Dai ichi Life : Announces Financial Results for the Fiscal Year Ended March 31, 2017 PDF

[Unofficial Translation]

May 15, 2017

On May 15, 2017, Dai-ichi Life Holdings, Inc. (the "Company", President: Seiji Inagaki) announced its financial results for the year ended March 31, 2017. The following is a message from President Inagaki to our stakeholders.

1. Results for the Year Ended March 31, 2017

   The Domestic Life Insurance Business recorded an increase in net profit despite lower revenues as the Company managed to control its product portfolio strategically. Net Profit from the Overseas Life Insurance Business exceeded the Company forecast with the contribution from improved investment income. While domestic interest rates stayed low, resulting in a difficult business environment, the Company reported

   double digit growth in net income as a result of the diversification of its businesses and operating regions.

   Thank you for your continued support of Dai-ichi Life Holdings, Inc. The fiscal year was packed with events that had an impact on global political and economic trends, such as the U.K. referendum on E.U. membership in June and the U.S. presidential election in November. World economies actually stayed on a mild recovery course as the central banks of major economies supported them with monetary easing measures. In Japan, the Bank of Japan reviewed its monetary policy in September and introduced a yield curve control policy and an inflation-overshooting commitment until inflation stays over a target of two percent in a stable manner. After that, while the financial environment improved after the U.S. presidential election, interest rates in Japan improved only modestly.

   In this environment, the Group, while catering to strong savings demand, made a strategic decision to control the sale of single premium yen-denominated savings-type products in the domestic life insurance market, and introduced a nursing care benefit annuity for business owners in a move to strengthen the protection-type product portfolio. That resulted in about twenty percent growth in new business annualized net premium for third-sector (medical and nursing care) products for the year. In the overseas life insurance business, the Group enhanced partnerships in its sales networks and improved the sales of retail life insurance products.

   The Group has been pursuing diversification in businesses and geographic areas, and is proud to report that 28% of the consolidated net profit came from the overseas life insurance and asset management businesses. That enabled the Company to report robust growth in net profit under difficult business environment.

   Net Income attributable to shareholders of parent company Shareholder Payout

   (billions of yen)

   178.5

   Share

   repurchase

   16B

   231.2

   Overseas

   Contribution

   28%

   (yen dividend/share)

   Total Payout

   Share

   repurchase

   23B

   35%

   35 4345

   Mar-16 Mar-17

   Mar-16 Mar-17F Mar-18F

   The consolidated results reflected the strategic shift in domestic life insurance product sales, and ordinary revenue declined while profits increased compared with the previous year. Net income of Dai-ichi Life declined due to a fluctuation in foreign exchanges and stock prices. But Dai-ichi Frontier Life posted a strong growth in net income as it reversed the policy reserve related to market value adjustment in light of improvements in interest rates. The overseas life insurance business reported profits well above the full-year forecast, as Australian business saw improvements in claims of death protection and the U.S. business reported the first contribution from the block of term insurance policies Protective acquired at the beginning of the fiscal year, on top of favorable investment returns in both markets.

   Together with a shift to a holding company structure on October 1, 2016, the Company established a new formula on which the Company calculates shareholder payout in order to strengthen cash flow management within the Group. The Group Adjusted Profits is cash based profit and therefore forms the basis for sustainable payouts.

   Based on the results described above, the Group revised its forecast for dividends per share to 43 yen, an eight yen increase from the prior year, from 40 yen, or a five yen increase from the previous year. The Group's board of directors also resolved a share repurchase of up to 23 billion yen. The total shareholder return, sum of cash dividends and share repurchase, should account for 35% of Group adjusted profits.

2. Review of Progress on Medium-Term Management Plan "D-Ambitious"

The Group shifted to a holding company structure on October 1, 2016 and was renamed as "Dai-ichi Life Holdings, Inc.". The Group considered this event as "the second stage of a new foundation," a significant milestone for the Group since the demutualization and listing of its shares in April 2010, and is determined to accelerate the Group business process for further growth. At the same time, the Group shifted to a company with an audit and supervisory committee. As the Group makes efforts to enhance diversity in its businesses and operating regions, the audit and supervisory committee reinforces the governance function of the Group and assists the Group to achieve sustainable growth in corporate value.

The Group continued to make progress on a number of initiatives of the Medium-Term Management Plan for FY15 to FY17. Such initiatives during the second half included:

[1] Domestic Life Insurance Business

• In September 2016, Dai-ichi Life introduced the "TOP PLAN EXCEED U" annuity product, which addresses nursing care risks for business owners. Also, Dai-ichi Life announced, after reviewing the trends in interest rates and the revision of standard assumed rate of return, the adjustment in the premiums of individual annuities and whole life, applicable in April 2017, and altered some features of other selected products to maintain the competitiveness of those products.

• In March 2017, Dai-ichi Life launched an application named "KENKO DAIICHI" ("health as No. 1") for smartphones designed to support the health enhancement activities of its customers. The application's users can accumulate stamps by storing the number of steps recorded through smartphones or wearable devices. The application features "FaceAI," a feature that transforms selfie pictures into images of the user's future self with changes in body mass index and ages. Other features will follow.

• Dai-ichi Life has been weaving a network of strategic agreements with prefectures and metropolitan governments in order to bring solutions to local communities to improve awareness of cancer, care for the elderly, diversity, and the education of children. As of March 2017, Dai-ichi Life signed agreements with 47 prefectural governments in addition to the agreement with the Tokyo Metropolitan Government signed during FY16.

• Neo First Life introduced a new product called "KARADA KAKUMEI" ("body revolution") in December 2016. The new product prices premium based on policyholders' Health Age® (note) rather than actual age, a revolutionary product in the domestic life insurance market. The product was one of the results of the Group's "InsTech" initiative, which integrates the insurance business and technology, leading to innovation in the life insurance business.

• Since our foundation, Dai-ichi Life has always put the customer first. This philosophy continues to guide us as we move forward. As part of the Dai-ichi Life Group, all our companies continue to stand by our customers' side and their loved ones, for life. In March 2017, the three domestic life insurance companies of the Group jointly announced "the principle of business management to put the customer first," which reinstalls the corporate philosophy into the business process and guides the companies to become insurance providers influenced by the choices of the customers.

  (Note) Health Age is the registered trademark of Japan Medical Data Center.

  [2] Overseas Life Insurance Business

  Overseas Life Insurance Business maintains a balanced combination of stability and growth under the

  trilateral structure spanning Japan, North America and Asia Pacific regions, in close association with regional headquarters

  • The Company increased its stake in Star Union Dai-ichi Life Insurance Company, a life insurance affiliate in India, to 45.94%. The Company also set up representative offices in Cambodia and Myanmar.

    [3] Investment and Asset Management Business

    The Company continues to improve returns through active allocation of funds to risk assets and increasingly sophisticated investment strategies, while investing in new, growing businesses. As a responsible investor, the Company actively engaged in ESG investments and established a function in charge of governance in

    responsible investments.

  • In a prolonged low interest rate environment, Dai-ichi Life continues to invest in growth areas such as infrastructure and project finance. Through the sophistication and diversification of its investment approach, Dai-ichi Life believes it can improve investment returns and corporate value.

  • Dai-ichi Life actively invests, in full consideration of ESG principles, in health bonds issued by the Asian Development Bank. At the start of the fiscal year ending March 31, 2018, Dai-ichi Life set up a Responsible Investment Promotion Center and a Responsible Investment Committee. The Center focuses on execution of rights related to the stewardship activities and addresses conflicts of interests within the Group as a responsible investor.

Since we announced "D-Ambitious" in May 2015, we have seen big changes in the political, economic and financial environment. When the Bank of Japan introduced its initial quantitative and qualitative monetary easing policy, the Group believed interest rates in Japan would normalize over a short period of time. The negative interest rate policy continued and last September, however, the Bank of Japan released a comprehensive review of its policy. This resulted in changes in the Group's assumptions and the Group now takes into account a scenario where super-low interest rates will persist for some time beyond the period of the plan.

If the Group maintains the three-year schedule, the Group will have to pursue a dogmatic risk reduction program that could lead to the negative spiral I touched on earlier, forfeiting our growth potential in the future. The Group elected to maintain its growth initiatives instead of focusing only on improving its economic solvency ratio, which would contribute to stakeholders' value in the long run. The Group redefined some KPIs as a mid-to-long-term vision rather than as targets. Please refer to the corresponding press release below.

Progress Report on Dai-ichi Life Group's Medium-Term Management Plan 'D-Ambitious' covering Fiscal 2015 to 2017 and Update on Management Objectives (Quantitative Targets)