Daiichi Life Group said on Friday that net income for the six months to Sept. 30 rose 39.7% from a year earlier to 283.8 billion yen, as higher Japanese interest rates raised the income on its bond portfolio and a rising stock market let it sell shares at a gain.

The result shows what higher Japanese bond yields do to the country's life insurers. Income is rising quickly as old low-coupon bonds are replaced. The cost is a growing paper loss on the bonds still held, and the first signs that savers are cashing in older policies to chase better returns elsewhere.

Group adjusted profit, the measure Daiichi uses to set shareholder payouts, climbed 33% to 307.7 billion yen. Nikkei reported that this was a record for the April-September period. Ordinary revenues rose 13.5% to 5.80 trillion yen and ordinary profit increased 36.9% to 458.8 billion yen, the company's earnings report showed.

Daiichi kept its forecast for the year ending March 2027 unchanged: net income of 513 billion yen, up 17.5%, and adjusted profit of about 560 billion yen. The first half delivered about 55% of the adjusted profit target. The interim dividend is 36 yen a share, against 24 yen a year earlier, and is payable on Dec. 4. The full-year dividend forecast stays at 72 yen, compared with 54.50 yen last fiscal year.

Daiichi Life swaps bonds and sells shares

Most of the increase came from the flagship domestic insurer, Daiichi Life Insurance. Its adjusted profit rose to 216.2 billion yen from 158.6 billion yen. The unit's investment spread, the gap between what it earns on assets and what it has promised policyholders, roughly doubled to 122.9 billion yen from 61.0 billion yen.

Two transactions drove that. The unit sold about 520 billion yen of domestic equities in the half and used the gains to absorb losses on selling older bonds. It rebalanced about 800 billion yen of yen-denominated fixed-income assets into higher-yielding paper, taking about 330 billion yen of losses on sales, according to the company's presentation. Daiichi estimated that the switch improves its spread by about 25 billion yen a year.

The company now expects domestic equity sales of about 900 billion yen this fiscal year, about 100 billion yen more than first planned. Its holdings have not shrunk in value. Because share prices rose faster than it sold, the portfolio stood at about 3.5 trillion yen at the end of September.

Daiichi's presentation, citing Ministry of Finance data, put the 10-year Japanese government bond yield at about 3.1% at the end of September, up from about 2.4% in March, and the 30-year yield at about 4.1%. Capital Times has separately covered Japanese government bond yields in October.

Paper losses and surrenders rise with yields

The same move in rates cut the market value of bonds already on the books. Unrealized losses on Daiichi Life's domestic bonds widened to 4.41 trillion yen at the end of September from 3.80 trillion yen in March. Unrealized gains of 2.63 trillion yen on domestic stocks covered part of that, leaving the unit with a net unrealized loss of 659.2 billion yen across securities and real estate. A year earlier it had a net gain of 579.5 billion yen.

Policyholders are also reacting. Daiichi said surrenders of single-premium savings products reached about 50 billion yen in the July-September quarter. Nikkei said competition from other products, including government bonds for individuals and investment trusts, has intensified as rates and share prices have climbed.

The company described the earnings effect as limited. Reserves for single-premium savings policies total 2.9 trillion yen, out of 21.1 trillion yen for individual insurance and annuities, and it said it holds derivatives that hedge against higher rates. The previous peak in quarterly surrenders was about 70 billion yen, in the October-December quarter of 2023.

The group's economic solvency ratio, an internal measure of capital against risk, fell about 9 percentage points from March to about 211%. Daiichi attributed the decline mainly to higher mass-lapse risk as rates rise and to goodwill from acquisitions. M&G became an equity-method affiliate on Sept. 3.

Protective and TAL lift overseas premiums

Consolidated premium and other income rose 6.6% to 3.55 trillion yen. Premium income at Protective Life in the U.S. and TAL in Australia each grew 19.8%, to 456.6 billion yen and 467.3 billion yen. Nikkei said fixed annuity sales increased at Protective and that TAL's group insurance business was strong.

Profit overseas was less even. Protective's adjusted profit slipped to 36.1 billion yen from 36.9 billion yen, which Daiichi put down to the absence of a one-off gain a year earlier from selling an agency subsidiary. In Vietnam, annualized premium from new policies fell 23%, and the company booked an impairment of upfront fees in its bank sales channel.

At home, Daiichi Frontier Life, the group's second domestic life unit, reached only 41% of its full-year adjusted profit target because higher rates forced it to add to contingency reserves on yen policies. Fixed annuity premiums sold through banks and brokers by the two main domestic units fell 22.3% to 244.8 billion yen.

The group's estimated value of new business fell about 15% to about 90 billion yen, which the company linked mainly to model and assumption changes at Daiichi Life. Final figures are due on Nov. 27.