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									INVESTMENT                AND      RISK MANAGEMENT

Fundamental Investment Policy                                      with smaller transaction amounts. Despite the advan-
Giving due consideration to stability and profitability            tages, these new areas require a considerably higher
that are required in the investment of insurance reserve           level of investment expertise compared to traditional
funds and to the long-term prospects of life insurance             investments.
contracts, Dai-ichi has established its fundamental                   In fiscal 2001, Dai-ichi began these alternative invest-
investment policy based on the ALM (Asset Liability                ment activities with full force. Our specialists overseas
Management) approach which considers the long-term                 are working hard to put together a substantial global
perspective of the balance between assets and liabilities.         structure for alternative investments.
Specifically, our investment portfolio is built around a              Additionally, we are undertaking joint research and
core of yen-denominated fixed income assets, consisting            investment with our partner Yasuda Fire and Marine in
mainly of domestic bonds and loans. At the same time,              an effort to strengthen our investment capabilities.
we are striving to increase the profitability of our port-
folio by incorporating into it stocks and                                          Risk Management Structure
foreign securities within the range of risk                                        The basic goal of our risk management in
that is prudent for maintaining our finan-                                         investment is to maintain risk at an
cial soundness. Additionally, as a result of                                       acceptable level and to sustain our finan-
our carefully planned risk management                                              cial soundness while paying close atten-
system, we have made risk-monitoring                                               tion to the balance between risk and
more reliable and increased the efficiency                                         return from a mid to long term perspec-
of investments.                                                                    tive. We control the overall asset risk by
                                                                                   the mid to long term allocation of our
Asset Allocation                                                   assets based on ALM. The market risk, credit risk, and
Along with our basic policy for utilizing financial                other risks related to individual assets are monitored on
assets, we had the following asset allocation priorities           a daily basis.
for fiscal 2001:                                                      On the organizational level, daily risk management is
• Improve our financial health by reducing our total               handled by investment execution sections, while the
  outstanding bad loans and work to raise the quality of           “Investment Risk Management Department” carries out
  our portfolio by reducing low profit, high-risk assets           integrated risk management and submits reports to
  such as real estate.                                             senior management. The “Investment Risk Management
• Increase profitability. Considering the current diffi-           Committee” meets every month to allow senior manage-
  cult investment environment, continuing low interest             ment a shared knowledge of up-to-date risk issues. It
  rates and poor stock market performance, we are                  functions as a decision-making body with the power to
  working to restrain decreases in interest and dividend           impose restrictions and recommend counter-measures to
  revenue by reducing our short-term investments and               prevent excessive risk. The investment administration sec-
  purchasing domestic and foreign public bonds.                    tions and execution sections are kept separate to maintain
Advanced Methods for Increasing                                    exercise of their
Investment Flexibility                                             control func-
Dai-ichi is beginning to utilize alternative investments to        tions. The proper
increase the flexibility of our investment activities. These       roles and authori-
include private equities, hedge funds using arbitrage trad-        ty of each section
ing and derivative techniques and also securitized products.       are clearly stipu-
   These allow for a diversification and reduction of              lated by company
the portfolio risk, and enable efficient investment                regulations.

                                                  A NNUAL R EPORT 2002
                                                                           Accordingly, a long-term ALM strategy that extends far
                                                                           into the future is required.
                                                                              In 1996, we introduced sectional accounting to our
                                                                           internal administrative accounting structure. It consists
                                                                           of individual product groups with varying liability
                                                                           characteristics thus enabling more efficient business
                                                                           administration. Our ALM methods are different within
                                                                           each product group, but the following key objectives
                                                                           apply for all groups.
                                                                           1) Maintaining steady earnings that exceed liability
                                                                              costs (expected rates of return).
ALM (Asset Liability Management) Activities                                2) Determining a fair and equitable dividend policy.
As the Japanese economic and financial environment under-                  3) Maintaining proper liquidity for payment of insur-
goes drastic change due to financial deregulation and market                  ance claims.
liberalization, the financial institutions within this environ-            4) Maintaining adequate solvency as a risk buffer in case
ment are also experiencing sweeping change and numerous                       of deterioration in the investment environment.
new risks. Given these extraordinary conditions, the role of                  A mid to long-term investment policy for each
ALM in controlling acceptable risk and monitoring the state                product group is determined based on these key objec-
of operating assets and liabilities (insurance contracts) is               tives, and is submitted to the board of directors.
increasingly vital to life insurance management. Compared                     We will continue to concentrate on increasing mid
to other financial institutions, life insurance companies hold             to long term profitability and maintaining financial
longer-term contracts, constituting most of their liabilities.             soundness by applying the ALM approach.

           I Dai-ichi’s ALM

               Analysis of current liability                      Economic                    Analysis of current
               characteristics and                                   and                      investment assets and
               Future outlook                                     Financial                   Future outlook
               • Insurance period                                                            • Investment period
               • Liability costs (expected rates of return)                                  • Investment income and risk
               • Cash flow, etc.                                                             • Liquidity, etc.

                                                       Expected investment revenues
                                                         Risk below expected rate
                                                              Cash flows, etc.

                                          Determination of mid-long term investment policy

                                                         Anticipated cash flow
                                                         for the fiscal year, etc

                                         Determination of investment policy for the fiscal year

                                                              A NNUAL R EPORT 2002

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