Dai-ichi Life takes ¥140 billion loss selling off long bonds
Dai-ichi Life Insurance lost about ¥140 billion ($890 million) selling off bonds with longer maturities to prepare for higher interest rates.
The insurer sold about ¥500 billion of Japanese government notes, mainly 20- to 40-year bonds, in the fiscal first half that ended in September. The sales were concentrated in the first half of the fiscal year and would be “more restrained” in the second half, the company’s president, Toshiaki Sumino, said in an interview.
“We will continue to carry out replacement operations while paying attention to the impact on profits and losses” in the next fiscal year and beyond, Sumino said. “I don’t think the loss will have any impact on our financial soundness,” he added. Dai-ichi owns ¥18.9 trillion in yen-denominated bonds.
Sumino expects the Bank of Japan to raise rates this month since the country’s economy is on track to recovery. The policy board led by Gov. Kazuo Ueda opted to leave rates unchanged in December as he waited to assess the actions of U.S. President-elect Donald Trump, who will take office this month.
Bond yields have been rising globally as the U.S. economy, the world’s biggest, shows signs of resilience. U.S. data including low jobless claims, heavy corporate bond sales and rising oil prices have fueled expectations that economic strength may forestall additional interest rate moves by the Federal Reserve. Benchmark U.S. 10-year Treasury yields rose 40 basis points to 4.569% in December after falling in most other months in 2024, and have since climbed further to 4.626%.
“It’s hard to say that interest rates have hit their ceiling at the current level, so it’s likely that realized losses on bonds due to rising interest rates will continue in the future,” said Tomoichiro Kubota, a senior market analyst at Matsui Securities.
Sumino was based in the U.S. during Trump’s first term and expects there will be both positive and negative aspects from the incoming administration. He is also concerned about the signs of polarization between the strong and weak companies, as some major Japanese firms have started to report significant declines in profits.
“I have some doubts about whether we can maintain an inflation rate of 2%,” said Sumino. For this reason, he expects the upper limit for 30-year bonds may be around 2.5% and 1.5% for 10-year bonds.
Sumino, who took office as president in April 2023, has been focused on boosting sales after the company pulled back following a scandal involving a former sales employee in 2020. In the first half of fiscal 2024, annualized premiums from new contracts were ¥55.9 billion, 2.5 times higher than in the same period of the previous year. This was the highest level since the first half of 2016.
“Dai-Ichi Life likely wanted to limit the size of unrealized losses it would report in future, and given upside to its earnings guidance from other factors such as gains on sales of equities, it had space to recognize large losses while still being likely to beat its initial earnings guidance for the full year,” said Michael Makdad, a senior analyst at Morningstar.
“The rebalancing means the company recognizes a large loss now but earns a higher investment yield in future years.”