The Aflac Incorporated First Quarter 2024 Earnings Conference Call is about to begin. David Young, Vice President of Investor and Rating Agency Relations, will introduce Dan Amos, Chairman, CEO and President of Aflac Incorporated, who will provide an overview of the company's results and operations in Japan and the United States. Max Broden, Executive Vice-President and CFO, will then give an update on the financial results and current capital and liquidity. Other executives, including Virgil Miller, Charles Lake, Masatoshi Koide, and Brad Dyslin, will also be present for the Q&A session. The speakers remind listeners that some statements may be forward-looking and encourage them to refer to the company's annual report for potential risk factors.

The earnings release, available on investors.Aflac.com, includes reconciliations of non-US GAAP measures. The first quarter had good earnings but challenging sales. Net earnings per diluted share were $3.25, with adjusted earnings up 7.1% to $1.66. The new medical insurance launch in Japan has been successful, but cancer insurance sales were only modestly better. Aflac plans to improve sales through the Japan Post channel by cross-selling with their life insurance product. They will also be launching sales campaigns for their 50th anniversary in Japan. Despite challenges, Aflac maintains their sales outlook for 2024.

In the first quarter, [ph]Coide San and his team have been working hard to achieve their objective with the launch of a new policy. They have maintained disciplined underwriting and expense management, resulting in a strong pre-tax profit margin of 32.8%. In the US, they are focusing on more profitable growth by avoiding certain less profitable accounts, leading to a 3.3% increase in net earned premium. They have also increased benefits for policyholders and have seen an 80 basis points improvement in persistency. The company aims to exceed $1.8 billion in sales by 2025 and is working on expense management and optimizing their dental and vision platform. They have maintained a strong pre-tax margin of 21%. The company is committed to prudent liquidity and capital management.

The author is pleased with Max's leadership in defending the company's cash flows and establishing a reinsurance platform. They prioritize fulfilling promises to policyholders and maintaining strong capital ratios. The company has a track record of dividend growth and plans to continue this trend. They also prioritize investing in growth and driving operating efficiencies. The company has been in business for 50 years and remains dedicated to providing customers with the best value in supplemental products. Families and individuals still seek financial protection, highlighting the importance of the company's services.

The complex healthcare environment has led to high medical costs, making it important to have a partner like Aflac. Aflac's approach to offering relevant products makes them a strong partner in the life insurance markets of Japan and the US. Max will now provide a financial update for the first quarter of 2024, reporting a 7.1% increase in adjusted earnings per share. The Japan segment saw a decline in net premiums due to various factors, but the overall results were solid with a 67% total benefit ratio.

The company has experienced favorable underwriting experience in their large and mature block of business. Re-measurement gains have had a positive impact on the benefit ratio. Long term experience trends for cancer and hospitalization continue to be favorable. Persistency remains solid, with a slight decrease from the previous year but stable quarter over quarter. The expense ratio in Japan has decreased due to good expense control and reinsurance transactions. Adjusted net investment income has increased due to lower hedge costs and favorable FX impact. The pretax margin in Japan has also increased significantly. In the US, net earned premium has increased and persistency has improved. However, the total benefit ratio has increased due to product mix and lower re-measurement gains. Claims utilization has stabilized, but reserves have been released as more recent experience is incorporated into reserve models.

The expense ratio in the US decreased due to improved scale and lower acquisition expenses. The growth initiatives in group life, disability network, dental division, and direct to consumer increased the expense ratio but is expected to decrease as these businesses grow and become more profitable. Adjusted net investment income in the US increased due to higher yields on alternative and fixed rate portfolios. The pre-tax margin in the US segment was 21%. The commercial real estate watch list remains at $1.2 billion with $600 million in inactive foreclosure proceedings. CECl reserves associated with these loans were increased by $10 million and one property was moved into real estate owned resulting in a $3.7 million gain. The first lean senior secured middle market loans continue to perform well with losses below expectations. In the corporate segment, there was a pre-tax loss of $3 million. Adjusted net investment income was $43 million higher due to higher volume of investable assets at Aflac REIT and lower volume of tax credit investments at Aflac Inc, which negatively impacted the corporate net investment income line for US GAAP purposes.

In the quarter, the company saw a positive impact of $4 million on their bottom line due to investments performing well. Their capital position remains strong and they ended the quarter with high capital ratios. There were impairments in both the US and Japan, but they were within expectations and did not significantly affect earnings or capital. The company also issued debt and repurchased stock, maintaining a comfortable leverage ratio. They will continue to be strategic in managing their balance sheet and deploying capital. A financial analyst briefing is scheduled for December 3.

In the first quarter, US sales were weaker than expected due to timing and optimization issues with the life absence disability and dental and vision businesses. However, the company expects sales to improve in the second half of the year and reaffirms its long-term guidance for the US market. The company also emphasizes its focus on strong underwriting discipline to ensure long-term profitability.

In the paragraph, the speaker discusses the company's financial performance, highlighting an improvement in persistency and strong profitability in the quarter. They also mention initiatives to improve sales in Japan, including hiring more sales agents and promoting new products. They expect sales to recover and exceed 2023 results in 2024 due to these efforts.

The speaker discusses four main points related to the company's performance in Japan, including their highly rated cancer consultation support service, plans to attract younger customers, launch of a new product, and expectations for increased sales in the second quarter. They also address concerns about the industry and Aflac's specific actions in response. The questioner asks for more clarification on the situation in Japan.

The company has seen an increase in medical insurance sales, particularly to customers under the age of 60 and those in their forties and below. They have also seen a significant increase in large, non-exclusive agency sales, which is seen as a benchmark for the success of their medical insurance. The company plans to launch promotional measures to further increase sales to young and middle-aged customers. The third sector sales market in Japan is becoming more competitive, but the company's strategy is to launch new products and meet the needs of customers in a timely manner. They also plan to increase productivity per sales agent through training. The strong alliance with Japan Post is also a strength for the company, as they have a nationwide network for sales. Though the Japan Post network sales recovery is taking some time, the company expects an increase in sales activities and actual sales on cancer insurance.

Dan Amos, CEO of a company, is discussing the success of their cancer insurance and the competitiveness of their medical products. He mentions that they do not sell foreign currency products like some of their competitors do. When asked about the weaker persistency in Japan, Amos explains that it is due to an aging block of imports and a move towards shorter product cycles. This has led to higher surrenders, lapses, and mortality rates.

The operator introduces a question from Jimmy Bhullar of JPMorgan, who asks about Aflac's recent press release mentioning disciplined underwriting. Bhullar notes that Aflac's high-margin products may make it difficult to associate with disciplined underwriting, but wonders if external factors such as higher interest rates have changed the company's approach. Virgil Miller responds, stating that the growth of their group, voluntary benefit business has led to fierce competition and the need for underwriting discipline to ensure profitable business.

Max Broden discusses how not writing high lapsation accounts can improve the overall business by increasing benefits and giving a better value to policyholders and shareholders. He also provides an update on the Japan ESR and its potential impact on their capital management strategy. The company is currently tracking well on their internal model and expects the FSA calibration to have minimal impact. The next question asks about the strong re-measurement gains in Japan and the underlying claim trends. The question also asks if this level of favorability will result in a bigger unlocking this year and if more experience is needed.

In this paragraph, Max Broden discusses the main driver of hospitalization trends and how they have been favorable for a long period of time, leading to improved reserving. He also mentions that future re-measurement gains may be possible if hospitalization levels continue to improve, but if they stabilize at current levels, this may not be the case. Broden also addresses the favorable expenses in Japan, attributing them to both seasonality and timing. When asked about the impact of the Japanese government's intervention on the cost of their hedging program, Broden explains that volatility can affect the pricing of options but the level of the yen has less of an impact. He also notes that recent short-term volatility in the yen has been low.

The speaker discusses the impact of the weakening yen on the company's financial statements and capital ratios. They explain that they have taken steps to protect their economic value, such as holding US dollar assets and issuing yen-denominated debt. They also mention a large dividend increase and share buyback, but emphasize that their decision to return capital to shareholders is guided by their capital ratios and the pool of capital they have at the holding company.

The company is considering future capital generation and how it can be deployed in the short and long term. This will help guide decisions on dividends and buybacks, taking into account alternative options for the capital. In the transitional real estate portfolio, there is about $1.2 billion on the watch list, with half being in active workout proceedings and one property being foreclosed on in the quarter. The company was able to book a small gain on this property due to good underwriting and maintaining a solid loan to value ratio. The market is showing early signs of improvement.

The company is seeing a lot of capital being raised for commercial real estate, which will help with liquidity. They are optimistic about turning a corner in the next few quarters, but are keeping an eye on the Fed's impact. Agent recruiting in the US is tough, but they expect to rebound. They have a strong Q1 in 2023 and are deploying different means to hit expected numbers. The next question is about sales in Japan and the mix between exclusive and non-exclusive channels. They will answer the question.

The speaker, Koichiro Yoshizumi, clarifies that 60% of their sales agencies are exclusive and 40% are non-exclusive. However, in terms of sales, 70% come from exclusive agencies and 30% from non-exclusive agencies. The speaker explains that their main focus has always been on exclusive agencies, which has been a strength for Aflac Japan. They are not worried about the competition from non-exclusive agencies as they have a loyal customer base.

In order to increase sales, Aflac has been focusing on non-exclusive channels, particularly targeting large non-exclusive agencies. This has been a successful strategy, as the market for these agencies is growing and they primarily serve young and middle-aged customers. Aflac recently launched a new medical insurance product that has been selling well through these agencies, leading to significant growth in the first quarter of this year. This is not a new approach for Aflac, as they have a history of successfully entering new markets through non-exclusive channels.

The speaker discusses the company's plans for growth and their focus on the third sector product. They mention their partnerships with Japan Post and other agencies as a key factor in their success, and emphasize their dominance in the cancer and medical insurance market. They believe their exclusive agencies will continue to be a major driver of sales.

The speaker thanks everyone for attending and announces that more information about a financial analyst briefing at the New York Stock Exchange on December 3 will be provided in the coming months. They also invite any questions to be asked during this time.

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