AFL - Earnings call transcript Q2 2019

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Operator

Welcome to the Aflac’s Second Quarter 2019 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

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

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

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

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

reasonable, believe they can nature. we in are are accurate they we to statements these that prospective give no because will prove Although assurance be

differ website you of some Annual materially earnings page of certain is we Actual and results impact results. measures. risk materially at our Investors the We Report non-GAAP available investors.aflac.com the Aflac’s encourage The factors release those could various includes today. to on discuss of Form from on for our look at XX-K reconciliations that could

Dan. over the call hand now to I’ll Dan?

Dan Amos

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

regarding Insurance. sales to like would Post address practices Japan at I reports news begin, I Before briefly

Insurance sale and compliance to compliance by we not at culture Japan As issue this are CEO, have in found Post has nor Post insurance any aware United extremely today. the of cancer that The issues we any an saying Aflac’s Japan States. Japan Aflac strong by me time or out let related of start

franchise. compliance upholding processes I all to of have to alliance Japan as we specifically, partners, strong of the compliance quarterly issues maintaining agreement in it cancer brand, essential the with Japan and our the alliance with relating XXXX culture our review Japan In committed Post. insurance including compliance meets take fully to strength Compliance the postal’s place Under am and Committee trends is sales action reputation to Post and our channel as appropriate. alliance within Group,

of Insurance Japan In market in review those this recent we Post a the addition, conduct similar development, being to products whether and are channel. are Post Japan response regarding conducting problems to there voluntary reported

mentioned, Japan not the such As or time, this closely are with cancer I at we aware Post insurance Aflac to of but Insurance, by we’ll that work Post any compliance of steps problems them Japan to it of sale practices to become ensure upheld. compliance are Should we standards, practices that aware take are address will necessary immediately. inconsistent the any with we our strong our action and related

Incorporated Aflac the that in and interim, cancer of Japan offer not continue believe insurance alliance, part we strategic our impacts Holdings stuff. Post Aflac as we this In to will do investment

out me generation capital about of first financial let which XXXX, talking of Now and half second by strength. year terms earnings, Aflac rounded a begin of in quarter for the the strong

sales headwinds front slightly results certain are We facing short-term the below trending expectations. on our and are the

confident of dynamics on our sales driving year. we value touch hitting for the will important earned moment. terms in in a premium remain I as But targets long-term in

adjusted in the generated largest the quarter, for pretax Let me profit better earnings on operations. near-record end Aflac results more me contributor, just Japan, basis details, more our Brad the margins. our say posting than you with terms, will provide results. let financial starting details. strong were Japan expected give But that

perspective longer-term a our business. take we know, you it to As when comes

third the time, in leadership interest our maintaining complement profitable core To margins. innovative policyholders we we on the sensitive product stable products this have sector that our first products. want insurance At products and rate same and business strong that less are remains and focus new with existing need. sector and that to protection similarly portfolio end, introduce refine will our continue Our

continuing engage We a network. wide-reaching are distribution also to fully

agencies vital traditional have Our our remain our been success do and as to partners. alliance

and to continue We No. medical of provider Japan’s XX be cancer insurance.

our in outlook were breast second Consistent quarter, first quarter the the heavily of of launch comparisons in cancer comments terms the year-over-year with successful influenced in product sales by results XXXX. our of

that third quarter and in a we where a sales sales. increase cancer reminder, a a was As sector in increase XX% enjoyed whopping XX%

to versus rider in In medical refreshment approach addition, our product a approach. whole policy a of the XXXX takes

Recognizing This in our associate pleased for channel. sales. is designed reported sales medical are the approach, sales naturally well overall in and as this lower results we that cancer the production in with as increase change insurance improved in economics

XXXX the Taking in decline sector everything the assume in and guidance into our consideration, there mid-single-digit we prudent believe third risk low-to is achieving it’s that product first sales. of a to sector

of premium However, our sector on X% hit to XXXX. remain earned third we to increase sector growth X% and protection for track first

Turning to Aflac U.S.

sales, With that by our healthy bolstered these off, The our expectations We for continues customer our are also platform, profit to quarter pleased of margin experience. strategies with both the business Aflac exceeded reflect first the the and is distribution significant pretax broker grow of to financial have paid ongoing which in and U.S. pipeline investments year, respect results performance. the and business. because half for

the also which We the stage. on still platform early have are and encouraged been progress the in alliance, associates by direct-to-consumer

and then average and Our into main challenge within retaining distribution recruiting our weekly producers. translating career associates is

guidance long-term headwind. in commissioned-only in impacted it tactical we of aside the always have These year-to-date, issues first resulted flat of range. the are a Setting a know, conditions, XXXX, profitable in there results have and reach low also that a yet end the harder are sales premium you couple the which of believe for earned economy issues positive essentially strong growth. makes to tactical been associates economic sales has As half recruiting

this seek earned profitable we in X% these premium despite headwinds, premium record to X% sales. growth XXXX. and marginal target perspective continue over grow a put year’s and last to to still anticipate anticipate Ultimately, growth earned achieving level of To in we

long And of Argus the enrollment Looking move benefit to and behalf Vision providers. as our that Aflac to build page it announced an & you This a administrative agreement U.S. is Vision, Advantage Argus naming and network products. on care of a Dental services acquire we weeks have on importantly, strategic it a may Aflac’s of Dental respected when platform very few seen, large turnkey important places vision products supporting term, ago, Medicare process. the provider provides Medicaid Network front for is dental most the and and to health high-quality

franchise, administrative with Argus for an Aflac currently the greater we Along see growth we opportunity supporting penetration into the with businesses of serve. as providing approximately Argus XXX,XXX

and opens door model. our that clients customer brand strong it the believe new respect to also We service

and and We expect and to strategy agents our direct through consumer. drives retention growth serve will to dental vision broker improve sales and recruiting of

Argus business, consistent with our approach balancing increasing shares. is in with and announcement to repurchasing our dividend strength our the financial reinvesting

than long-term. will for story, our extensive growth this growth capital. efficiencies prudent organic more to is competency and leverage With of been impact distribution and for has of requiring that growth the our look that Aflac strategy driving transactions supplemental recognize we core critical bolt-on we bottom accelerate brand While an the investment measured our opportunities mind, insurance without strengths amounts that to upon and in through build line

time, shareholder we ratios the and strong on same maintaining the bondholder, At to the remain policyholder. the committed capital behalf of

in plan the XXXX, to allowing impact $X.X not does range more months $X.X the overview This repurchase our to gives this this and with you an of of six range year. to billion Finally, our in quarter first of us the shares be the of tactical. billion

focused you initiatives growth remain can to both and in designed Japan. on U.S. As drive see, we in the the

will our operations that excess way reflect strong Looking all It in underlying the The will deploying Japan our ahead, to reflect of the believe we in prudent power earnings our approach stakeholders. balances States. capital of insurance a earnings interest United and also growth

also continue Aflac’s per growth. to our we policyholders. conclude be share are objective, that about our while to the we always, hard future to working I’ll As saying by deliver very I earnings excited ensuring achieve promise

over the results. Now financial Fred? program to cover I’ll Fred to the turn

Fred Crawford

Results quarter the exceeding Dan. share continued to XXXX of represent $X.XX strong X.X% the strong front, Japan U.S. year the forecasted from quarter. our the you, earnings on start extended a earnings over in margins per and Thank increase the for Adjusted second our in benefited both Earnings expectations.

to weakening the in of results as earnings compared XXXX our impacted yen per share Our by period, were $X.XX the reducing the quarter. by reported modestly

to the our On $X.XX With to portfolio, and this $X.X real In which investment respect has income earnings we approximately basis, Of variable quarter, estate actually expectations. investment portfolio. we this investment billion amount, committed building from gradually an earnings, adjusted invested private been approximately and equity includes generated have investments. are million contributed compared a consolidated to $XXX building equity when called alternative portfolio to-date. to share our per adjusted alternative

Earned Japan products line X.X% quarter premium and first our and expectations. for segment. increased to type our sector with Turning protection in third

product, was As sales not profitability. newly two-pay note noted Again, paid-up earned impact important premium in strain which introduced from portion will to impact a policies that comments, medical XXXX premium modestly turns. earned in my sector a it’s third of first our quarter does

below our XX.X% annual Our total benefit guidance ratio range. at came slightly in and

ratios benefit associated reserve carries shift We as third from continue sector in which favorable sector, to lower sector as towards adjustments continued and mix the first our benefit third ratio. enjoy well business a

in range. with ratio Japan expense was projected our consistent Our XX.X%,

contributed half We readying of development expect second Net along segment as of our in we for Japan our income XXXX, to in and strong year, expense timing product natural with spend. investment marketing our will the the sales rise ratio results. accelerate expenses

As along in environment of headwind new The with a in investment loan rates. contributed, income rate variable our is floating build low portfolio. mentioned terms certainly money earlier, rate

to income. that locked Thus, profit Recognizing recorded rate our floating Japan’s for cut, have in Fed impact results we and XXXX. income first hedge of our Overall, in little coming for of with very margin in quarter XX.X%, pretax XX% a market of range. XX% to than Japan, very we our and higher cost rate it’s consistent we a important anticipate approximately forecasted recall expectations investment strong

U.S. sales, Turning was year-to-date a in weakness results. Despite premium steady X.X%. to up earned the

our of the mix our consistent of end with in annual Our at recent ratio trends guidance at and total XX.X% in claims generally came business. and range lower benefit

expense XX.X%. in the ratio was Our U.S.

our Japan, the the throughout increase and remainder distribution in our XX% levels, are to issues of While higher timing expense than favorable This at ratio Much lower the spend investment promotional like investment traveling of we the ratio results initiatives. of year-to-date, expect was platform, digital to pace XXXX year-to-date expense attributed range XX%. our outlook end and of XXXX in to our year.

second in bit in start investment capital a U.S. which consistent to out XX.X%, recorded plan, with half first to an of modest the variable in the end of on excess profit high pretax income. U.S. at range. Overall, investment due Net pulling year, the the is investment in of income that segment in part of income. and of a the the forecasted and results running strong U.S., margin increase Note we our our allocation ahead quarter we impact corporates also our has

quarter’s The the In contributed driver basis position hedge hedge segment, earnings Amortized hedging on the by quarter to amortized program. income with of income the end year-over-year reduces is cost. the pretax while exposure our $XX $X program the the lowering hedge notional enterprise-wide at corporate to million economic yen a our billion. our the of improved of earnings main corporate driven

Japan’s exceeding X,XXX%. rates, the Turning in margin ratio drop with increased capital. solvency to now has

our roughly ratio impact the securities, of SMR gains losses and at XXX%. remove unrealized you stands on If available-for-sale

drawdown Our the in estimated at as and end capital bit of for U.S. dividends risk-based is of this later a million have quarter year. capital we operating planned scheduled excess the RBC $XXX in range. is ratio elevated XXX% increases

We continue XXXX. to for an XXX% of target ratio year-end RBC

paid with in We traditional to This a material simply levels, approximately of liquidity with from is billion due of holding the the ended but year. subsidiary second the $X the reduced half at timing, company. bit quarter dividends capital and

little impairments. Asset quarter, of in shares way remains X.X repurchased very the of the Aflac million. we stock with million common for $XXX strong quality In approximately

repurchase for to range current in billion our maintaining are billion $X.X XXXX. $X.X of We

and transaction definitive on an like commitment acquire on in in certain years agreement capital brief I’d million few closing Dan’s to based million make and The to a Vision. of & Dental our over follow-up remarks paid targets. a $XX $XX Argus three consideration represents comments on achieving performance additional at

material building for anticipate subject be guidance it to year. modest XXXX As the only is we in to quarter. impact integration fourth approval The impact not plans. and in noted in We other and no announcement, there close financial is our and conditions, to will regulatory our see Aflac a and expect deployment closing transaction transaction a as do U.S., impacting the we natural results XXXX capital

in Argus Stepping back, case, announcement seek our tactical is services with of overall franchise. continued investment to consistent amount growth Aflac of premium the to this a with teams the at network vision our executive the We knowledgeable for is build capital M&A. driven by acquire our return further the In dental administrative on Argus, of indirect broader and business respected approach worksite measured risk. supplemental platforms in lift profitable and of benefit

per neutral our EPS annual $X.XX of outlook the In guiding year, to for currency of of the terms we share. $X.XX are to end high range our

tracking that the certainly year-to-date pace exceeds a range. are We at

are contributed to the platform expenses investments year. as year-to-date and of second halfway growth only half have And through timing has results, important we However, scheduled XXXX. the our we of mentioned, and in

And In Argus in move closing, in the remains continuation Capital second quarter the U.S. Japan robust. tactical announcement generation our growth U.S. sound both margins, our the represents drive of and earnings a strong to represents and a

begin the our back now I’ll to hand call session. David to Q&A David?

David Young

Fred. you, Thank

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

now will the Operator? first We take question.

Operator

Thank you.

of is of Jimmy question JPMorgan. line Our first from the Bhullar

your question. now ask may Your

Jimmy Bhullar

Good Hi. morning.

sales on the and think still haven’t the U.S. about – sales in first confident you could think, able U.S. results for versus and talk for you in several drove previously you year quarter? be sales Teresa, this on had stable they’d improving I weakness specifically weak sales. to the years. a you said question I XXXX? if And So what I negative are you achieve close being And to, had

Teresa White

the a speak to Jimmy, sales question. make I’ll I’ll just let Rich strategic comment.

that the premium really things of One is earned on focusing we’re growth.

the And earned will of some things perspective. made from tactical that decisions Rich an of sales growth, premium that some earned the profitable impacted we premium the about, growth side talk have

I’ll sales. to Rich specifically let the speak So

Rich Williams

Thank you, Teresa.

some there premium couple headwinds quarter were the long-term tactical actually we mentioned, had for for Dan earned As growth. will created in and believe alone of be issues that favorable that sales

also large a time with and to, from create noise volatility, which little favorable actually we case time bit it’s The to that first speak issue we persistency, occurs but of to those confident is are the simply this and can company. comfortable decisions and

partnerships in our of terms partnership, evaluate ensure a short they be the with actually the consistently sales in decision profitable profitable. positive which company. we impacts we term, are to no to growth forward longer move Second, will quarter, to the earned And a particular in but premium made

to the but think, And second half that essentially the of years, We again, year. they is growth to I it of second year, mentioned a would part Dan take why question, of were like then, a it’ll the take finish fact We’ll the seeing your flat third I We at Dan half it year. realized year-to-date. favorable alluded the leave prior we we good the know anticipate think that. for which in performed

Jimmy Bhullar

directly do and not you sales? that – to the commotion if via feel of the the it’s on of longer one and And could any sales channel sort Japan practices via impact Post more long sales, even at though sales publicity the Okay. the all Post? And have I you – about term, your ask your affect the could sales from because this on of seen Post sort related just

Dan Amos

say Japan as in, is projection they with would up can is, if start then case with our of I it’s this Japan that But is taken something this – what over in there. say is, wants anytime to I’ll something. step attention everyone’s and magnitude Post, brought particular

that less with so And on sales. there’s means attention

I So impact. some we do do expect –

July. in We’re

are that turn quarter we to that numbers have don’t we be. of So what the know out representative will

hard it’s to tell. too So

we’ll But are it with thing expecting than earlier will better one And distribution the watch some we existing channel. is we’re – just accordingly, what and and say we having we’ll a to see. had anticipated certainly, my in softness, I comments, have our

quite doing are well. they So

So and what there we then well, to we’ll take happens. will continue push just and it as see

Operator

Thank you.

Next Partners. Humphrey from of question & is Dowling of Lee the line

You now may ask question. your

Humphrey Lee

think the as that products into move Good taking your of offer. Teresa morning the the I to is Argus and rollout network acquisition thank products? you for to indemnity you A for my Argus. integration the main question products Aflac-branded Can the and appeal key network’s questions. about about dental opposed you for the expectation one talk of for

can and sales you see of some the kind you the get of can to? about see maybe you talk opportunities So that where

Teresa White

This So I’ll one Rich the brought have start I of the him out. credit. properties to he Williams, to give And that is platform. on Aflac

page the from really things One as persistency on a XXXX, is we believe our that Aflac first that of we premium for benefits to believe relates be that it that, access about, us enrollment. standpoint, beginning that’s accelerate well. but that Argus, We from earned and and as the growth good an also feel perspective of it it the great will will we good places feel

the to Specifically let integration, and that. Rich? the I’ll Rich tactical pieces to speak

Rich Williams

mentioned growth us echoing just I’ll serve. a markets and very the vision just measured XXXX comments. through we network All then strategy three that forward, consistent brokers Dan continues accessing know rollout, we have direct-to-consumer. echo the comments, we career in a the demand very for right. national actually allows And is It that I mentioned the and our Thank to reach going approaches excited be and XXXX, distribution rollout. this. And it about we’re to our we’ll to our have very you, in high. Fred in Again, all will Teresa, think, your Obviously, of it, dental with and all will agents, want

Dan Amos

The profitable, vision accounts. and so one dental is large much thing I less would correct we this and more to are – accounts and note medium-size The see that space… predominantly for is, small- this it’s aggressive

Teresa White

We where and a the play. need. we as business, see It’s primary that’s say a small greatest it

our of partnerships an we larger the see well. businesses, brand as opportunity houses, brokers with our because Aflac However, and larger there

Humphrey Lee

of less kind vision to few maybe that just we little probably So kind multiples a or the $XX and of dental should they’re sales of you now, so. year million of a sales think expect Do that running looking at right becoming in growth trajectory? a kind about years? than How

Rich Williams

So we’ve looked to network the that like entire the at business the plan for lay Briefing term obviously do long I dental we have out And what over more and in vision. is think at would Financial September. in detail projections the we Analyst it

Operator

Thank you.

Credit of is question line Next Kligerman of the Suisse. from Andrew

Your line now is open.

Andrew Kligerman

you. Thank Great. Good morning.

back of that that? just to medical my rolling assuming on question around year. the And product sense considering half you out was First color I’m Post. were any the new in that’s second Japan hold. It probably a

Fred Crawford

we be discussions as additional involve would to say se. under – likely product, that understand one to any would development. involve plan true Well, product medical to I the announcement make that products – product the degree let third no explore specific you natural of medical wouldn’t as and record it the me additional Post it those There’s rollout sure Japan to alliance is rollout products. is third only official pillars system. is likely within that is and of are But per the What the or been sector extension, or sector it’s this Fred.

looking much As out of building that is those makes we’ve plans more XXXX, and said opportunities for a before, sense. this year

they it is very say we also new are always about the very important I’d when think product. the system Japan that and been of there’s It’s that where important. really the we we product, that Post activities Insurance Japan system currently involved. product Obviously, three have in any Post distribute What is and Japan parties obviously mindful product also Aflac Post postal But type development underway. of cancer

of and on understand product. to comes right it’s any expanded those plans more And for now, dynamics that are need there a it It’s three parties official planning prepared the so front. no really that year type when come really to announcement. really together that But are

Dan Amos

– mean, you comment? Ariyoshi would or Koji, make to would Koide, you like I any

Masatoshi Koide

This is Aflac Koide from Japan.

So let’s comment [indiscernible].

Andrew Kligerman

the second with up follow question? I Should Okay.

David Young

ahead please. Go

Andrew Kligerman

Okay. Thank you.

you at of end end year, to guided see think Japan XX% versus Can the the led below that is to low and normal? had guidance we it either expect the you was the even or was superb XX.X% XX% by ratio sector third So out? benefits clearly Do your that new low laid this for products.

Fred Crawford

thus on of sure at expected think based that, I far the benefit one is of in in adjustments. Japan is dynamics is ratio year-to-date traveling the low is reserve associated our fundamentals thing end claims and range. for the It terms

down in year, ratio, last activity reissue expense lapse and down naturally Interesting, benefit on was and by DAC, ratio ratio the write a recall a then cetera. brought higher as may you you somewhat products et reserves benefit lower release you’d see where

parts had moving were last you ratios a year. number influencing of So that

So level in some that benefit of I stability there think is ratios. favorable

tend because But we to I in-force they around. have be the given be to amount have, move can of think set stable. claims fairly product our size you the activity of and careful

though downward in you an sector third from influence would you benefit I do thing note One more is mix have of ratio. really trends than

pressure you at around helping levels. and the the If over would you of benefit in over But sector ratio you’ve third say, three ratios our that’s it’s answer the it’s the at years, Andrew, yes, Material that your but think basis downward point, seen mix look reported first sector. we benefit consolidated stabilizing see speculative I that I bit results. would certainly what there’s is on last attributed a that certainly is improvement, a question, deterioration. us years, terms tells And two, see the nothing largely to any shift that’s third from favorable. to this But sector certainly to current

Operator

you. Thank

Scott Alex the Goldman of Next line of question is from Sachs.

open. is line now Your

Alex Scott

Good morning.

know look around specifically you’ve as And Japan lapse what into offices. I and guys to wanted First Japan because expanded the of lapse when and fair amount it of I couple at reissue a I disclosed, was amount like Post. mean just years revisit you I guess concern Post had a sounded I it also that Japan question Post additional on had have in I of fair the reissue.

I about? you and that saw guess reissue So Japan what activity gives comfort and concerned you somehow is from that lapse activity Post the different the is reissue lapse that

Fred Crawford

start. is investigated assumptions But dynamics the what answering I’ll policy of relates the from around and Post it side. our any make lapse sort saying by Fred. redundancy colleagues. that being start or are This difficult I’ll us that Insurance and then it’s Post certainly replacement Japan Japan of any as dynamics welcome very are Japan to start for any by me commentary to let and on

So than I on it’s product. very of nature the to don’t want than speculate cancer a to those different products other say

product of quality in of an old really to remember, advancements products, space. years a cancer of portion, been if case in care fairly fact lapse in developed and product. talking activity, greatly four cancer because there’s is treatment has that product, related substantial that cancer cancer the a between coverage the all not improved When improvement you’re is go you a the the our the the quality great of reissue the and of substantial In new advancements about it

was when added attractive premium you’re allows year product. starters, product while very a to client move do also you we a is new the the that for around we a for really waiver feature new and so dynamics rider into to there’s dynamic the a for lapse, and this client on the that cancer on claim, feature cancer strong The and improvement have other and that

about do, reunderwriting And have when natural so. will, very So is process. a That’s a be for coverage policies or our you if reissue, a delay, things a you essentiality months to of kick in that the individual, and the careful lapse do there’s have doesn’t Now of new okay? we’re about cancer products. feature three one underwriting you

a to for something very and when not focus coverage, about they product, that our wait very, buy So want of diagnosis. one any you cancer of standards where we’re any careful all things the in you the can three as of to customer be impactful so about go speak, is the cancer with And period, naked and have with no months. we it’s coverage a that our go severe compliance have inadvertently customers of or time through a do on particularly gone period period,

overlapping for take that coverage that we So client. bit a ensure naturally great protecting that there the strides spirit and of will and and of throughout, consistency the have is but level in of to an period lapse reissue, it’s

different interest, understand requires So in of level broader the understand. I it investigation different just different It want a we what dynamic the to dynamic. to very attention a products. situation to that type makes make the very customers’ you a sure and than It’s product of to compliance be in look for out

Dan Amos

Any comments, Koide.

Masatoshi Koide

have do any We additional not comments.

Dan Amos

Okay.

Alex Scott

of you rate on ultimate I to maybe your a I over, rate sort comment terms products of reserves, can lot switching So you assume just what of assumptions, these. And guess, my follow-up, know I assumptions? in at mean guys all dissects

margin about plenty that? thinking or cetera. there. So should wouldn’t we et any as actuarial we anything be I impact else we of impact think on any as expect kind head into go I But kind there’s review of of through process, DAC

Fred Crawford

rate not I reserve are to say, very reviews relates particularly and No. in sensitive it estimates. would to adequacy reserve our as products, general,

the here companies margins premium be And in my the seen mover. on from that I’ve coming as to analysis, our GPV a tends that our assumptions said are morbidity by simply if you premium not net we valuation your resetting margin – your rate before actuarial a retirement it naturally to disclose, this space, in I’ve as my of that overwhelmed margins have. never you you know, team the long-term products work, to But career. are have will valuation gross will You it’s you We type gross in that negative margins. naturally have so we in our see

the So driven have actuarial and and by margins higher, into very that’s up morbidity. large you mid-teens

margins. of you all So prolonged pressured, downdraft can those because low products, true be compression take but again, our we bit across of even not related we more have just categories. margin a It’s when to oriented comfortable have simply position. a rates, product a strategies more interest they’re, healthy backing products investment first sector savings Certainly,

So issue, on more I on is, reserve net keeping on GAAP really is course, don’t the front. earnings but not have me headwind it to income. any that awake front. and But of investment it’s a concern That’s certainly

Operator

Thank you.

Ryan Next the of line of question Krueger is from KBW.

You may question. ask your now

Ryan Krueger

Hi, question Japan just They thanks. targets. going products or of Good their plan apply Aflac’s to that on One they’re the sale – Does own? also sales morning. Post. that they eliminate to announced their more

Dan Amos

Koide, that, take please?

Masatoshi Koide

with Post that We will our Yes. agreed continue. sales targets Japan

Ryan Krueger

Okay.

will continue you know them then, much And they wouldn’t product. Fred, your to mentioned So for I there be impact Thanks. short-term in rates, have on XXXX. interest

XXXX, mostly you As you hedging to how see impact you impact? would through? would expect some floaters Should come into the they costs or move from offset relative to

Fred Crawford

locked in you and rates investment and portfolio end XXXX, held as And if right. of LIBOR therefore, but end muted. up income our issues effect equal, roll lower we into, you yes, it of into all in all not you associated those lower hedged being in majority, cost. up on the off locked roll net Yes, things Japan, have rolling also you the hedge net hedge rates costs the have Because LIBOR the floating rate

that income rates market Now correlated, think the hedge coming is the a dislocation down. be and but some generally the absent a can they’re down net coming that of LIBOR between somewhat we costs minor the rule be in dislocation. to be we It tends can rate there there thumb aligned have hedge dislocation, dynamic of investment instruments. of fact protected sort the any just nature because of But floating on and

Operator

from of is Autonomous of question the line Erik Next Bass Research.

ask You your may now question.

Erik Bass

rate that the Maybe investing terms attractive you’re portfolio could you. of there’s Eric, sense where point? in investment strategically you at just comment sort thank about of if of this income. on if yields is any makes a investing? And on still And Hi, kind new and floating change money? you’re line if most the getting follow-up where the the And

Eric Kirsch

Sure.

consistent plan And portfolio. investing investment it’s strategic left the with we also with with we’re and consistent or Our plans. asset No do work turns. major allocation investment right our the where is that

point forward, as of U.S. with margin, investing our to a additional looking is plans. but the relative yen or there On dollar investing, two you’re that’s consistent long-term

for the But the Within criteria we attractive we conditions. strong I preferred equally is get is underwriting. because emphasize, It why the our like asset continue be us. strong, U.S. to floaters terms and class allocation, would

relative middle market of estate, see like the But But portfolio those within the say, they’re still other transitional and asset healthy corporates those in loans a aspect spread compression and investment-grade have so we market. we even that I real spreads where And loans. because value we some attractive of to, classes compare tight, when are I’ll one mention.

those in a loans money maturity, look portfolio, you to investments, number loan a to has seven at of years typically prepayment. particularly our for the new As five natural three are which

end up sooner. plans business getting Some completed

want refinanced. to projects Some just get

some So from replace new investments simply rolling new loans those. and the prepayments finding to over are of

the a of that’s we’re some high at seeing level we’re things and investing. So where

Erik Bass

follow-up And one you. dental Thank acquisition. then on the

more with how capability it your to new employers strategically, able that been see access historically? thinking do either brokers you changing doors or competitive that you And I haven’t open Just position? does new having mean,

Fred Crawford

getting new the that’s us marketplace, as also menu us going this has is supplemental and for small Teresa in But accounts that cross-sell. the open business think effect great client the base answer. voluntary first the sales. his halo mentioned especially certainly which is existing a on additional also alluded that benefits know, page in to Dan in first to with XXX,XXX of opportunity our yes for comments businesses, we I

Dan Amos

Teresa this wants that, respect in happen U.S. when sure make we Japan absolutely – we thing one we to And Teresa we case we to was back business forward. the The we to – were on. backwards, went that overwhelmed sure with take is took took making steps steps before mean I forward. doesn’t one step it in two first business because two group took

out – everyone about can year long next and we’re because it Not certainly So not potential be and going term. this the do even in important. so for that’s effective rolling is out. very But this just what this we’re more not a manner, year excited to rolling

Teresa White

limited rollout in We have XX. a

Dan Amos

the is year. XXXX

Teresa White

Absolutely. year. the is XXXX

Operator

line of is question John O’Neill. Barnidge of from the Next Sandler

open. now is line Your

John Barnidge

My couple up questions this it? down. year but dealing ticked the is stopped ticked that I years there of persistency. what on sequentially, U.S. you that drove But to related The last XQ in it’s modest. understand color any partnership whether

Teresa White

going persistency. started the as Consistent to knew high-quality with generating partnerships. bit a we with as persistency some we little noise And have to is it yes. good were at remark, looking is of again, relates Dan’s sales goal answer we’ve of The

perspective. And so earned growth to drive profitable – we’re really premium earned the premium trying

got life you’ve out it So in

John Barnidge

know and in follow-up U.S. that first lower really thought broader now I Japan. question have? in the Have of know with you getting insurance where and penetration go than the like the the important. term sticking persistency My you page and is for kind on first of long having intermediate and it I of U.S. suite broader the supplemental you is that vision of through in think page acquisition. a Okay. the dental much products is products product could because

Fred Crawford

So of a things. couple

employer paid. all, of an element dental have network vision and does First of

products. higher so persistency And on certainly supplemental the consequently, than we is see our

benefits. that’s also a value of they and So that on thing core It’s that’s sort also our effect know another we product, halo different supplemental have vision But so as network excited about. that the wallet, we’re dental that can a favorable. our

for likely our supplemental of core cannibalization sales. So less benefit

So the things us is gives combination optimism. of what those

Operator

Thank you.

of the Suneet Citi. from Next of Kamath line question is

now Your line is open.

Suneet Kamath

I mean, Post, ago… maybe us you issue but I if Japan years of to the I Dan, help consumers? early on help us size can frame – over can if the go know could. in impact it’s little days, of this terms you back Back we XX

Dan Amos

you. can’t hear I

Suneet Kamath

Can me you hear Can me now? now? hear you

Dan Amos

Yes.

Suneet Kamath

Perfect.

Sorry about that.

extent payment to if days. the whole ago, issue what comment? in trying just a of I doing want claims to what issue, it’s given this years that it’s get acknowledge size get and is Japan was early you the the us the frame So help dynamics I you little of Post over in could or can XX I to Japan that consumer at We went competitive sense through

Dan Amos

as going to don’t be wish believe it’s got tremendous, as I think I like problems and know another where with frankly, this. we a we Post. long expect this we will at to see. to do workings cancer all quarter. we because knew. quarter sure know insurance I’ve on continuing and should going product, nor I sell give distribution don’t certainly Japan issue We our an a belt covered. to under got of And a don’t they’re the are quickly issue term make they and to had and Japan know. I to like we as you had never Post We and and that line next Japan We can they in know that think need know they’ve what’s channel don’t more inner has soon it’s top color the end the be it’s get our buying consumers want But will whatever fix on can. it it, situation

I was specific the issue really not know. to industry that, insurer. than review other claims an But do one not So

comment. So other only my than that, that’s

Suneet Kamath

And fair. That’s I Masatoshi guess Yes.

Masatoshi Koide

is Japan. This Koide again, Aflac

Japanese. Let with Insurance [Foreign Japan is the in That’s So related but Post as insurance particularly the what claims before. overall Well, Language] to faced in me Japan Post, it’s product. industry [Foreign happening not issue explain the we Language] in and had it. Language] is issue actually [Foreign issues supplementally Japan Japan

Suneet Kamath

that the what helpful. know is hearing that my suspended been channel. have reading And you have that something the is, That’s And don’t but considered? providers in a Is then couple you’re is this well? I Post that of and product Japan to if follow-up we true, as press, other sales in

Dan Amos

No. sales. We suspending not did consider

are We different licensed post thousand offices. XX-something in

insurers smaller in suspend are concerning no feel think there I other amounts. important And are us. to our issue products with much we too out

absolutely So not.

Masatoshi Koide

Koide again. is This

and They or me own, including have from not Post [Foreign Aflac That’s other Let products in Japan of Japan providers. of product formally have just other Post than other sell Language] Japanese. not Insurance Language] Insurance’s. of [Foreign insurers me. the announced Post announced discontinuance to [Foreign sales all their explain Japan and Language]

Operator

you. Thank

question Nadel Next line of of from the UBS. John

Your line open. is now

John Nadel

Thanks. May Good the Japan U.S. on one have I on and one morning.

year-over-year. in if of X% Japan. You earned the the the half year? the reiterated to But half got the right, down target I premium you growth of numbers first gets I in you’re What there X% believe year, back net for almost X% in the

Fred Crawford

sector John, to you protection way to just which X% is is really What a and sector the increase down predominantly first premium. in decline related sector, first premium a The broader third X% in premium. earned see clarification. by design really coming of overall is in

third So really first protection again our to is and guidance specific sector sector premium.

John Nadel

Oh, gotcha.

Okay.

that on half so the And tracking where owning are you through first of the particular year then?

Fred Crawford

an guidance. on. had so our We X.X%, increase Right on right of and

simply John, to outlook only something reason is understand because was that, X%, the it’s As a our original tick became in to sure issued on I the two is the years mentioned, why sector which below we’ve make policies channel XXXX. policy had back third We for in side. popular a actually that very the account of recognition medical paid-up ago bank to

a paid-up really seeing policies those that’s come some And realize But of issue. so through. we’re paid-up

it’ll has through system So for its and implications profitability it work no the way

John Nadel

Gotcha.

side. sort through? Okay. to of chance XXXX And understand help sort sales guys question this sales the canceled your a U.S. on that can Teresa, working distributor us contribution single accounted you any on you that the for? distributor of have What

Teresa White

doing of all So, what we’re we’re really contracts. is assessing our

is that, day, that assessments of we’re and specific those of us, sell accounts we’re looking are in them what areas to of we accounts, that decisions. the we say that making Some book overall whether the at some sell. those of And at But have. just of distributors; us, persistency distributors the type for with are whether the for of make sense those making business we’re folks the make end them sense

making to as the rolling full at think, the persistency XX-month and timing, a I And Now assessments. those our persistency. looking I’m we is year believe,

out So we see it itself in as XXXX. working

Operator

you. Thank

is Gallagher of Evercore. question Our line of the last Thomas from

now is line open. Your

Thomas Gallagher

Post situation. Japan on follow-ups the Dan, morning. few a just Good

question. was it? X% stake when assume come all? Post but be the situation? would itself. longer just is know just I the before take by commented a you of So to a it while, to didn’t And just would you and did timing think then impact to If that impact of when Aflac Does begin play? review it, going And into its Aflac that potentially curious, probably the Japan at does in complete its going you it? to regulators on that purchase intention from related review I expect this a a bit would delay standpoint, that it little a

Fred Crawford

stock, regarding deal in maybe, have acquiring indication. why the of that – no folks with we everybody Max together don’t Max remind negotiated and of And the first, Japan. So myself

So just again to buying remind stock. related of agreement investors the

Max Broden

Yes.

of make purchasing began Post market stake announcement stock when indication Japan in will a X%. after announced make stock. began date, they in an they have buying May terms changing they of registration will they as to SEC an to X% Aflac – their has our – Aflac through have view – And So, another Incorporated. we – and also XX-month reach through To They no our that that, they them in purchase the they increments. the they have announcements to period

So that’s say all would I about that.

Dan Amos

what Okay. question? was your And first of the part

Thomas Gallagher

question to the its of did review would of that you review? report complete practices? part XQ? is, be done when will first sales the – time the think you begin the Do your it And Dan, when by Aflac you expect

Dan Amos

let compliance Well, alliance that it issues, the any since out been XXXX. they’ve point doing to and the meets quarterly, discuss me committee

what’s to as detail But standpoint, right we have continuing now, far that will also on They that issues. cancer regard. But our as compliance doesn’t just sales greater we and been don’t any and it in cover just going ask – from drop-dead So just to FAB. more at we’re always the and dates. relate questions in review, cover it’s

just We’re a because complaint not again taking we’ve monitoring what’s had single place it. about

moving as And seeing any standpoint, so on But sure at see that we we’re just out things. and by time, don’t just and that we’re with are channel. it selling products not from making other distribution a that problem this going our

Thomas Gallagher

it. Got

review. So, you’re not not you’re a or – doing formal actually investigation

Is the it? more You’re a fair describe way situation. monitoring to that

Masatoshi Koide

Let on Japan. me make supplement comment Aflac

Thomas Gallagher

Go ahead.

Masatoshi Koide

[Foreign Language]

the reviewing has where and quarterly Dan review have a own assigned regards sure that our channel. being agreement, is Post covered Japan make in alliance no in sales on Post is on conducting compliance XXXX, similar we basis. a mentioned, compliance As having business to is we is media that to Japan meeting there that product comprehensive And example this that are through since Aflac Insurance ever the

– so that is from limited. a it’s very it’s ourselves, are conducted that the not the we perspective, we And review So scope company conduct that investigation, that is since by of this review. an review

Thomas Gallagher

Okay, got it. you. Thank

David Young

Koide-san. you, Thank I that right. All And operator, believe, our was last call.

XX and everyone for us September on want are tune past will hour. our thank that just the Briefing Financial New for joining you We hope I Analyst department in in today Please to to may that York. Thank feel you for we soon. forward have, any Rating and Relations or with and you look you. free Agency information to speaking Investor questions our contact now

Operator

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

You may now disconnect.

Aflac (AFL) 26 Jul 192019 Q2 Earnings call transcript