AFL - Earnings call transcript Q1 2018

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Operator

Welcome to the Aflac First Quarter Earnings Conference Call.

Your lines have been placed on listen-only until the question and answer session. Please be advised today's conference is being recorded. I would now like to turn the call over to Mr. David Young, Vice-President of Aflac Investor and Rating Agency Relations.

David Young

to quarter welcome and morning, our call. first Good

Teresa the Dan Incorporated; Eric Amos, me Aflac, Crawford, this and Kirsch, are from morning Incorporated; of Chief CFO Aflac, Joining Executive Chairman Vice-President, Aflac Investment U.S. CEO Vice-President and President Global White, Global of Executive Officer, Aflac and Rich U.S.; Fred in and Williams, of last year Risk Chief of Senior September Officer; Chief as you Riggieri, may President Chief and Vice-President and whom Global Investments; Executive Distribution Al us Actuary. recall Officer joined Vice-President of

may to year. April You recall position that promoted Al this this of was X on

recall COO Joining us Daniels, Executive Director, Aflac and you April and Life our International of was Insurance Insurance Japan; Principal Ariyoshi, from Aflac Vice-President Koji X Aflac may Aflac of Financial and Tokyo for Japan. and Aflac and now Life are marketing Insurance to on Japan; President Japan operates and President, Japan Life that of of out of head of Representative Executive this Koide, – position sales Director Lake, Todd Chairman Todd Masatoshi Officer Charles – Director, Vice-President, Representative office promoted

me are start, of remind some we this that teleconference let Before securities laws. in forward-looking statements meaning the within you federal

we is the Although page Form that of also impact results. nature. various factors in Actual we can certain and materially risk measures. they annual today. we accurate on includes our report the believe assurance encourage Investors they on these release materially We earnings non-GAAP that at for look XX-K are prospective aflac.com, results those statements reconciliations give of will some from our be of no discuss The could are you available reasonable, differ because prove to to could

to follow comments States. as and financial will will about over operations outlook then and some about with comments as Dan? who this Now with well Fred Japan the the Dan, program United quarter capital begin management. morning the our I'll turn in our

Daniel P. Amos

for joining David, Thank you, and good us. thank you and morning,

just by saying that the under start have belt, a Although of let solid one our for we quarter the quarter established XXXX year. first me begin

Let me quarter. our results Aflac give operations. earnings our Japan, financial largest with strong detail, for Japan contributor, generated more you beginning the

As faced we sector third comparisons. sales anticipated, challenging

You will refreshed launched of product. in that recall February XXXX our we medical

cancer XXXX on the they combined could The the new delaying of of expectations. out our in modestly hold Japan our mind, Additionally, compelled to the than of product and the we sales first in after the when sales, new a announce communicated insurance that our pioneer branch of April cancer we product Keep product. our a plan the challenging quarter a will the launch on April much conversion new insurance quarter. launching results our be cancer subsidiary were as the product distribution was that weaker cancer of and introduce to effort we made to complete of felt until introducing until XXXX generated sell Japan product sales cancer cancer X. leader post-conversion, new of Aflac

the on, our during However, as we call confident goes will build XXXX. and expect outlook we to for am target outlined our third as that sector sales achieve sales year I

persistency. generate to Aflac's reflecting remain the In sales range, third premium stable addition, we on X% in X% pace stable to earned quote sector and

to and success, roll our Regarding to we our designed productivity. to traditional continue sales our model agencies remain have increase vital and distribution, been out offices

sales our also significant contributions Our made results. alliance to partners

Post network postal distribution that buy Our goal our furthered includes – people outlets want to extensive XX,XXX-plus to where Japan's be insurance.

and interest building sector Both the along protection the stable of type less products the sale with in margins. position products, and third leadership products. of our these strong have first are maintaining on remains of focus sale Our of sector rate-sensitive

continue We our portfolio market to product refine leadership. to products third our maintain introduce innovative new will and sector existing

performance these of investment the our to on are with pleased also strong and our particularly we profitability because results notable operations, Aflac in the reflect quarter, platform. U.S. U.S. ongoing Turning financial which in is the

results anticipated line in with Our our were distribution productivity sales teams. all improve to I expectations. across

continue with experience sales on. growth sales expect objectives and in of strong we the yield believe will We our year and Ultimately to stable performance X% full-year persistency. as customer investment building X%, to production goes distribution

the the generate for We year. premium expect X% to to in growth earned an outlook X%

our As expect financial in continue growth briefing analyst broker September, our discussed to industry. for last we we the sales higher in

progress has broker within team relationships the Our made professionals large-broker of community. in Aflac's deepening successfully sales

products partnering still product development, starting in take its is is Our initiatives to off. for early group but already true

therefore is Aflac agents through strong we positioned for our within and that are are group capabilities. focus segment, sales need fulfill the reach high and come broker business our As has interest the clients from This employees. with and products will important, sales sales fewer Brokers. are our growth and therefore is our increased which smaller growth XXX of in different of experience best our Aflac. that strong a groups recognized seeing from independent in and attention result, doing employers a Aflac the succeed our than us more to Aflac assert products. than offers. more rate looking the industry peers and on. rather These sales to continue with the Brokers appeal This agents the with in Brokers to majority type have and our of

and and professionals force field growth. the accelerate experts are Our with brokers sales who have work to agents independent ability broker to

are of sales the We to meet business, we as sales approach. are and as collaboration growing this needs and broker-influenced brokers our characterize We part remainder of the look our the business. to as a fourth brokers sales in this we XXXX, to to broker-influenced to ability continue positive skew quarter through of seeing momentum expect

other fairly fast that sales. no is Aflac. American they will to customer we Pay paying benefit and Aflac our further I which to to to true used claims people need briefly believe there shows, Everwell on paying quickly, is and refer I our claims We continues platform, as also future Day solutions to touch One research Pay, adaptation sets leverage differentiate our believe One Day XX% trust. believe from strong to only want that the One brand We agents' sales and especially continue Pay policyholder enrollment re-enforce This and enhance distinguish dedication investing because increased our likely I it to the will innovative competition. experience. independent and consumers initiatives cash Aflac are career have apart. fast the policyholders More industry-leading say of than Day like of in doubt enrollment because

the increasing provide Turning Fred same time, we're repurchasing re-investing comment shares, with balancing capital first to strength will business. maintaining on that deployment, the details we to capital I'd committed remain financial behalf of At ratios just our shortly, make the strong and but our the more our stakeholders. dividend, in

that in We continue to in repurchase billion our we anticipate $X.X $X.X shares of range of to XXXX. billion the will

As is position always capital alternatives. the case, compelling this assumes of and stable absence

we the Benefiting is our investments that accelerate objectives. leveraging driving the As growth line I the impact company's values reform, from in that future. December the that strategy efficiency opportunity tax critical our our reflect investment to our to are bottom U.S. and we will mentioned, in and for platform recognize targeted initiatives

innovation, in over overall programs, digital to on growth $XXX main businesses. investments increase and expect strategic years. benefit investments the five company's technology, three categories: in training U.S. three operation, investing enhanced These in We by and continued employee the million approximately focus to U.S. and

insurance by the financial Looking that the the in delivering ahead, we will just future earnings balances the promises turn believe the the reflect that now our reiterating continue. we way program Fred of it I'll and in will to about the our make of stakeholders. States. am over our approach how time, to and also company to excess Fred? capital growth deploying interest our dedication I reflect will to all and strong the to will reflect our cover United policyholders. operations believe I'll power earnings it results. our It a growth, same At excited prudent conclude Japan on underlying

Frederick John Crawford

you, Thank Dan.

the start the year for to off very on results as a front, are exceeded expectations. We strong our earnings quarter to the

and quarter, of split, $X.XX share the for our from both adjusted earnings benefited margins pre-tax accounting in recent the U.S. strong For per stock and Japan

treatment $X.XX rate a the of represents earnings impacted results normalized, of of When in Japan's expected, as in the GAAP. in tax tax Adjusted XX%, of based and expected on majority a effective the of blend XX.X% XX% yen our $XXX total the quarter. our the second recorded million $XX tax from estimate. U.S. the quarter costs to the at low approximately original of we adoption conversion expect of $XXX and quarter in $XX are of came rate compared our the per million XX%, come by recorded to were includes costs, end quarter costs million. the and XXXX earnings. first under reform. the mix results. in of quarter's Through of rate period, in rate the of strengthening tax to share U.S. the current to were also have The compensation reported equity of XXXX the million quarter's share benefited approximately to remaining Our as $X.XX per conversion tax The be contributing Japan end by branch corporate effective

ratios expense a in Japan Turning to results, in came resulting pre-tax our our and favorable margin benefit strong to segment profit expectations, of XX.X%. our both

to end older sector cancer benefit the in range which lower results ratio driven total a last guidance the from at in in-force the ratio, block. lower third a carries quarter's our benefit driven of comparing favorable When which impacted business Our by largely XX%, our reduction sector, by towards was benefit by positively third results, of sector year's first ratio. shift mix was ratio the continued to XX%

we our of increased in also largely the is XX%, XX% ratio of projected the expense quarter. and at in spend end with timing-related our launch in range refreshed the second as of Our Japan promotional anticipate lower product to cancer came

in efficiencies. we growth also our and strong dollar floating-rate driven in initiatives contributed rate to yields to We The our U.S. higher were expectations by from our the drive XXXX. addition, outperformance our opportunistic floating Japan stepped-up portfolio. designed Investment to benefited into performance relative operating income favorable also was results accelerating heading growth quarter's future portfolio, investment digital, product results. development, in and IT In anticipate and of in

Turning to in results, margin XX%. strong the the our profit a quarter U.S. was overall

our came Our XX%. guidance total XX% range benefit of to ratio in below

mix with recent our consistent year within of claims expect the we of range. for benefit will generally will back remainder business, the and While climb quarterly results the our trends and ratios fluctuate,

reflects in in as expense Our U.S. continued ratio expected the investment and came our platform. in

in years reform, with in million five $XXX our tax noted comments, our to over business. intent we U.S. U.S. three his the Dan next to up announced invest As to

to worked identify investment, $X.XX of have We impact the share estimate accelerated of to XXXX. be approximately remainder the per and specific areas for

totaling transferred to as Before contingent U.S. worth noting to in portfolio out the leaving assets Aflac, of the capital income we an company. segment, million fixed $XXX approximately of Inc. our it's U.S. segment shifting holding investment part

this in reducing segment. Together with our the activity the we ended plans strategic Japan's position. not our investment the investments income accounting-driven supplement restore expect solvency the place a we part helpful. SMR decline impact the hope margin our U.S. business our and other conversion Based ratio branch have in in capital be We a income ratio, in increase does and quarter X,XXX% that the from approximately Other three-year to estimated a investment to post-conversion, impact our effect range. at X on in the we points, as is it of venture on year-end consolidated XXX disclosures accounting corresponding to Although an find holding within Recall segment we added subsidiary, in in net impact company in results, move a have Corporate corporate of April and estimate strong SMR. that has line-item you'll segment, and financial period. our a

proposed deferred adjusted the roughly NAIC precise the includes It to XXX%, capital at the U.S. a the is assets CX reform reform, new finalizing adoption changes of partial the Our into at charges. understanding still which and of adoption ratio may incorporate the capital full tax estimated end quarter is stands our asset also tax move risk-based tax of XXXX tax timing rate. to by and U.S.-only

but not will disruption our capital monitor accordingly, do and to plans. update excess expect We U.S. drawdown any

million capital, at We and $XXX as liquidity of We normal will along proceed through capital we with in contingent asset company of $X drawdown conditions with move quarter. for the the with holding set and the in ended quarter of Overall remainder quality $XXX capital of impairments support $X with aside the positions. strong, modest excess the over remain dividends billion We company. year. holding level in and of million billion only a for credit liquidity the derivative

in million the to We excess quarter. dividends share continue platform to approximately $XXX capital seek to our investments growth shareholders. and returning returned balance while repurchase, our Including and shareholders in we

We billion and capital $XXX repurchase repurchased range are stock billion our in for million maintaining in remain tactical our of X.X $X.X the million $X.X on approach, by guided of for current We returns XXXX. quarter, in to our excess relative deployment options. shares

holding draw contingent through to are optimize plans our This includes Japan's to capital in work our optimizing assessing and we company XXXX, approach managing U.S. and at generation, our As liquidity liquidity. hard we move capital to build post-conversion and profile. capital down RBC,

we the subsidiary, optimization, accomplish refine of of our offsetting dividends costs enterprise-wide lowering entering this value while are to U.S. company. by yen-denominated holding We dollar Japan's dollar investment positions of topic to the at U.S. working our Japan into with associated the protecting hedging. approach out On hedge

material income. comes our through While Corporate the and in form our this additional impact the to in segment of near the results of activity term, Other not

Japan. we the volatility our a of to conversion, balancing manage strategies exposure to need potential yen. off our successful subsidiary lowering at September will and optimization briefing Coming enterprise our earnings capital our to FSA call detail Japan more in off guidance David analyst solid are further We share begin financial and and U.S. we these provide And margins develop the weakening In outlook, overall a in while year to range adjusting of terms per closing, pre-tax back our while the Japan be David? our the currency-neutral in start are earnings in to early it's and to I'll Q&A. the hand both

David Young

Fred. you, Thank

and to fair ready related are everybody, before be questions, to begin, limit to one question let a Now we ask, yourself follow-up. to we please your but take me initial

the take We will now first question.

Operator

Thank you.

Humphrey The of comes from first question Partners. & Dowling Lee

ask You now may your question.

Humphrey Hung Fai Lee

Good question. morning for you taking my and thank

you sales? So the a about sales, the One talk talked product. new of you the you Can mentioned and high cancer in at I Japan's rollout level, cycle reception product, Day new guess month-to-date cancer third of about, the the

Daniel P. Amos

We but – someone can't take sales, would that? who Japan like monthly break out to maybe in

Masatoshi Koide

the we focusing Language] treatment are have not treatment try coverage, such we Aflac or relaunched care new environmental as and [Foreign Language] Hi. are that benefits with added This [Foreign a appearance on as palliative changing as that align is has to care, the cancer these itself, there of The from the added we Koide Japan. of have the well new product things in but only diversification changes. just that

from a cancer now their health, due for sales our our insurance these take to customers. [Foreign customers, benefit able extensive for we plans customers Language] a of specifically cancer new for these And offering new offering And of points [Foreign special concerns who So offering out their are to are appealing existing only me. also, That's range product a needs or those that, are we [Foreign to started have insurance with rate. product customers rate the Language] product sell to have were [Foreign we able so but Language] under to sales Language] nonstandard this and and we caters different brand Language] coverage take points relating that with [Foreign to not customers are special product. this those customers, customers broad a ages. expected. as have And also targeted And this in we been also through all not out

Humphrey Hung Fai Lee

color. Thank the you for

Daniel P. Amos

numbers, I look with new at our And pleased of the rollout this I goal my make comments, I've year. been full that to in say overall, as the said do us I would the product. as I expect for

Humphrey Hung Fai Lee

down the your ratio I My of to was to related is what just dollar-invested which second is increased hedge $X then target now quarter, the wondering in from by XX%. in your was Understood. ratio? and Japan, then billion XX% question assets U.S. also strategy? hedge increase timing in your it the terms is and shift in also issue, or low just of a assets Is U.S. dollar-denominated the in little Japan, for there the driver in a

Frederick John Crawford

XX% but shift timing in targeting the a ratio provided way will overall related an of the in relates portfolio. to the There's our There what our U.S. as hedge increasing a we the and issues we're outlook call. not we ratio strategy it both on of portfolio to be dollar development through year, the dollar hedge U.S. go still as

$XX that portfolio billion, of is dollar I $XX in to to level U.S. the the projection think perhaps to billion our roughly build have range. right

So so hedges up that's not seeing expectation, range. which to now, rate right why a $XX hedge to roughly year's billion, lower our for of will the that $XXX million more build than million-type of slightly our range, little run billion is better $X.X level example, seeing range notional And to quite think, you're you're $XX.X roughly are at last costs billion. $XXX cost hedge similar than the I

So proactively. I good my accelerate the seeing a assets, somewhat to able and estate. an portfolio announcement we that in more to to than build. outright is related more But where NXT dollar the mentioned were was accelerated This particularly in to lot that more to we related really real the – investment transitional floating way U.S. was specifically come our purchased pronounced the even what accelerate opportunities portfolio of rate build simply invest comments, opportunistically we in is, and

U.S. as dollar. we hedge up a catch out the higher little gate in is And the and through dollar which bit year. U.S. you'll rate, go with a in jumped the a we ratio the investment of see floating So build little so initiative,

Humphrey Hung Fai Lee

asset program, billion. U.S. investment the U.S. dollar dollar around now the investment right so is the program, – basically, So $XX

So above little it's to billion your billion. a $XX $XX bit

cap And to so there let let it general you're that sit just to overall to level? going your grow

Frederick John Crawford

early out stay the jumped little build of that portfolio the a to opportunity, range. because expect We Yeah. in to U.S. but we dollar would

Humphrey Hung Fai Lee

Thank Got you. it.

Operator

Thank you.

Tom comes question Evercore. from Next Gallagher of

question. You ask may your now

Thomas Gallagher

talking I at want planning asking broad to front-run ask what for September, not idea the but Good just Fred, program referencing. your about you in morning. I'm give there at optimization you earnings? more on or a little to you're – you is least cashflow were with can (XX:XX) you a you're what this? is potential, carrot capital end approaching or is or What it's management, or it's here, dimension a about better whether can potential this Like risk the this whether you bit? the about

Frederick John Crawford

Yeah. I detail Tom. will the really that's on, the this work lot And high a September. level, as definitely But look and consistent a characterize I'd follows. as approach we we greater towards to have with at dimension provide going move of streams

because have of we're built We And system. capital of through purposely transformation Japan fairly a good subsidiary. going in up of that's in a the conversion of a to amount terms excess the the year branch

so Category that's actually started and platform. next really We last one that lot And a about, drawdown know excess year our we U.S. well and categories. underway. RBC. through And materially, is movement of continue three drawdown and and capital, excess the of this year. the you year that geographic the of they of That's into fall out capital into

statutory possible XXX%? make into settle do. Now think producing a we our it's But And I I have our I statutory to and watch both to start NAIC on not full our target very and statements don't with down charges. they're that's assessment a we've our is, to but the around first on structure, we be below bring I basis, to us sound moving around playing U.S.-only to how got think handle targeted performance often that disruptive a get plan. the that sure U.S.-only tax on expect for basis, reform CX can a also only question of

in work settles in some over find done bring I SMR business of hedge lot just we U.S.? work model. all starting to dial which may as increasing we of a Japan, and and easier we Second earnings the look our our question Japan. to opportunity profile by and nature regulator amount agency the a big that in, as ratio, by a of quality a in anything area And have down also way capital and business. and has hedge years, that status. of you're capital continue; how more of once the volatility. think of is trade-off can else, not and But SMR both rating We've optimize I fact, becomes, then certain we've with conversation a risk This In at generation, is carefully to done or dialed or do a subsidiary we've branch the SMR more potential the we calm of normalized to and and in, that the much FSA recent further a absorbing much the given our status increased optimizing in costs a volatility when ratio, been we're increasing as expect

and go not And holding we're sit and come is but down so the really this off And then mechanics. last of those to least through conversion company. going

not additional we're we're $XXX-plus utilize capital standby any carrying million to $X put do bit for have north both at I work we issue are billion How billion, level The we run our upwards and of capital at put As carrying liquidity. holding of company, we risk. and that? of it how if to of available is mentioned, how the a do $X.X work best capital the best contingent a but shareholders, of that and sort we company, confident can that holding of

completing this optimizing conversion to efficient more game So where be to was capital. as the opening door us branch now That categories we've opens we're plan. those to along, element big the And Japan up of of three our holding the subsidiary. key for in said the much all are the up

Thomas Gallagher

more negative guess That from with to guess to back of a would restore to a there's to with Unless at be appreciate able there. being mechanism comment I the there? you're to a going a X,XXX%. restore to XXX-point impact the my engineering percentage. odds be Can that sub, seem from plan financial I you on SMR to mentioned if to is, thoroughness I you interesting. That's one capital, and the SMR a have bit follow-up get efficient branch a, conversion also that? you more

Frederick John Crawford

convert important a, is. effectively conversion. FSA what dynamic. on subsidiary, moving is very capital used And terminology, back branch That from out XXX It's earnings is tax gross-up into that to earnings. SMR. some that understand When accounting, we by is an an to you'd I days And in that, of points that, to of lose Yeah. the our we of the I accounts. And that reduction transfer do to other early impact what accounting SMR have reflect you retained mean from accounting-driven retained our just you announcing an the the when

more to go to the the intent back we with retained we we as table, earnings pay comes our up gross-up to earn earnings of benefits. build levels As or is prior that forward, the conversion, tax money dividends those accounts. and Therefore, that bring retained out quickly capital to

it. And just So in some mean just that's loss restore to important It's by issue, note plans the restoration of of and have economic that of we simply not sort accounting that to place an accounting what I that was drag. capital. it's

Thomas Gallagher

Thanks. Okay.

Operator

you. Thank

Next question comes Citi. from Suneet from Kamath

ask now question. may your You

Suneet Kamath

sense Dai-ichi, a words, get think product the Japan other look in distribute and terms at channels? distribution what Great, thanks. In back and through? Japan of ramp Wanted us of cancer you the think your have give what to like in Post, channels point you new that you'll you other that product. would you do to new Can

Daniel P. Amos

take that? you would Koji,

Masatoshi Koide

Dai-ichi offered Post. product it through Life This is cancer our The me. And that's all new for Japan again. channels, Koide and including is

Suneet Kamath

In through other branches? channels, the offered Post Japan or like currently in terms there's particularly it's being a of ramp-up – is words, not it all the

Masatoshi Koide

mentioned, already And we've channels. being I that through product April launched sold the as is new all our in

Suneet Kamath

Okay. Got it.

Daniel P. Amos

that But don't our we in control all force. have, we deal is, these the that affiliated we when cases with partners we have have there field –

to time. to to half product, that so the question second with your little still second it because But – So much actually excited expect but another quarter, when we associates them of it have the they something it they work the are getting it dealing have you're dealing how have about sold just do out do. that to people, takes put in another up the way toward we Not year. it is with or a pick

from that think So half of it's sudden I don't to standpoint, first that second be to going want just than It'll half. the you off. the a take more all

Suneet Kamath

in the sale, new of annualized there's an the for and what Got in existing maybe for customer, persistency? we reflected Is just new existing Fred, full terms upgrades it. an in product, premium? the sell how it guess I offset the premium? get that then, the sort account the you let's an And incremental of to Or the then to customer it sales, is extent say

Frederick John Crawford

there in incremental on a If words, ends nature of lapsation depends current replacement the been of existing the just essentially it being cancer up client and replacing it product, with It there's their has premium. other a policy policy, the where associated a situation an AP it. the that earned simply there's of and enhances If a just that, brand new we've existing a the new on counted because whole more value. product, we your upgrading characterized situation. policy as surrender conditional to product, new that depends plays of gets sometimes encourage think of over policy, – then economic really I And that But the it long-term designed – the better ultimately, sale. cancer a as believe

Suneet Kamath

Got it. Thanks.

Operator

you. Thank

You (JPMorgan may Bhullar now Next ask Securities of LLC) JPMC question. question your (sic) comes from Jimmy

Jamminder Singh Bhullar

Hi, good morning.

And look at the was understand product that sort it in the sales. on So sales Japan What years. absolute in a cancer And I of I you the I weak basis, the had the you past expected, was surprising they've question an even think launched several was were that if given on been April. product. the medical weakness in in lowest they

launched or that, last whether be comments what it's that that's again? sort the you So year needs just on of competition-related just to refreshed it's product drove

Masatoshi Koide

in Again, sub-standard language] in [foreign Japan. sales XXXX, product. launched this the Koide quarter because the language] first because first it for we from so we tough a language] XXXX. a is the we XXXX, against new we the first even language] had me. first That's first year XXXX, tough in We in last in quarter product. a year had [foreign very And large XXXX [foreign comparing then [foreign this launched And a [foreign quarter language] quarter comparison medical a medical quarter had

Jamminder Singh Bhullar

more I – referring, could take level just to just was sales, the and growth I not as but guess it offline. to And opposed on absolute of I the the

the weak, an was impact but have the like Is On a your there business? negative the and year. whether persistency all doesn't on or seem business, well, of business, sales of seen you earlier articles publicity on press impact, U.S. and of the because this your view or sales, recruiting, it the were or that much as

Teresa L. White

Jimmy, this answer. is I "no" is Teresa and the think

this any have seen point. at We not impact

– quarter the line Our plan. remains full our year expectations, the so year full again, sales our with they in as were said, first met Dan same, for the

Jamminder Singh Bhullar

Thank you.

Operator

Thank you.

Autonomous of question Erik next from Bass Your Research. comes

line now Your is open.

Erik Bass

thought, seasonal Or be of Is of higher assuming items of on midpoint and pieces this the in we or other this normalization would've there had in quarter. which question suggest expenses terms the lower conservative that I thank Hi, XQ the are just I level to thinking claims Fred of margins? given than moving you. in for a about? seems a terms guidance, especially results being should

Frederick John Crawford

relative also EPS say strong to in would the I and margins, closing start off both very obviously, to, what a that strong we're to remarks, is U.S. start range. Japan currency-neutral to pre-tax a we're in noted I my our off And in Well,

for example high for to in pre-tax estimate, year. ratio expect start through XX%. more would what coming in is the in of the at margin will XX%, range, margins, traveling you to pre-tax go the right we're XX% our that to course XX%, at XX% is Japan, expense tick guidance just actually as above Japan, above a When we I U.S., look our guidance to midpoint up we're that XX% more And Our catch and the XX%, of of the end.

we Yes, at third strong results, in end some us the spend delay, it mentioned, is particularly business end the And sector, to more Benefit could and spend volatile. the the But the be ratios to aligned will, And could it's of in our that there little low block at be mix some seems continue, contributing strong Japan. of range XX.X% dynamic because that of in product with cancer of pushing in first of a to can launch. and a to continue Japan, being in but we have if trends benefit the ratios you continue? course. range. And the see that, I cancer year. the of came and in of As bit promotional sector in early

seeing investing On a the U.S. side, obviously we're platform. proactively the you the we're expense which tick because in would in ratio, up expect

among had There volatility as solid performance. as our terms the ratios. we – to that range, quarter standpoint, that so but U.S. to XX.X% did ratio. in We still, not being underpinning it's contributed I of mentioned in the disproportionate little that noted the in enjoy end basis XX% cancer benefit You in in the or may extremely end points of positive volatility up adjusting XX the very upper in some after policies would very reserves. range see to dynamic of a low example, the strong of will estimate we would from the rest of that to ratio, age have towards so us type We ratio push of good But any year, of even have that a benefit neighborhood year, in through the go at We It's go But that is continue expect we of incremental in that persist naturally the come that, start. strong something expense block the range, play you out investment the a for certainly bit our still which U.S., older trends release for we does helped where very, results. is into through quarter. particular that but the cancer the lapsation

But I early margins us as a for So off prudent. in the be EPS. guidance adjusting to to said, it's year wouldn't the board, too be that start and across on strong we're a

Erik Bass

costs? can to of offset your will floating income And be then, largely given in sensitivity or exposure rates, material securities, talk LIBOR? hedging to increased helpful. that's changes the you, any expect investment about Thank you rate by we it your And from should higher benefit higher

Frederick John Crawford

note aligned that. new the you The rates – from, on is roll to floating to higher sort LIBOR build exposed remains then the the And rate is York as phone be and the XX% instruments, being coming has a side, rise. XX% might locked talk where XXXX. in about to in even that hedge XX% with our But you costs then U.S. We of about rate, to rate in will exposed floating New the floating lot the tend growth though the it with talked we're of natural portfolio from any of are do for have on we've and that yields hedge Eric that instruments.

yeah, when the invite costs yields, that. it's experience you and LIBOR we I hedge higher we're into that, but you Eric, by So seeing higher might do offset, conversation. believe, actually you

free say other to The our that want U.S. Lee earlier that comment size on do. some any you you on this, the if I comments please on feel portfolio hedge I invite Humphrey asked thing to portfolio, surrounding would then just dollar and in Eric, would And Q&A, and questions ratio. is,

Eric M. Kirsch

increases a thing. side getting so Fred attention. be accurately set any costs a Even was strategy sort with LIBOR, from that Fred. LIBOR hedge up. the liability And go question, Sure been would we rise going up or side obviously Thank the the answered And income's has of neutralized conceptually from you, and lot it the designed and the an up of in asset because conceptual that's decreases since Erik, in the excellent LIBOR's standpoint.

assets, we move increase expected the we with, on match termed note would did speaking hedges. nine- from generally are than call and what rate generally out up or I don't the to year, the that, tactical three-month would actually a think year, and hedge buying because we, the more into I which But a by this we floating-rate argue going gone LIBOR's our that's where However, floating we'll did ten-month one-month were during have that benefit to hedges LIBOR, LIBOR belief, anybody going year. do hedges, primarily get costs which and want because we and net a

not floating majority, in locked December. in XXXX of assets, back our rate essence, in the So for all, we November and costs hedge

though than forward minimally even by impacted will that. today the So LIBOR is suggested, would've costs curves be higher our hedge

than our LIBOR hand, if On to higher we projection the projected which kick, floating assets, of our in because will, get side bit all will go income and the expected, you also get benefit. other is income a up, rate a income we an little

costs and net on again, at hadn't tactical the neutral that, our that the earlier are which the So will, went confines from perhaps a design sits correct time. so on we just while the within we as been positive comments at supplement, looking part the might inched time since in do the our off balance net from ticking if that's if our And anyway, it that's numbers when is terms, you adjustment hedge the the Japan income we but just up Humphrey, hedging it would've we're a slightly overall said, to to sheet. Relative you of But we which income done the FAB of strategy believe on beauty were may looking of Japan the Humphrey, strategy, to program, basis. dollar strategy. even from I up, have

current the hedge But the dollar economic an is you're ratio a accurate, $XX basis about at at billion rate. more So program about and bit XX% the XX. exchange looking at March on at is converted numbers at

Erik Bass

Thank you.

Operator

Thank you.

Sandler Next question John O'Neill. Barnidge from comes of

You may now ask your question.

John Bakewell Barnidge

about question beginning about My two the causing and is the of expectations declined of sales. consecutive product and for sales there, maybe the for what's since time Short-term quarters sale you. U.S. decline now for forward? Thank that you first XXXX. going Can talk that disability the have

Teresa L. White

saying increases in enhancement just out Teresa. product. individual by in that I'll to is XXXX product, short-term had because we we start of this that an that sales, disability So specifically made

of stronger seeing So seeing in benefit you're quarter muting XXXX. in what some which sale, a seeing that But on broker you're then seeing you're sales XXXX that disability. is first the you're of is the really short-term

disability, it short-term have to switch he comments with might concerns that I'll who major additional any make. to but see don't Rich, over might want we So

Richard L. Williams Jr.

mentioned his And, sales group to that I broker first in Dan continue seeing also Yeah. agree, I as acceleration comments, you sales. note and in significant all, we're as compared our Teresa, XXXX. would product increase, of mentioned XXXX to

sales So periods. amount of a driving firm little sales, bit with product just dollar having the prior line of but it's bit broker sales, much group STD in a very of absolute more the (XX:XX) effect, little individual

John Bakewell Barnidge

to also close the on probably is great have quicker is clearly many you improvement the the the Do any the One long it claim was points value-add you over you. an products. since in to led Because U.S. benefit ability for U.S. maybe ratio the introduced? claims, Then your has this Thank less basis follow-up a Pay quantify Day my is by how run?

Teresa L. White

what Pay, is One from differentiator anecdotal, that we're this. more Day I'll have something Day that? consumers, Aflac. surveys, our say hear quantifies do is It's from that our holders, Pay what from hearing policy One our we force, for that I in a sales

I have for So that we've research research. quantitative, don't that except any third-party has done been

Richard L. Williams Jr.

claims Pay and any really And process. Day what we the One behavior patterns in a of any Day differences profit and scenario don't would see non-qualified One call material Pay I

margins. is those really customer seeing experience. to and not we're Teresa anything saying. So relevant It's penetration about what It's

John Bakewell Barnidge

Great. Thank you answers. for your

Operator

you. Thank

Next from John comes Nadel of question UBS.

You may ask now your question.

John M. Nadel

investment follow-up Excuse the morning, on Fred, everybody. U.S. spending Hi. a just the Good question me. in

$XXX next be the to five think three it's about to million over expected I years.

to I for be mentioned spend year. portion $X.XX this $XXX of correlating of – Is additional an think that mentioned we year's this million? the of should – the you that remainder you

Frederick John Crawford

takes segment the when U.S. corporate-related as It's U.S. insurance, you're company. insurance talking not at And that in necessarily but we work holding mean Other, out that that initiatives. activities, place at our such build to Much our the just investment about about venture Corporate in not not investments and and the level, what platform, that I and going to realize the efforts of talk down actually elegantly. company by also is, our digital

about characterizing to of have so of spend, the a be and that. jump-starting of things. a U.S. of which I And One driving It's is flow and an about What in really new sort would Tax you to and talking an mindful think efforts, gives beneficial. investment, opportunity terms what we're sort not deploy here cash we is, say growth way lot to a the in of though, our accelerate of us some run-rate level is spend. overall. acceleration reform is in of couple just accelerating

areas management of is example, training and really workforce things more give towards embrace a the helping you that very the this essentially that workforce automated but one of and a is orientation for in include change environment, mentioned, a some $X.XX development, which necessarily the which today. around critical get, move very, I – like I And doesn't of specifics, share and training know development

current the investments of to into accelerate is long-term also building while specifically out the got at in gone And period. so about pinpointed accelerated drive and roadmap we plucked As spending modernizing some in a distribution that of we've need that that those that a opportunity, our it areas and spend. expanded that the technology, or technology our technology into We've new productivity And we our growth will talked the organic develop into workforce automation, roadmap of then Teresa's same to we've improving really out money and it automation. that time think fold We're of technology. and jump-start do roadmap. look to U.S., distribution to investing able model we

be the simple the categories is, have the in and order this, of hardwired in about talked that all investing it better on in and the Dan spend hardwired That's screen accelerating distribution, and So major to million a technology, screen. real growth. involves spend, I issue, want have reason be put in people, gating one we've that we is we of green-light to spend. that and investing but to $XXX a all our initiative investing the we're towards growth

So that's the the characterize investment. would I way

John M. Nadel

in factors, Okay. guess I new to And sort and my year, four-pronged That's the of U.S., veterans, distribution and characterized, of last guys think question about the conversion approach, have side couple in four the then I you rate of sort and agents helpful. second you of a for those XXXX, you I as other you positive productivity, about very veteran feel is contributing particularly agent contributor a each early look XXXX, in at components. is, sales do the I them guess those growth question was – four Teresa, one think items? of a how

Teresa L. White

I'm going that that on to pitch a to topic. and Rich little speak to bit allow him

Richard L. Williams Jr.

Thank Teresa. you,

consistent. answer is much I think the pretty

executing that we're continued we to the the as were there. of all, with throughout see areas expectations, plan Dan first four continue progress mentioned And, quarter line in to results favorable we year. the see and rest and on, our those for each of mentioned, First of acceleration early you

John M. Nadel

you. Thank Okay.

Operator

Thank you.

comes Scott Goldman question Our Alex last from Sachs. of

You your may now ask question.

Alex Scott

had I on questions morning. a Good couple Japan.

trends of about would be the sales think ratios? us that help policies sort third-sector some of for in mentioned all, this older of was of for sort that and the older you guess, at implications first some sales policies, of new particular that of those the in light from that benefit off, related what can trend to, rolling that replacements sort just it if suggested benefit The the accelerate ratios older benefited I are were think I new of how is, And comments quickly policies. quarter could

Frederick John Crawford

Cancer general, has Japan, in business high all business very in our persistency. in of fact

going product, of differently. presumably so to course not And it's so tends you consistent. just if because automatically are that that of and to much cancer you way, old age-banded, you're Realize, Japan upgrade, cancer that be is you priced in fairly sort by be case an older the have just the

you what that cancer, hospital. a value been have quite is treatment, for unique got continuation a it's Really take lot be right so more of a seeing to a somehow as seeing while, which that to the is And in to a attractive dynamic in we've proposition. what less outpatient for very the consumer, candidly, and days we're a and lot means

are cancer same the and every some it being mentioned upgrade outpatient four roles. product technology the pace claims continued three upgrade So down seeing treatment particularly of treatments able to cancer is, a advancements two blocks. periodically, also trends. early those major advancements on our advancements activity, really to But play reasons older and those in of because us cancer the treatment to as working and to in the you product treatment requires We're One for so is years detection calm cover now consumer. earlier,

we've been just our it's we're experiencing, helping So of seeing and out obviously what simply a continuation results.

Alex Scott

Okay.

Daniel P. Amos

anybody from questions from Any Japan?

Alex Scott

had yeah, more I So one question.

like selections the Could the FSA of on Just bit impact are segment? to customers incurred selection making, I you talk the making, in noticed any benefits. the from increase benefit little policyholder either are from the and ratios have policyholder claims that claims product just would mean and in customers about trends benefits, in shift WAYS I on or in just the or a sort earnings that of incurred –

Frederick John Crawford

the and, on may phone Todd have question. Todd, want to that We you answer

give Do want it? there. questions you've shot at different think in a embedded I got a couple you to

J. Todd Daniels

go ahead, I'll Yeah, Fred.

of buckets seeing different I'll with I money, two you're is what it. product WAYS think the call

NBR reducing to policyholder I'll is being when of have that effect surrender your option take settlement when we same pretty released annuity paid reserve, the reserve up pay and incurred policyholders an we're seeing So an reserve. payment, you've you out that a these every your And paid-up. got and annuity And time has that's become value, call also claim consistently cash that actually policies their it, moving an line. of the claims

the of is From the GAAP is that's The on SSA line, the impact in overall negligible, system. the still So in dynamic. money a it's staying a ratio an benefits because geography. and the benefit basis It's perspective, overall. similar

to the of an don't impact You those when lapse. products straight bottom they line see going

Alex Scott

it. Got

Okay, you. Thank that's helpful.

Operator

to Mr. back call proceed. you may Sir, Young. the hand now will I David you. Thank

David Young

you for our And first us you. for Thank quarter all today call. joining thank

everyone remind I'd analyst end our to held on like we in to Before about briefing financial be Tokyo XX. September

the We more Department and you you feel may and free Thank will forward to sending seeing hope look details Ratings We there September. with you. to us coming contact in please out you'll communications And our soon. months. Investor We be Agency speaking any Relations consider joining questions with to in have.

Operator

concludes That you. Thank Thank you participating. today's for conference.

disconnect. now may You

Aflac (AFL) 26 Apr 182018 Q1 Earnings call transcript