AFL - Earnings call transcript Q1 2020

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Operator

Welcome to the Aflac First Quarter 2020 Earnings Conference Call [Operator Instructions]. 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 Relations.

David Young

Thank you, Brittany. to first welcome call. and morning, Aflac quarter Incorporated Good

today's release posted supplement also As to have earnings find and relevant will always, we you our financial There to slides remarks. investors.aflac.com.

hearing Incorporated, remarks morning, as operations will Global Chairman COVID-XX begin Japan Broden, and touch Max in will and Aflac will summary President the This quarter, exposure acquisition. briefly United on on response. amid impact COVID-XX Dan test. Eric and about Chief by our results portfolio financial conditions Kirsch, Investments States we and conclude stress Fred and including pandemic. quarter and our and prepared investment as the CFO investment Incorporated Global Aflac Crawford, CEO Incorporated, well of Officer will of remarks will COO our be from and related future Amos, of Executive highlights with an a on the first then commenting liquidity. discussing the our provide of on Group perspective in quarter update current of the to Benefits the President providing pandemic before quarter Then Aflac Aflac Investment of Vice our and President capital first and clinic

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

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

within we some teleconference laws. in begin, forward-looking meaning are statements federal the of securities this Before

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

Dan Amos

Thank to we high-level Normally, you, performed, morning, of David and everyone. time. begin including by an I’d unprecedented start spread providing providing good on in who are unusual fighting we're of and quarter thanking you I by those and want employees. We do. lines how but truly all appreciate Instead, front who a the essential are our the services those all COVID-XX own and the of that view

Our through also cases. with thoughts confirmed together. but and is we are time it the who challenging are a will This those get prayers among

guiding our by enterprise-wide protecting of prudent financial health start of me operations; concentrate risk the to and community we're ask business Let and perspective. Eric The being efforts. COVID-XX Max and brand Fred, financial fourth, how the policy our well of addressing response safety and our centered focus distribution actions has our second, the third, first, partners; holders; our employees and I and cover management. on operations positioned people, and will maintaining risk how operational, an we've and from our and collectively around;

early response the in of potential the from news with we combating the an of window I the the into efforts Japan First, as were they S. three weeks early when us note broke. virus. U. want spread that the providing to actions ahead benefited virus about took of We

the School back Distinguished the of of of at She emerging Hill. of We us Rimer, February the the North Gillings Professor dean and at also Board specifically Health from Carolina Barbara benefited about director, the virus. advised time Public expertise, University Chapel is threat Dr. Alumni long in who early

Early Japan and measures, States. confirmed many social-distancing several for the existing ahead both on, restrictions, deaths We shaking as Japan countries United of in we mask, XXX working hands. travel reasons related yesterday. and several not XX,XXX COVID-XX to of remains cases with installed see of social shifted and this, with possible remotely wearing implemented including respect to norms

Japan having jumped prepare In games. addition, cruise to out the deal Princess, the with Diamond Olympic for and early ship,

on Despite through is Finally, measured it's on more the testing, localized Prime have worth noting cases the Along includes emergency been a by cases taking holidays business where stimulus doctors disease been packages, hospital site sympathetic of at May work resulting and to XX%. COVID as in the on for further. the golden now is possibly have end Xth Minister focused employees with a the national to infectious identified. that state-of-emergency a approach these outbreaks factors, an requiring requirement to of economic classified XX rise Japan extending care. prescribe to declaring and week state reduce

alternative other facility. paid hospitalization or patient for insurance a medical potential will that and guidelines to hospital beds, doctors if symptoms the a policy the recognized period, and Aflac domestic a industry accommodation benefits life Japan with the is allowing be the receives treatments patient receive instruct standards. medical test doctor consistent by a and to major government companies of government temporary that Further, with shortage and outside treatment Japanese hospital at a announced an

action to periods holders treating our communities. employees, and policy to U. policy help I'm have government's executive to response environment both familiar issued with with risks sure premium care. regulatory mitigate several states and guidance state in grace From S. and the and are restrictions. States holders on state you COVID-XX United a the orders taken we directing In most all have state Japan, shelter of place actions by in

way at in than well. our XX% have from the in staffing work I'm that employees home home. with disruption have had report adapted pleased more up more while ramped have optimal, very in working of in of our XX% U. operations. We site than And we Japan, S. not employees the we of little to and models on

have adjusted leave to our school to employee approach to benefits need and closing. for for accommodate account extended the We pay

claims we include doctors as accepting even we pay In definition liberalized terms and from things of hospitalization, to policy diagnosis documentation of telemedicine requirements. holders, how such have expanded

offered periods practices. We grace guidelines or of suggested with regulatory and premium risk any no payment cancellation, following have

with our care Given $X device as supports relationships the medical in workers items countries. medical U. both to contributions the industry contribution the responding provide to to to support health will our combat provide and and In in relates recently protective ventilators aid strong of additional million S., state health we be both announced This protection Japan equipment States, the coronavirus. virus and and help for the essential organizations. used humanitarian to aid particularly mask XX to the it shortages, United personal

making lines this also in million Japan work Japan. Japan to fighting medical contribution approximately Medical Similarly, With and a charitable enhance professionals to hopes Aflac for on equivalent institutions and COVID-XX. foster identified Association, the medical healthcare $X in professionals environment supportive Japan of donation, and front the local is help municipalities and Aflac improvements

quality they on the Japan Turning year's focused processes. Japan. quarter, to majority with customers recognizing quarter challenges. XX.X% as Japan made the decline up the trust the and prior first Post and governance was down rebuilding the production and last of in running remained compliance the of into and Post to were installing Total quarter high beginning first sales

in range in period. seeing XX%, With full total Post activity what down reduced reflecting of having April, of COVID-XX month’s to we're sales the strength related and respect been a XXXX are to full a Japan impact in

our steps We franchise defend to Japan. distribution have in taken

under our on agency attention place exclusive or shops our focused agencies. virus. free have to the the We interest and relationships include loans impacted review extending by Actions in walk-in

For sales assistance. provide shops, walk we're rent in to offering

a are campaigns active business face to focusing on generating mail the and customers. in Recognizing existing challenge, face direct will to sales calling perspective and remaining we be

In groups. promoting web and addition, we are based sales to digital

system by the We that introduce same customer smartphone operator screen and smartphones. preparing the enables are to insurance based also the applications allowing new see Aflac through the

in S. Recognizing In relies to businesses first and work model hit the our access agent for temporary oriented, U. was closures U. by weekly are agents total the up to the is hard small interaction career production site business average face producers’ heavily and lack of sales at productivity in down of of quarter. the Recruiting X.X% the X.X%. increased X.X% S., the and quarter, on site. face we work being were

XX% April, in of the to In actively the U. and range are on we In were have we our agency focused sales adjust. working down S., channel.

to include S. in the fact example, qualified zero successful about same important with independent rate loans suffering digital pivot the and helping are dynamics and For which training small solutions, It's recruiting. to agents respect economy. U. business more are interest owners through reading agents the to remember to you're producers, providing

business extend Zurich appeal our little out digital expand agreement On continue Also, us allows this note, a recent acquire Fred market of build more our brokers Benefits our later. to employers. definitive we distribution our to a positive reach large will and cover consumer and platform. to to Group

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program So with I'll turn that, Fred? Fred. to over the

Fred Crawford

conditions going acquisition, in exposure tracking, we future close we briefly first to Thank Benefit on Group on later provide and touch this Dan. our variables to some you, to are perspective COVID-XX key and on year. comment claims quarter expect I'm which the

this you quarter with Japan crisis can and see margins, our from S. first U. in results, both strong entered the we As

absorb elevated a have franchise. maintaining period investments claims, in while of important We capacity the our to

amounted In million. in terms the of claims Japan, quarter ¥X.X COVID-XX to

medical increased include also specific IBNR reserves million our to ¥XXX to We COVID-XX. product

together, related approximately COVID-XX April, Taken very month ¥X the virus million out to we was in paid claims in quarter. from the there have of the impact the claims. little Thus far, in

related digital for a in rest to As offset overall operation. supporting environment. billion move our is we expect important production services pressure as reduced paperless to activity, downward we business continuity by the our policyholder going for current and partners towards initiative decision accelerate paperless expenses our they efficiency, investment the in look the This ongoing ¥X in at year, of distribution

infection disclosed in in had specific the Turning of the the approximately but based did related quarter, first to month rates the of far a $X end. to we million of way S., during IBNR as we the COVID-XX of paid Thus in very and claims U. on total claims. reserves add to little COVID-XX $X have April, million COVID-XX quarter

dynamics, acquisition look later year. at and to as forward we would we the U. Group factor S. Zurich in Benefits expense we remain on the expect stable As key initiatives growth push this expenses

Key in vision and remain digital new initiatives to product, our agent build benefits when tool, conversion current and initiatives more been on efforts administrative network, The the segmentation. our the market of the direct-to-consumer, surrounding group considering all diversification enrollment track. improvements and out online of on platform, have our distribution never important to dental

I expenses. would on add one final point

uncertainty. S. out during to defend communities and in our to franchise taking support includes employees, holders, action As the this Dan This partners his remarks, policy U. distribution we serve. of and in Japan we our period pointed the are actions

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strength benefit on and XXXX, outlook quarter The our here Slide reflects X. first with in consistent depicted original is ratios for

today. However, therefore, we COVID-XX reliable does not obviously represent as that here did guidance contemplate outlook not and sit

and relative health and insurance disability. movement variable we up Let the and on hospitalization care of you XXXX. Japan's with considering hospitalization, the along but associated and A is percentage of short-term idea and state-of-emergency need variables to declaration the disease an infectious uncertainty uncertain. U. S. of of approach coverage. industry's filing treatment remainder the trends rates the cases In and key of for are to In the COVID-XX when the intensive me very into are Japan, track COVID-XX to carefully of infected trends give a low infection, life rate S. U.

us and to us XXXX, persistency outlook quarters unemployment the variable important leads year for naturally U.S. will few is Another testing. in significant and high the levels. a next stress which then the of a terms into rest be in of impact discussion window the of The providing of

of along at franchise comments regulatory the and claims to inform need; to standing our keeping X, making I'll access following XX-year of Eric will of to our position. testing on to and with the insurance our we If and our of common and policy and testing you finally, to stock strong a volatility; our disruption Slide communication; planned seeks increasing cover during strong defending decision look periods our in holders investments; capital overall core focus tie approach ensuring my ensuring our no exposure. the dividend. time investments track promise capital; and defend testing stress Max overall together maintaining stress our ratings high will record protecting

stress risk by on start mortality, naturally our in morbidity concentrated have me we while experience. is Let saying included that,

as CDC hospitalization deaths of Johns reported rate and from such the sources, the are We cases, tracking Hopkins. and

models, the XXXX estimate. like in a impact of IHME a rapid stress model adjustment range cases, for building third-party We are then against our we treat stress. accelerate confirmed associated We around factoring a this the point rise to additional significant one as margin. bounced last rate build so make and enforced the policies, into Once in We up any forecasting we in revisions.

exposure In medical and Japan, focus terms morbidity the of block on is our policies. of

points then accommodations Japan potential range to to hospital this X.X our assumed the X% population or infectious outcomes Recognizing a the we benefit the reported than deaths. of cases believe range. XXXX. days XX XX served run and the and consistent related testing very less ratio XXX assumes We million or stress guidelines of approximately cases a average Our XX,XXX mid-point disease in the XXX,XXX confirmed wide Japan and of and of basis to has conservative estimate stress build be have deaths, in a We Japan on XXX rate we sector range hospitalization to impact estimate in test. assume XXX% with in a

that to include Turning claims the key disability. hospitalization elevated U. products subject to and short-term are S.,

hospitalization are may ICU also apply claims. benefits daily the also reimbursement include number We rate. sets product a of increase across that that see that materially wellness elevated benefits There

X.X testing mid-point of hospitalizations deaths. million assumes the XXX,XXX S. in million a COVID-XX U. and estimate Our confirmed X.X cases,

We rates in Of the approximately apply hospitalization to time reaching those hospitalized, beginning XX% we then assume age XX. around will age for increasing XX% XX% XX of have spent policy holders ICU.

further days with XX cases days on We the XX% file have XX coverage assume term assumed We of for average. confirmed in in days ICU. disability hospital short for XX

of younger the of this our XXX Given of stress the rate site in our ratio S., very the and in we are points a XXXX. majority benefit to current impact and Furthermore, a policy rate a impact stress XXX we U. S. hospitalization. believe holders a in potential range to We in is lower healthier, S. company U. of the estimate driving basis hospitalization the work projected conservative with U. test.

to S. historically U. on, sensitivity persistency last has to tied unemployment. been touch One the in

unemployment based XX% view historical we on premium. reduction a we X% we and and small to We actions design think conservative Again, persistency, could earn correlation stimulus helpful. levels in to to economic and see are support XXXX this employment believe and have business stabilize stressed is

on ability such stress and in difficulty environment. a investors holding Finally, true that our a ratios guidance. this to maintaining the test. sense as understand should COVID-XX on else impact while in of to give pandemic We claims at margin absorb provide applies a study lower this better all of our as stress to guidance and The the benefit testing point testing conditions the not isolates significant taken our may results, be equal, XXXX temporary

our to around use this information capital also management, liquidity. and decision We making expense guide

comment Let me switch of and March gears planned our Zurich on acquisition Group our announcement of business. Benefits

we now, right the have life For disability in several interest and property. true finding years expressed group

in positive to of we the to build has model margin the economic midsize passed regardless penetration higher cross-selling, This have including Aflac, the in that unique businesses that deeper a strategy in risk. will of We reduces size came voluntary to number at also buy recognizes a in on model. favor market that and the need S. to to U. strategic of is the to with strategy capital our that property, account voluntary and benefits This persistency leverage properly of business move small invest long-term order our our business. broad larger

the with investment strategy. relationships and is the as dental not and on alternative group is experienced vision and a case modern the a Zurich so technology, furthers designed vision, true our in leave competitive this drive with current the The market platform startup to also for being and we business total who a very business more dental expansive It management uncommon current staff broker growth where understands products benefit well fits years to making business. we're in market In class process, able and leaders our best solution. to four large network, space. The bundle in intend this strategy with a the capabilities,

taking continuing are the carriers. part as first integration network the that momentum phased and of in few a with the Zurich years international approach opportunities currently group the of We platform, exploring exists to

current dental phase phase will Aflac exploits that position look the second the of will solutions case and products in breadth combine depth vision. our Our mid to include voluntary as market. fully and core we accelerate with network, our This

distribution phase the smaller agency Our the and capabilities bringing small will unique driven into our market model. business final employers be via down

is consideration of be what including brand, capabilities transaction support the in possibilities Aflac The client with capital an business. The total million, voluntary our teams the can on armed less are and about than excited XXX the both sides the list. of expanded

to that similar years as regard, a of rate $X.XX to scale. business we invest three $X.XX dilution the In years the business. on we to run build the to amount in plan an annualized expect we the for next coming However, build

I'll portfolio, discuss Eric? Eric now pass our investment to on to

Eric Kirsch

you, partly quality We due you know to accounted our for the on of comment Fred. many position, experienced ended in of were further treatment the Thank quarter in CECL. loss in for Impairments losses, a approximately moment. a as strong half asset first which a adoption accounting loan I reserves. which quarter will of new the This

In energy which both names, grade. below two of addition, investment we impaired are

stable of the in in costs of locked Net large a investment And to floating in dollar LIBOR. case income rate positive the modestly majority because was loan S. of our hedge result drop we portfolios, income Japan. plans, our rates our associated U. and in prior the to

we As low headwind look investment forward, net environment the will to rate a income. be

XXXX alliance presume In year with portfolio, strategic our includes deployment plan addition, for our objectives full certain recent market loan our middle which Varagon.

seen much invest money that currently and do negatively to which not in markets have XXXX, slow income. expect as will impact We

in to Many in As challenges, income low an to prepayments of also that down loan these offset yielding these slow loans have LIBOR against our expect higher we floors our portfolio. rates. protect

much So, this current the protection environment. we to retain in of expect

our rate to also loans given hitting the significant LIBOR LIBOR more expect income from We performance due floors, hedges out floating decline.

these In we quarter terms and are of alternative the likely experience private second namely as industry, equity and equity, public estate the rest of in like our to lower valuation. track by portfolio, lag returns typically equity investment quarter results the real

of $XXX with young a million. relatively this since allocation we a entered low Fortunately, approximately crisis we portfolio, have relatively

associated to S. program collars our the yen FX we caps income, his seen we extreme settlements comments we will we to potential the against costs In impact U. caps, in our event maintaining volatility, this program majority With add dollar of have the we later protection meaningful see in use to collars been an with currently additional could settlements. any market costs with the for the since not for while have the of and of protect current hedging, year. to the caps year. to locked negative order weakening. associated capital extra protection We negative investments, $X throughout And balancing material dollar of With in the for in tactical SMR costless respect investment our use in billion collars approach impacts overall place. forward and this to Max unhedged call. with of the have not

our on portfolio $X.X derisking have and billion We about equity executed since activity income in XXXX. public fixed across

placements. Our reducing exposure, XX% activity about including a our angels X.X by and minus low decline in energy continued third, includes billion position, in BBB reduction concentrated of private exposure reducing one our BBB about and lowering foreign overall rated

We have million portfolio equity as by this over tactically our time well. public XXX reduced

risk Our shift in to strategy the might during and been equity down reduce the underperform and had that slow credit credit cycle.

activity derisking from with to our plan. us proceeds allocation asset Additionally, allowed alignment accelerate strategic our

asset of modeling liability asset risk is our provides overall returns. The derisking diversification As money align guideposts allocation which portfolio classes greater proceeds serving among for reduce a asset tolerances SAA allocation, and optimal new reminder, the considering to with improve capital reflected reinvestment in and efficiency management. and risk

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well class, a is high diversified sectors. quality single portfolio by has highly asset rating is A Our and average by diversified of

impacted we economic you from can chart, limited slowdown. the to the have most COVID-XX sectors exposure that see those As be and sector we expect to allocation in

analysis with up the assets a vulnerable are most on to nature $X.X focuses here analysis bottoms sectors pictured of defined our the on approach to where crisis universe fixed experience exposure loss Continuing of likely of we the have The nature economic our concerning defaults. given by a stress crisis. most focused risk conducted as this approximately potential of we COVID-XX the maturity and most in billion testing,

and exposure, energy gaming. rated airline leisure the BBB industry travel Asset casino categories include and sectors, and lower

have of we tested approximately middle-market most $X.X environment, transitional billion stress have $X.X estate. exposed and billion real current the addition, loans, of identified In in

stress taken of in While we test. a bearish and the trajectory the pretty this unprecedented economic predicting crisis economy have difficult, credit and our view is is recovery

second prices with our up sector an below demand slowly XX% drop and the middle-market to in and activity, for the to investment XX%; modest decline through year-end; of to of grade most quarter losses below XX% For sensitive XX% severe a year of specific up pickup staying depending recovers. extremely just the instance, XX% revenue oil on we companies; on assumed most loans $XX of have as economic

that are U. to and emphasize to highly S. global me the impacts economy very going predict. and the Let be volatile to difficult

We economic to more available in impacts sectors evaluate with and to our will continue information as portfolio. along becomes companies the the

approximately loss points potential basis Our estimates basis This potential corporates maturity crisis. $XXX XXXX in points of fixed losses. of the to million fixed pre-tax and XX experience financial loan loss analysis XX equates of Moody's losses This portfolios, to from market basis XXXX the which using approximately XXX about total our compares maturity points. rate to on

our know medium-size rate unprecedented impacts market given the stress higher last than crisis. the which the test the XX% occur our about This of XX% estimate default during and portfolio, severity middle economic is experienced on small businesses we what loan will the we We across is reflects to believe country.

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associated loan into pure such economic go test does and bright impairment test, unlike into line loss a losses, tests stress risk. is This account or driven approach capital downgrade accounting and I'll a portfolios detail more as not take in a on our stress moment.

consequences this shutdown economies during world. these stress, about around me unprecedented are subject more we of estimates all to Let economic the as change learn

the we defaults very it's losses, a well-positioned loss are natural address level of In weakness side to from higher asset anticipate and summary, to an economic on perspective. while

transitional We favorable protection. portfolios, real and have duration loan estate loan our been underwriting middle-market structures building and for favoring shorter

come senior market have first protections, loan well-diversified, entirely collateral. secured, and natural middle remained leverage covenants and are Our including lien, loans low with

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Our and this on been asset has underwriting diversification. class investment philosophy focused disciplined always in

XXX reflecting expect to CECL basis points, regular losses take occur. In that of a we addition, we overtime reserve loan

well-positioned are this cycle credit We on into brought COVID-XX. by entering

loans. diversified billion estate to only real real conservatively highly average type, hold by mortgage allocated property secured loan underwritten in size commercial and We are XX%. to first values transitional exposure leverage our not estate, X.X commercial attributes, Our XX% for loans portfolio We is to and subordinated not portfolios real only XX% any about a to by of these The economic estate do and strong our debt Because lien potential do against we on have of holding. anticipate B-notes, loans. mezzanine quality assets. loss we from the or small other geography transitional utilize stemming

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debt this of losses estate real such, not from portfolio. our As we any anticipate segment do commercial

I now the Max. to turn call will over

Max Broden

Thank you, Eric.

my COVID-XX me into with drivers capital comments Let positioned how of our start a earnings focus performance and are a our crisis. review with on first heading core the quarter

$X.XX. to The quarter, first the increased in by yen quarter $X.XX. adjusted strengthening For the earnings benefited earnings share X% per

As foreign a neutral translation call the per grew currency was $X.XX value items a X.X% There onetime result excluding strong a including currency were significant on our per ROE to and adjusted X.X% the losses, earnings Adjusted gains of and rose purposes cost quarter. out normalizing impact share. basis per foreign currency in capital. book spread share adjusted XX.X%. to A no for over share,

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down as in the expense and in margin expense income same basis revenues the pretax investment ratio plan, coming lower Net floating points was ratio, driven increased primarily higher rate surrenders to as yen lower view year quarter U. Japan driven income factors Japan assets. to the amortization. by profit XX.X%. are Our under related for XX%, in spend, In contributing the strong was which was discipline allocation despite by the The of timing XX decrease investment terms dollar year. in variable expense promotional down current primarily S. Both in X% we back pressure. brought at over lower which end environment, experienced the our about we

XXXX. QX and U. to despite our experience our XXX basis S. net of results premiums weaker in persistency segment. X.X% to Turning increased Total in decrease sales similar

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$XXX millionto million. quarter for in This record incorporates interest the and we XXXX, front dollar our global range individuals the and prepretax yen recent S. loss the and at debt For segment philanthropic of X fight issuances U. another from to are full $XXX of who a expect expense increased donations line support those year COVID-XX. a and approximately $X.X billion increased to against

issuance. products asset at stood months, interest Our profit Holding company excluding our sensitivity capital position recent as environment including low $X products Japan. remains for headline strong and and earnings four was strong liquidity estimated XXX% gains The rate continued cash is blocks a of the and test we rate debt generally quarter XXX%, in Aflac interest flow leverage but ended billion with billion enforce. and clearly Columbus. we our unrealized of have SMR gross margins $X.X our approximately XXX% The our low, low pressure, for testing adds RBC driving

earnings we Eric strong liquidity, different and of the as is while first In the short, with than quarter strong period highlighted, in what this uncertainty asset face we entered coming nine quality. capital, may materially months,

our noted, respect a approach the stress Eric testing been Fred addressed both In taken to practical claims, cases, current have current stress current monitoring making As Fred models we loss have virus estimates. spread discussed our asset to and analysis the on testing. with and refinements views. and we economic conditions and of

When agencies. considering severe a we with take what regulators and and rating approach, we capital in with alignment testing, share stress liquidity more more

as Our of a approach the walked Fred to severe capital assumes X is it. as virus, times and the through stress stress greater roughly testing prolonged you more which spread

market the recognizing core and bonds, can these asset factors. impairments analysis impacted with by we changes side, in downgrades, economic value combine On Eric's loss our be of ratios

portfolio these our since and improved which refined for moderating and deployments. utilize depends mainly XXXX liquidity of case. by both travel, sheet our as kind much financial the impact to middle enhance of how assumed oil we have instructive energy find of shock. very crisis a in has tools, to shock further the balance plan By prices with the stressed arguably financial the sectors, capital vulnerable we optionality do and our it plan COVID market XXXX. base it various market to This loans. scenarios in is sector, and We Then assumed have capital sectors of the and capital inform us that the can severity increasing and to global not scenario But stress to XXXX the impact certainly

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deterioration not in CAIC. second U. group are the by entity In million and into experienced S., million dividend $XXX RBC reducing injecting while smaller levels, S. U. $XX our we are our quarter we of capital legal

business grow are heavily of we the investing part to in and business. this continues group Our

told, position carefully investments quarter we entity. the protects as a very in critical strategic second conditions. both capital So monitor impact strong not All materially entered legal we the and capital in sustains our this and these planning do moves

the debt in for setting We maturities future. taken actions also up us XXXX have until to well management due liability XXXX no

call me to approach turn comment to let Before David, guidance. our on back the briefly

in from volatility EPS our a see need can our have release withdraw to and share elected tactical press we capital, issued last you adjusted night, As to likely XXXX. and approach access for recognizing to be repurchase guidance

are other of that on necessarily volatile but While strong and ranges accurately the guidance drivers. start is very must impact not are that of difficult communities its a to COVID-XX, current that off and make recognize we typically spread year this earnings benefit view to a we the not markets to achievable, the withdrawal our serve ratios it predict

overall is investment fair terms a and of It in say COVID-XX we number magnitude face EPS of and earnings. But to uncertain the ratios, as it's very still headwinds on the of income XXXX obvious impact benefit to revenue. timing

to the need take also all and We do we flexible making can to policyholders. actions defend be sure in to franchise our we we support

terms the In terms quarter. at buying first in market level are but dollar remain versus we the of in repurchase, roughly XX%

see mean or the depending in accelerate approach a as tactical, cancel We crisis evolve. develop quarter. how are maybe maintain, on second By even we position we a to we conditions tactical in taking the

take hand let off David Q&A. to to to me And now us

David Young

Max. you, Thank

just question. to one a I and question now a participants that to follow question. allow want up take Brittany, we’ll related limit the opportunity begin, we to ask an yourself first Before please ask you to

Operator

you. Thank

[Operator our question We instructions]. Dowling now Partners. will comes Lee our begin first from And from Humphrey question-and-answer session

Humphrey Lee

for Good my you taking morning, questions. thank and

your terms or capital I findings how's that, just position? Can In test, RBC to downgrades your related some of the wondering liquidity and kind at look like the potential share you -- of when was what capital was the migrations. and rating stress you of were your that impact

Dan Amos

it's But for underlying rating to RBC rating I to it in when is and disclosing obviously Japan rating it formula detail comes for risk less It's comment solvency not high capital margin migration. level our so at issue predominantly can an assumption well ratio in We're a based a but migration. when is to that factor more in comes to that specifically sensitive the migration as Japan. really

rating migration, when Our in even us at the has the on a impact conditions in asset look we'll subsidiaries. capital fairly operating fairly it leverage low. limited is And our

Humphrey Lee

And question then related Japan. be April? the a situation? a in to agents and lot in towards Is there's but in decline clearly very adapting crisis looking at maybe see new that sales going beginning or I unknowns, April. in and my U. you there's to are any the your versus there late a between situation, of fluid difference Do decline of the understand of kind more the how a change to final S. of sales maybe productivity the sense

Fred Crawford

this. is This Fred. do Let's,

colleagues their Let's have split this and up markets. directly our to speak

and And Rich how adapting so perhaps start we'll Koji address then in to Williams. Teresa Japan we'll with and Koide to and to the switch environment they're new

Masatoshi Koide

Yes, Koji will answer to question… that

Koji Ariyoshi

Koji, let me first. is about This talk agency

on April been seven So Japan in XXth. April this prefecture, the all expanded Japan of has and major effective of state prefectures in Xth emergency to prefectures to declared emergency state

refraining our has So close training And to as decided And a mid-February. some to in also face from have voluntary suspend result, face from down agencies been we be coronavirus from activities. shops. impact activities of to there or turned from the have Japan,

to the because well solicitation people as a then solicitation face close refrained, coming shops going to our And state as been emergency, So to had declining. have to our of of as number we to we or the result, as face got was April, face well. of or down stop shops into as face

agencies. are So are face-to-face as outs a calls anymore. result, the Instead and done by the being not doing mail solicitations phone of agencies combination

chance with able of and However, communicate customers because to home, more there's being more are better customers. of staying a

develop be not right and maintain relationship Although, as expand or the to new with is prospective customers good policies customers to with may also away, and enhance purchased it customers relationship well.

out send direct in nationwide we mails. after be calls emails and trying a will direct made to there And May, up are follow

and do are this in agencies trainings agents successful during this conducting large May. believe of a also time, we be we exclusive So, will using results see to And the sales web. that the some

or the or digital visiting a are our having to some of conduct in than using visit tool. that efficient able we are feel the convenience at starting them the very same them benefit us. manner advantages rather And time, the there So, are training to agencies that

well result, leveraging productivity That's perspective. some all as be believe will digital by sales a in as that efficiencies, as So we there do tools. improvement from

Dan Amos

Let they sure it's long-term. only for of and actually going associates make much that be using us, sit ultimately will what want and important and with like to in plays the role very culture. The shops We're They to us they temporary. this me our more and thing. closing clear. say an brings one It products to I to still bring shops. use Japanese other families is what in forced talking it change about enhance singles their opportunity, done overall technology and own discuss has down have the

said I be sure to we So, that. wanted

Fred Crawford

why pivot. Rich on don’t to and Williams, you And activities S. our comment U. the

Richard Willams

the as stopped And knows, or and seeing play of basically weeks, a holds. very for out. Humphrey, we're stay work worksite Really site had sales. quarter and we that favorable then I'll maybe home So at the thanks place future the speak the just everyone for through what progress just about state near-term shelter what in we the question. then see, first XX really XX preparation

in this So, we'll near until back business, businesses I see level. about think get term

center, now is a enrollment means. perspective and in always From options, of environment. two you're for in able preparation to enrollment face, sales impaired seeing this using call enrollment tools self right digital worksite, co-browsing center self And in call really what and the the our enrollment we've those sort be leveraging latter ingenuity force had multiple enroll to face a to of sell

perspective distribution and know well the think We're and value and U. proposition expanding of business, I comments S. as Benefits, and these as think consumer building our the and that Group the for our with thirdly now at Aflac with Fred dental vision to our our markets, made increase I that diversification, plan access I future. more Dan that's the is both Aflac broadly,

Fred Crawford

hopefully seeing Humphrey, out of in attempt to and we're So what production this wise you for there others that covers and it pivot. terms

face-to-face has approach, U. one general both Japan non seeing, primary the communication S. is being the and in digital we're always secondary that think communication theme face-to-face. I the been

the to and switch. to making Now a face-to-face you make that that partners having to secondary, agents bit digital have little time of and pivot distribution a takes primary

we'll go have question. efforts. be can the to to just patient so next to work support those We And and

Operator

And from is you. now our Sir, next your Thank Nigel Dally Morgan Stanley. open. question line comes from

Nigel Dally

high small So, pressure addition decline, should expect X% being lapses to mentioned S. on major question, on had I we clearly to to go? Is the hit? persistency there wanted you you I very persistency. hit much sales, businesses potential but hard we How a lower operations, U. I question and in assumptions mentioned sales the think premium and I don't base and a going be that. think And should you mentioned to

So any helpful. color there would be

Fred Crawford

dynamic. specifically a very Yes, persistency, it's I to as tricky it think pertains

greater financial persistency, We see of we and last for that unemployment. have crisis, historically unemployment that high or our is example, weakness during levels periods the in track lapsation during persistency seen

sort reason provided a any apply. of And unemployment as it's would levels prolonged part discussed we Obviously, at sensitivity why its or have in to it's approach, and stress of U. number. that's I so at a severe quite test of that stress worthwhile it level XX%. the that stands as the a looking test particularly to nevertheless, we S. But

to waivers speaking, will, XX it but while aspect other there's doing dynamics. Similarly, typically, are We days days guarantees, until such in unemployment crisis. see of that happens the would tends particularly XX you right When we’re the aware a or actually you is upwards that And you this. defers be the United one level remains now in released those time by then it payments to Japan. of to depending States, know of shock be so, state do with I remain in of the say what high last efforts that and find policy XX is generally providing place. we're you'll on that guaranteeing if persistency if associated premium

because where example. done in experience recently, is even very disasters, natural some hurricanes, Tennessee We have there's states in been this commonly for this, tornadoes in

event. is this so an And unusual not

What is is nationwide. unusual it's that

to is little you're trying do has might what so DAC. sensitivity implications, It reserves, very we're off you're line that what writing bottom be like. because releasing And understand

And a we why so more that And profitability this or that's forecast. really necessarily margin not earned is premium. your to issue, related provided it's

severe very employment, certainly to is that which there. a it that's sell we Nigel, beneficial how find how our we and businesses being stress. announced hope premium are payroll we and wouldn't stimulus product. and We our think are the towards get collect are We small wired I maintaining directed that packages

some applying a mitigating but are when factors, test. approach stress or conservative there take a we have offsetting to So we're

Operator

from And Sir. Jimmy our next you. Morgan. from Thank JP comes Bhullar question

is line open. Your now

Jimmy Bhullar

see the I through if just what's give sort just of post the the update your near-term? had over could a especially an on and question there, Post trending in on us next, you you business going on and how the Japan

Dan Amos

Well, say Koide, you start might I think with Koide? something should then I that afterwards. and

Masatoshi Koide

and base, Japan sales their same at is refraining Japan Post are sales Post as the voluntarily the they was confidence although time. Group gain March, And and of trying for until is after currently the at this doing moment research end their April suspending from or additional from to still investigation the holders into also administrative policy well. of holder policy order

reinstate So do support activities. the perspective, from an their Post we asset or of respect like the we customers and recover supporting to to and are Japan confidence activities we Group’s

try to right do perspective. to trying in conduct, are try from now customers’ that train and them to them is sale the to to we help solicitation what then needs So and do take to

well. resume, the also the on we are and are solicitation Post much trainings, refraining Post Japan is that Post insurance situation that sales. what which have able our that management counter And same sales solicitation selling we Japan continues that situation. doing activities kind are is we from expecting is in appropriate their means all to enhancing not product, of Group me. as that's sales are management since at product so based counter our of Japan And in And insurance And sell conducting these time whenever needs then as customer they that well,

Dan Amos

years comments. ever our these a stronger. but the we'll my when to see Japan XX being I in the and that, go normal believe, for knows CEO an no this and is issues belief start back just in Japan been from one believe things some will whatever don't couple COVID make degree we new uncertain to I Post I'll pass personal feelings gut is, of and back again. and any a Post pickup times, relationship’s is

And that. so, about I'm encouraged

to shareholder confident they're know, are that and them, think we forward. see see that largest best and that made that best with grow acquisition interest our even you As it's moving cancer with we'll relationship and was our and in interest I insurance their stronger

Operator

you. Sandler. from Barnidge line our now from open. your next Thank Piper And John comes Sir, is question

John Barnidge

what This and question about expectations talk is you forbearance communications on May maybe rental experience, the based investment your are? for portfolio. on then Xst Can

Dan Amos

of the just amount we making just We But through be protections some. huge where I end have and because there of going or properties. flows. more adjusting March, mentioned in loans, don't our have to necessarily certainly of a expect Today to do will least at be think them, the didn't return the amendments other cash forward as getting speech, we nature in any. really We

the don't we but those expect expect that it. end may do we difficulty financial need those the for of So, at day sponsors

Operator

line [Operator Erik Instructions]. comes our your now open. is from Sir, from And Research. question you Thank Autonomous next Bass

Erik Bass

NII roll provide think I you're on the beyond risk. more of hedges some both you thinking And have current near-term color reinvestment XXXX, a outlook when about how some also off? more bit and Can you the

Fred Crawford

end the we Well, market did our better as expected. than and slightly of get we reported, the February We first deployment drawn the by quarter for middle was loans quarter. most of had

So, be slower because reported, rest that I of was as the year. it'll fortunate just

buckets, rest the put of it's two the it in alternatives different year, because think two and just of I'll we stable As variable, the stories.

fairly be actually stable, a locked the of I our the hedges of year, our we despite On lower reported, some our rate headwinds in On to decent floating and income. book, we expect rates. it as

and protected more floors. by because our we than the we expected, loans fact in in decline that we're in ended of actually hedges up extreme. the performing So, floor And precipitous LIBOR because did better hit despite drop so the hedges was the low the LIBOR, LIBOR,

actually So income, offset which to that if you headlines were of extra book rates. able the help will some will, we naturally of lower some from

surprise for assets. yen mention other to of little haven't of allocation actually yen stable years, in we to in does the number going actually thing our yields a a year, that have seen And up to bit. part The go a been

us put in buying yen, well that plan a continue some in are public position actually yen our opportunities to as relative So, credit to yen private when and we see as placements. attractive good we

So good we find can and credit spread. earnest

So well. on the allocation, doing part that relatively of

we're alternatives, plan. expecting income our variable for Obviously lower versus

that Now will what with on happens markets. depend equity

up, bit Now right put case better the you we the variable, for planned. between come is to maybe a still year. a had like stable in base they're now effect planned together there's going the valuations that than lag but the on our we're But we're if zone feeling and strike versus right on lower

the XXX and December around well XX I re-roll area just basis But points, coupon locked the those hedge I floating natural answering for if they're hedge and we And to rate locked just an in basis have many them now the now of the environment way in of and right question, income. specific quarter I the around today points. other maybe where year, rolls think in points you the were Well, to the January say of specific last XXXX. fabs beginning and now, you obviously really night costs costs between think January. The can't as Xst of in comment our January, them hedges questions around we're but forward, three the Looking costs are don't mentioned, to you hedge being holistically said your of was XXX in if floating assets, rates this. and right hedge months in right we basis is days I've this February. in sense fourth But Eric, because

So, at floating off those will are if are so hedge our same, of which the token, the now have based of is of notional result, same resetting the down of protection. the they I'm extremely is is LIBOR, less there LIBOR on costs our go rate income the for floors, asset those investment income, book net looking loans cost. at down than net point me way a the natural result But that the is saying the end net the hedge

fairly take one I going you see if into hedges result net being any actually manageable being things that next time described we year, earlier So all gains out year. from equal, for like this that

But then know, So continue see. we as obviously, book, how as that's coupon placements to from we'll the of years think I group maturing. would at you And high you this on, have rest the private level, time low of goes rates if again, stay one. know, reinvestment ago

a headwind, forward helps. going Hope income. be So into that would that

Operator

your Thank you. Evercore. comes And question our open. Tom from from next Gallagher Sir, line in now

Tom Gallagher

what in of force XX in question you premium waivers U. you on your Fred, paying XX to just S. comment proportion it? way percentage the that about versus S. percent in premium is lapsing? decent gauge might on to U. end this And that approaching mentioned, is what a that currently way of you're Can up your on a up the had Is some waiver? follow days is the that

Fred Crawford

concise all by know, anything nature. studying a state. for reason, give metrics, You it's good a It's we're any state sort been just out rolled Tom, to of bit those early, question and you with that it's but

are really and month We’re premium. tell was received I into of is we're actually April, collecting just on yesterday would calculating What And just which it the it. is that into I report things where our premium. in. We're our saw a received getting kicking you

much And so collected premium. in movement far of terms we haven't seen

down a I think little it's bit.

Teresa White

XX.X%. of premium versus I XX.X% have think collected we

So still doing through and doing on well. collected that's group little collection relatively more to the But XX% premium side, on pretty collected. bit It's we're the well invoices worksite. a we're

Fred Crawford

So we're Tom, we'll we've here been to it. continue tracking before. that, But have and watch to

Texas, earlier so and mentioned in had et forth. I states do Florida, hurricanes, various You this cetera, as know, we've fires with California to

this understand how works and typically So operates. we

got we've a good handle it. so, on And

Operator

our next question Scott from from Sachs. comes Thank And you. Alex Goldman

now line open. is Your

Alex Scott

going one Is around as think well? My premium anything I'd on last first the just a is just be and in on to there an there Japan follow-up way about quick interested. question actually, relief impact any and

Fred Crawford

have wants, adopted add We period of industry There the premium allowing any somewhat is an he Koide can comments yes. waiver but for answer is a conventional extended of time. practice

see I big Japan persistency, is implications difference age necessarily that there. are policies priced for tend these the not to you think because in

intentions As you consumer and the and Japanese policy livelihood. specific the values savings know, that's the policy very their protecting around

not see persistency perspective, tend if off economic we the if earlier But while you what do on so related or dramatic either matter I'm S. add an I in waivers to from the color. Koide Todd any And want mentioned movements U. to that, in to

Masatoshi Koide

could answer question? Todd, you that

Todd Daniels

Yes, Fred's correct.

Just to necessarily a in clear, waiver not place. premium be a grace period, this put is premium that's being

states special Japan said, adopted each at and Japan, in premium that of does operates these that been emergency So we're forgiving in the and industry by have looking Fred the their has adopting as practices during not circumstances, period. situation is company and of time cases. any

Fred Crawford

in in outright both that Thanks S. waving for in collection sense of point, these waivers are premium. that of the U. not periods, the and making grace the Japan, Todd

David Young

Brittany, I call. think that concludes our

Operator

this by Speakers, post conference. conference. participation please time. for parties today's All at your you disconnect Thank for may stand your in

David Young	Vice President, Investor Relations
Dan Amos	Chairman and CEO
Fred Crawford	President and COO
Eric Kirsch	Global Chief Investment Officer, President of Aflac Global Investments
Max Broden	Executive Vice President and CFO
Teresa White	President of Aflac U. S.
Rich Williams	Chief Distribution Officer
Al Riggieri	Global Chief Risk Officer and Chief Actuary
Charles Lake	Chairman and Representative Director, President of Aflac International
Masatoshi Koide	President and Representative Director, Aflac Life Insurance Japan
Todd Daniels	Director and CFO, Aflac Life Insurance Japan
Koji Ariyoshi	Director and Head of Sales and Marketing, Aflac Life Insurance Japan
Humphrey Lee	Dowling Partners
Nigel Dally	Morgan Stanley
Jimmy Bhullar	JP Morgan
John Barnidge	Piper Sandler
Erik Bass	Autonomous Research
Tom Gallagher	Evercore
Alex Scott	Goldman Sachs

Aflac (AFL) 30 Apr 202020 Q1 Earnings call transcript