Q3 2019 Earnings Call
Rich Williams, Chief distribution Officer average, Gerry Global Chief Risk Officer, and Chief Actuary, and Max Broden, Deputy CFO and treasurer.
Before we start let me remind you that some statements in this teleconference are forward looking within the meaning of federal Securities laws.
Although we believe these statements are reasonable we can give no assurance that they will prove to be accurate because they are prospective in nature actual results could differ materially from as we discussed today.
We encourage you to look at our annual report on Form 10-K for some of the various risk factors that could materially impact our results.
The earnings release is available on the investors page of our flex web site at investors Dot Aflac Dot com and includes reconciliations of certain non us GAAP measures.
Ill now hand, the call over to Dan.
Thank you Dave.
Good morning, and thank you for joining US let me start last a third quarter 2019 concluded. Another strong first nine months of the year for Aflac in terms of earnings capital generation and overall financial strength.
Financially Aflac is as strong as we've ever been at our 64 year history.
Pre tax margins are stable as strong as any in the industry our capital position by any measure is robust.
Our investments are high quality and diversified and we have among the highest return on capital and the lowest cost of capital in the industry.
Our strong earnings result in the first nine months prompted us to upwardly revise our 2019 adjusted earnings per diluted share outlook.
Yeah, we still face some challenges to the top line.
We address some of these challenges in the financial analyst briefing last month and they are somewhat evident in the third quarter sales results.
Turning to operations Aflac, Japan, our largest earnings contributor generated strong financial results.
In in terms results on an adjusted basis were better than expected for the core with Japan segment, posting strong profit margins.
Brad will provide more information.
As you note, we take a longer term perspective, when it comes through our business.
Our focus is aflac, Japan remains on maintaining our leadership and third sector insurance products that are less interest rate sensitive and have strong and stable margins.
At the same time, we complement this core business with similarly profitable first sector protection products.
To that end, we will continue to refine our existing product portfolio and introduce innovative new products that our policyholders wants and needs.
We're also continuing to fully engage our wide reaching distribution network, our traditional agencies have been and remain vital to our success as do our alliance partner.
We continue to be Japan's number one provider of cancer and medical insurance, ensuring one out of four households.
As you saw in the quarter sales for the third sector and first sector protection products were down 21.5% largely driven by the decline in cancer insurance sales, which were down 37.7% relative to the third quarter of 2018.
And we reiterated on September Thirtyth Aflac, Japan released the results of a volunteer review of cancer insurance sales through Japan post.
While this matter includes issues.
Related to a 0.006% of policies reviewed we know that even one issue with the policy is one two men.
As such we continue to work tirelessly steadfastly to resolve these matters with the customers who were impacted.
As we communicated at the financial analyst briefing last month, we've experienced a significant decline in applications through the Japan post channel.
Assuming a continuation of the trend today for the rest of the year, we anticipate that sales in Japan post channel may decline as much as 50% from a very strong 2018, given our refreshed cancer prop.
Keep in mind that Japan post Helding plans to report on its investigation at the end of December .
While it is challenging to have full visibility into the timeline for recovery. We look forward to working with Japan Post group to continue our effort to provide Japan citizens with peace of mind and financial Health Aflac U.S cancer insurance protections offers.
With respect to Aflac Japans medical insurance products, we began the year with the strategy to attach riders to the whole life medical product and then refreshed our existing nonstandard medical policies in June of this year.
As a result, we are pleased with a 24.5% increase in medical insurance sales relative to the third quarter of 2018, and we expect a positive trend to continue into the fourth quarter.
Taking factors all factors into consideration, we continue to expect full year Aflac, Japan's third sector and first sector protection sales to be down in the mid teens was earned premium growth in the range of 1%.
Now turning to the U.S. operations, we're pleased with the financial performance the pretax profit margin exceeded our expectations both for the quarter and for the first nine months of the year. This is particularly significant because these results continue to reflect ongoing investment in our flat.
For distribution and customer experience.
With respect to sales they too have been somewhat challenged in 2019 coming off a record sales performance in 18.
The third quarter was weaker than expected as a result, we anticipate full year results to be flat to down slightly for the year. Ultimately we seek to grow profitable earned premium, which we expect to be in the range of 2% in 2019.
There are clearly macro elements at play strong employment means fewer people are willing to take an independent commission sales roll. This dynamic continues to constrain boat sales agent recruiting and ultimately sales to some degree.
Additionally, the review of the partnership in the second quarter resulted in some short term disruption.
But keep in mind workers continue to convey a significant need for aflac benefit solutions in the workplace and we are well positioned to capitalize on this opportunity.
Our brokers strategies are working well and we are growing at a much better right then in the industry.
We have been encouraged by the advancement in our direct to consumer platform and associated partnerships, which are still in the initial stages.
Taking all factors into account and to put this in perspective, we expect to recover and 2020, which is important to the overall long term health of our distribution platform.
As we said we remain focused on initiatives designed to drive growth in both the U.S. and in Japan.
Our announcement to acquire Argus dental and vision is a prime example of built to box build strategy to do just that.
This planned acquisition is also consistent with our approach to balancing our financial strength.
With reinvesting in our business, increasing the dividend and repurchasing shares.
Aflac historically has been known Boris organic growth. However, we recognize the prudent investments is critical to our growth strategy to driving efficiencies that will impact the bottom line for the long term with this in mind, we look for other opportunities to accelerate.
Growth glue measured by the build transactions that enhance our opportunities and core competency and supplemental insurance and leverage our powerful brand and distribution screenings without requiring extensive amounts of capital.
At the same time, we remain committed to maintaining strong capital ratios on behalf of our bondholders shareholders and policy holders of course, it goes without saying that we treasure our record of dividend growth.
With the fourth quarter's decoration 2019 will mark the 37 consecutive year of dividend increases as we move through a period a market volatility our dividend track record is a nice reminder of the relative stability of our business model in earnings [noise] as.
We communicated last year the board reset the race or the review cycle of the dividend increase for the first quarter of each year and reserves the right to examine the dividend on a quarterly basis.
We continue to be on track to repurchase in the range of $1.3 billion to $1.7 billion.
Of shares in 2019 this range allows us to be more tactical in our deployment.
Looking ahead, we believe our strong earnings growth will reflect on the underlying earnings power of our insurance operations in Japan in the U.S. It also reflects on our prudent approach to deploying excess capital in a way that balance the interest of all stakeholders.
As always we're working to achieve our earnings per share objective, while also ensuring we deliver on our promise to our policyholders now I'll turn the program overdue, Fred who will cover the financial results for it.
Thank you Dan results for the third quarter set the stage for a strong year on the earnings from.
Adjusted earnings per share of $1.16 cents reps, who represents a 12.6% increase over the 2018 quarter.
Earnings benefited from continued strong margins both in Japan in the U.S. with the year to date core ratios performing consistent with forecasts provided at our September financial analyst briefing.
Our reported results were impacted by a strengthening of the yen as compared to the 2018 period, increasing earnings by two cents per share in the quarter.
There were two notable earnings items in the quarter.
We negotiated a partial call on a single legacy private placement that had been previously impaired thus, reducing a concentrated below investment grade exposure and producing outsized call income of $25 million pre tax in the quarter.
In addition, our building alternative investment portfolio had another strong quarter generating approximately 8 million pretax in variable income above our plan expectations.
Together these items contributed roughly three cents to the adjusted earnings per share.
Turning to our Japan segment earned premium for our first sector protection in third sector products increased 1.2%.
We are focused on maintaining growth recognizing near term weakness in Japan post cancer sales and to pay medical policies sold in 2017, reaching paid up status.
We are focused on the quality or value of new business in Japan, and continuing to grow third sector and first sector protection earned premium.
As Dan noted in his comments, we expect full year third sector and first sector protection earned premium to grow in the range of 1% to 2%.
[noise] Japan's total benefit ratio came in at 70% for the quarter.
We continue to enjoy strong third sector benefit ratio trends and associated reserve adjustments.
The majority of impacting the quarter can be attributed to a continued shift in business mix from first sector towards third sector, which carries a lower benefit ratio in higher expense ratio.
Our expense ratio in Japan was 20.6%, we expect our expense ratio will rise in the fourth quarter with anticipated timing of technology investments in sales and marketing spend.
Net investment income contributed to our strong results up 4% in yen terms.
The quarters favorable call income ran through the Japan segment, along with the majority of alternative investment income.
The build in our floating rate portfolio over 2018 also has contributed to our results in 2019.
Recall from Eric's comments at our financial analyst briefing, we previously locked in approximately 75% of Japan's floating rate income and 91% of our hedge costs for 2019.
Overall in Japan, we recorded a very strong pre tax profit margin of 21.4% and towards the high end of our forecasted range.
Turning to US results earned premium was up 1.3%, reflecting weaker sales results in a modest decrease in persistency.
We see reduced persistency as a temporary as temporary and a result of large case volatility in replacement of an administrative partner.
Both impact persistency in the short run better designed to ensure profitable earned premium growth in future periods.
Our total benefit ratio came in at 49.1% and while at the low end of our range generally consistent with recent claims trends and our mix of business.
Our expense ratio in the U.S. was 35.9% year to date, we are running below the midpoint of our range. However, we expect our fourth quarter expense ratio to come in above the high end of our range due to timing and the pace of investment in the platform.
The full year is expected to remain within the range.
Net investment income in the US is running a bit ahead of our plan for the year do do part due in part to a higher allocation to corporate bonds and variable investment income.
We've done a nice job of defending income in the face of lower rate environment and the reduction of excess capital in the U.S. subsidiaries.
Overall in the U.S segment, we recorded a strong pre tax profit margin of 20.6%, but the high end of our forecasted range.
In our corporate segment. The main driver of improved earnings as higher levels of invested capital and liquidity and amortized hedge income driven by our corporate hedging program.
Amortized hedge income contributed $21 million on a pre tax basis to the quarter's earnings with a notional position of 3.5 billion.
Turning to capital Japan's estimated solvency margin ratio remains in the 1000% range, our estimated us risk based capital ratio is approximately 660%.
We continue to target an RBC ratio of 500% in the us for the year end 2019.
We ended the quarter with approximately $3.4 billion of capital and liquidity at the holding company.
Subsidiary dividends for 2019 are concentrated in the second half of the year. So we are building excess capital above our $2 billion minimum capital and liquidity policy.
In the quarter, we repurchased 5.9 million shares for approximately $310 million. There is no change to our guidance for repurchase of 1.3 to 1.7 billion in 2019.
In terms of our EPS outlook as Dan noted, we've revised our 2019 guidance, increasing the range to $4 in 35 cents to $4.45 per share.
Reflecting on the year. This range includes five cents a share of notable items that have benefited EPS, thus far in 2019.
While this sells for a wider range in the fourth quarter, we are assuming investment income normalizes and expenses come in at elevated levels, both in the us in Japan.
As we make our way through the planning process and prepare for our 2020 outlook call I'd like to reiterate some of the key messages from our financial analyst briefing and how they influence earnings and earnings per share heading into the next year.
In terms of revenue earned premium faces headwinds in the form of declining book of Japan first sector savings business. The dynamic of paid on policies impacted reported earned premium and weakness in third sector sales during a period of recovery in the Japan post system.
In the US we expect sales results in 2019 and into 2020 will be a headwind to earn premium growth in the short run, but expect higher growth rates beyond 2020, as we gain traction in dental and vision and direct to consumer.
In terms of investment income with de risking activity and the low rate environment, we will be working hard to defend investment income at normalized 2019 levels.
We do not think it's a good time to be aggressive in the search for yield in fact in some cases, our efforts to de risk the portfolio provide a bump to current earnings and reduce run rate income for example, this quarter's outsized call income and reinvestment of proceeds.
Core benefit ratios are expected to remain strong and a contributor to margins.
However, investment is needed to build to both digitized and our platform and address revenue growth.
Our strategy of buying to build it lowers the capital at risk of large scale acquisitions, while at the same time weighing down on margins as we invest in organic growth.
For example in the US if we're successful in our direct to consumer in dental and vision Buildout you should expect some margin pressure in the early years, followed by measurable earned premium growth.
Capital generation is expected to remain strong with a building level of excess capital.
This affords us the capacity to invest in growth initiatives and opportunistic investments without disrupting our plans to return capital to shareholders. Therefore apps and compelling alternatives, we see 2020 repurchase activity supporting EPS in the face of any margin pressure.
In closing earnings have performed very well throughout 2019, and again in the third quarter, but we need to actively invest and deliver on growth. We will spend more time on the 2020 drivers with associated detail during our December outlook call I'll hand, the call back now to David to begin our culinary David.
Thank you Fred.
We're now ready to take your questions, but first let me ask that you limit yourself to one initial question and one related follow up to allow other participants and opportunity to ask a question.
We will now take the first question operator.
Thank you first question is from the line Gimi.
You May now ask your question.
Hi, Good morning, So I had a question on the first the Japan bullish then Dan or someone else, maybe if you could comment on.
Your thoughts on mother's sales through the bullet still returned to a more normal levels within the next year or do you think volume through the channel are going to be depressed for a lot longer given.
The negative publicity and potential changes in sales practices.
Well.
Of course that the heart of difficult question for us to be sure about my gut tells me that it will go back to the normal.
Production levels up because in today's world news cycles are relatively short compare because there's so much news out there today that what used to be important is just doesn't last for as long as my sense is in Japan. It. So it's quite right now.
In regard to these issues until.
The December report comes out when the December report comes out from Japan Post. They will then be activity for a period of time and hopefully they will have addressed all the issues, which I expect them to do and then for it come calm down and go back up we've seen no changes in persists.
We did see Ed Japan post level that makes me think that job the brand has been heard it anyway.
Certainly we know that.
People wont these answers to their questions resolving what did take place, but all in all my sense is as they will go back, but when and how I'm not exactly sure I think it's not going to be remember that in December the report will come out but.
So probably the end of December then you're going to have a little bit of period of time, where there'll be discussions about well the enactment all those issues and so I would think first quarter still may have softness to it and then hopefully we'll see it pick back up in the second quarter, maybe the second half.
And then I'm, hoping it will move back to more normal channels for the long term.
That does anybody from Japan want to comment on that.
[laughter].
Yes, we do not have any additional comment.
Okay. Thank you and maybe if I could ask just one more on your U.S. still they've been weaker than expected the past couple of quarters, but you. It seems like from your guidance, you're assuming that you will see a pickup in the brokerage channel in the fourth quarter on that dental do you have enough insights. So far through that goes were like halfway through the quarter already do you have any.
Sure enough inside to be confident in your projections or do more and more to the sales actually come in the later part of the year, So you'll have to sort of agency.
Good morning, as we shared in the financial analyst briefing, we did experience weaker than expected sales in the third quarter, primarily driven by a faster declining average weekly producers, which is really the net effect of a decline in recruiting in the first half of 2019 some pause.
Positives that we did see we saw recruiting growth picked back up in the third quarter on top of recruiting growth third quarter of 18 in productivity continues to be an area of growth in terms of the fourth quarter in the full year, just as a in appointed context in shared flat to down slightly for the full year.
And what that would mean to get to flat is 3.3% growth in the fourth quarter and its context in the fourth quarter of 18, we had 4.2% growth and in the fourth quarter of 17, we had 6.7% growth. So again, we will quarterly sales guidance, but that gives you a sense of reason.
Levels, one other thing Jimmy I wanted to point out about the brand in Europe . Your interest of court I can't respond to Japan, Bose, but I can tell you from our perspective.
Our other sales projections outside Japan post the right on target. So we've had no deterioration in anything that we can see from a new sales perspective and the other channels.
Next question is from Nigel Dally of Morgan Stanley You May now ask your question.
Great. Thanks, Good morning, just on Japan post again, I think in the past you've been talking about 2009 as being a planning you develop other strategic relationships or initiatives 2020 being an execution you would be right to think that the initiatives that now being pushed back 2020 to use more about the sales recovery in Japan post rather than executing on anything else to.
For additional growth.
Yes, I think that that's going to be the case go eat at any comment you'd like to make.
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This is completed.
I know it based on its end up taking all that is on the Hudson you take that it is getting them all the reverse you'd assume pillar of our strategic alliance.
Soon on you said see boot and bootie.
Before initiative.
Good.
So what's left on your mobile user negative funnel total don't see any scheme I still a good I did not.
Okay, because that's the message and in terms the joint investment.
Great. That's it from those and of course with Aflac or there are some results over the course is is that today more hubs will stay MUSC animal starts up the he sanitized. They go though that fulfill and special is take Oh I get the message. So damn fruitful results of the two companies depend post.
Thank you. This let's just start up in September and October and this has been publicly announced can do for her to the two companies at the start of.
So look I know he chefs even if they do you think most I get the must Cody again, they get a little I stated liquidity and in terms of other initiatives as we have been saying we are still continuing with our discussion.
He noticed that so for me.
But but Nigel one thing I'll say is it's pretty obvious but.
First half will be the biggest challenge because we're going against the hardest comparisons and the second half ought to be relatively easy or Japan post because we're going against.
Such poor sales in the third quarter, and we expected to continue into the fourth quarter.
Great. Thanks thing not a second question kind of related just the regulatory with wants to Japan post clearly the regulators are being nimble throughout this process, but are you hearing anything from the regulators that would suggest that they not trying to push forward. Some changes in the way that insurance product. The generally distributed it could have an impact a new distribution channels going forward.
[noise] go here today.
And with this.
Could you. Please repeat the question this is from Japan.
You'll question is on the regulatory response to what's been happening in Japan post the regulators looking to change in any means the other way that's insurance products are being distributed.
Trying to push through some changes in the regulations as to what's appropriate with regards to sales prices.
[noise] idle.
We'll go through the.
The bump also need only digital got that's a bump what's going on that's out there at this Betsy.
The Pennsylvania nine distributable well first of all with the regular escalators are saying to Japan post is not something going on to lean, they're really not in a position to be mentioning about it go kind. Okay. If it did not meet the whole Campbell soup Sandy I know AK Enel angled article that you go do a good idea about that.
However, what we know is that there is no no change that we know that.
So far in terms or the insurance is for solution based on what has happened because current.
<unk> said it makes it to enhance our regular regulations. There is no greatly regulatory changes that we now.
I have been would be at that say this year and there's no major issues other than to fix the issue then with Japan Post which is go either way says we don't know all the details or how their handling that but no one's mentioned us that there's anything on the horizon that we need to do to change.
Our sales practices in anyway.
Thank you next question is from the line of Tom Gallagher of Evercore you May now ask your question.
Good morning.
Dan as you go through this transition in Japan.
Would you expect cancer shales.
For further as as the medical sales ramp up or do you think you bottomed out with cancer here.
And I guess related lease since Japan post only sells the cancer product.
Is there a new product that youve plans for that channel after they get through their review.
Well as you know a we've said all along we would like to get a new product or a router or something and we are we're working on that prior to these issues that came up.
I think we'll pick back up as soon as this is resolved in December I won't know.
When exactly but again I'm expecting things to go back to normal except corrected from the standpoint of what they fsh has required. So I do think that you know anyway, you look at it Japan post is Japan incorporated it's.
So much a part of society that it has to be fixed and it will continue so I do expect that to happen in regard to cancer sales, Tom as I said.
I expect cancer sales to be lower and the first half of my guess is and then to be higher in the second half.
And.
The balance is just too early to tell you know I can make a gas, but that's all it is I don't think it would behoove you know me to to do that but better to lay it out and show you. What the situation is and you could come to your all conclusion, but my conclusion is it will resolve itself.
And we can give you much more clarity at the end of the fourth quarter when.
January as though I mean, we closed out the ended the year and that date of January ones passed and the reports are out we'll give you much more of a sense of it.
Next question is from the lines Suneet Kamath CD you May now ask your question.
Yeah. Thanks, I'm curious to get on Japan post are you sort of through conducting.
Your own reviews of their sales practices.
Or you still pursuing such reviews.
No we're not really their practices is not our responsibility for say we have to let the fsh who's already in the process of doing that form their own it for us to get in the middle of it I think would caused us problems, we have as you well.
No. They viewed any issues concerning policies that were written and is it I told you. It was 0.006%. So a very small fraction and so we are confident that there is not a big problem based on that alone, but we will.
Wait till they're reports out and if they assess a wall small we'd be glad to helping the we do not see this is being our issue, but relative their issue that that their handling.
Thank you next question is from the lines John Barnidge of Sandler O'neill you May now ask your question.
Thanks, So as you prepare for the rollout of the 10 states with the Argus product next year. How does this change the dynamic in your own conversations with maybe existing broker partners of potential new partners as we reach yearend 2019 [noise].
Thank you John So really this a further expands our value proposition to be you know the number one distributor benefit solutions. It gets us on yeah. The discussion of front page benefits and so not only with brokers, but also with small businesses with our existing associates. So.
We're actually excited about it obviously it is a its a measure rollout so that we can get a good sense or how to roll. This out nationally in 2021, but it is definitely further expanding our value proposition.
And certainly this is one of the thing that I hired rich for rich is absolutely working with not just the brokers, but the career agency side to ensure that this arca the arvatz transition work.
Well, so I'm very excited about that.
[noise] [noise] [noise] next question is from the line as Andrew Lieberman credits you May now ask your question.
Hey, good morning, I'm curious about the competitive landscape in the United States and.
How that's just backing.
You are.
How pricing is being affected and worried when you're going up to a new accounts is there a potential persistency issue.
Alright. Thank you Andrew So first of all in the U.S., we continue to see an abundance of opportunity and need for our products and services. So we're very encouraged in the marketplace by that.
In terms of you know just pricing and competitive nature that tends to be more on the broker a distribution marketplace and really more up market and we've we've said it you know like in the prior quarter, we experienced large case volatility from time to time, because there will be some irrational pricing in the market.
And you know, we're we're going to be measured and we're not going to make poor decisions there. So.
But overall, an abundance of opportunity lots of opportunities in the mid market.
And then we'll be selective up market, but again, we're encouraged.
Thank you next question is from the line of Humphrey Lee Sally and partners you May now ask your question.
Money and thanks for taking my questions. Just a question before in terms of the the buying build appetite. So looking at your kind of current product portfolio. What areas would you be interested in those kind of buying build opportunities.
And how should we think about any time in terms of seismic what did you will have a typo for those.
Yeah, Let me let me.
Make a cut this Fred let me make a comment and then we'll welcome a tree so are rich to comment but.
The.
The areas of interest done by to build a play off of Rich's comments and that is we have concluded that it is important for overall core business to have good solutions on the so called first page of the benefit enrollment platform and this would include dental and vision, but.
It also would include.
Hi areas of true group life disability, where we currently have partnerships in place.
But would look to advance the ball a in that area.
And and so that's where we tend to look the important dynamic of by to build is that we don't think.
It makes sense to be writing big checks.
On large scale platforms and the reason for that is because we bring so much to the table in a way of client list and brand.
And distribution capability in brokerage relationships that it's far more economic for us to build that value organically. Once we have the platforms in place and the expertise.
The other dynamic I would tell you that's unique to Aflac is of the 470 or so thousand businesses that we do business within the U.S. The vast majority of them are small businesses and one other things you'll find characteristically when you move towards the first page of the enrollment platform. As you also tend to be moving up into not only the broker.
Space, but into the large case space.
That business tends to be dominated in the 1000 enough category of of workforce and we have built the company on the basis of small businesses and so the reason why buy to build makes particular sense for us is because we're often needing to shape or reshape the platform to be particularly interested.
Interesting if you will to go down market.
The vast majority M majority of these platforms are built for the the up market large case and quite honestly there there isn't often a lot of growth. There. It's more exchanging cases between competitors where is the small business dynamic in the U.S. as a as a pure growth opportunity.
So theres a lot of strategic reasons as well as financial reasons why buy to build a makes sense and as I said in my comments, though the good news, perhaps as an investor is you avoid things like large goodwill and execution risk and integration challenges.
And that's good news when it comes to the balance sheet and use of capital and capital at risk. The quote Unquote Bad News is you have to settle up to a level of expense and margin compression in the short run while you go to organically build up that platform.
And what we are charged with doing is defining that spend as well as the benefits or the growth in incremental earned premium that comes from the investment.
Yes, no I'll just mention a couple of things Fred talked about small business and.
The number of small businesses that we have relationships with I also feel that by the field strategy gives us a unique opportunity to develop eco system that will help us to better serve the small as well and so those are things that.
We look at at as we look at this strategy.
Thank you next question.
Scott Goldman Sachs you May ask your question.
I actually had my question answered sorry about that thank you.
Thank you next questions from the line of Eric Massa Autonomous Research you May now ask your question.
Hi, Thank you on U.S. earned premiums I think they dipped a bit sequentially, which I believe was related to both.
Sales as well as some producer actions you took so you can just provide a bit more color. There and then based on Freds comments am I right that you see these is modest headwinds persisting into 2020.
You want to start with the sales team and then I'll pick up on the yeah.
Okay answer yes, absolutely. So as we said at the end of the second quarter. Obviously, we've made some business decisions around partnerships to exit it we're not profitable and that's certainly impacted not only persistency be translates into earned premium as well as some large case volatility so that right there's sort of took our traject.
Very short term down and I'm going to citrus I'm not sure yeah, I'll I'll be a little bit more specific we we stopped doing business with a tale of apart and this stuff partner, providing unique services for aflac at the end.
Today, we just did not see the economic well for our business and so you'll see that go through our persistency and you'll see that go through our premium.
And you know again, we believe it's a right decision how to make for the enterprise for the platform, but you will see some short term.
Volatility in those numbers.
Thank you next question spend a line of try Needham <unk> you May now ask your question.
[laughter].
Good morning, everybody. It my focus of this morning is on U.S. sales.
And I guess I've a couple of questions that are all related a minute and I'd like to get them all in before the operator cut you off but [laughter] to me.
I guess the I'm trying to understand you know in in a down 4% or foreign changed percent year over year quarter.
And I guess for the year Europe , you know slightly down.
On a year to date basis can you bifurcate for us.
Either over the short term that discrete quarter or in the year to date basis or both.
What the performance looks like for the broker channel versus your traditional or historical agent channel.
And then along with that.
How much of an impact is this single partner.
Relationship that you've exited.
How can we speak to how can we think about the impact that that is having on sales just given that partnership is no longer in please and I assume contributed some level of sales to the year ago period.
And we'll have done so through what the first quarter of 2020 or or second quarter of 2020 I guess.
If you could speak to those couple of issues that I think it would help just maybe get a little bit of confidence on on.
Fourth quarter, so important at this point given given the contribution from the broker channel.
Okay. So if you'd like to take those two questions. So first of all our sales Oh holistically are impacted really by the decline in average weekly producer year to date, Dan has alluded in his comments that we've seen our broker distribution continued to perform above the market and so.
It's really how I would bifurcate that and again average weekly producer is really impaired or impacted just by the decline in the first half of the year on recruiting so I think I'd to recruiting is about a six month lag and so I think thats. How you can think about you know what's happening there as we think about the partner.
In the exit of that particular relationship.
Fortunately the sales or not you know significant percentage of the overall sales of Aflac U.S. However, they do you know impact our associates, who have existing clients and re enrollments and so that does take some of their focus off of that and obviously the exit of that partnership because it's been a partnership for several years.
I have in force premium ramifications and so that's why you see a working itself through earned premium.
Well I want to say one thing about the broker business.
All right into our still keep because they represent two thirds of our business.
The broker business for US is doing great I mean, it's growing at twice the rate of the industry right now and so we're very pleased with that and we believe the and our focus is not just on broker our focus is on are.
Our agents in our distribution channel, there as well and the point beyond that.
When you're at full employment it is harder to recruit people from a commission standpoint, and I've experienced that over the years and that's why I've always said, there's a balanced with the bad economy.
There's not as many people at the Worksite working but it's easier to high last the full economy, we haven't seen very often there's plenty of people at the work side, but it's good people to a call them than we'd get hot so it's a mixed bag. So I do think we're doing all right. Thanks, and there's some similar.
Guarantees.
With this and Japan and that the corporate agency structure has been the slow part, but it is bad these outside like for example, Jan Japan post that has driven the growth what's really been driving the growth up even though not as much as we want it has been.
In the growth broker channel add this other or was it partner thing is is a small detail that only because it is all in one quarter that you've noticed it as much in wall next year, you won't even see it a little just ride through our 12 month scrolling persistency and that's where you'll see.
We had done through the numbers, but you're right you won't see from Upsale, Yeah, you won't see it from a sales perspective.
Thank you next question is from the line Ian Right Bank of America, You May now ask your question.
Thanks for taking my question, just hurt our hedge costs in Japan.
They were up sequentially is there it's really a function of growing up the dollar that's been portfolio, what I realize you locked in a lot of this hedge cost isn't really a change in the hedge ratio or is it a factor market at fire. There what are the key drivers that they get higher or lower.
Yes, you did a great job actually Ah you hit it on the had there is nothing from our perspective really unexpected it ties back to our investment plan and the growth of the dollar assets, particularly the loan portfolio throughout the year. So in our investment planning, we knew as we progressed throughout the year and.
By those assets come around a third quarter hedge costs would be higher so it is volume related but plan volume.
The thing I should mention just to attached to that as a reminder, attach costs go up in the way. They went up because it's related to volume. It also means our income why not a attached to it. So our net of those two numbers is more or less precisely within our planning.
Throughout the year of so that's exactly what it does.
Thank you last questions from John Barnidge of Sandler Oneill, you May now ask your question.
Yeah. So as we look towards next year Tokyo's having Olympics.
Is your planning around marketing and do you view that as a good platform to engage with potential audience to buy the products.
And what your plans are for that thank you.
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Our.
Whatever would like to take that question.
Well the Willy Thanks [laughter].
Super isn't really going to Castilla and what I want to schools are not theatrical gum supercritical program would be my sense and in terms of Permian Olympics, there's really no correct.
Oh, well I think we can we can probably finish the they answer the question for you to they'll be there'll be a very modest level of normal activity that takes place from a marketing perspective with groups of individuals and Keith.
Key clientele and all that but there's no major.
Plan dynamic around the Tokyo Olympics at this time that would be any sort of measurable impact to our financials.
[noise] and with that I think that is our last call on our last question I want to thank everyone for joining us. This morning, and remind you that we will be having our 2020 outlook call on December 2nd that morning, We will provide more details over the coming weeks and please feel free to contact our investor and rating agency relations.
Department for more information and with any questions that you may have we look forward to speaking to you said thank you.
Thank you that concludes today's conference. Thank you for participating you may now disconnect.