Higher Japanese interest rates are doing two things at once to Daiichi Life Group. They are lifting the investment spread at its main domestic life insurer, and they are raising the capital the group must hold against policyholders cancelling. The group's economic solvency ratio ended September at about 211%, roughly 9 percentage points below the end-March level of 220%, the half-year results presentation shows.
Rates help the spread
The 10-year yield the presentation cites (from the Ministry of Finance) rose from about 2.4% at end-March to about 3.1% at end-September. The 30-year rose from about 3.6% to about 4.1%. The insurer used the move to swap bonds held against policy reserves into higher-yielding ones. By the end of the half it had replaced about ¥800bn of yen fixed-income assets, booking sale losses of about ¥330bn. On an annualised basis the swaps are worth about ¥25bn of spread improvement. For the full year the plan calls for about ¥34bn a year of improvement, of which about ¥26bn would land in the current year, and about ¥540bn of sale losses.
Group adjusted profit rose 33% from a year earlier and reached about 55% of the full-year outlook. The presentation credits the main domestic insurer, citing a wider spread and higher gains on securities sales.
Where the cost shows
The company attributes the lower solvency ratio to a larger mass-surrender risk charge as domestic rates rose, plus higher goodwill from acquisitions. A rise in domestic share prices raised eligible capital but did not offset those effects. The ratio comes from an internal model that uses simplified calculations and has not been reviewed by a third party.
Surrenders at the main insurer are rising on single-premium savings products, according to the presentation. Reserves on those products are ¥2.9tn, against ¥21.1tn for individual insurance and annuities as a whole. Second-quarter surrenders were about ¥50bn. The insurer says it has built derivative hedges, and that the effect on earnings is limited. It also keeps its matching ratio at 87%, which it says it holds below 100%. Surrender rates at the group's Frontier life unit are described as low and stable.
More equity sales
The insurer sold about ¥520bn of domestic equities in the first half. On September-end economic assumptions, its full-year sales estimate is about ¥900bn, about ¥100bn above the plan at the start of the year. Domestic equity holdings still rose to about ¥3.5tn at end-September because market-value gains outran the sales, and the insurer says it will keep selling on a planned basis. The ¥900bn is an estimate that depends on those assumptions, not a fixed target.