Japan Post Insurance Co., Ltd. (7181) Earnings Call Transcript

I am Senda Tetsuya, President of Japan Post Insurance. Thank you very much for attending our financial results and corporate strategy meeting today. Today, I will provide a review of the fiscal year ended in March 2022 and the future initiatives. Afterwards, I'd like to answer any questions you may have. Please look at Page 1. I would like to explain the summary of financial results. In the fiscal year ended in March 2022, operating expenses decreased and there was an increase in positive spread, whilst the number of policies in force was down due to the lower-than-expected number of new policies. As a result, net income was JPY 158 billion. EV decreased by 10.1% from the end of the previous fiscal year to JPY 3,618.9 billion, mainly due to a decrease in net assets resulting from the acquisition of treasury stocks in May 2021 and a decrease in unrealized gains of foreign bonds resulting from higher interest rates in the overseas market. We have not been able to acquire as many new policies as to turn the value of new business positive. As a result, the value of new business was negative JPY 11.5 billion. ESR as of March 31, 2022, decreased to 169% as a capital amount. The numerator of ESR decreased due to the acquisition of treasury stocks in May 2021. Please note that we have sequentially reviewed ESR by more reasonable measurement method in preparation for the introduction of the new solvency regulation scheduled for 2025. The dividend per share is JPY 90 as we planned. We will explain later our financial result forecast for the fiscal year ending in March 2023. Please look at Page 2. I would like to explain our initiatives in the fiscal year ended in March 2022. In fiscal year ended in March '22, we have continued initiatives to regain our customers' trust and steadily provided follow-up support through the policy coverage confirmation activities. However, the follow-up support have not led to new policy proposals, and the recovery of new policy sales has remained slow, which was about 10% of the level before the solicitation quality issues surfaced and was below what we had expected. Meanwhile, we strictly carried out the establishment for the new Japan Post Insurance sales system, and we launched this system on schedule in April 2022. Furthermore, as a result of the acquisition of treasury stock in May 2021, the ratio of Japan Post Holdings' voting rights fell to below 50% with relaxed additional restrictions related to the new business under the Postal Service Privatization Act from an approval system to a notification system. As a result, we launched a new medical rider in April 2022, Motto Sonohi-kara Plus, a new product to meet the protection needs of a wide range of generations. From an asset management standpoint, we secured investment income exceeding our plan due to favorable market environment. We will continue to steadily proceed with the initiatives set out in the Medium-Term Management Plan to reconstruct ourselves as a company that is truly trusted by customers and shift to a business model that gives top priority to customer experience value. That will demonstrate the quality unique to Japan Post Insurance. Please look at Page 3. From now on, I would like to explain the management issues. The fiscal year ending in March 2023 is the beginning year of our new Japan Post Insurance sales system, and it is a very important year for us as a first step towards our transformation. From next page and thereafter, I will explain sales and product strategy under the new Japan Post Insurance sales system at first, followed by CX/DX, cost, asset management, and finally, profit and shareholder return. Please look at Page 4. I would like to explain the new Japan Post Insurance sales system. Since April 2022, consultants were sent to Japan Post Insurance from Japan Post Co. and work as employees of Japan Post Insurance. This expands sales channels managed directly by Japan Post Insurance. This will allow us to improve expertise of them through meticulous training and guidance. At the same time, we provide comprehensive consulting services across the group by providing a wide range of financial products at post office counters. We will make this new system established in an early period and aim to realize the vision of Japan Post Insurance sales activities, which we'll explain on the next page. Please look at Page 5. We have established the vision of Japan Post Insurance sales activities as our future vision for reconstruction. Aims in this vision are as follows: expand customers based on customers' trust and satisfaction; establish appropriate management and support growth of employees through the system and operations closely linked to the frontline; and continue to evolve with keen awareness of the social and business environment. We will share this vision with the whole company. And based on relationship with customers, we will improve corporate value by encouraging the growth of the market and human resources and the growth of management, which will be our basis. Please look at Page 6. From April 2022, under the new Japan Post Insurance sales system, we started activities to promote customer assignment system and new medical riders. In order to stabilize these activities as soon as possible, we implement initiatives based on the vision of Japan Post Insurance sales activities such as employee management with an emphasis on activity processes and problem solving, improvement of solicitation skills and company-wide support for frontline. By company-wide support to the growth of human resource management, we create an environment for frontlines to focus on their sales activities and expand customers. Please look at Page 7. Now I would like to explain the new medical riders. Last year, the additional restrictions related to the new business under the Postal Service Privatization Act were relaxed, and the restrictions were shifted to a notification system. This has made it even easier for us to offer products that meet customer needs. The new medical riders launched in April 2022 are designed to provide customers of all generations with enhanced medical coverage at lower premiums than before. In our recent sales, many customers have purchased instruments with rider benefits equal to or higher than the basic policy amount. We are confident that we are meeting the protection needs of customers. We will continue our shift towards protection type products, thereby increasing the value of new business. Please look at Page 8. I would like to explain the future direction of our insurance services. Under our Medium-Term Management Plan, we commit to developing insurance services that respond to the wide range of protection needs of customers of all generations in an age of 100-year life. In the fiscal year ended in March 2022, in April 2021, to better meet the protection needs of young and working age customers, we started selling ordinary term insurance and special endowment insurance with longer policy periods. In October 2021, we started offering standard endowment insurance with longer policy periods to meet the needs of corporate customers who tend to extend the retirement age. We have also conducted joint research with the Medical Institution and University to verify the health effects of radio exercise. We will continue to provide lower premiums and well-balanced coverage for young and working age customers, expand products to meet the protection age of elderly and middle-aged customers and research products to support health promotion. I will explain later our efforts to provide services aligned to our customers' daily lives. Please look at Page 9. I would like to explain the effects of the sales and product strategies. In the left chart, the downward trend of policies in force continued as a result of nearly 2 years in which we have not conducted ordinary sales activities. In the life insurance business, which is a stock business, policies in force are the main source of income. Therefore, we need to curb the decline in policies in force and build a sustainable business foundation by achieving more than 20 million policies in force as stated in the Medium-Term Management Plan. Regarding the value of new business in the right chart, by recovering new policies and shifting to protection-type products, we will aim to quickly bring the value of new business to the level of JPY 100 billion and achieve the RoEV target of 6% to 8% growth set in the Medium-Term Management Plan. Please look at Page 10. Regarding the CX/DX initiatives, I would like to explain our vision during the period of the Medium-Term Management Plan. Towards our sustainable growth, we will fundamentally review our insurance services and make a major shift to a business model that prioritizes CX. Specifically, we will gradually commence efforts to build a customer database that allows the entire team, the consultants, staff of customer center and post office counter employees to provide support for customers based on the same customer information. Furthermore, we will develop a system to enable families living in remote areas to attend contract process online and expand the function of the customer center to complete various procedures on the spot. In this way, we will aim to ensure the solicitation quality and improve customer convenience. By promoting DX and combining the Japan Post Group's strength in face-to-face and new digital technologies, we will provide services that customers can use with peace of mind and services that exceed their expectations, whereby improving customer satisfaction. Please look at Page 11. I would like to explain our current CX/DX initiatives. Our efforts to implement various initiatives to improve customer convenience by recognizing March 2022, when we were certified as a DX-certified operator under the DX Certification program established by METI. In the fiscal year ended in March 2022, we promoted initiatives to further improve customer convenience, including expanding web service features for policyholders. We have also started trial implementations at customer center and will start a trial implementation that allows customers to use their own smartphones and other devices at some regions in order to enhance follow-up support that emphasize in connection with customers. As we move forward with these initiatives, we will measure the results of our efforts in a timely manner, accelerating the PDCA cycle to enable service improvements. Please look at Page 12. In April 2022, we newly established future design offers to strengthen our planning and review system for providing insurance services. They are pursuing our in-house venture system in which ideas are widely solicited from within the company as well as the Japan Post Insurance Aflac Acceleration Program, in which startups are recruited jointly with Aflac Life Insurance Japan. Through these efforts, we aim to create new services for customers. Please look at Page 13. This slide shows trends of necessary expenses. In the fiscal year ended in March 2022, necessary expenses were JPY 477.1 billion, lower than the JPY 530 billion assumption presented in the Medium-Term Management Plan. However, we could not take this result optimistically since new policy sales were low level, which resulted in lower commissions and sales activity expenses. In the fiscal year ending March 2023, following the launch of the new Japan Post Insurance sales system, necessary expenses are expected to increase by about JPY 70 billion from the fiscal year ended in March 2022 due to the acceptance of consultants from Japan Post Co. and the stabilization of business operations. We will continue to pursue initiatives to streamline operations, reduce expenses and invest in areas to be strengthened as outlined in the Medium-Term Management Plan and aim to improve the efficiency of our business operations by controlling necessary expenses to approximately JPY 502 billion in the fiscal year ending in March 2026. Please look at Page 14. I would like to explain asset management. The left chart shows amount of return-seeking assets and the ratio of such assets to total assets. We are expanding investments in return-seeking assets such as stocks and foreign bonds within the scope of a risk buffer based on ALM. With regard to investment in return-seeking assets, we expect to raise the ratio of such assets to total assets to 18% to 20% during the period of the Medium-Term Management Plan. As of March 31, 2022, the ratio of return-seeking assets accounted for 16.7% of the total assets. As a result, we achieved 1.94% investment return on core profit and secured JPY 140.7 billion of positive spread. We will continue to achieve greater depth and sophistication in terms of growth portfolio building in each investment field, such as alternative investment. Please look at Page 15. For asset management, in the fiscal year ending in March 2023, we expect to continue to expand investment in return-seeking assets and raise the ratio of these assets to total assets to about 18%. Particularly for alternative investments, our policy is to accumulate investment balances sequentially in response to investment opportunities and with the scope of our risk buffer while diversifying our strategies and regions. Regarding the situation in Russia and Ukraine, we do not directly hold Russian or Ukrainian stocks or bonds. And while we have some indirect holdings through outsourcing, the direct impact is quite minor as these are held as part of our global diversified investments in each asset. We will continue to closely monitor the market environment and respond appropriately as we anticipate the impact of a wide range of market changes, including the situation in Russia and Ukraine, rise of interest rates overseas or progress of yen depreciation. Please look at Page 16. I would like to explain the promotion of ESG investments. We are making ESG investments in financing under the priority themes of well-being improvement, regional and social development and contribution to environmental conservation. In detail, responding to climate changes, in the investment exposure, we have expanded total power generation output from renewable energy from 607,000 kilowatts at the end of March 2021 to 730,000 kilowatts at the end of March 2022. We are also promoting membership in investment-led initiatives, ESG integration and enhanced engagement. At the same time, we are promoting the Impact K project. This initiative facilitates investment in project whose social impact is quantitatively measurable, including those aimed at solving environment or social issues alongside the conventional risk-return ratio. We will promote ESG investments and financing that create a feeling of warmth unique to Japan Post Insurance. Please look at Page 17. I would like to explain the level of profit. Until last fiscal year, sales activity expenses were largely contained. This resulted in a decrease in operating expenses, which in turn led to an increase in short-term profits. In addition, net income in the fiscal year ended in March 2022 increased by JPY 40 billion from the initial forecast of JPY 118 billion to JPY 158 billion. This was due to an improvement in investment-related gains and losses, mainly from increased dividends on domestic stocks. We recognize that this high profit level was influenced by onetime factors. In the current fiscal year, we expect net income to decrease by about half from the previous fiscal year to JPY 71 billion due to our intake of more than 10,000 employees, including consultants from Japan Post Co. as well as an increase in expenditures associated with the stabilization of business operations. Under the Medium-Term Management Plan, we are targeting net income for the level of JPY 90 billion in the fiscal year ending in March 2026. Therefore, going forward, we will need to recover the profit level. The profit level for the current fiscal year will decline temporarily due to the preceding increase in expenditures associated with the establishment of the new system. However, we expect to be able to achieve the profit target of the Medium-Term Management Plan by firmly establishing a sales promotion with appropriate solicitation quality. Please look at Page 18. Lastly, I will explain our shareholder return. Our shareholder return policy for the period of the Medium-Term Management Plan has been to aim not to decrease but to increase dividends in principle. In May 2022, we have decided to add another target to this policy. By taking timely measures, including acquisition of treasury stocks, to return profits to shareholders flexibly, we will aim for the medium-term average total payout ratio between 40% and 50%. Based on these policies, the dividend per share for the fiscal year ended in March 2022 is JPY 90. In addition, the company is considering the acquisition of treasury stock from the second quarter of the fiscal year ending in March 2023 and onwards, with the aim of achieving a total payout ratio of approximately 45%. In consideration of the acquisition of treasury stocks, the company will continue to ensure that the ratio of voting rights of Japan Post Holdings Co. in the company will be maintained at 50% or less. The annual dividend for the fiscal year ending in March 2023 is scheduled to be JPY 92 per share. We will continue to recognize that the shareholder return is an important policy of management and will maintain sound management while distributing stable profits to shareholders. This concludes my explanation. Thank you.