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We Lift FVE for Dai-Ichi Life to JPY 2,600 From JPY 2,500 and Maintain Japan Nonlife Insurance FVEs

Our view on Japan’s oldest insurance company.

Securities In This Article
Tokio Marine Holdings Inc

We retain our fair value estimates of JPY 2,400 for Tokio Marine Holdings 8766, JPY 4,300 for MS&AD Insurance, JPY 5,600 for Sompo Holdings, and raise our fair value estimate for Dai-Ichi Life Holdings to JPY 2,600 from JPY 2,500. Our estimates represent 0.96 times book value for Tokio Marine adjusted for catastrophe, contingency, and price fluctuation reserves, unrealized gains on bonds not marked to market, and the value of in-force life insurance business; 0.50 times book value for MS&AD with the same adjustments; 0.68 times book value for Sompo with the same adjustments; and 0.37 times embedded value for Dai-Ichi Life, reflecting the divergent midcycle returns on economic book value.

We forecast Tokio Marine to generate an average return on adjusted equity of near 8%; MS&AD between 5% and 6%; Sompo between 7% and 8%; and that Dai-Ichi Life will generate an average return on embedded value slightly short of 4% (although we expect Dai-Ichi’s return on book equity to average close to 7%)—meaning that we assign Tokio Marine a higher fair price/earnings multiple of around 12 times compared with multiples of 9 to 10 times earnings for the other three. This reflects Tokio Marine’s faster earnings growth in the U.S. market, although Sompo is also growing earnings in North America following its acquisition of the former Endurance Specialty in 2017 and we think its joint venture in Japan with Palantir offers promise including areas beyond insurance.

Our fair values imply that Tokio Marine is 16% overvalued at current prices, MS&AD and Sompo 3.5% overvalued, and Dai-Ichi Life 12% overvalued. The sector strongly outperformed the market in 2022 with a 29% rise in the Tokyo Stock Price Index, or TOPIX, Insurance Index versus a 5% fall in the broader TOPIX, on optimism for a hard market globally in nonlife insurance as well as the benefit from higher interest rates for life insurance. Our increase in Dai-Ichi Life’s fair value reflects this benefit from rising interest rates.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Michael Makdad

Senior Equity Analyst
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Michael Makdad is a senior equity analyst for Ibbotson Associates Japan, Inc., a wholly owned subsidiary of Morningstar, Inc. He covers financial and real estate firms. Makdad is a Team Leader for the Japan team.

Before joining Morningstar in 2018, Makdad worked in equity and credit research in Tokyo and Hong Kong since 2005 for Lehman Brothers, Nomura, Moody’s, and Haitong Securities. He worked as a sector analyst and in roles where he supervised the research product content and presentation for other analysts across the Asia region.

Makdad holds bachelor’s and master’s degrees in business administration from Washington University in St. Louis. He also holds the Chartered Financial Analyst® designation.

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