The Aflac Incorporated Fourth Quarter Year End 2023 Earnings and 2024 Outlook Call is about to begin. The conference will include remarks from Aflac's Chairman, CEO, and President, as well as the Executive Vice-President and CFO. The topics to be discussed include financial results, operations in Japan and the United States, and the outlook for 2024. The conference will also feature a Q&A session with other Aflac executives. The speakers remind listeners that some statements may be forward-looking and subject to change.

In the second paragraph, the speaker encourages listeners to review the company's annual report for potential risk factors. He then hands the call over to Dan Amos, who reflects on the company's performance in 2023. Aflac had a strong year, with net earnings per diluted share of $7.78 and adjusted earnings per diluted share of $6.23, despite challenges such as the weakening yen and reinsurance retrocession. Aflac Japan had solid financial results, with a 10.9% increase in sales and a 30.5% profit margin. The increase in sales was largely driven by a 26% increase in cancer insurance sales and partnerships with companies such as Japan Post and Dai-ichi Life. Aflac Japan aims to have products to meet customers' needs at every stage of life.

The latest medical insurance from Aflac is designed to cater to the needs of younger and older policyholders. Sales for this product increased in the fourth quarter, particularly among younger customers. Aflac Japan also refreshed their products to attract younger customers and saw a high percentage of sales to this demographic. Acquiring younger customers is crucial for the company's success, and they have a broad network of distribution channels to reach them. In the US, Aflac saw an increase in overall financial results, with strong earnings and sales growth. However, they are also focused on increasing persistence to grow profitable earned premiums.

The company is continually evaluating new business opportunities and making strategic decisions to focus on profitable accounts. They have introduced a new cancer protection insurance policy which has seen a 25% increase since its launch. The company is confident in the strength of their products and is actively promoting their value to consumers. They are committed to prudent liquidity and capital management and have taken steps to defend against currency fluctuations. At the end of 2023, they had over $2.8 billion in liquidity at the holding company.

The insurance company has a responsibility to fulfill promises to policyholders while also being responsive to shareholders. They are committed to maintaining strong capital ratios and managing liquidity and capital wisely. They have a track record of dividend growth and plan to continue this trend. They have also been actively repurchasing shares and have maintained a high return on capital and low cost of capital. The financial results for 2023 were strong and an outlook for key earnings drivers in 2024 will be provided.

Aflac Incorporated had a strong year with adjusted earnings per share increasing to a record high. However, there were some negative impacts from foreign currency and investment income. The company's liquidity and capital position remained strong, with high capital ratios and manageable impairments. Adjusted leverage was below the company's target range due to their hedging program. The company also repurchased stock and paid dividends, providing a good return on capital.

The company will continue to manage their balance sheet and deploy capital strategically to drive strong risk-adjusted returns. They are pleased with the development of their Bermuda reinsurance platform, which has resulted in three transactions and is expected to improve their adjusted return on equity by 100 to 200 basis points over time. Aflac Japan saw a decrease in their total benefit ratio and expense ratio, and their persistency remained solid. However, their total adjusted revenues in yen decreased due to various factors such as reinsurance transactions and paid-up policies.

In 2024, Aflac expects a decline in net earned premiums due to the impact of reinsurance, paid-up policies, and the deferred profit liability reclassification. However, adjusted net investment income increased by 4% due to higher yields on U.S. dollar-denominated investments. Pretax earnings were 6% higher than the previous year. Aflac expects their well-priced in-force to show greater stability and a benefit ratio of 66% to 68%. They are actively reducing expenses and expect an expense ratio of 19% to 21%. The pre-tax profit margin for Japan in 2023 was 30.5%, with a greater contribution from net investment income. Aflac U.S. had a total benefit ratio of 42.8% in 2023, lower than expected.

In 2023, the remeasurement gains had a significant impact on the benefit ratio, which increased by 500 basis points. Claims utilization has stabilized and persistency has improved. The expense ratio in the U.S. increased by 90 basis points, mainly due to growth initiatives and higher DAC amortization. Total adjusted revenues and net earned premiums increased, while adjusted net investment income saw a significant increase. Pretax earnings were also higher, driven by a lower benefit ratio and partially offset by a higher expense ratio. For 2024, net earned premium growth is expected to be between 3% to 5%. The U.S. segment had a solid pretax margin, driven by the remeasurement gains. In 2024, as the company grows products with a higher benefit ratio and lower expense ratio, the ratios are expected to improve. The expected benefit ratio for 2024 is between 45% to 47% and the expense ratio is between 38% to 40%, resulting in an expected profit margin of 19% to 21%.

The company recorded a pre-tax loss in their corporate segment due to higher investment tax credits and the impact of a reinsurance treaty. Net investment income was lower due to increased tax credit investments. The company is pleased with their 2023 results and outlook for 2024. The first question from an analyst was about the stability of portfolio yield in Japan and its impact on 2024 net investment income. The second question was about the potential for M&A to help with growth in Japan.

The speaker acknowledges that there is a demographic headwind in Japan, but mentions that the company has increased its allocation to U.S. dollar assets in order to hedge against exposure to the yen. They expect this allocation to stabilize, but the new money yield is still a blend of lower yen rates and higher U.S. dollar rates. The speaker also mentions that the company still looks for opportunities in yen spread products, but this affects the reported new money yield. The speaker then hands over to Brad and Dan to discuss the company's strategy, which has been an issue for several years.

The company is addressing the issue of cancer and medical products by offering an inexpensive savings plan and continuously looking for new products. They believe Japan is the best market in the world due to persistency and potential for growth, although there are challenges with an aging population. COVID has affected their distribution system, but they are encouraged by the growth of their Japan Post relationship. The pandemic has also impacted their commission-driven agents, but the situation is improving in both the US and Japan.

The speaker asks if the ¥80 billion target is still achievable in the future, to which the Aflac Japan representative responds that it is possible beyond 2026. The speaker then asks about persistency in Japan, noting that it used to be strong due to selling at the work site. The representative explains that as they shift to new distribution channels and target a younger population, persistency may actually improve due to age-based pricing incentives.

The company's focus on selling to a younger population has helped to improve persistency rates, as younger customers are less likely to lapse on their policies. The aging of the block has also contributed to lower persistency rates. To combat this, the company is targeting younger customers and recently launched a popular medical insurance product for customers under 49 years old. This strategy is seen as crucial for the long-term growth of Aflac Japan.

The speaker discusses the current state of the insurance company, noting that premiums paid by young and middle-aged customers are lower. They believe that focusing on these younger customers will contribute to the company's stable growth and higher persistency rate. They also mention that the persistency rate in Japan is high and that the company will continue to improve it. When asked about the long-term growth potential in Japan, the speaker acknowledges the competitive environment but believes that being competitive is nothing new for the company. They also mention the need to constantly adapt to changing consumer needs and potential changes in copays and deductibles.

The speaker discusses the impact of inflation on Japan and the need to prepare for longevity risk in the aging population. They also mention the discussions within the Japanese government about the sustainability of the social security system. In terms of the U.S. business, they mention working with the tri-agency to understand potential impacts on sales and remaining confident in their policies and coverages regardless of the outcome.

The speaker discusses the company's indemnity sales and states that there has been no decline. They also mention the relevance of their coverage and do not predict any major impact in the future. The next question is about the outlook for capital generation and the possibility of utilizing their reinsurance platform. The speaker also addresses the higher commercial real estate watch list, attributing it to the company's exposure to transitional real estate.

The speaker explains that the current market downturn has led to an increase in potential foreclosures, but the company is working closely with borrowers to address the issue. They have a strong capital and liquidity position, which allows them to foreclose if necessary. The speaker then discusses the company's sales outlook in Japan, stating that they are being cautious and have set a conservative target for the next two years, but are optimistic about future sales in 2024 and 2025.

Koichiro Yoshizumi, a representative from Aflac, explains that COVID has had a significant impact on sales in Japan and has caused a decrease in the number of sales agents. It has also been difficult to train new agents due to COVID restrictions. Aflac's focus is on recruiting and training customer-centric agents who can respond to customers' needs and help them with policies and claims. Aflac has set a conservative sales target and has plans to recruit and train even more agents in the future. Max Broden clarifies that the sales trajectory will be relatively linear, not back-end loaded.

The speaker asks a question about the company's capital levels and potential buybacks in 2024. The company's representative responds by stating that they plan to operate at slightly lower capital levels in the future and are currently going through a transition in Japan. They also mention a partnership for pet insurance in Japan and the growth opportunity for that product in the US.

The company Aflac is seeing low penetration in the market for their product, but this is an opportunity for their distribution to earn additional commissions. They have a strong partnership with Trupanion and capture significant economics through equity ownership. The U.S. expenses are expected to drop in 2024 due to plans to improve expense efficiency and the future growth coming from low expense ratio businesses.

The company expects to see a decrease in their trajectory and operate in the 35% to 37% range over time. They are pleased with the economics of their recapture and it will have a favorable impact on future results. The U.S. expense ratio is expected to come down as they grow their business lines, but the mix impact will also push their benefit ratios higher, resulting in a slightly negative impact on the pretax margin. The company is not satisfied with their current expense ratio and it is a focus for improvement.

The company is focused on creating plans that will continue to improve their financial performance over time. They are challenging their leadership to be accountable for this and tying it to compensation. The company is also implementing strong underwriting discipline to ensure policies have good persistency and lower turnover rates. The company plans to continue using internal reinsurance in Japan, with a goal of eventually transferring about 10% of Aflac Japan's balance sheet to Aflac Bermuda. There are no legal limitations, but they must consider potential risks.

The speaker clarifies that they meant to say 2024 instead of next year when discussing being on a curve. A question is asked about the impact of the yen's value on hedging costs, to which the speaker responds that they are not FX traders and their hedging strategy is focused on reducing risk long term. The call concludes with closing remarks from the host.

The Investor and Rating Agency Relations team is available to answer any further questions and looks forward to speaking with the audience soon. The conference has now ended and attendees can disconnect.

This summary was generated with AI and may contain some inaccuracies.