AFL - Earnings call transcript Q3 2018

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Operator

Welcome to the Aflac Third 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 & Rating Agency Relations.

David Young

morning. good and you Thank Welcome to call. third quarter our and This Amos, Incorporated, Chairman will be in about from Dan hearing remarks Japan operations and our quarter well morning, United as States. we the as the CEO of Aflac President Crawford, financial Aflac our Incorporated, CFO Fred and outlook capital with Then, and details follow more of Vice Executive about results, will management.

to We will then questions. open our call

Aflac Teresa executive during Eric of Joining portion our Global Riggieri, in Q&A and Brodén, Chief Max morning Global Distribution Officer; U.S.; Actuary; Officer Chief of the Williams, management us White, the Investment U.S., this members are team Chief Chief Risk Treasurer. and President Al Kirsch, Rich Officer;

of Director; Daniels, Director are and Marketing. of Lake, Koji team executive Todd President management at Masatoshi Representative and International Director; Financial Japan, and Principal We Ariyoshi, members of in Chairman, and Koide, Director Charles joined Head Aflac also President Representative our and Officer; Aflac by and Tokyo Life Insurance Sales

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

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

Daniel P. Amos

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

we concluded nine saying for and third set quarter for a goals the to us Let me Aflac that achieve year. the the begin great by well positioned months XXXX

contributor, Fred expect upwardly terms, pre-tax from of Aflac will and the earnings with in XXXX adjusted yesterday, expectations. was high we to In sales. decrease the in outlook. of As results EPS nine Aflac I revised details for Japan, strong comments third in am that his you sales a saw of our growth both This largest for financial end release come shortly. Japan's generated reflects provide results. in expectations consistent earnings the a months. insurance X.X% more pleased and the at new profit medical Aflac our the sector our our was cancer sales quarter margin Japan's first decline ahead yen insurance

products, distribution came-off product introduced. As tend year our medical year on core new this strong sales our focus turned when by new its a to is core of cancer product refresh bolstered they a do as

results in and growth continue sales similar in expect We the the be fourth low-single-digits. new anticipate to third year for quarter to the sector

on third focus many times, As growing franchise. our sector is our leading I've said and defending

We the consumer are are we of satisfying and as the the partners. indifferent as medical as of our to distribution mix and long cancer needs sales

and our had meaningful vital success. all production Traditional distribution, remain been we have agencies Regarding to channels. across

extensive an significant buy to Alliance people our cancer XX,XXX-plus outlets our sales where Japan postal Our to insurance. solidifying contribution goal are selling also want such we with network, distribution has to had our partners including be results, Post insurance,

the and have remains our rate-sensitive sale on and focus position products interest strong less maintaining leadership that Our remaining in margins. third on are of sector stable

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

and for the with are our quarter expectations The U.S., for Turning margins our profit nine to Aflac pre-tax months. we first the both financial performance. exceeded pleased

XXXX end to new the X% our Our us growth X% anticipated of achieve the sales third premium together premium new to keep quarter sales annualized our annualized sales, of increase. track outlook, lower with on

the that Aflac about is keep sales peers think majority of from agents. sales, come you that mind in from sales U.S. our As in different independent our

are fewer We with career therefore best within These dominate groups agents career is which force our agents such force And positioned behind truly are with independent believe unique field smaller have employers the than this continue case a industry. and independent to sales succeed employees. been XXX smaller reach Aflac's is strong ability this have within grow. driving to fortunate to the I Aflac's and to ours market. market industry to

continue broker sales. expect growth higher We in to

within community. broker has sales made professionals strengthening the team strides relationship of broker successfully great in Our Aflac's large

to support growth. continue group our are in investments These make this administrative to We platforms hold. investments taking

in form of am results for in the and driving extensive I of network the important work been segment most broker States losing development, see it brokers sales in accelerate with and agents ability found experience product with Aflac's our investments the extensive brand overall of to a field our continue product. many for capabilities. both take of elevated sales with force professionals. encouraging very administration, strong our clients, as percentage to broker for growth looking progress and United business, working pleased company, fulfilment that is by we it experience record that regional the These initiatives and near-term through in have While year. brokers. to with without continue growth strong profit solutions you and driving expense their customer Japan agents ratios pain and points and and It invest independent coming local helps Brokers expert a the investings. Across portfolio focus has the on address those and our Equally these our initiatives is leverage ability needs. brokers business demonstrated Aflac's designed smaller track outstanding their they've sales, digital related partner our margins. forms the look is in venture to who of pre-tax into fill to are independent Aflac like to

financial time, the dividend, shareholders bondholders, At the strength to business. the same remain on Turning and to capital policyholders. our deployment, the increasing shares committed and we the in ratios strong our with balancing are repurchasing capital of maintaining reinvesting behalf we

assuming billion to any our shares that of alternatives. we the in anticipate capital range compelling of to continue billion and of repurchase a absence XXXX $X.X conditions We stable the in will $X.X

course, without that quarterly Of record mark dividend we XXXX With of treasure dividend XXth will of saying this year consecutive the it declaration, our growth. goes increases.

As through relative is our business we move a model of market of reminder and of dividend record the track our volatility, period nice earnings. a stability

the year, earlier quarter. the dividend review communicated we the cycle to first But, this a increase for As have on right reset to examine we dividend reserves basis. quarterly the board the our

by accomplish. in fuel States make what strong policyholders. I'll conclude of balances Japan our am in to we've underlying how excitement the power business United excess my our delivering incredibly will sales the we and like ahead, our dedication growth believe Quarters to in Japan States, stakeholders. future for and this earnings of on in the Looking we to our in to the interest well to shared. that I promise all as approach that generate our same they and of can a worked Aflac's the only as it that the our At continue in United the as team, time, will we way hard capital reiterating management our proud deploy reflect organization earnings employees, reinforce results prudent

Now, financial the I'll results. Fred? who turn the program cover over to will Fred

Frederick John Crawford

you, Thank Dan.

trends guidance Analyst as performed provided year's this for third Our expected and quarter the the consistent and results we with at Briefing. earnings recent Financial

of performance the revised we come Underlying across strength both quarter, we million, yen/dollar in per in favorable planned our a the in ratios gives rate benefit investment share period. to XXXX or stability item $X.XX of impact expenses exchange to The For efficiencies tax outlook on were had increase growth in our our in guidance margins and is continue true-ups. to very little range tax related the somewhat of driven and XXXX. to results filing compared earnings our quarter's the the margins $X strong and by as $X.XX XXXX our the adjusted associated us per and a enterprise. high U.S. as quarter continued diluted of the future and $X.XX the strength of for pre-tax in invest The at return end Japan year-to-date by in in share will $X.XX confidence of offset We recorded income

profit Japan Turning reported XX.X%. of we our to pre-tax a margin segment,

expect Our we the total XX% range. XX.X% benefit was year ratio the in at to in line and end our guidance with range full

business business Our in our benefit ratio continued reserve in the quarter mix, reflects the in positive trends adjustments. and associated shift claims cancer

ratio to up year. XX% Our for and expense for the be XX% Japan XX.X% quarter and ticked the just expect the full fourth range to under to XX% in we ratio

results, U.S. quarter Turning the pre-tax our to was profit overall margin the in XX.X%.

end the are Much the of higher experience year along generally with in benefit shift range XX% came product ratio towards with at and and guidance expense the XX.X% ratio claims we Japan seeing to below total mix like Our our lower expect we lines. a business trends, ratio benefit naturally favorable range. in our in the effects modestly full

XX%. in increased below to U.S. ratio just expense Our the

the related fourth the primarily XX% fourth post-tax timing increase We for and to projected in accelerated is reform the range. spend quarter earmarked in ratio expect the spend. with quarter The advertising investments driven expense the by

outperformance coming rate U.S. the We Japan growth XX% performance has deliver by further portfolio strong benefiting see continues income around our the accelerated XXXX floating primarily continue driven in LIBOR to full Investment higher to year-to-date and The in both to rates. of year range. been from results.

similar majority outlook dollar for take are we a costs for As elected to have XXXX lock-in is as approach likely continued in our our commented, investment U.S. XXXX upward of in pressure. and hedge previously we Japan to the

income more our call. position to our discuss building is the holding our investment portfolio hedging and on segment, December and will associated corporate We company. influenced of on briefly capital in the liquidity Japan/U.S. by Commenting outlook the at tactical approach movement dollar the detail

dollar position while company offsetting As enterprise-wide managing we through segment. Financial to into income exposure with associated this U.S. discussed the at continue holding recognized accomplished costs We progress our the make our of economic the with to by Briefing, yen, our corporate Analyst line investment Max hedging. hedge financial entering investment Japan's lowering at on impact

position have on $X the quarter's pre-tax this a billion the We contributing $X.X to offsetting basis earnings. million approximately built in quarter to

in limits, at liquidity buffers. We ratio a is ended We with program the holding level. approximately margin appropriate company and solvency estimated Japan's quarter the the to position. capital XXX% strong continue controls the on refine

U.S.-only XXX% U.S. adoption risk-based Our tax quarter-end stands the of at and capital reform. estimated estimate roughly includes at an full of ratio

are We the range the for RBC XXXX. mid-XXX% in year-end projecting

derivative dividend million positions. company. as capital We've a company entities. the ended quarter set and capital capital extraordinary insurance the $XXX an support at the holding of with liquidity in of includes moving liquidity U.S. estimate buffer parent billion billion million for from Our and $X approximately $X the We and to aside in excess $XXX holding

in to work little Japan way we hedge Overall of hedge remain liquidity repurchase, standards and our tactical our the the quality asset of to positions, in We quarter. through and in the returned share million our dollar portfolio we increase $XXX stock As offsetting strong and minimum $XXX Including conditions our internalize will repurchased for remain impairments shareholders U.S. dividends X accordingly. costs with shares credit million quarter. in approach. very million

we of mentioned, X.X repurchase of current maintaining Dan are As our outlook XXXX. to X.X range a billion in billion for

Finally, in we notes. ¥XX.X issued in October, senior long-dated billion

in corporate all help will impacting of We to support of begin Among to tenures not other issuance strong now things, call David? tribute the a years. session. bolster of maintaining XX hand to of back a minimum credit foreign liquidity a few debt the corporate commitment I'll while holding materially our hedging raise to issuers David proceeds Q&A are one is leverage. company with activities, from years in yen This our profile. the recent being

David Young

Fred. you, Thank

an ask are to follow-up we to will But, let other me limit a that Operator, participants you allow one ready ask initial to and please one to we question. your Now yourself now take take question first, questions. to related question. first opportunity

Operator

Thank you.

begin now will the session. question-and-answer We

coming from first of line of Stanley. The question the Morgan is Nigel Dally

line open. Your is

Nigel P. Dally

you're or back that morning. looking don't to the whether corporate should internalizing Max a of that hedge, Fred expect ramp expense? for I just up how according Good and in on question to, quickly program on we know Great. further the declines had either I Thanks.

Frederick John Crawford

it. any our XX% XX% Max move that's hedge mentioned color FAB through add the this at let down of XXXX how we of but managing we he the we talked roughly the goal at about and has costs, overall and to him as and potential look I'll

and liquidity mentioned, how haven't build and Nigel. in forth the the Right We have limits roll-out, all and at and in program. I detail monitor would necessarily sized place on make on and sure to controls expect December we provide we're $X.X from call as from but the billion. can our then We as there we see so build We'll stop we outlook to appropriate there. XXXX place may more now

billion know right expect but from so just would we'll now on the And here build detail there call. more to give currently, are $X.X outlook we

Nigel P. Dally

in follow-up. positive product new and for the short Okay. the quarters, cancer lasted why product lead to year's In very just is quick past impact introductions Question on Thanks. of to sales it past? several interested here somewhat seemed the what like Then for seems Japan seems a patent in be a sales. the spike we've in it seen but to to this so different

Daniel P. Amos

you want you me Koji, to? do want or answer that to do

Koji Ariyoshi

achieve commercials flat. as our record-high expecting [Foreign performed and that ended insurance our conducted as [Foreign quarter, sending to sector target [Foreign And in sales a Language] first [Foreign beyond quarter has because outlook we Language] mails. have level sales. channel, Well, at the Language] half, as up Language] have as there been result, of and direct on the And be the second – we So the the throughout equivalent the of expectations decline year, among negative a to well TV agency we result, second in third out for [Foreign at sale as said of as we a acceleration the have beginning the the first the result, low-single-digit. to are of at focused achieve sales Language] almost were some [Foreign the the sales. And beginning in we quarter, our cancer slightly our will of year, all, changed Language] that third we to that has has And impacted. expecting year. [Foreign been will Language] there target full the in entire we However,

Daniel P. Amos

and that I had because in TV second second And really the in would slower never more that ability is we that hit to to the increased perform outs, quarter in out. talked ad all it ads TV mail have and in go business the have we submit their whereas they simplifies we say mail never as applications. the it been ahead Nigel, the ads, skewed to as what did a addition done to that big the come would TV respond ads of to and the about have mail They the but quarter.

business everybody saw the So, enough, took that place about the TV normally came that tail ads. shorter big and the mail it second it surge been than in we in had doing over in have the and we ads at wouldn't been quarter second quarter much warned with would we which TV in the carry sure not third. it And outs a the was

Nigel P. Dally

lot. a Thanks great. That's

Operator

you. of Thank next The Bhullar from coming question line of is the Jimmy JPMorgan.

Your line open. is now

Jamminder Singh Bhullar

questions. Hi. Good couple I of a had morning.

just First margins U.S. this pretty on been year. they've strong

basis points. just expense was quarters mix towards lower for products down benefit experience higher not favourable XXX shift three might How ratio that ratio continue? ratio this is the a think and versus much the benefits I claims first of

Frederick John Crawford

or starting of in ratio in-force in-force carries and lower But of the group growth issue you that's we business essentially a generally third the the premium the a mix on five benefit group more a would been expense bit in-force that ratio percentage better a an benefit bit is in higher and U.S., I a overall business. is the that higher steady to subtle become sell years ratio And dramatic little so. side it's terms tends is a that earn last ratio upward through really particularly benefit this where than it to its there and were experience. example accident And place would naturally business pressure the of dynamics sector between levels shift that But The Japan shift our lower expense the sector. way makes to more going over of quarter that issue in lower with say to as coming related in claims in type the definitely first than say which hospital. book cancer business. the adjustments contributing have and and – you our associated in a ratio, to is has of you're IBNR taking numbers, to related in for including But be expected fairly lower natural quarter I In related finding cetera. of on particular this modest book have et the expense more ratio. mix a claims good that

really I in what a both more is in-force but slow that ratio. – say product higher steady on of that there and benefit permanent expense going So business lower towards is nature ratio and is would shift

Jamminder Singh Bhullar

you've cancer Japan to but like product had sales. given some of year, years one continue this to is but on down I been cancer that is just then that product drift end medical to And think being up that. declining from the And introduction, ever we it Okay. lower. sales terms this come sales of understand sales of expected the people what's And XQ, going even are lowest to business sales prior year's that the pushing, sort surprising new medical I of in have the

used you that a been are that feel by So on medical to more versus you just push be, proactive maybe just introducing business – planning in that product, you into newer of market? sort and when given marginalized a you do where competitors

Koji Ariyoshi

[Foreign rate. interest What our is first insurance terms there that insurers the some because the background many this that entering are base are companies in these of riders by medical I to And Language] to product all, [Foreign is savings are converting of also of shifting type market, low domestic from Language] are their another Well, of companies medical insurance. medical market, that policies. that mean

distributed companies. case And of a insurance a has cancer in ever as launched our to As result, Language] you on, [Foreign that a since their we've being sales. top our gone share really second the sales is our year focused a On cycle insurance medical and on agencies from product. cycle more new say, the quarter –

in because manner. medical Language] are And mentioned. what a As medical and in sales you insurance very declined. products, result, these well-planned [Foreign the policy insurance insurance is severe, key we that's are shorter And And cancer of products renewing be since a competition to plan exactly to a there product [Foreign Language] Language] our revising no terms [Foreign the have is we revise change cycle. a very to medical, medical insurance. our in do So,

Daniel P. Amos

And products we specific the about a are on regarding offering Everyone medical. of that market. one new one lot would other I is is successful now. non-standard is comment been that focus that area We've make that insurance medical taking in very

is call And our in so have think medical to to are are we see product area all how we call medical we even but looking we we an it what ours the now looking of it used can – better lever at we non-standard that. gen including

Jamminder Singh Bhullar

And of time product the a launches? we of next should typical introduce new timing some year, product given assume early you would that new sort

Daniel P. Amos

want to you answer do Japan, all that?

Koji Ariyoshi

because we Yes, of somewhat yes Language] but filing then issue, explicitly we what are the thinking is cannot of. that FSA [Foreign

Jamminder Singh Bhullar

Thank you.

Operator

Evercore. of from The Mr. Thank of line Tom is Gallagher coming next question the you.

open. now line is Your

Thomas Gallagher

you effectively dynamic a the to Does been distribution Post, challenge sales through the about able manage but And to your sell Thanks. of of that where Japan Japan of to over considering and of for when through bigger sales be it XXXX you pivot presumably or Post. you you've think still the Japan grow? and pivoted about bit you it cancer make the just sales bigger of see through going case I that of in this you've won't question be concentration more you Dan, next concentration a also. can able XXXX couple past the with something Can new all obviously now? a years, sales have a think talk product,

Daniel P. Amos

penetrated Japan a down is one right up would or continue is Well, they'll what good the to I I Post it where we to see be they to and sales negotiations has is, in market great to is have next certainly question going And year are that potential. going end not and but it think grow. argue now,

up future predominantly also product. that add new It's more we hope base – but can product be tell early growth policies on, sales to and to the a So, It's those can I to that are It's what premium just I'm I with so as continued think have remember distribution. they really new gap too little is do be will the people expanded early they of introducing, directly for really sales not it to then and and younger riders the a yet, Japan product encouraged about consumers is gap later with coverage. Japan Post. Internet will still we new insurance an numbers as get like a lower, but policyholders it to that need set age more on.

watching are got. well. with the will will hoping and carefully certainly play recognition hand name into It we've we that brand So our as that that the grow high and that

in very like touch underwriting because we good It's can terms and of with very showing sector will look other that that you driven it first it's it's mortality by the for what tell is I'll too happy tell thing early in to protection us. profitability The But are policies. I it is the on that XXXX.

And of even big we so sector. along talk as same Not yet, has has profitability that to market sales the well. the though area the this as that's but that potential grow about third our sector, another lines when third

give we'll you want did some and But what's to happening. you call it. be together on look to into a exactly those at lot outlook going give better insight add the you So I

Thomas Gallagher

earned and you the degree. that that obviously, And just mix the shift sector my for premium some of Thanks, change helpful. medical, ratio in – the about Dan. That's ratio terms the a will going there follow-up, into and are on Can seen changing we then weaker to see that's third margins? third if expense Fred, that's terms in in you've – cancer products? two benefit And at differentials is both of change sector to those margin between whether one to all talk going

Frederick John Crawford

in and the not – are really is nature. – in pricing and to product. more we in type very no quarter product necessarily And your starting not also products there substantially targets also sector. product, would of our nice the very the protection on medical are talk cancer similar is it's selling are would been is we significant we There margin a dynamics. now first behave not with ratio expense Because third the priced sector terms Life is had sector and as of that a on a expectations we in ratio tick-up sector the similar for note margin savings-oriented dynamic sales I Yeah, the note similarly dynamics experience price What we about Whole introduced margin new and small a as in policy. difference benefit first first question, that protection but products while the what I we

similar our which includes also continue and incorporated first our very our margin a up into go protection want dynamic more to that and particularly that core And to you'll that selection mix see note so and we of kind broaden forward. has I just to product sector as offer we projections agencies product

run-off a move we some here forward. very slow in start that that spirit all premium build value of start seeing And and sector good sector going the paid-up forward. been growth we the first and corner first hoping are But sector now. see to over to remember starting time, of first economic has again this a as are we products turn We

Thomas Gallagher

Thanks. Okay.

Operator

next is Barnidge from Sandler The coming of O'Neill. John Mr. of question the you. Thank line

Your line is now open.

John Bakewell Barnidge

much you the much Michael how Do XXXX? by sales have Florence impact then impacted how any in in U.S. Hurricane you do volumes And XQ to Hurricane ability maybe in XXXX? XQ Thanks. sales anticipate quantify to by

Richard L. Williams Jr.

Good morning.

we markets our impact the do due this feel not of We Rich Williams. expect the results but to quarter the the – impacts for overall our Obviously, the impact, think change to the and guidance X% to we be hurricane. is the look hurricane feel also sales activity any about we good our attribute quantify for do results within I to some fourth that. to and quarter, third as of X% the not did to

John Bakewell Barnidge

medical new see you insurance it's product, delivery. driver a lower being you company-wide, less expected it's ratios then, medial And a of ratios about as of channel Can it's received because insurance this product, Okay. talk normal new essentially have expense we relative digital should a how a this – to expense expenses? and got for presumably

Frederick John Crawford

expenses for obvious to naturally of terms In all early to amount building of days particularly generation for But premium the a should overall of time. going would typically have a direct-to-consumer, I say impact the reasons. and particular initiative to you're investment not disproportionate that relative you early our expect days of out ratios material a on first in channel, of a direct-to-consumer period have

and obviously of expense So ratio the benefit a investment. the that be priced is clearly, normalize very ratio such it would But can to level the get going there's have products typical forward. premium just are to perspective, dynamics into margin to structure. business a levels before you going are absorb build from investment pure But you going the where some they cost

John Bakewell Barnidge

you. Thank

Frederick John Crawford

a areas. to question, John, the lower DAC allow big wasn't not claims your a them come hit hurricane level They quarter of because in actually the when in state. a third might to do season, year at hurricanes freeze up period is basically reserve looking of course had the is a states was and I just last hit severe, aren't obviously particularly And because in actually and say a lapse. season, entire it and note one which highly and activities is ratio in important companies will much then hurricane In require the have of had is higher but State looking year's expense you'll benefit our often effectively not but of benefit you cases when about policies happens reserves county When during or at Florida more in your for DAC that some you year's persistency populated Hurricane will it amortization by note to for place thing ratio last reason quarter-over-quarter hurricanes benefit what insurance policies that and in ratio either last and natural lapsing. climb amortization that it you season spike was one quarter-over-quarter. ratios the it Hey parts is Texas. the thing which other entire you'll have lower causes the to

So I think quarter note but it's that bit very ratio look somewhat one amortization year's but is you DAC season. a dropped picked was we good really and would see normal hurricane a last benefit quarter, significantly a quarter, up ratio related this also while benefit the you'll the quarter-over-quarter in is quite to thing when

just point information. So of a

John Bakewell Barnidge

Thanks for the answers.

Operator

Thank the Citi. you. next Suneet The line from is of coming question Kamath of

line Your is now open.

Suneet Kamath

Thanks. going ask meeting. Japan, a about at something touched I'm to it's FAB the we question

that sales several we policy cancer So about really insurance over years stable the didn't and the fairly was count much. past think noted grow when we and

new existing products, attracting cancer So sales up these you policyholders represents percentage out policyholders? actually new to sort when of what roll versus

Daniel P. Amos

with You know Daniels, to the do Todd is line going who's color in Japan, some to on this. ask I'm what add us to

and the related came but FAB, talk lapse question Todd, don't you reissue? policies at your little to a So and that perspective up about bit why then on

J. Todd Daniels

Yeah, thanks Fred.

spoke reissue course what gets economic That grew generating at policies today. product, to think value was the of we from million reissue doing like X.X way up-to-date The I are the the new a and regarding because XX% today, if after that table benefiting in you our you policy that you the the we we things show term growth and actually total grew the can be or at feel over the policies anywhere XX that's coming And for the in coverage cases lapse sales First earlier, million specifically cancer, a approximately and offering all phenomenon the with is introduced of us are to total in-force the year in customer company, coverage free getting result and some to counted policyholder one-year products the the FAB, incremental new to the expect And they sales count. we're of of have while that a coverage the we are of of we neighbourhood market these same in-force also activity. back and to companies XX% numbers typically to in we lapse policies. win-win on where and company cancer rates are time. the have medical topic, about XXXX their went same like

you believe we the number bit look share market information. is a when at So available the skewed publicly

not you like that a premium were is information unfortunately have feel if would If in but a we the higher be basis, we to publicly you information available. – on much position,

Suneet Kamath

with policyholders these then Got you that that you really when through that a channel? new it. And sense have products channel policyholders? again you're sort Post talk and your accessing penetrating this different upgraded reaching Japan further is of Or just about is distribution

Daniel P. Amos

don't that? you Koji, why take

Koji Ariyoshi

Language] as products [Foreign the our is they're brand-new of [Foreign a of then their JP but insurance. using their doorknocker to product customers terms Language] course, our to to in other selling customers also us. And at time selling existing are JP, same Well, policyholders

Suneet Kamath

this follow one one can Okay, just up just with I quick on topic.

in when were But persistency. compare to policy would premium would a premium about normally we to what look basis? it to what Japan, they with we How those numbers on talk So if product or persistency persistency a like? basis, talk a on seeing respect at about we look you're persistency

Daniel P. Amos

Todd?

J. Todd Daniels

you that numbers don't you keep in to like shift sector different the mind to is business the trends. see think dynamics. have think of couple be I that have first things things the policy-based different. I persistency Yeah, when would A you would premium similar that

So Life policy products would you than a on premiums. generally may you business general metrics sector in across behave see similarly, Whole But paid-up type for the different basis trends the slightly very which persistency on third the has especially premium.

a to that much going third policy is similar average medical and range. for difference. see sector cancer, not The premium You're per in most

don't impacting your persistency odd-sized any So an of influence have you premiums premium number.

Frederick John Crawford

that That would the will, in notice in ratio forth waiver than policy a if had will but have or topic tick-up, DAC elevated newer, higher I the an policies per you feature types When type more reissue you release good note and or properly thing of on that in the portion being premium reserves. of or Japan you all expense this that a issued to from dynamic. that not lapse lapse amortize type and is priced quarter we policies One five that for you a and of you release that driven to DAC our can replacement those by it and new and to all as is course of of policies cohort reissuing. and DAC a included cohort popular freshly thing example, amortization on for lapsing are and you of do makes in difference of the very last being up. what because attract more of premium feature a The years. and issued so priced obviously remind And more margins policies cancer product

higher a more on benefit or side. a pronounced benefit impact the DAC have than you'll ratio level So of do you amortization

So keep it well. what do that as are has a that lot in and mind, reissuing with cohorts lapsing to

Suneet Kamath

Thanks.

Operator

Thank Credit question of Suisse. line the The from next of Kligerman Andrew you. coming is

Andrew open. (USA) Credit Your line is morning. Kligerman - LLC great. Hey, Suisse Securities now Good

securities that bump-up and in an Could size types investment maybe the And I in floating Japan the rate what nice color understand both portfolio floating a got You a what U.S.? are give from of little from are on of securities. income rate? you

Frederick John Crawford

in jump that. to Eric ask on I'll

Eric M. Kirsch

offloading bank a underwriting all estate with few real loans is by you. with comprised grade. And dictate is my middle over real loans followed breakdown that market middle have million. estate. Middle standards highly to the They're little right it's Sure. Well, same typically about estate between those loans. today don't numbers real Thank negotiated investment exact those of bank we of billion. Japan. I'll $X the below probably loans, have B, fingertips. loans I them, bank market bulk don't investment typically size LIBOR, the that and in But loans. are off start portfolio and with are transitional I is hundred but The at is of transitional grade transitional providers. market U.S

because smaller matches Japan, costs. the to year, as as program, Aflac as The instruments income mind, part their of on a of the typically portfolio hedge. do and drives instruments for of particularly it's also they in and which three our out can rate percentage them we to well dollar So easy floating months go the are we LIBOR, a keep like hedging high those a has hedge interest correlation to duration that those

And with over year, outlook looks agents are So for - X% the then, shifting sorts. years dollar X%, Aflac giving and have career flattish we of we like Kligerman to do and them, things those to assets, course, with the the kind credit independent underwriting the the it Suisse been LLC few our start has Japan, over Got Securities up-ticks. you (USA) like how it. particularly Andrew program, last for but the to like this the of it sales U.S. the really brokers Credit and of

the to over out rate next could at this newer over look into Or this the of look is kind years? X% get a you it the high you do good single-digits X% As double-digits or run to you longer-term? distribution, few think

Frederick John Crawford

fourth been and to are opportunity end enrollments, range. with We've expectation. we've case X% fourth for puts the that's X% we that It's, comfortable all, manage definitely larger to first us profitability at to – quarter the why for so selective X% of is been range. Obviously, that quarter X% with the of the being the lower

with Dan comments, to team distribution force. alluded sales of our with agency his broker select members our in occur As both field and broker

you'll the of because us adjust wouldn't our think market gets is. to opportunity the And percentage high range. it couple over our I sales so I total towards next the have it think on of as years the depends as broker see categorize single-digits, sales, where I

Teresa L. White

I'll well. Teresa. is that as This make another comment to

If the some are we're the you get brokers to the voluntary into is, really market shift what in us in seeing you've product agents think need of changing is to they've and space, people of educated asked so more space. assist helping with they with voluntary that to had how the is and and who about space a firms the how on those some force agency the of carrier assist seen voluntary brokerage

have do programs them that that. help training We to specific and

written count through little a career production in is any that So noise going that agent brokerage there's that, number. production. really broker In to as

paid is of as – commission some on the agent well. career a the the just production although, So

Yeah. a mentioned a But because Kligerman there – double-digit really is in Securities to No. just LLC the change it sense. shot Suisse in it's market? this Andrew I getting at lot makes Credit that, So helpful just very market. the (USA) I sales longer-term? - is That competitive understand Or of

Teresa L. White

a agents' is over is $X $X a there billion which sale career number. about to well, and Our got billion jump so we've is number shot, big that

alluded the to, us so agent the consistent what in as we're with line. the and drive also, distribution career are we Rich seeing we to the side, growing are And help broker activities digital growth, market's Aflac also that's the that's to at both where market. grow and other On looking

outlook So more about you'll hear bit little our a call. that at

Daniel P. Amos

are sales months up on both you Career nine X.X% are Let broker's little different down give a sales of roughly Broker and count our up me bit they sales, for X% this. is and two-thirds sales. the a up – and group XX%. perspective about group

we we're do. that numbers, that larger from the think is going So goes we number changes do, broker if see can do grow to we mix can we two-thirds time shift to towards as it double-digit, If and which continuing XX-XX. sales what with to at hope one-third, we

agencies we similar talking company distribution they the the thing we're call. But in about in we say how So claiming Japan, but just corporate growth us, you terms at channels. outlook think it at the the be that, when of of and to the the that saw started, came were from new that's not look of with we'll foundation when

with like just positive very Andrew brokers Suisse very they're important, agents and much. when I break to growth us. very job - our still is for with and seeing Got they're you it it. individual Securities the our it's Credit are it's LLC Thanks you're and so, marketplace, changing And Kligerman that going (USA) evolve But that a doing out. pattern that time selling think

Operator

UBS. Nadel of The John the question Thank next you. coming of from line is

Your line now is open.

John Nadel

good thoughts relatively could provide Thanks FASB from any a accounting, wondering early if new the potential morning. question. long-duration-focused impacts was Fred, I the on and pretty open-ended you just accounting.

Frederick John Crawford

on I project. is, remain that Yeah. the the industry, everybody we our June with comments we at say what are And are would fairly working covered Howard consistent like FAB. that had in

beneficial is the investors, I I what be think, would if think do going that will. FASB DAC I stability. adoption you and there that terms greater easier of say new of I to in for And to just could are transparency, amortization, example, is to aspects think certain be follow provide

unlocking, of if some meaningful think you provide of will, information investors. reserves I can to the good

going volatility in and what to don't I to likely is is as to have negative. additional company. feel are volatility, guidelines what not economic explained volatility that FASB probably if volatility is a so that have What challenge understood necessarily the new is you're is as the And to mostly the is to economic and going and results some be

editorial your of low don't third comment a color heck support relatively stability unique the going differently that, unique in on provide are heavily the and new to got the of economic of in really and Aflac issues reliability are health-oriented margin because business. a a in required that project, fundamental and but company, FASB provide with sector. unique for applying clarity the business And margin all towards one Japan and good through they U.S. These sure we would supplemental you because very and lot My application our we capital at you've are still on weighted we depending react good of model, to have making be, the they're business working properly. more to rules, So, I a things has interpreting model. are products

types all these industry over business lines So time. the economic of the grow looking the to rest is are of that

is of the you OCI business. in on of unique it when a because different position type adopt whether the the just means reserve certain but, – so those you our guidelines, an of be or that And reaction mix our may items, nature markets dynamics, have it line

different So be something of as for of explaining makeup what's of but impact adoption, and not mix the is adoption important the going to to because the means only that our why us business. me, important

on So working John. we are it,

John Nadel

helpful, accounting. the Fred, economics, are about We That's the No. economics right? are talking

Frederick John Crawford

That's right.

John Nadel

about talking think list the a I'm rising in one category, And credit you as to started allocations? quotes is indicate it's to to I such there that sort in I really really necessarily of list, the that sort question to the certainly second so, way that doing? be shift, think portfolio the around in that I for precipice put market Eric, don't The the seems here equity days start of and watch XX have that a altering at or are maybe as reviewing we markets conditions are watch a acting last turn, behaving you're way. market time Is of have to is anything but anything you're there

Eric M. Kirsch

yen but cycle, own the well, there that calling we in we investment-grade impact like placements, the high-yield to would old saying fashion, terribly quality We sell-off, as we are too not credits from don't traditional probably change start Because ourselves see at the despite markets, major and vis-à-vis we because rather a on a half. our and in Yes, and something private but Having are for book, around much about nevertheless, still environment, credit an credit standpoint that not we reduced event a anything for XXXX dramatic a extent to to what standpoint. look a in that which see not them, market another we year even an example are we'd said credit acting equity of deteriorate is they'll own? and ago, markets the are edges. that, see less don't thinking but the from when are the we credit bonds, years bonds,

positions. an de-risking, Again, some just hygiene. So, alarm we've nothing been of year. for the doing good it's particularly year-to-date, us, throughout de-risked And some raises about placements we billion have old yen $X that private

cycle want You credit to positioned when turns. better be the

the is other I out in middle part The our portfolio. portfolio would of loan call market

We the press. have types definitely It's deals. those about well lot chasing written seen of of money in a

investors, and than production Well, they've not has are Our that their in are now committed commitment. the have through been silver middle like expected, the credit to market in because our because think of those; plan year a where players call lot and upholding here planning we particularly we're that what side next are a go a we and underwriting year loosening as to buy for to we've and assets. those markets gold private we little our this they're slower internally of about taken we investment going to made There we've deployment, view we standards. floaters the the on

value. real a respect the So, underwrite that, deploy. space. our other Spreads of of from to we're good might we will, floating we not as market have in planning as loan but much you market the come portfolio been if be able has rate in standpoint part middle somewhat, market relative transitional the said estate, middle that how loan find space, just and conservative hot, planning, more to actually be Having with very to still

question, potentially would middle those the we of to environment, the your as John, focus in credit lower two But some So, areas are to around that in will to place offset That deployment when loans. time. see investment that that well market a the on are take we turns, minor cycle today will actions have credit adjustments. point they the in at But making impacts not us net income, major. are we I where serve

John Nadel

agree the Thanks Eric. And appreciate with Really so you. color. totally much,

Eric M. Kirsch

you. Thank

Operator

from The of Thank is you. of next Goldman the Scott Alex Sachs. question coming line

Your now open. is line

Alex Scott

Hi.

And is of question give the just idea you I year money haven't have Could yield spread call sort from two. first bit And of high here? sort flat – sort to on its down lines. investments of guess that a of winding we improved Or are The part new been had more we of of we ultimately, in of and kind tactical back same to close are the some have seen the invest and made that be little us yields? should going a any commitment to NXT Capital? level with of where sort compression? I of along compression; or how it drop with last into moves you stable the the are

Eric M. Kirsch

that's level the that the yield only Well, just got to And interest money overall be perspective, new up little because not are but will of from dollar difficult a now. interest impacted Japan rates. rates book by and spreads in heading generally remember, answer and we've interest both rates our

market buying to have edges, in classes So higher asset transitional whether are around have ALM we of been assets good. we're the relative rate that's loans. trending even yen the floating U.S., we placements, be real good estate the middle for yen our we yields so portfolios, both money Japan. JGBs, assets, new for old-fashioned capacity need and still yen to private In purposes – they'd extent do Those publics

spread yields, have We know LIBOR the are plus seen definitely higher offset by set you spread. compression coupons on LIBOR because some those based

keep can portfolios money large. mature of natural loans, When X So years. But to net-net, to get become typically the anywhere prepayments. from be speed in They on is we portfolios, to loans. rate X do but you start portfolios. There mind we've would a us, those the not that decline, prepayment natural I two seen small work, put a floating those that things for

maturities the the only gives depending see, of prepayments of to you which fixed-rate old ample in not some So will reinvest capacity on these therefore, floaters, of money, us our new bonds, standards. in market even underwriting credit back but then

what So money area. expect type new the were hovering our expect. through But next say conditions in to money question is we in mind, same a market your just the same what and allocation be from could on around maybe strategies if I we depending yield which I'll Aflac Japan, shorter stay point the keep same, pivot of at tactical new this approximately conditions X.XX% that's answer investment happens now go any stayed year the of the if low-X%, to perspective, our some would just I'd as markets. that would high-X%, for a as those year,

Alex Scott

follow-up. one just maybe And

you one-time. On was more XQ of is Is hedges? I QX the or item, sort item a that more FX – sort those a of hedges rolling have of that of the know in, to where locked roll more of

Frederick John Crawford

the of we in what back Yes, to terms going rolls, everybody. told

of at XXXX, to hedges. For we lock-in last Group majority of year, our the chose end X the

rate. of out keep we we our Group discussing the hedge meeting, if although call boost growth now on or of is loans strategy, net less the both you up, go we are sessions One assuming Group income hedge we Our right that's and LIBOR, I that rates, provides But that investment remember in you term-out from we more there income should up all analyst to costs we may the about go so specifics cost we though. are – of And end in, and To are net statement, that in report for hedge to that rate that on is, the determinant hedge thinking that the decision might showed of lock-in outlook get the now not to there two income mind little to a with at to it I that that. during increase continue cost will we particularly will have equal strategy pretty solid. XXXX, – interest costs, extent this of choose hedges which at driven will, whether is part of around in, net our middle biggest if of a up and a sides cost, up, secondly, the think elements hedge or and those. only means from lot would of the floaters the somewhat not, want beauty the year. the costs things stability view net view floaters and go of number, of income will And the and is hedges we will be charts of a now and to continue you thing X, planning X starting Well, are decision between are decision. thinking roll about the lock consistent by have the is nice trend we back a the a the the bit our tell of floating don't following the is if earnings. actually assets, Regardless which now the our year. we more the be and locked what and hedge to the the the floating is if

be factors able are into as said, decision-making, to report our I out at which that go we the are the those earnings now So looking of some call. into to

Alex Scott

for the answers. Thanks

Operator

Partners. the Thank & coming you. is The next question from line of Lee Humphrey Dowling of

now line open. Your is

Humphrey Hung Fai Lee

and my question. for morning Good you thank taking

or quarters your these newer issued type cohort guess, wondering products. or for on switching lower, should being are the on of were continue? kind as dynamic as over of this releases of, being activities of just some up those kind these higher. policies switching, did but still new all I'm expectation of more the of early redundant of of to coming DAC products you amortization the of product continue based sold from Fred's in I up to largely we this switching recently the expect kind you some to Just kind to follow notice on being comments I quarter, reserve

Frederick John Crawford

reissued are polices policies the question and One mind these of lapse answer they is that, and This because policy. in remember, say has the we business. been reissued thing keep we improvement can are the the when for third concept on consumer in the long for anyone at represent would going sector the purchased, to start of are being terms an of that I and as re-underwriting the remember as being just in

the lapse natural, see and on cancer the side, a on So medical side it's level both will and you of very reissue.

as done much points we've even been you. as of points from to quarters, really XX XXX years after level range tends on comes product much and worth it's lapse consistent depending when fact, recently the and last ratio In three maybe have or that has from more at of here looking improvement analysis some basis very a new issued reissue. basis to It what whether a benefit

come that have to to time the down. starting in to down not of for abnormal – It's need expect. normal. you and bit see more new a necessarily. a product, the do the that's an of not Todd, lapse I come you perspective? keep So go mind would a you It's it we that see any on a reissue, there you'll the level it's abnormal pops of it launch where period is when that to your as rest would from up already from rest of year, do you And expect color what through

J. Todd Daniels

release the policies they're remember, on if amount issued they're that cohort older that No, amortization the P&L. I of whether more of versus will depends right, the just and that's benefit or in-force determine DAC recently get that Fred. it lapse, policies reserves And all think you on

Humphrey Hung Fai Lee

Got it.

So and then question Eric. gear, for shifting

the especially assets, little a assets. floating estate real there's allocation rate You've transitional talked bit the more about – to

I there X-plus outsized money new new like the kind U.S. why to kind in Or of the help Is kind the yield kind be quarter, should going thinking yield? any reason of that allocation new money a quarter? just this forward? this run jump of the is we about think of that's that to rates,

Eric M. Kirsch

you. also, do had because have I I'll take fingertips it asked the Thank didn't And but now. I opportunity, my Andrew at Yes.

and two-thirds our we'd throughout. transitional currently in that new was, successful $X speaking higher to is more about middle amount U.S. to billion in and Aflac we asset was rate approximately total and assets even be sheet because of Aflac yield X.X% the were loans. market was pretty to the the in quarter the U.S., asset year, traveling those But There of normal estate But for your real question, deploying a in finding X%, one-third is balance in For that in on the there now, out. at assets floating about spread for pretty Relative real no about allocation broadly and money estate, expect transitional beginning it class. at

Humphrey Hung Fai Lee

the Got you Thank color. for it.

Operator

of Thank Ryan you. The KBW. next line the from question Krueger is coming of

Your line now open. is

Ryan Krueger

to morning. hedging will sheet hedge on think thanks. had more how guess, I balance company. completed go-forward internal guess, at – sensitivity on question on Japan moves a the the a once to you've Hi, sensitivity in I capital basis yen the follow-up should I ratio? holding the about reduced there Good we due guess, I that, from will – be the

Frederick John Crawford

are in our terms Japan a offset some capital, of both volatility. if income not you expressed the program in expect economic terms. of type The to of the more and in that because the terms are thinking That's when of will, through have you GAAP design franchise, would of program. positions, defend equity, you value is our design the the for to that of we shareholders Actually, wanting calm of net of mark-to-market the dollar down economic of

hedges using we of that And as think of economic are in a strategy over dollars at to company. yen, period a weakening hedge tools of being unhedged time. yen that the yen now so this are back-to-back the from And franchise borrowing the movements holding combination the particularly Japan in of three in we protect company. at long holding U.S. Japan, a These effectively value of

And so equity that is hedge some its basis or to not OCI. earnings tangible down on definition of of meant design. of hedge that's really be to the GAAP a it or specifically in economically calm It's sort looking

we've dialed it the describe that So Ryan, that's in it I economically. would way,

Ryan Krueger

Okay.

Unknown Speaker

just We number would hold volatility this. to limit capital do of not any order terms in expect volatility. significant volatility, from I place capital processes of And a we capital add, in and procedures put increased we and capital in

significant holding would we volatility the expect not this. additional company, from capital at So any

Ryan Krueger

appreciate Thanks, Okay. Great. it.

Daniel P. Amos

Investor call? for the soon. & want our joining us our morning for our you Relations Department concludes forward we that free join that for to Monday call. on believe with XXXX December And look any us our And X, you you Agency outlook contact And this I speaking questions thank I Rating feel everyone will hope Operator, if call. to to in Please have interim.

Operator

joining. Thank call. you Thank concludes speakers. all conference you, for This today's

You may disconnect at this time.

David Young	Aflac, Inc.
Daniel P. Amos	Aflac, Inc.
Frederick John Crawford	Aflac, Inc.
Koji Ariyoshi	Aflac Life Insurance Japan Ltd.
Richard L. Williams Jr.	Aflac, Inc.
J. Todd Daniels	Aflac, Inc.
Eric M. Kirsch	Aflac, Inc.
Teresa L. White	Aflac, Inc.
Nigel P. Dally	Morgan Stanley & Co. LLC
Jamminder Singh Bhullar	JPMorgan Securities LLC
Thomas Gallagher	Evercore ISI
John Bakewell Barnidge	Sandler O'Neill & Partners LP
Suneet Kamath	Citigroup Global Markets, Inc.
Andrew Kligerman	Credit Suisse Securities (NYSE:USA) LLC
John Nadel	UBS Securities LLC
Alex Scott	Goldman Sachs & Co. LLC
Humphrey Hung Fai Lee	Dowling & Partners Securities LLC
Ryan Krueger	Keefe, Bruyette & Woods, Inc.

Aflac (AFL) 25 Oct 182018 Q3 Earnings call transcript