TOKYO -- Dai-ichi Life Insurance has surpassed rival Nippon Life Insurance in terms of profits from core businesses to take the No. 1 spot in Japan's life insurance industry. A close reading, however, reveals that Dai-ichi Life may have got lucky. The real test for the company is yet to come.
In the April-June quarter, Dai-ichi Life's group net profit, released Monday, surged 68.3% on the year to 115.2 billion yen ($913 million), beating market expectations. The strong outcome helped Dai-ichi Life exceed its post-split all-time high Tuesday on the equity market. Its fundamental, or core-business profit increased 56.8% to 160.5 billion yen, more than the 145.6 billion yen earned by Nippon Life.
In the last fiscal year, Dai-ichi Life's premium income, which is equivalent to sales, overtook Nippon Life for the first time in the postwar era. It was also the first time for Dai-ichi Life to come in first place in terms of both premium income and core-business profit since the company started disclosing quarterly results in fiscal 2008.
The insurer's parent-only core-business profit stood at 120 billion yen in April-June, below Nippon Life's 145.6 billion yen. It would be impossible for Dai-ichi Life to top Nippon Life without improved profitability at its subsidiary Dai-ichi Frontier Life Insurance, which logged a pretax profit of 34.3 billion yen, up from a 1.3 billion yen loss in the same period last year.
In particular, Dai-ichi Frontier's Australian dollar-denominated single-premium lifetime insurance policies sold well through banks. Increased interest rates in Australia helped the insurer offset the value of in-house reserves against insurance payouts, resulting in a profit of 15 billion yen or so.
The question is whether Dai-ichi Life will maintain its momentum throughout the year ending March 2016.
First of all, increased interest rates might be a temporary phenomenon and changes in the market environment could trim all gains the company earned from such factors. For example, Australian interest rates could fall, depending on the direction of the country's economy, and weigh on Dai-ichi Life's profit.
Secondly, it is also uncertain whether the company can keep expecting solid investment income, after posting a 26% year-on-year rise to 444.6 billion yen for the three months through June. Actually, Dai-ichi Life was rushing to sell its asset holdings in its first quarter, likely because it could no longer expect favorable market conditions in the second half of the year.
Masao Muraki, research analyst at Deutsche Securities, pointed out in a report released Monday that capital gains on sales of assets will sharply fall from July.