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Dai-ichi Life Holdings Inc 8750

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We Raise our Fair Value Estimate For Dai-Ichi Life as Guidance Rises Amid Strong Financial Markets

Michael Makdad Senior Equity Analyst

Analyst Note

| Michael Makdad |

We raise our fair value estimate for Dai-ichi Life Insurance to JPY 2,200 from JPY 2,100 after the company raised its guidance for adjusted profit in the fiscal year ending March 2021 from JPY 180 billion to JPY 210 billion. On a financial-accounting basis, it raised its bottom-line guidance for the year from JPY 184 billion to JPY 262 billion. The drivers of the upward revision are complex but mainly come down to the recent resilience of financial markets. The upward revision would have been larger but Dai-Ichi Life increased the size of its planned cession of negative-value liabilities this year from JPY 50 billion to JPY 300 billion (about 0.6% of its total underwriting reserves), on which it expects to book a special loss of JPY 83 billion. We think the larger-than-planned cession reflects not only that there was a counterparty willing to assume this size of liabilities for close to their embedded value, but also that Dai-Ichi Life had more cash available to pay the counterparty than originally budgeted thanks to strong financial markets. The fact that there are counterparties willing to take Dai-Ichi Life's liabilities at around 1 times embedded value when the whole company trades at only 0.28 times is evidence of undervaluation, in our view. Our fair value estimate of JPY 2,200 values Dai-Ichi Life at 0.34 times embedded value (versus our expected midcycle ROEV of around 4%) and represents 16% upside from the current share price.

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Company Profile

Business Description

Dai-Ichi Life is Japan’s second-largest life insurance company excluding recently privatized Japan Post Insurance, with a market share of slightly over 10%. Unlike its largest domestic competitors Nippon Life, Meiji Yasuda, and Sumitomo Life, which remain mutually owned by their policyholders, Dai-Ichi Life demutualized and listed on the Tokyo Stock Exchange in 2010. Its main domestic operating company accounts for around 70% of profits, its Frontier bancassurance subsidiary selling mainly savings products accounts for around 10%, Alabama-based Protective Life accounts for around 15%, and TAL in Australia accounts for close to 5%. Dai-Ichi also holds a 30% economic interest in Mizuho’s Asset Management One and a 16% stake in Janus Henderson.

13-1, Yurakucho 1-chome, Chiyoda-ku
Tokyo, 100-8411, Japan
T +81 332161222
Sector Financial Services
Industry Insurance - Life
Most Recent Earnings Dec 31, 2020
Fiscal Year End Mar 31, 2020
Stock Type
Employees 64,772