Q1 2021 Aflac Inc Earnings Call
And you recorded I would now like to turn the call over to Mr. David Young Vice President of Aflac, Investor and rating Agency relations.
Thank you Pasha and good morning, and welcome the Aflac Incorporated's first quarter earnings call and at all.
Always we have posted our earnings release and financial supplement to investors Dot Aflac Dot com.
This morning, we will be hearing remarks about the quarter related to our operations in Japan, and the United States amid the ongoing COVID-19 pandemic.
Dan Amos Chairman and CEO of Aflac incorporated will begin with an overview of our operations and Japan and the U S.
Fred Crawford, President and CEO of Aflac incorporated will then touch briefly on conditions in the quarter and discuss key initiatives, including how we are navigating and the pandemic.
The Max Broden Executive Vice President and CFO of Aflac incorporated will conclude our prepared remarks with a summary of first quarter financial results and current capital and liquidity.
Members of our U S Executive management team joining us for the Q&A segment of the call are Teresa White President of Aflac U S.
Virtual Miller president of individual and group benefits.
Eric Kirsch Global Chief investment Officer, and President of Aflac Global investments.
<unk> Global Chief risk Officer, and Chief Actuary.
June Howard Chief Accounting Officer, and Steve Beaver CFO of Aflac U S.
We are also joined by members of our executive management team and Tokyo.
At Aflac life insurance and Japan.
Charles Lake Chairman and representative director President of Aflac International.
<unk>, Kuwait day, President and representative director.
Todd Daniels director and CFO.
Koji <unk> director and head of sales and marketing.
And Kuwait hero Yoshi, Zoomy assistant to director of sales and marketing.
Before we begin some statements and this teleconference are forward looking within the meaning of federal Securities laws.
Although we believe these statements are reasonable and we can give no assurance that they will prove to be accurate because they are of prospective in nature.
Actual results could differ materially from those we discuss 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.
As I mentioned earlier the earnings release is available on investors, Dan Aflac Dot Com and includes reconciliations of certain non U S. GAAP measures I'll now.
Now hand, the call over to Dan Dan. Thank you, David and good morning, and thank you for joining us.
And our first quarter conference call one year ago, we were facing the early days of the pandemic at that time I shared with you and actions that we've taken to ensure that we protect the employees the distribution partners the policyholders and the communities I am proud of our response.
And our ability.
To handle these challenging times for everyone our people first.
Embodies the spirit of corporate culture, which we refer to as the Aflac way.
Within the pandemic environment, we are encouraged by the production of the distribution of the COVID-19 vaccines, but we also recognize that vaccination and the efforts are still in the early stages around the world.
Ups and prayers are with everyone affected and we are cautiously optimistic while also remaining village and.
There is one of the central message that I continue to emphasize with our management team.
It is imperative that we controlled the factors, we have the ability to control and what we don't.
Have the ability to control, we must monitor continually to be ready to adapt this approach allows us to respond and the most effective way possible.
And the first quarter adjusted earnings per diluted share increased 26, 4%.
While earnings are off to a strong start for the year. It is important to bear in mind that they are largely supported.
While low benefit ratio of <unk>.
Excuse me associated with the pandemic conditions.
Before covering our segments.
And make a few comments about the overall perspective.
The pandemic conditions and the first quarter continued to impact our sales results as well as earned premium and revenues both in the United States and Japan.
We continue to expect these pandemic conditions to remain with us through the first half of 2021, but look for improvement and the second half of the year as communities and businesses further open up allowing more face to face and interactions.
Despite the fact that sales and both the United States and Japan had been suppressed considerably due to the constrained face to face opportunities.
We did not sit still and.
We continued to make progress and integration of our accelerated investment and our platform.
Continuing strong earnings performance.
Looking at the operations in Japan, and the first quarter and.
<unk>, Japan generated solid overall financial results, where the profit margin of 23, 1%.
Which was above the outlook range that we provided at the financial analyst briefing.
Aflac, Japan also reported strong premium persistency of 95%.
Sales were essentially flat.
The first quarter with the January launch of our new medical product of.
Offset by a continued impact of the pandemic conditions.
We are encouraged by the reception of the new medical product by both consumers and the sales force.
In addition, Japan post groups of announcements to resume proactive sales and April paves, the way for gradual improvement and Aflac cancer insurance sales and the second half of the year.
We are actively working with Japan post to ready the platform recognizing that it will take time to return to the full strength.
We continued to navigate evolving pandemic conditions, and Japan, including the recent reestablished state of an emergency per Tokyo, Osaka and two other pre factors affected from April the 25th through May of the 11th.
Restrictions will be tightened the curve the movement of people and group activities during the major holiday known as Golden week.
Turning to the U S. We saw a strong profit margin of 27, 3%.
Aflac U S also reported very strong premium persistency of 80%.
Max will cover the persistency later.
Current pandemic conditions continue the enel.
Notably impact our sales results largely due to reduced face to face the activity.
And as expected we saw modest sequential sales improvement in the quarter with an overall decrease of 22, 1%.
And the U S small businesses are still and the recovery mode, and we expect that they will be.
That way for most of 2021 at the same time larger businesses remained focused on return and employees to the work site rather than modifying the benefits for their employees.
We strive to be where the people want to purchase insurance that applies to both Japan and the United States.
And the past this is Matt meeting face to face with individuals to understand their situation for the.
Bose the solution and close the sale.
Face to face sales are still the most effective way for us to convey the financial protection only aflac products provide.
However, the pandemic has clearly demonstrated the need for virtual means in other words non face to face sales that help us reach potential customers and provide them with the protection that they need.
Even prior to the pandemic, we've been working on building our virtual capacities.
Given the current backdrop, we have accelerated investments to enhance the tools available to our distribution in both countries and continue to integrate these investments into our operations.
In addition, we continue to build out the U S product portfolio with previously acquired businesses that serve as the base for Aflac network, dental and vision and group wide absence management and disability, while these ACA.
<unk> have a modest near term impact on the top line they better position Aflac for future long term success in the United States.
Our Kurt.
Our core earnings drivers.
Each of persistency and.
Underwriting profit investment income and expense ratios continued to drive strong pre tax margins, both in the United States and in Japan.
Both Japan and the U S. We experienced sequential sales growth and the months of January February and March.
In addition provided we don't experience of the setback in terms of the pandemic conditions, we are forecasting a sequential increase and absolute sales and the second quarter over the first quarter and both of the U S and in Japan.
As always we placed significant importance.
And continuing to achieve strong capital ratios and.
And the U S and in Japan on behalf of our policyholders and shareholders, we remain committed to prudent liquidity and capital management.
We issued our first sustainability bond and March as we seek to allocate proceeds from the issuance to reinforce our commitment to social and environmental initiatives.
And we balance purpose for profit.
And we treasure, our 38 year track record of dividend growth and remain committed to extending it supported by the strength of our capital and cash flows.
At the same time, we will continue to tactically repurchase shares.
Focus on integrating the growth investments, we've made and our platform.
By doing so we look to emerge from this period and a continued position of strength and leadership.
I've always said that the true test of strength is how one handles adversity.
This past year confirms what I knew all along and that is that Aflac is strong and adaptable and resilient and we will continue to work to achieve long term growth. While also ensuring we deliver on our promise to our policyholders by doing so.
And we look to emerge from this period and a continued position of strength and leadership.
I don't think its the coincident that we've achieved success, while focusing on doing the right things for the policyholders the shareholders of the employees.
The sales distribution the business partners and the communities in fact, I believe success and doing the right thing go hand in hand and.
<unk> of what we've accomplished by balancing purpose with financial results. This is ultimately translated into a strong long term shareholder value now.
Now I'll turn the program over to Fred Fred.
Thank you Dan.
And the touch briefly on current pandemic conditions in Japan, and the U S. Then focus my comments on efforts to restore our production platform and 2021.
Japan has experienced approximately 575000, COVID-19 cases, and 10000 confirmed deaths since inception of the virus.
Through the first quarter of 2021 and since the inception of the virus Aflac Japan's COVID-19 impact has totaled approximately 10005 hundred claimants with incurred claims of $1 9 billion yen.
We continue to experience of low level of paid claims for medical conditions other than COVID-19 as policyholders refrain from routine hospital visits.
There are essentially three areas of focus and building back to pre pandemic levels of production and Japan.
Our traditional product refreshment activities.
Online sales driving productivity and the face of pandemic conditions and active engagement with Japan post to begin the recovery process and cancer insurance sales.
As Dan noted there has been a positive reception to our revised medical product.
This product was designed to better compete and the independent agent channel, where we had seen a decline and market share heading into 2020.
Sales of medical insurance are up 34% over the first quarter of 2020 and up 8% over the 2019 quarter.
The new product called ever Prime has enhanced benefits that on average result, and 5% to 10% more premium per policy versus our old medical product.
The product also includes a low claims bonus structure that has contributed to growth among younger demographics.
We have technology in place to allow agents to pivot from face to face the virtual sales and and entirely digital customer experience.
And the agent does not removed from the process. The agent can make the sale and process. The policy from point of solicitation to point of issuance entirely online without face to face contact.
And we introduced this capability in October of 2020 and for the month of November we processed 16 hundreds of applications utilizing this digital experience and.
And the month of March that number doubled to approximately 3200 applications.
Not surprisingly, we are seeing higher adoption rates among younger demographics and.
On March 26th we launched the national advertising campaign, promoting the capability and expect to see increased utilization.
We see this capability contributing to productivity, even after the pandemic conditions subside.
And Japan post as Dan noted, we anticipate sales volume will recover gradually and the second half of 2021.
From Japan post activities to revive sales Aflac, Japan is actively supporting recovery and the sale of cancer insurance.
This includes reinforcing communication on Japan post sales policy down to the postal branch level training and education on our latest cancer products and sales proposal strategies and identifying existing cancer policyholders and the Japan post system to both explain the benefits of their cash.
Current products and create an opportunity for potential upgrade.
It's important to remember that the Japan post sales force has been inactive for 18 months.
Therefore product training and sales coaching our critical efforts in the coming months.
Turning to the U S. There is approximately 32 million COVID-19 cases, and 575000 deaths as reported by the CDC.
And as of the end of the first quarter COVID-19 claimants since inception of the virus has totaled approximately 38000 with incurred claims of $130 million.
Along with infection rates declining from peak levels in 2020, our data suggest hospitalization rates and days in the hospital have trended lower.
However, infection hotspots and areas of the U S remain and as is the case and Japan. There is concern over of potential fourth wave of infection.
The executive orders requiring premium Grace periods are still in place in nine states with six states having open ended exploration dates.
Persistency has improved however, most of that improvement is attributed to the combination of state orders and lower overall sales as we typically experienced higher lapse rates and the first year after the sale.
Turning to recovery and restore efforts, we have seen our agent channel and small business benefit franchise hurt by the pandemic.
It's important to note that roughly 390000 of our 420000 U S business clients have less than 100 employees.
Critical areas of investment include recruiting training and technology advancement and product development.
Key indicators of recovery and include agent and broker recruiting build and average weekly producers and traction and the rollout of our dental and vision products.
For the first quarter, we are running at approximately 70% of the average weekly producers during the same period and pre pandemic 2019.
Trends are positive and we expect to narrow this gap throughout the year, assuming pandemic conditions improve.
We are experiencing favorable recruiting numbers have reopened training centers closed during the pandemic and veteran agents are re engaging after a difficult year.
We are and the early days of our national rollout of Aflac network, dental and vision or dental product is approved and 43 states and vision and 41 states with more states coming online throughout the year.
Network dental and vision is critical and the small business marketplace and a key component to the agent productivity, along with new account growth retention and penetration or seeing more employees at a given employer.
This month, we are competing completing the national training programs, making select product refinements and reinforcing incentives to drive new dental accounts.
In addition, we are busy upgrading our administrative platforms to ready for increased volumes.
2021 is the year of launch learn and adjust and we expect to see our pipeline close rates and new accounts gradually increasing throughout the year.
Our Premier life and disability platform acquired from Zurich is now operating under the Aflac brand.
We have started to see our quoted pipeline build and the last 45 days.
However, many employees players are reluctant to move critical benefit plans, while sorting through returning to work site and changing workforce dynamics.
In addition benefit consultants often proceed with caution and a year or so after an acquisition.
We need to remain patient over the next few years as we settle into this new line of business.
Our competitive calling card is the proven premier service and technology capabilities of the acquired platform, coupled with Aflac group's core leadership and supplemental worksite benefits.
We will not resort to winning business via relaxed underwriting and pricing standards in this highly competitive market.
Finally earlier this year, we launched our new e-commerce direct to consumer platform Aflac direct.
We offer critical illness accident and cancer and are approved and approximately 30 states with more states and product coming online throughout the year.
This platform targets individuals' the.
The self employed gig workers and part time employees and.
In short those who are not offered traditional benefit packages at the Worksite.
We are actively building out of licensed agent call center to better manage conversion rates and control overall economics.
With a modest amount of committed marketing dollars. We are attracting about 500000 visitors per month to Aflac Dot com, which has resulted in 120000 leads for call Center conversion this year.
We are currently experiencing of 15% conversion rate once in the call Center.
This is of data analytics, driven business and of core metrics will improve as this model matures.
In terms of the contribution of these businesses to overall sales and 2021, we expect the three growth initiatives will make up roughly 10% of sales in 2021, after having contributed less than 5% to 2020 sales.
We remain committed to the revenue growth targets discussed at our November Investor Conference. We expect these initiatives to drive incremental revenue in excess of $1 billion over the next five to seven years.
As the separate initiatives mature they leverage off each other.
Network dental and vision drives agent recruitment and conversion to average weekly producers.
And employer paid benefits drives supplemental worksite sales.
And direct to consumer expands our addressable market, while being leveraged to funnel worksite leads to our agents in the field.
And the future as employees leave the Worksite of digital relationship directly with Aflac helps with persistency and customer satisfaction.
To close out my comments. This morning, we continue to advance ESG initiatives and 2021 and.
As Dan noted, we issued our inaugural sustainability bond raising $400 million to be invested towards our path to net zero emissions by 2050 and investments that support climate as well as diversity and inclusion efforts.
The bond offering itself is important step and that it requires formal processes around reporting and tracking and auditing of qualified sustainable investments.
This rigor serves to benefit the control environment surrounding our enterprise wide ESG reporting and accountability.
In addition, Aflac global investments announced late February of partnership with Sound point capital management to create a new asset management business focused on the transitional real estate loan market.
As part of that Alliance, we have made an initial $1 $5 billion general account allocation to the newly created some point commercial real estate finance LLC.
With $500 million of that amount dedicated to providing transitional and other debt financing to support economically distressed communities designated as qualified opportunity zones.
Aflac will hold of nine 9% minority interest and this newly created investments LLC with the ability to grow our stake over time in line with future growth of the new venture.
I'll now pass on to Max to discuss our financial performance in more detail Max.
Let me start and my comments with the review of our Q1 performance with a focus on how our core capital and earnings drivers have developed.
For the first quarter adjusted earnings per share increased 26, 4% to $1 53, with <unk> <unk> positive impact from FX in the quarter.
This strong performance for the quarter was largely driven by lower utilization during the pandemic, especially.
Especially in the U S and a lower tax rate compared to last year.
Variable investment income and $24 $5 million above our long term return expectations.
Adjusted book value per share, including foreign currency translation gains and losses grew 26 per cent.
And the adjusted ROE, excluding the foreign currency impact was the strong 16, 7%.
Significant spread to our cost of capital.
Starting with our Japan segment Paul.
Earned premium for the quarter declined three 6%, reflecting perspective policies paid up impact while the earned premium for third sector products was down 2.2% at sales per on the pressure in 2020.
Japan's total benefit ratio came in at 68, 4% for the quarter down 100 basis points year over year and the third sector benefit ratio was down.
68% also down 100 basis points year over year.
We experienced slightly higher than normal IV and our release in our third sector block at the experience continues to come in and favorable relative to the initial reserving.
This quarter it was primarily due to pandemic conditions constraining utilization.
Persistency remained strong with the rate of 95% up 50 basis points year over year.
Our expense ratio and Japan was 21, 3%.
130 basis points year over year.
With improved sales activity expenses naturally pick up and our technology related investments into converting Aflac, Japan to the paper less company continues.
Which also includes higher system maintenance expenses.
Adjusted net investment income increased six 9% in GAAP terms, primarily driven by favorable returns on our growing private equity portfolio and lower hedge costs.
Partially offset of lower reinvestment yields on our fixed and floating rate portfolio.
The pretax margin for Japan, and the quarter was 23, 1% up 60 basis points year over year of very good start to the year.
Thanks to the U S.
Net earned premium was down four 1% due to weaker sales results.
Persistency improved 240 basis points to 80% of <unk>.
Our efforts to retain accounts and reduced lab fashion show early positive results.
As Fred noted Theres still the nine states with premium Grace periods and place, but we are monitoring these developments closely.
Breaking down the 240 basis points persistency rate improvement further.
70 basis points can be explained by the emergency orders in place.
90 basis points by lower sales as first year lapse rates of roughly twice total in force lapse rates.
And the residual of 80 basis points includes conservation efforts executed on the last year.
Our total benefit ratio came in much lower than expected at 39, 1%.
Our pool of 900 basis points lower than Q1, 2020.
In the quarter, we experienced lower paid claims, especially in the month of January and pandemic conditions impacted behavior of our policyholders.
This is in mind with disclosures in 2020, indicating of negative correlation between the infection levels and claims generating activities like accidents elective surgeries and physical exam.
This low activity level.
Level related to non COVID-19 claims accounted for most of the year over year drop in the benefit ratio.
Our total incurred COVID-19 related claims also came in lower than expected due to the IV and our release.
We estimated new COVID-19 claims at approximately $42 million.
And this was offset by an IV and our release of $41 million.
And our experience accumulates, we have refined our assumptions and this led to this IV and a reserve release.
We expect the benefit ratio the increase gradually throughout the remainder of the year with the resumption of normal activity and our communities and by our policyholders.
For the full year, we now expect our benefit ratio to be towards the lower end or slightly below our guided range of 48% to 51%.
Our expense ratio and the U S was 38 five per cent.
<unk> points year over year or with a lot of moving parts.
Weaker sales performance negatively impacts revenue.
However, the impact of our expense ratio is largely offset by lower <unk> expense.
Higher advertising spend increased the expense ratio by 70 basis points.
Along with our continued build out of growth initiatives.
Group life, and disability network, dental and vision and direct to consumer.
These contributed to a 110 basis point increase to the ratio.
The strategic growth dimension and investments are largely offset by our efforts to lower core operating expenses as we strive towards being the low cost producer in the voluntary benefit space.
Net net despite a lot of moving parts of Q1 expenses are tracking according to plan.
In the quarter, we also incurred $6 million of integration expenses not included in adjusted earnings associated with recent acquisitions.
Adjusted net investment income in the U S was down <unk>, 6% due to the 22 basis points contracts and in the portfolio yield year over year, partially offset by favorable variable investment income.
Profitability and the U S segment was very strong with a pretax margin of 27 three per stop.
With the low benefit ratio of at the core driver.
With Q1, now and the books, we are increasing our pre tax margin expectations for the full year.
The initial expectations were for us to be towards the low end of 16% to 19%.
We now expect to end up for the full year towards the high end of this range indicated at fab.
And our corporate segment, we recorded a pre tax loss of $26 million.
At the adjusted net net investment income was $20 million lower than last year due to lower interest rates at the short and of the yield curve.
Other adjusted expenses were $7 million lower.
Our cost reduction activities are coming through.
Our capital position remains strong and we ended the quarter with and SME north of 900% and Japan.
And and RBC of approximately 563% in Aflac Columbus.
On the encumbered holding company liquidity.
Stood at $3 9 billion.
One 5 billion above our minimum balance <unk>.
Excluding the $400 million and proceeds from the sustainability bond debt, we issued in March that reinforced our ESG initiatives and believe the sustainable investments are also good long term investments.
Leverage which includes the sustainability bond increased but remains at a comfortable of 23% in the middle of our leverage corridor of 20% to 25%.
In the quarter, we repurchased $650 million of our own stock and paid dividends of $227 million.
<unk> offering good relative IRR on these capital deployment.
We will continue to be flexible and tactical and how we manage the balance sheet and deploy capital in order to drive strong risk adjusted Roe.
With a meaningful spreads of our cost of capital.
And with that I'll hand, it over the two David at the begin Q&A.
Thank you Max.
And now we are ready to take your questions, but first let me ask that you. Please limit yourself to one initial question and one related follow up to allow other participants an opportunity to ask a question.
We will now take the first question.
The first question is from the line of Matt David with Morgan Stanley.
Great. Thanks, and good morning, everyone. Some ex.
Perhaps the we can start on capital management capital ratios look very strong cash balances, obviously very high and it's got.
Cutting credit of dissipating in the quarter you bought back most of that expected given that could we perhaps see some upside to the capital management plan to <unk>, the outside and buybacks this quarter as being a little more tactical and the decision of the front end the annual plans.
So obviously as we traveled through the pandemic, we are now moving into more I would call normal economic.
Conditions and environment I E less impacted over time by the pandemic that means that obviously.
We gained confidence and how we can deploy capital and you saw that in the quarter.
At the same time and.
We are not fully out of this yet.
And we.
We will continue to look at the all the different deployment opportunities that we have.
And in the quarter of $650 million was the step up.
And what we've seen previously and that reflects.
Our confidence in what we see the franchise driving and coming through overtime.
And.
Going forward, we will continue to make sure that we hold capital and the right places around the company.
And deploy capital at favorable of IRR.
Great. Thanks, and then just a follow up on premium persistency as well and the Safeway. The premium waivers have been lifted do you tend to see a spike and the lapses any color there would be of.
Would be interesting and I just wanted to try to get an understanding as to whether that's perhaps the challenge for the remaining states that are yet to lift the executive orders.
Yeah.
Nigel of spread you do.
Tend to see a bit of a spike in lapse rates when the state orders subside and we have actually a fairly good amount of historical experience on this as I have might have mentioned in past comments.
It's not unusual to have the state <unk>.
<unk> put in place during natural disasters and the like and so we've seen this before.
I would tell you. However is when it comes to our financials, we try to account for a level of this and the form of.
Do premium allowance, if you will meaning.
The the idea of what is and uncollectible amount of premium.
That may be out there embedded in the book of business that are being suspended if you will related to the grace periods. So we tried to take that into account such that when you do see the state mandates are lifted.
Theres not a pronounced impact if you will or measurable impact of our actual financials, even though you may see elaborate lapse rates move around.
That's great thanks, but the cliff.
Your next question and just sort of the line of Humphrey Lee with Dowling and partners.
Good morning, and thank you for taking my questions. I guess my first question is on the the U S underwriting so Max and your prepared remarks, you talked about lower claim incidents in January.
And can you share in terms of like the the.
The number of claims submitted in January and the first quarter and in general compared to kind of the second and third quarter of last year.
So and I can give you. One example of so in the month of January we had paid claims drop of about 28% in the U S compared to pre pandemic conditions.
That's a very significant drop and we.
We saw a significant normalization from that level in the month of February and fed of normalized pace and in the month of March.
So the loss of extent explains the low benefit ratio and the quarter.
And you have to think that.
One of the one of the reasons for it and of course, no one knows for sure, but if you if you.
Think back we had just had the holidays and we were seeing on the TV constantly by the government be careful don't go out protect yourselves, we're going to have a spike and I think that brought in the lower numbers and one thing I would like to add Humphrey as well as we look for.
Forward is that there are sort of them in certain of our products. So you could see and an increase in claims.
Claims being filed as people go back for their physical and go back for elective surgeries and.
And even in the line of cancer, we could see a step up and in terms of claims being filed and the future that did not occur during the pandemic, that's why we view and.
And the period that we've just been through as abnormal.
Yes, I guess like the innocent people are getting.
Reminded during January but at the same time I feel like the states kind of opening up and the first quarter compared to where we were in the second and third quarter of that the entire country. It was pretty much fully locked Dan Hey, guys. I guess I was just a little surprised to see the the first quarter results being so much better than second and third quarter, when we're kind of the.
Deep and the independent so and.
Well I think I think we were too I mean, we certainly would have given you closer projections.
And we thought that was the case. So we were certainly surprised January but I think what Max is also say and as February and March were on target.
Our actuaries also remind us constantly that there is a little bit of of lagging environment and that is there is a bit of a timing GAAP as you can imagine between the actual incident, taking place I E going to the Doctor and then the filing of the claim and so you can see some lagging so we watch the trends and.
Try to.
And try to embed that and are are forecasting as well.
So there wasn't any kind of idea and our reserves from non COVID-19 claims debt you both in previous quarter of debt given the the the project and things of those never materialized and you.
And the release of <unk>.
Not like that just seem the pure form of incidents perspective.
And and what's an element of that coming through as well.
And that moved our benefit ratio by about one five.
Points down.
Your next question is from the line of Jimmy <unk> with Jpmorgan Securities.
Hi, Good morning, So I had a question on just dealer sales and.
And the U S and Japan through the quarter and.
And if you saw a noticeable improvement in March versus what was happening and.
January and then Relatedly in Japan, what do you think of the impact of the Lockdowns as well of the Olympics coming up and could that affect your sales negatively and late <unk>.
Well I'll start and then turn it over to Japan, but in my talk I said that we saw improvement with the.
January and February numbers were better than January and March numbers were better than February and we expect the second quarter to be better than the first quarter and.
And that was true in both countries. So from that standpoint, So let me.
Kohei day or whoever he would like to speak.
Talk specifically about your questions.
Yes. This is probably the effort of the Gabon.
Tony.
Can you please visit the name of <unk>.
It's not the.
The definition of Stapling and first of all the let me start out with the current situation and Japan followed by.
The sales and.
The business in Japan as well.
Yes.
And I think the fifth of the he must Dan and you muscles in and among the most of them.
The money so it's kind of pruning of the credit demo piece of it.
Daniel.
Well first of all as Fred mentioned earlier, the number of the infections and Japan at the 775 times and and the number of debt in total is about 10000. Thanks Ken.
The other countries this number at the much smaller.
Put it on cocoa music and a mask with Susquehanna the isn't in the Tioga County, yet.
And just because I just think of it instead of Haynesville and Eagle.
Got it.
No.
And I'll get David kind of debt.
So any color on the peanuts.
And then there's the.
The reason why we have been able to control and much of the infection is the cause of the nature of our citizens.
And we care very much about our hygiene and on top of debt instead of taking the risk of people.
Yeah.
Worrying about eating and dining outside and the richemont are reducing their business hours and these things have you gave of substance.
Another day.
And if I think of creek the content.
Political to kind of.
And just wondering if the need some kind of in the <unk> side same thing and items.
However, even still Dan.
And there had been a number of the increase of the need of infections, and Osaka and Tokyo and as a result of there is a third the declaration of an emergency.
Which was issued on April 25th and.
And then you've got nothing to say, thank you and I don't go down and there are the months and however, the state of emergency Declaration and Japan is not a lock down and the focus on the stock.
Good day.
And it's much more focused Omega book I know Keith.
Thank you and for those kinds of chemo against debt.
And some of who else is doing things by the adult and put them on and off.
I think and you put out the debt.
<unk>.
So and must be method and.
And for example of the state of Emergency Declaration that was issued this time, the only covering the full pre fixtures and the period that it covered.
And with the comparator with the test of state of emergency Declaration, and it's very much and limited in terms of time and location.
And for the ethos.
All of the Sogo system.
All of the.
On the physical utility open the 90 day.
However, I think government is it's the only thing.
And much stronger restrictions and the restaurants and shopping center of large shopping centers that day.
We are asked to shut down their response.
The shops for the time being.
And let's keep it simple unless you guys kind of quarters.
And the debt and.
So on the kinds of thoughts and those accordingly.
The key.
Net.
And so thats kind of dynamics.
And then Thats the nation started in April and starting from the elderly population and since the older population and accounts for about 30% of of the overall population. We are expecting debt. This will have any type of maintenance that.
And I was underneath and the joke I don't think of your additional debt.
The assistant.
So the another.
And the Tuesday and Bakersfield.
Net.
However, and this situation of the pandemic is very fluid and so we really need to watch out for the various and Thats nation state of going forward as well.
Not all of them.
19 crimes and.
Sorry, the cycles.
And the spin and Jojo.
And some of it.
Kind of it's continuous.
And because of the situation and the COVID-19 infection is still rising and it's very difficult to mention how it is going to be going forward in terms of all of our projections.
And so.
And then Keith digitizing and can use the moon, sometimes and.
Susan.
One day on the most of them and you don't come to die and then and I missed it.
Thank you Mr.
And the resulting in a result of the first quarter, even under the state of emergency Declaration and you haven't been able to promote our medical issue and if anything day and.
And also because of the debt.
The extent of the use of the online proposals and applications, we have and be able to mark the theme of level of performance and with the last.
The year.
And what you're doing.
Okay.
And moves come and sit on them correct.
Good day.
Okay.
Sure.
And you and.
When you couple of diagnosis and.
And even some of the second Paul.
I'd like to maintain its public benefit of types of the effects from the medical insurance and we will.
And also the further expanding the use of the online proposals and application and on top of that and we would also like to the extent of being as enrollment to the online for the flow station is about sort of new.
And on the Houston ship of lithium consumed.
And so the question you get the 92 million.
Steve Thank you.
And Furthermore, we would also like to be using the direct mails.
And hence the non face to face solicitation.
And by doing so we should be.
And we should be and minimizing the impact from COVID-19, and.
And that's all for me.
One thing.
One thing I would add debt.
Interesting just to give you some color on the relative nature of the state of emergency.
And we sell product through what we would call retail shops and about a little over 20 of those shops are actually owned by Aflac and.
380 of those shops are through affiliate ownership.
And we will do about 6 billion yen of year and a normal year of production through those shops.
And during the peak of the emergency orders and the pandemic and April of 2020, essentially all 400 of those locations were shut.
Today under the state of emergency issued around the Tokyo, and Osaka and and.
The Kobe area 13 of those shops are closed.
And so it gives you a little bit of a perspective on the difference between the early days of the pandemic and more severe approach to emergency orders and the current period Thats trying to balance productivity and businesses remaining open while at the same time exercising caution.
Okay, and any comments on how the COVID-19 impact.
I'm sorry, Jimmy.
The <unk> again.
And just unlike on the Olympics, they're going to be and impact on sales of the Olympics, you think or should that not be much of the factor.
All right.
Go ahead.
And this is <unk>.
And I think there will be any impact.
Thank you.
And that's essentially what I was going to say is we have not factored in any impact and so we are not expecting one.
Thank you.
[noise], Yeah, I think the second part of that question was from the U S perspective, and I'll just mention this.
We see increased and vaccinations.
And arms and state mandates being lifted.
We are now starting to see the markets open up we've also opened up our market offices.
Sales offices around the U S as well so we're starting to see a lot more activity.
From a sales perspective virtual did you have anything else you wanted to add to that and.
And I'll just reemphasize three for debt as Dan stated and the first stated earlier, we did see the sequential improvement month over month, what all sales. It was really driven by activity of open up the markets and the offices along with ensuring that we're continuing to drive our average week of producers month over month.
Some of the U S side.
Your next.
And then is from the line of Tom Gallagher with Evercore.
Good morning, just wanted to follow up on the U S. Just just to get a handle on what youre thinking about earned premium.
And I guess, particularly.
Particularly the commentary about.
The small business is still being in recovery mode large employers focusing on returning employees to work rather than modifying benefits I guess that commentary sounded a bit cautious to me but.
Yes.
How are you thinking about those issues impacting your sales.
And overall arm premium it doesn't sound like you're adjusting your and your three year guidance for earned premium of.
Of flattish is it changing the trajectory of.
Of what you expect for 'twenty, one versus 'twenty, two just a little more elaboration on those issues.
Go ahead, and well short of answer is it's not.
We meaning we have not adjusted our guidance.
Or even really the path of that guidance, while down for the reasons, we've talked about most notably just simply sales being down.
It is actually essentially on plan, meaning it is it is meeting our expectations and what we thought would take place them. So we're not adjusting any of our thoughts for the roll forward persistency is 80% doing better than we thought yes.
It is doing better and.
But I would say overall.
It's coming and just as we thought might happen.
Okay. Thanks, and then just to follow up on the benefit ratio.
Max can you give a sense for when you talk about very favorable and January and then gradually elevating.
Was march back up to around 48, 49% or is it still below that and is there still the possibility of that <unk> is going to trend favorably based on the trend you saw in March.
And the total benefits ratio is obviously heavily impacted by quarter and actuarial review studies.
But I would say it is just tracking sort of paid claims we were getting closer to a normal level in the month of March.
Still not all of the way up to what I would and say.
Say to be pre pandemic levels.
And we're getting fairly close.
Okay, so slightly favorable but much closer to that level.
And that is factored into one when we then look at our full year benefit ratio as we sit here today and we'll look out for our benefit ratio. The obviously incorporate.
A whole host of the different factors when we look at the full year, including the possibility of some pent up demand in terms of a claims being filed as well I've touched earlier on that.
And on that including and potential increasing cancer claims.
And that's factored into our outlook.
And the revised guidance of being towards the low and or slightly below the 48% to 51% for the benefit ratio for the full year and the U S.
Okay. Thanks.
Yes.
Your next question is from the line of John Barnidge with Piper Sandler.
Thank you.
The last time, Japan plays and proactively selling cancer insurance the world looked a whole lot differently can you talk about digital tools. I mean, you talked about the new medical product and digital tools that help the distribution there, but can you talk a little bit about the digital tools, we're working to bring to Japan post as they were.
The ramp up proactively selling the product.
Good day.
And then zone.
And guns.
And do you guys.
True statements.
Well the parent.
In the bulk of medical insurance and reinsurance book.
And so.
And then.
And that's going on with debt.
And the two and it's.
And the younger generation you just more of the digital tools.
It is being very much is value.
And then.
Paul.
And.
And consumers with you and Nemo and Smith.
And with regard.
And you get that.
We are preparing to preparing Dan to start using the digital tools.
And just look at this the market the rules.
Okay.
And we already have a plan to get started with the.
Marketing and some part of the J D.
And so on and just kind of alluded to this day.
Okay.
And as soon as the container side.
And the stimulus.
And it depends tell us it really has taken the learning to emphasize using the digital tool. So I'm sure that David the affiliate.
Leveraging the digital sales going forward and that's it for me.
Yes, even though.
What's interesting is even though sales.
We're somewhat suspended and the system during the.
During this period of recovery for Japan post.
The alliance never stopped and Thats.
And important to understand and so other areas of the alliance, including investing in the distribution platform investing in mutual technology.
Certain investment and venture related strategies.
The entire governance structure and regular meetings with executive management and with frontline management, none of that was suspended and kept moving forward and much of it was designed around advancing technology and advancing process improvement between the two parties.
Taking advantage of this pause and the action to be ready to come back into market.
Thank you.
Your next question is from the line of Michael Ward with UBS.
Thank you Scott good morning.
A quick question on the idea of delayed cancer screens, I know you've kind of touched on incidents of frequency, but I was wondering if you had any updated expectations on the trend and cancer severity. Once the economy reopens just on the idea that delayed screenings are delaying the detection of worsening and cancer conditions and I thought maybe if you had some of his.
Oracle experience managing premium Grace periods from natural disasters, maybe you've kind of seen this happened before.
I don't think that wherever the we've really gone through.
Such a prolonged time.
And it's something like COVID-19 and the impact of Pat we saw in the very beginning of COVID-19 that cancer screenings dropped significantly.
And then started to normalize.
So it's still a sort of difficult to fully sort of see or have a clear expectation and all of that what the impacts may or may not be and.
And we are trying to be conservative and the estimates that we have and our expectations buoyed walk the different outcomes.
Could be in general I would also remind you that generally.
Severity does have a little bit of and impact on our claims, but it's relatively small were primarily frequencies and really what drives and all.
Our benefit ratio.
Thanks very much.
Your next question is from the line of Ryan Krueger with <unk>.
Hey, Thanks, Good morning, I know Paul.
All of them the Japan.
Can you just give any I know, it's early and there's a lot of uncertainty, but can you give any sense of.
And if directionally, how meaningful you think their sales could be the here and maybe how many year debate with them to rebuild back of the prior level.
Yeah, I think it's.
Too early for us to tell but what I would Fred mentioned, this but I want to reinforce it.
As we've got as good of relationship with the new management team.
As we had if not better with the old management team and.
And.
Being large shareholders that they are they are also very interested and their stock and what they've invested in and so it's a win win opportunity and.
And I think it will be coming back, but when you were.
We're in uncharted waters with all of this COVID-19 stuff and so it's hard for us to go out.
When we don't know about it as well, but look this is this is not in any projections, but my gut just sales manager just mine so for what it's worth but debt, it's going to do very well and it's going to be a little slow and the second quarter, and then theyre going to ramp it up the one thing I've seen.
And with the Japanese over the years is.
They tend to analyze reanalyze reanalyze again, and then all of the sudden move at once so you don't and the U S. We kind of ease into it add a little more add a little more and then it builds.
The if you take both groups of the start and why the U S. We will always take off first but at some point halfway through that Japan will all of the sudden decide we're ready to go and they will blow out and then all of the sudden and go to that point I believe we're in that stage right now.
I believe that will go through the first quarter, but I think by the end of the year youre going to see them coming back and Poland now Aflac, Japan is a little bit more reluctant and to say all of that so I am not speaking on their behalf, but I've been doing this for 31 years and.
And I just have a real good feeling that.
Debt also Japan post wants to make money and they need and they need to do those things and aflac products with cancer insurance or something the consumer wants and needs and so when you add debt to it.
I would say there is good chance now of the downside is something goes wrong with the.
With COVID-19 or something like that but that is not limited to us if that happens that happens every business out there today. So I am sure you take that into the account, but if you exclude that.
I feel pretty good about what's going to be taking place.
Thanks, Dan.
Sure.
And final question comes from the line of Greg <unk>.
Greg Peters with Raymond James.
Because of our phone.
And on behalf of Greg Peters.
Maybe just one question on the.
And the paper listen the initiatives.
Just curious if.
The option of digital has any acceleration of that initiative and as.
And as well as the are there any other social and environmental and initiatives.
That you are pursuing.
Related to the.
The 400.
The bond.
I think and in terms of the Japan Paperless initiative it's.
Its on track its moving well as you might recall, it's of 10 billion yen roughly two and a half year investment.
And I would say, we're probably in the range of three perhaps approaching $4 billion of investment to date, it's designed to take about 80 million pieces of paper out of the system and it's.
And starts and the paper form it remains in the paper formed through the processing and right.
And the way of expenses and it remains on track and it is closely tied to the digitization of the platform that it's essentially one and the same it's one of the major may.
The major efforts if you will that's involved and overall digitization of the platform.
In terms of the $400 million sustainability bond.
Yes, we have very well articulated and dedicated plants for the investment of those funds they largely surround.
Classic sustainability investments, meaning climate climate related renewable energy investments. They also include among other things investments and opportunities zones and.
And areas that suffer from a lack of income equality.
And so those are largely the areas that we're targeting and as you may know and the sustainability bond so called Green bond et cetera marketplace, there's very strict and well defined requirements around what you invest in and the qualification of those investments of the tracking of those investments and the yielding of benefits from those investments.
And so while it's a $400 million bond my point and my comments was it's a much bigger effort for the company because it serves to set the entire structure up for broader based investment.
Far greater than $400 million overtime, particularly the utilization of our general account on the ESG efforts.
And we would expect our net.
Favorable risk adjusted returns on the EPS investments.
Okay. Thanks for the answers.
Thank you and I believe that wraps up our call one and thank everyone for joining US today. If you have any follow up questions. Please feel free to reach out to the Investor and rating agency relations teams and I look forward to seeing you soon hopefully and also talking to you and the near future. Thank you.
Okay.
Okay.
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