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Japan Post Insurance soaks up stocks, others eye dialogue

Japan Post Insurance held 1.25 trillion yen in domestic equities at the end of 2015.

TOKYO -- Japan Post Insurance is showing a stronger interest in domestic equities, while other big insurers are trying to communicate more with companies that they invest in.

"We're not full yet," said the investment planning manager at Japan Post Insurance, nicknamed one of the "whales" in Japan's stock market along with large public pension plans.

Stocking up

The insurer, known as Kampo, has stocked up on Japanese shares through asset management by trust banks. It held 1.25 trillion yen ($11.7 billion) in domestic equities as of the end of December, up a whopping 1 trillion yen in just under two years. Nowadays it wields such strong influence in the market that every rally sparks speculation that the company is behind the upturn.

The Japan Post Holdings group member will increase purchases further this fiscal year. The company's medium-term business plan calls for lifting the proportion of risky assets -- including Japanese and overseas stocks and foreign bonds -- to 10% of its portfolio by the end of March 2017, a roughly 60% jump. If the different types of risky assets are to be increased evenly, the insurer would need to buy an additional 700 billion yen or so in domestic equities.

Japan Post Insurance also plans to start investing in cash stocks on its own in the second half of this fiscal year.

"We'll start with a narrow range of investment targets and gradually expand the scope," the investment planning manager said. Mindful of guaranteed interest rates on its products, the insurer is eyeing issues with high dividend yields, a move likely to accelerate the market trend of picking up dividend stocks.

A little more exposure

Five of 10 leading life insurers increased their exposure to domestic stocks last fiscal year, many of them slightly. Price fluctuation risks prevent these companies from drastically shifting their assets from bonds to equities. But the insurers are expanding their stock portfolios now that reductions of cross-shareholdings of the past have settled down. Daido Life Insurance boosted shareholdings by 65 billion yen last fiscal year, while Fukoku Mutual Life Insurance did so by 15 billion yen.

These companies generally intend to keep their domestic stock holdings steady this fiscal year. But some aim to take more asset management risks.

Meiji Yasuda Life Insurance plans greater exposure to investment trusts, which it hopes will outperform the market, while simply reshuffling cash stock holdings. "Overall, the stock investment risk we will take will rather increase," Deputy President Toshihiko Yamashita said.

Daido will pile into stocks it thinks will deliver surplus income while mainly investing in exchange-traded funds.

Broader dialogue

Japan's new stewardship code encourages institutional investors to have constructive dialogue with companies, and major players have engaged in such communication. But the results have been disappointing, forcing asset managers to rethink their strategies this fiscal year.

"The growing feeling of economic stagnation will likely discourage businesses from using internal reserves for investing or returning them to shareholders," an official at a leading life insurer said.

Nippon Life Insurance will broaden its dialogue program, designating 200 companies as those with room for improvement, up from 90 previously. The shares of companies on the new list will account for about 60% of the insurer's stock portfolio. Nippon Life is increasing the dialogue team to seven members from five. They will "endeavor to maintain the dialogue level," said Kazuo Sato, head of investment planning.

Sumitomo Life Insurance will focus on the quality of dialogue. It will use internal analysis to identify issues at companies, considering these points when discussing with them how to enhance their share prices. "We'll grasp their management stance through these discussions, which we will use when rebalancing our portfolio," said Iwao Matsumoto, general manager of the investment planning department.

Institutional investors and companies are not on the same page when looking at corporate financial data, a Life Insurance Association of Japan survey from last fall shows. Some 40% of companies said their returns on equity exceed the cost of equity, but 51% of investors said the ROEs were below such cost, deeming the returns low.


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