to be decided based on a holistic point of view to decide how we use the cash. But at least as for now, we believe corporate bonds and simple borrowings will be the main channels. I believe that is my response to your first question. Thank you for the question. The level of ESR, continuously such topics are being discussed. As of now, 225% level is based on our policy, which have remained unchanged, and we are also looking at industrial standards, and we will continue to pay attention to that aspect.
Regarding this discussion, we will continue to consider. We believe that is necessary, but our policy has remained unchanged as of today.
That is it. This 225%. As you explained this plan, the stability of profit is going to improve, and you will have better visibility, and you will be reducing asset-related risks. So it sounded like there are many factors that you do not have to increase the level of ESR. Why does it have to be 225% given such circumstances? Yes. Thank you.
225% is based on what we have explained actually. The soundness of the rating, the AAA, is our assumption. As we operate this life insurance business, we need to meet the high demand from our clients regarding soundness. So that is behind this level. Regarding the developments during this long term, we need to reduce the risk and increase profits, but it is not leading to excessive capital. That is because we are formulating this plan based on JPY 500 billion in investments.
This is considered as the equity risk of affiliate companies, so ESR as a result is not expected to increase as much. That is it for my response. Thank you.
Understood. I have one follow-up question. In this plan, you are emphasizing new investment. I believe there is much focus on new investment in overseas investment. Do you think there is a good chance of winning? If so, can you please tell us why? If I look at the track record, well, in the closed book business, I believe there are much profits generated, but I think there are struggles in other areas. Investing capital in new areas, what is the winning scenario you have in your mind? If possible, I would appreciate any comments and information. Thank you. That will be my last question. Yes. Thank you.
Thank you. As of this time, it is difficult to describe a specific winning scenario since we've been considering different opportunities. But as I said, we're being conservative and we would like to make disciplined investments. When we execute these investments, as we mentioned earlier, the equity cost and the international interest spread will be set as hurdle rate and compared to buyback. Which option will lead to further EPS growth? That is another thing we will consider in deciding the risk and growth potential of the opportunity, and then we will decide whether to execute that investment. As we said previously, regarding Viridium, at the board meeting, we had more than 10 times the discussion on this topic. Going forward, we will continue to be cautious and we will consider from multiple aspects before making any decisions.
Therefore, if we believe that it is not feasible or viable, we will not make those investments and we will definitely consider opportunities with high probability.
Understood. Thank you.
We'd like to proceed to the next question. Sakamaki-san from Mizuho Securities, please.
Yes. This is Sakamaki from Mizuho Securities. I have two questions. The first one is, it's a bit repetitive of the previous questions, but I want to better understand your ROE target of 15%. At this point, why did you set this new target? It's a big boost in the next five years. Looking at the peers in the lifelong industry, it is a very strong target. It seems a little bit bullish, but what is your intention behind this 15% target? Also regarding investment, we have been discussing about the investment opportunities. In regards to this 15% target, when you think about the investment going forward, you will look at the cost of capital, plus the rate difference of federal rate.
On top of that, would you also set 15% as a hurdle rate? How do you think about the discipline of investment in regards to this 15% ROE target? The second point is regarding the new long-term vision. I want to ask about the changes. The JPY 200 billion of new business value, you are going to challenge yourself once again for this target. What is the pathway for you to achieve this? You are trying to reduce the market-related risk, but going forward, would you expect any changes to the risk reduction of the market-related risks? Those are my two questions.
Yes. Thank you for the questions. Regarding the 15% ROE target, in principle, we want to steadily expand the adjusted profit. That is going to be the prerequisite for achieving that.
We have been discussing about the JPY 230 billion target, and there has been questions around that number. We want to make sure that we generate profit that overachieves that target. That is the basis of ROE. Of course, for ROE, we need to manage the denominator. Also for the numerator, which is adjusted profit, we aim to steadily expand the adjusted profit so that we can deliver this target. Of course, as we have been discussing on the numerator, we have to manage that as well. In the next five years, we will also look into that, the numerator factor as well. That is my response to your first question. Regarding your second question, let me respond. Regarding the business performance, the JPY 200 billion of our new business value, how do we achieve that, I think was your question.
Also, under the new long-term vision, we are going to utilize AI to acquire our new businesses. At each of the business entities in June, we will be discussing more about the insurance business strategy, and also growing the new businesses. Also, the target for the in-force AEP and the target for the new businesses, I think will be raised for each of the subsidiaries, and that is in the plan. The sustainable policy growth is what we are trying to achieve in order to deliver new business value of JPY 200 billion in FY 2030. We also asked about reducing the market-related risks. With the rate increasing, we are now being able to make attractive investment.
First, looking at the cash flow of liabilities, we want to accurately assess that so that we can match the cash flow and reduce the over-matching to reduce the interest rate risk. From the risk perspective, we are going to adjust the matching from the risk perspective. As we have presented for the liabilities, the assumed interest cost, that will be covered by the ALM asset 100%. That will also be matched under the accounting basis. That is also something that we would like to achieve, and that is stipulated in the plan.
This is Moriyama speaking. Regarding the JPY 200 billion of new business value, in principle for Daido Life, it will increase the new businesses. For Taiyo, the portfolio in the next five years will be improved. That is how we aim to achieve JPY 200 billion in new business value.
Thank you very much. We are nearing the end time, so next question will be the last question. I will introduce from Morgan Stanley MUFG, Takemura-san, please go ahead and ask your questions.
Thank you. This is Takemura from Morgan Stanley MUFG. I have two questions. First, which was also mentioned regarding new business value. First part of the question is that the term just ended. We see that the new business value already exceed JPY 140 billion as of the end of March. So perhaps, as you mentioned, the various measures, we should see higher new business value than that. So are you considering any downside risks? I would like to know more about them. Or is it simply you have a conservative outlook? So that's my question. Also on page 16, return on embedded value of 8% or more is the target that you set here. For 8% or more, what was the background to coming up with this number? What is the thought behind setting at this level?
If you can give more color, I would appreciate that, because already embedded value already reaching JPY 4.4 trillion. So 8% means at least JPY 350 billion with JPY 200 billion of new business value. It may not be so easy to reach this. So why you set this target to be 8% or more? What was the thought behind this? That's my first question.
As for the second question, I would simply just have a quick answer to that, if I may. On page 24, on the left-hand side, if I look at the diagram or a graph on the left-hand side, so JPY 500 billion to be invested. That was the decision made for the new midterm plan. For the affiliate risk, from 9% to 19%, so this is a significant increase in the plan. Based on this, as you control the ESR. As for asset management risk compared to the previous plan, perhaps this has been slightly declined or decreased in the new plan. That's the point I would like to confirm. Those are my questions. Thank you.
Thank you. So for the new business value up to the third quarter, the results already exceeding JPY 190 billion. As for the forecast for the fourth quarter, you were asking whether there is any downside risk. Looking back at the past results, there is a seasonality to this. The fourth quarter, compared to the other quarters, tends to have lower new business value. That has been the trend since before, and for FY 2025 as well. We expect the quarter to finish in line with that. As for the ROEV of 8% or more, for this target, in a sense, there was a comment that this could be challenging.
But as life insurance, we hope to continue to accumulate new policies going forward and taking that into account, if we are to achieve the plan targets, then we should also be able to achieve this level for the ROEV. So as a medium to long-term target or goal, ROEV of 8% or more is what we are aiming to achieve. That's my response to the first question.
I understand. Thank you.
Moving on to the second question on page 24 regarding risk volume. For this, JPY 500 billion investments are made as per the assumption, and on the left-hand side, the bar charts indicate an increase in the subsidiaries and affiliates risk, and this was covered in the previous question and also in the presentation. So how are we going to manage the ESR overall?
There's no change to the basic approach to this, but one thing is promoting matching that was covered before, and by doing so, we will reduce interest rate risks. Also, as we've been saying from before, for equity risk, on page 25, 5% or so for domestic and foreign equities. So this remains unchanged from before, but from the current balance, we hope to continue to reduce risk, and by doing so, we will have a better control of ESR overall. This is my response to your questions. Thank you. I understand. Thank you very much.