Q4 2021 Aflac Inc Earnings Call
Instead of Aflac International.
<unk> associated <unk>, President and representative director.
Todd Daniels director and CFO .
And <unk> Yoshi, Zoomy director, Deputy President and director of sales and marketing.
Before we begin 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 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 releases available on investors Dot Aflac Dot com and includes reconciliations of certain non U S GAAP measures.
I'll now hand, the call over to Dan Dan.
Good morning, and thank you for joining US 2021 was another year of uncertainty with vaccines incrementally gaining some momentum as the year progressed.
There were hopes that the severity of COVID-19 would fade and allow us to return to some type of normalcy. Unfortunately, one year in several variance later the normalcy has been.
Yet it did not remain idle we have worked hard to adapt using virtual technology and seize the opportunity to accelerate investments in our platform considering what the global and National business landscape has experienced over the last two years I think app.
<unk> has been very fortunate with some tail winds, while simultaneously working hard to achieve our objectives.
And continue our strong earnings performance.
While Max will address the quarter in more detail I'd like to highlight some of the items for the year adjusted earnings per diluted share excluding the impact of foreign currency increased 21% in 2021.
This result was largely supported by the continuation of the low benefit ratios associated with the pandemic conditions and better than expected returns on alternative investments.
We were pleased with this result, especially when you consider the pandemic pressure on revenues accelerated investment in our core technology platforms and initiatives to drive future earned premium growth and efficiency.
2021, Aflac, Japan generated solid overall financial results with an extremely strong profit margin of 22% and solid premium persistency of 94, 3%.
We continue to navigate Japan's evolving pandemic conditions, including various degrees of COVID-19 related restrictions that created headwinds for our face to face sales opportunities.
Especially given this backdrop I am encouraged by Aflac, Japan's annual sales increase of seven 7%.
This reflected the first quarter introduction of our medical product ever Prime.
And the September launch of our new nursing care product.
Amid evolving pandemic conditions, we continue to enhance and actively leverage our virtual sales technology to connect with customers as we monitor the recovery of face to face sales are.
Our goal in Japan is to be the leading company for living in your own way.
This approach captures how we tailor our products to fill consumers' needs during the various stages of their lives, reaching them, where and how they prefer to purchase insurance. This includes through our agencies strategic alliance and banks as well as virtually.
Aflac, Japan continues to offer various measures of support to Japan Post group as they gradually increase proactive sales activities and gear up for the start of their new fiscal year in April of 2022.
This will include the transfer of approximately 10000, Japan Post company employees to Japan post and terms.
These employees will handle only Japan post insurance products.
And most importantly for us Aflac, Japan's insurance or cancer insurance.
We expect this continued collaboration to further position the companies for the long term growth and gradual improvement of Aflac.
Insurance sales in the in the interim.
Turning to Aflac U S. We saw a strong profit margin of 22, 8%.
This result was driven by lower incurred benefits and higher adjusted net investment income, partially offset by higher adjusted expenses.
I am pleased with the 16.9% annual sales increase, especially considering the constraints face to face activities continues to be somewhat of a headwind in the U S as well.
Aflac U S. Also continued to generate strong premium persistency of nearly 80%.
In the U S small businesses have gained some incremental ground toward recovery and we expect this to continue gradually.
Within the challenging in small business and labor market, we continue to engage our veteran agents.
At the same time larger businesses.
To be more resilient given their traditional reliance on online virtual self enrollment tools and we are making ongoing investments in the group platform.
Excluding our acquired platforms 2021 group sales or more than 104% of 2019 group sales.
We remain focused on being able to sell and service customers whether in person or virtually.
As part of the vision 2025, we seek to further develop a world where people are better prepared for unexpected health expenses.
Fred will provide more detail, but as we seek to fill the needs of customers businesses and our distribution. We continue to build out our U S product portfolio with Aflac network, dental and vision and Premier life and disability.
These new lines modestly impact the top line in the short term.
In combination with our core products, they are better positioned to Aflac U S for future long term success.
The opinion, depending on continued progress in the pandemic conditions, we remain cautiously optimistic for continued sales improvement in the U S.
Need for our products, we offer is as strong or stronger than it has ever been at the same time, we know consumers habits and buying preferences have been evolving and we are looking to reach them in ways other than traditional media and outside the work side.
This is part of the strategy to increase access penetration and retention.
I have always said that the true test of strength is how one handles adversity, while the pandemic has been and continues to be this type of test I am pleased that 2021 confirmed what we all knew.
<unk> is strong.
<unk> and resilient and both Japan, and the United States, we look for ways to be where people want to purchase insurance.
Related to capital deployment, we placed significant importance on continuing to achieve strong capital ratios in the U S and Japan on behalf of our policyholders and shareholders.
When it comes to capital deployment, we pursue value creation through a balance of actions, including growth investments stable dividend growth and disciplined and tactical stock repurchase.
Goes without saying that we treasure our record of dividend growth.
Fourth quarter's declaration, Mark the 39th consecutive year of dividend increases.
Additionally, the board approved a first quarter dividend increase of 21, 2%.
Our dividend track record is supported by the strength of our capital and cash flows at the same time, we remain tactical in our approach to share repurchase deploying to $3 billion in capital to repurchase $43 3 million of the shares in 2020.
Juan.
Keep in mind. In addition, we have among the highest return on capital and the lowest cost of capital in the industry. We are also focused on integrating the growth investments we've made in our platform.
As always we are working to achieve our earnings per share objective, while also ensuring we deliver on our promise to the policyholders by doing so we look to emerge from this period in a continued position of strength and leadership.
I want to point out that the world has changed in many ways that surprises even the most cynical, but what it hasn't changed is the fact that the pandemic or no pandemic people are facing the same illnesses accident and health conditions every day only now COVID-19 has been added.
This means that the need for our products is even brighter now and we are committed to being there for them in their time of need.
I don't think its coincidental that we've achieved success, while focusing on doing the right things for the policyholders the shareholders. The employees the distribution channel the business partners and communities.
I am proud of what we've accomplished in terms of both our social purpose and financial results, which have ultimately translated into strong long term shareholder return.
Now I will turn the program over to Fred Bret.
Thank you Dan.
Briefly on 2021.
Excuse me, but will focus my comments on growth and efficiency initiatives in 2022.
Beginning with Japan, Covid conditions continue to negatively impact our business, we expect sales to build from 2021 levels. However, there are currently 34 prefectures.
Soon to be 35 prefectures subject to Covid prevention measures that can have the effect of restricting economic activity.
There are no restrictions that directly impact the sale of insurance or our operations. However, consumers are naturally more reluctant to engage in face to face meetings with prevention measures in place.
As we look to 2022, we're focused on the following.
First strengthening of our associates channel through increased policy solicitations at the Worksite marketing new products to existing policyholders and building market share and nonexclusive agencies, where we have been historically weaker there.
The associate channel response to periodic medical and cancer product refreshment, but we believe these efforts will defense sales in this channel at 2021 levels. Despite it being a year without a major product refresh.
Following on Dan's comments regarding Japan post we've seen proposal activity to potential customers grow materially during 2021.
We are a long way from recovering to the volumes enjoyed in 2018, however, as part of our organization wide coordination with Japan Post group and building on past initiatives. We ran a test pilot initiative during the fourth quarter that provided sales process management tools and practices.
To Japan post in support of customer centric engagement.
This initiative was implemented by model post offices and led to increased written proposal activity and ultimately increase sales.
Through our strategic Alliance framework that Japan post companies have agreed to a nationwide campaign to rollout the best practices learned from our fourth quarter initiative as.
As the campaign will be linked with the transfer of 10000 postal network sales employees to Japan Post insurance. This April we are confident this will result in a meaningful level of recovery as compared to 2021.
In terms of product development, we ended 2021 with a little over 1 billion yen and sales of our new nursing care product.
We are introducing targeted incentive programs and television advertising that profiles, the mental and financial burden of caring for an aging parent.
In addition, we plan to launch a new work leave or short term disability product in March.
The new short term disability product targets small and medium sized businesses that tend to have less comprehensive coverage.
We expect both products to combine for 5% to 10% of our sales in 2022.
Turning to operations, we are focused on initiatives designed to stabilize our expense ratio in the face of declining revenue as sales recover and we continue to run off first sector interest sensitive product.
These initiatives include a transition away from paper based processes to digital.
Modernization and Reimagining policyholder services, our largest operating platform with an Aflac Japan.
Turning to the U S. Covid conditions are not expected to be the headwinds faced in 2021.
We can't control the risk of new variance, but we plan to return to near normal operating conditions as we enter the second quarter, while cautiously following CDC guidelines, we are seeing promising new business formation and associated momentum in sales, having spent time with our agents and brokers.
In January the overall energy among our distribution partners gives us confidence results will certainly build from 2021 levels.
Dan covered our core business, our core small business in group voluntary results. We are focused on continued recovery in our agent driven small business franchise.
Recruiting is critical as is converting recruits to average weekly producers recruiting was up 17% in 2021, however on the back of a significant jump in small business broker appointments, which unlike agent recruiting takes time to convert to producing new business.
Our broker sold group voluntary business performed at a higher level than pre pandemic 2019. It is important to note that we are one of the few companies that focuses specifically on driving voluntary product through specialized VB brokers and in partnership with leading benefit administrators.
In 2021 group sales through brokers, which tends to focus on the mid to large marketplace, where one third of <unk> total U S sales.
Turning to our building platforms, our network dental and vision line of business continues to develop.
We now have over 7000 agents trained with 50% of 2021 quote activity occurring in just the last four months of 2021.
Sales were $23 million in 2021, with an additional $15 million of voluntary products sold alongside capturing what we refer to as the Halo effect.
We have a network of 90000 providers of which 15 are proprietary and the remainder leased we expect to double the size of our proprietary dental network in 2022.
Controlling the quality and design of our network is critical as we seek to create a competitive advantage and move upmarket into broker sold business.
Our premier life and disability business ended the year with $62 million in sales and has carved out a strong reputation as having unique client care model advanced leave management capabilities.
A building referral network as consultants and clients realize bigger is not necessarily better.
Not included in these sales results.
<unk> launched our Connecticut paid family medical leave administrative platform and hope to see additional states entertain outsourcing <unk> administration.
Our consumer markets business recorded sales of $39 million for 2021. The platform is in expansion mode with plans to add network dental and vision and hearing along with senior market products in 2022.
Later this quarter, we expect to rollout through select brokers are new Aflac pet insurance powered by <unk>.
We are targeting the larger case market and believe our solution is superior to the competition and Leverages. The best of both the powerful Worksite brand and a recognized leader in pet insurance with a unique value proposition.
Operations will continue to be a key area of execution with the goal of bending the expense ratio curve in the next few years.
You can see from my comments, we are clearly in building mode, along with platform modernization.
Investments include stabilizing and our small business enrollment tool modernizing our dental and vision platform to handle increased volumes and migrating off of legacy group voluntary platform armed with an expanded product portfolio.
These are a few of the initiatives elevating our current expense ratio, but as discussed at our Investor Conference. We will turn the corner in the next few years moving from the higher end of our forecasted range to the lower end come 2024.
Commenting on our investment operations, we completed our strategic asset allocation work in 2021.
Are now executing on that strategy together with corporate finance activities at the holding company. We are confident we have engineered a prudent approach to our US dollar program in Japan.
The program is constantly refined and optimized driving yield maintaining diversification lowering hedge costs, reducing exposure to negative settlements all while sheltering our investors exposure to a weakening yen.
While late in the game as compared to some in the industry. Our disciplined approach of building an alternative portfolio, resulting in strong variable investment income last year. We understand these portfolios are likely to give back some of the gains in the last year, but we are off to a strong start in generating the favorable returns expected.
From these portfolios.
Finally, I'm very pleased with the progress made on ESG front in 2021, we are now a PRA signatory. We have returned to the Dow Jones sustainability Index and last week were once again named to the Bloomberg gender equality index, great progress and more to come.
I'll now hand off the Max to cover our financial performance Max. Thank you Fred for the fourth quarter adjusted earnings per diluted share increased 19, 6% to $1 28, with a <unk> <unk> negative impact from FX in the quarter.
Full year adjusted earnings per diluted share of $5 94 was 19, 8% higher than a year ago.
This strong performance for the quarter and full year was largely driven by lower claims utilization due to pandemic conditions.
Variable investment income ranked 13th.
<unk> per share above our long term return expectations for the quarter and.
<unk> 40 per share for the full year.
Very good outcome for our growing private equity portfolio.
Adjusted book value per share, including foreign currency translation gains and losses grew seven 7% year over year.
And the adjusted ROE, excluding the foreign currency impact.
13, 6% in Q4, and 16, 1% for the full year, a satisfactory result in significant spread to our cost of capital.
Starting with our Japan segment total net earned premiums for the quarter declined four 3%.
And for the full year it was down three 9%.
Policy Count in force declined one, 8%, which better reflects our overall growth in our business.
Low new sales and a slight uptick in lapse rates were the main drivers for earned premium decline.
Japan's total benefit ratio came in at 67, 3% for the quarter down 160 basis points year over year and the third sector benefit ratio was 57% also down 160 basis points year over year.
For the full year the benefit ratio was 67, 2% down 270 basis points year over year.
We experienced a slightly greater than normal IV in our release in our third sector block as experience continues to come in favorable relative to initial reserving.
This quarter it was primarily due to pandemic conditions constraining utilization.
On a slightly higher lapse rate within our medical block.
Adjusting for greater than normal IBM releases and in period experience, we estimate our normalized benefit ratio for Q4 to be 68%.
Persistency remained strong with a rate of 94, 3% down 80 basis points year over year.
Our expense ratio in Japan was 22, 6% down 40 basis points year over year.
Good cost control in combination with higher than expected NII have helped our expense ratio. Despite the overall decline of policies in force and earned premium.
For the full year the expense ratio increased 30 basis points to 21, 5%.
Adjusted net investment income increased 16, 8% in yen terms, primarily driven by favorable returns on our growing private equity portfolio and lower hedge costs, partially offset by lower reinvestment yields on our fixed rate portfolio.
For the full year adjusted NII was up 17, 6%.
The pre tax margin for Japan in the quarter was 24, 7% up 380 basis points year over year, a good result for the quarter.
For the full year the pre tax margin was 25, 2% supported by a very low benefit ratio and stronger than expected variable investment income.
Turning to U S results net earned premium was down one 3% as lower sales during the pandemic continues to have an impact on our earned premium.
For the full year earned premium declined two 5%.
Persistency improved 30 basis points to 79, 6% driven partially by emergency orders continuing in certain states.
Our total benefit ratio came in lower than expected at 46, 7% or 490 basis points lower than Q4 2020.
Lower end deferred claims utilization impacts our IV in our held for incurred claims within a year and as we get more data our long term models increase their reliance on source data, both leading to IV in our releases.
This quarter, the IBM <unk> amounted to a one 5% net impact on the benefit ratio.
Which leads to an underlying benefit ratio, excluding ibm's <unk> releases of 48, 2%.
Our expense ratio in the U S was 43, 8% up 30 basis points year over year.
Q4 seasonally experiences a higher expense ratio as business activity, Enron and enrollment picks up towards the year end.
For the full year the expense ratio was up 90 basis points to 39, 5%.
Our continued build out of growth initiatives group life, and disability network dental and vision and direct to consumer contributed to 120 basis points increase to the ratio.
These strategic growth 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.
We also incurred $6 $1 million of integration expenses associated with recent acquisitions, which are not included in adjusted earnings or they reported expense ratios.
Adjusted net investment income in the U S was up eight 2% in the quarter and 7% for the full year, mainly driven by favorable variable investment income.
In the U S segment reported a pre tax margin of 16, 1% for the quarter and 22, 8% for the full year with a low benefit ratio as the core driver of improved results in both periods.
In our corporate segment, we recorded a pre tax loss of $155 million as adjusted net investment income was $109 million lower than last year due to low interest rates at the short end of the yield curve lower amortized hedge income and change in value of certain <unk>.
<unk> credit investments.
These tax credit investments run through the NII line for U S. GAAP purposes, with an associated credit to the tax line.
In the quarter the impact of NII was a negative $104 million.
And the offsetting credit to GAAP taxes was a favorable $80 million.
Leading to a net impact to our bottom line of a negative $23 million in the quarter.
To date these investments are performing well above our cost of capital and in line with expectations.
Our capital position remains strong and we ended the quarter with an SME north of 950% in Japan.
And a combined RBC north of 600% for Aflac U S.
Unencumbered holding company liquidity unencumbered holding company liquidity stood at $4 billion $1 6 billion above our minimum balance leverage remains at a comfortable 22, 4% in the middle of our leverage corridor of 20% to 25%.
In the quarter, we repurchased $625 million of our own stock and pay dividends of $217 million offering good relative IRR on these capital deployments.
For the full year, we repurchased $2 $3 billion of our own stock and pay dividends of $888 million for a total of $3 $2 billion of capital returned to shareholders.
We will continue to be flexible and tactical in how we manage the balance sheet and deploy capital in order to drive strong risk adjusted ROE with a meaningful spread to our cost of capital.
Before closing I would like to reiterate the outlook given at fab four our key value drivers for the time period 2022 and 2023.
With that I'll hand, it over to David to begin Q&A.
Thank you Max.
We are now ready to take questions, but first let me ask that you. Please limit yourself to one initial question and a related follow up to allow other participants an opportunity to ask a question.
And with that Jason If you will open up the line to our first caller.
To ask a question you May press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two our first question comes from Nigel Dally from Morgan Stanley . Please go ahead.
Great. Thanks, and good morning, everyone I wanted to start on network dental and vision group life and disability I appreciate the color on sales and how those results compare to your expectations and as we look to 2022 do you have a number in mind as to what portion of total yourselves.
Come from those platforms.
Nigel this is the spread let me let me try to address it but then I will ask Theresa and virtual to weigh in with any comments they have but so first of all with Plaid is extremely pleased we call at Platts Premier life, and disability and leave management.
Not only did they hit the sales expectations that we had when acquiring the property.
But they advanced beyond that particularly with the state of Connecticut contract for lead management, which is not an insignificant contract from a revenue standpoint. We don't include it in the traditional measure of sales only because it is not linked with the natural life and disability contract, but it's a meaningful business and one that certainly wasn't.
<unk> when we made the acquisition so we couldnt be more pleased the other thing I would note is that we successfully renewed 100% of our contracts this year with a 4% average pricing increase across the board.
That was that was very good news our team under our platts team pays very careful attention to the quality of service and quality metrics as they lead into renewal period and that proved to really really benefit us on the renewal side I would say that because the earned premium which is as important as the sales is tracking on.
Our better than our expectations as well so both sales and retention are very good and again as we peel the onion back on that property, having acquired it and folded it in over the last year.
Just gets better on that property very good platform very pleased dental envision of course, we had remember we bought a tpa, but really needed to build from scratch the actual dental and vision product along with the network and so we very much have been in building mode on that property I would say the sales in 2021 were below.
The expectations, we were expecting coming into the year, but we're not due to necessarily bad performance. It was more a conscious decision to roll that business out carefully.
And also had timing related issues with entering those products onto our enrollment tool remember with dental and vision were actually starting out in the small business community with our agents. So we're selling into 100 less employees and that means it has to be not only approved by all the states, which we did throughout the year.
But also has to be installed on our enrollment platform, which takes time and energy to put that on available in all states. So you had a pretty big lift with that.
That product.
And it's fair to say that COVID-19 conditions impacted the small business world, which meant it impacted the agent delivery model from a distribution and it just so happens that we decided long ago that our first entry point with dental and vision was with the small business agent driven model and we did not and.
Dissipate COVID-19 . So it was behind what we originally had forecasted but I can tell you that we're extremely pleased with it one thing that we're really pleased with that has outperformed is the halo effect that I mentioned.
Selling $23 million of network dental and vision, but then selling an additional $15 million of voluntary product associated with the dental and vision sales that exceeds our halo expectations. We would expect to have a halo effect of around 30% and to be north of 50% approaching 60 70.
<unk> is well above our expectations I don't think its going to stay at that level, particularly as we go more aggressively upmarket, but still very pleased with that with that Halo effect. So all in all I would say very good now in terms of what percentage of our sales next year, we've been climbing gradually north of 10 <unk>.
Sent a sales heading towards 13% to 15% of sales and in 2022, I would expect to be in that range. So, let's just call it 10% to 15% of sales obviously in some ways, we don't want that percentage to be too high because we fully expect the rest of our business to grow.
Significantly as well, but I think that's not a bad estimate.
Great I'll burden actually covered most of what we would cover so I do agree.
22 that literally.
We will see about 13% to 15%.
Bill.
The percentage of U S sale.
And we are actually just expect and as we continue to move out by 2025 about 20%.
Sales of U S sales will be positive.
Property.
That's great.
Hello, everyone.
And just as a follow up I just want to stick on the U S career agency recruiting broker recruits were up meaningfully for Eurasia was under pressure is that a reflection of the labor markets and should we be thinking about that as a headwind for 2022, there are other initiatives to try to.
Accelerate that from here.
Hey, virtual you take that but let me just make sure I'm very clear on something just listening to <unk> and I want to make sure it's clear now.
Nigel when you asked the question you asked specifically to our life and disability business and our dental and vision, when we say, 13% to 15% we consider our buy to build properties to be those two properties plus the build of our direct to consumer platform. So just note that we consider those three businesses when we quote you.
13% to 15% just to make sure we're clear on that okay great.
Sorry, virtual once you or Theresa take the recruiting question.
I'll, let <unk> take that question, Okay, well. Thank you. Thank you for the question Nigel actually we're very pleased with where we're sitting with recruiting I think youll notice as you indicated your question that we achieved about 17, 5% growth, but we changed our focus if you think about it.
There were some headwinds with the labor market. So instead of just relying on new recruits.
We recruit over 10000, we did.
Pivot our evolve our model to focusing on those small brokers, we activated over 5000, we're starting to see them perform going into the second half of last year.
So we're very pleased as you can see to contribute to overall increase in productivity. So as I look going into 2022, I expect to see more of the same could be a combination of new recruits, but we will continue our focus still building a small broker space also.
That's great I appreciate the color.
The next question comes from Jimmy Buhler from Jpmorgan. Please go ahead.
Hey, good morning. So a question just on sales in Japan, and obviously it seems like sales have bottomed and they recovered a little bit obviously still depressed versus historical levels.
But is it possible that in the early part of 2020 do you actually take a step back again.
Some of the restrictions that the government imposed in Japan.
And you don't see the ongoing improvement that we've seen recently.
Okay.
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<unk> pre fixtures. So it is true that there is some impact to our sale. However, as we promoted online sales of virtual sales last year.
And hoping that the virtual sales again this year.
And this is a virtual sales plus the real or the physical sale.
Have been established as the hybrid sales and we will be promoting this method.
Yes, I think one thing I would I would add is just this is fred.
Again to remind you there are various grades if you will of level of severity that the government will put in place pre secured by pre procure the most severe being the state of emergency.
When we talk about 35 prefectures being under prevention measures that is one step below the state of emergency level.
It's important to note that the government of Japan is really trying to balance containing of course the virus without.
Dampening economic activity and they are trying to play that balancing act and so even state of emergencies had been a little less restrictive than in the early days of Covid and these cautionary practices in the prefectures in of themselves don't really restrict our activity and our ability to sell and meet with potential clients and so forth. The issue is.
It's hard to measure is if you're a citizen of Japan and you live in a pre fixture that is in a.
Where there is a prevention measures that are being put in place do you feel less comfortable meeting face to face in conducting business in a normal way and that's very difficult to measure, but we see it in our results and so theres no question Theres a bit of a headwind as we head into 2022, but it's certainly not as severe state of emergency and its definitely not.
As severe as the early days of Covid.
Okay.
And then just on Japan as well.
Can you just talk about what's going on with the post and what's your expectation of longer term being able to potentially expand that relationship beyond cancer.
I'll, let the Japan team.
Well in some of the blanks and talk about it but as I mentioned in my comments first of all there is no specific plan to expand products. However, again remember.
We consider our cancer business in Japan post to be a line of business and so for example, when we upgrade cancer products or add riders or feature to cancer products, we do that within the Japan post system. As you may know from some of our comments at the Investor Conference. What we're really excited about is we're starting to introduce.
Concierge non insurance services to support our cancer business. This involves a cancer policyholder being able to call into a concierge line and be tapped into non insurance services that support their needs, whether they are going on claim or prevention or detection needs care needs even.
Oncologists recommendations.
These types of services.
So all of that product capability that we house within the company, we called hatch healthcare all of that will be available to Japan post policyholders.
And we will help with both retention and growth so no new product lines, but the cancer line continues to expand and develop within the Japan post system.
And I'll, let my colleagues in Japan talk about the momentum coming off our fourth quarter.
Pilot exercise and looking at 2022.
Okay.
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So this is Jimmy once again.
And in specific what we referred to by a pilot is to take the example of branches in sales.
Doing well and not doing well and especially those that are doing well is taken as a model for all the other sales offices in outlets.
What we normally do is to reflect the successful sales offices.
Practices to other sales offices and the three particular initiatives that we are planning to do is to give guidance as to those sales professionals conducted training and then also enhancing proposal capability and by going to the PD.
We will be improving each of these initiatives.
Then.
We have conducted pilots in the fourth quarter, we were successful and since we have seen some success in the fourth quarter, we are going to be promoting our sales in 2022 by using similar measures.
Okay.
Yeah, and I might add just to put a little bit of numbers behind it because I know there is there is sort of a question. What do you mean by improved but just to give you an idea of when looking at those model offices and our results in this test pilot program in the fourth quarter. When we moved from third quarter results to fourth quarter results.
We had over a 50% increase from third quarter to fourth quarter. Both in the number of proposals put forward and the resulting sales.
It was clearly success successful and so what the executive teams and sales teams are doing between our team and Japan post has they are sitting down analyzing those results and now looking at more of a national spread of that platform, but it was a very tangible increase.
And gets us excited about some increased momentum in 2022.
Thanks.
The next question comes from John Barnidge from Piper Sandler. Please go ahead.
Yes.
Thank you and good morning.
Question. It seems like when we enter each new quarter. The expectation is for claims normalization to occur over the future quarter that hadn't occurred over the last year and a half but can you maybe talk about how claims utilization, especially in the U S. But also in Japan has trended as the omicron, Gary has emerged and probably globally.
Fatigue sets in.
Thank you John and thank you for pointing out that my prediction about claims utilization that has been wrong for the last year.
Throughout the year of 2021, and I'll start by talking to the U S.
We did see a gradual increase in claims utilization each quarter.
With very very low claims utilization in the first quarter and then we saw a little bit about and that continued quite frankly throughout the second quarter and then we started to see a normalization in the third quarter and then into the fourth quarter as well.
We're not fully back to normal, but I would say when I look at for example paid claims data for the fourth quarter than November was higher than October and December was higher.
November .
And we are getting back very close to what I would deem as sort of normal.
Sure.
Normal claims utilization starting the year of 2022 for the U S.
So that.
Means that I do think that we are fairly close to normal claims utilization going forward.
It's also the fact that.
We did have a correlation between.
Infection rates in the in the society and the claims utilization and with.
<unk> has done is that that correlation has pretty much broken down.
And I think that is due to people are living in a much more normal life.
You see mobility coming back to more normal levels and with that.
People are getting into accidents, they are going for physical checkups et cetera.
And that is sort of driving a more normal claims pattern and behavior among our policyholder base in the U S. So that is why I do believe that we are going to add.
Come back to sort of more normal claims utilization pattern for 2022, and we do expect that.
Our benefit ratio in the U S.
Go.
Fall within the.
Sort of normalized range and so we do expect that we will be within the 48% to 52%.
The benefit ratio in the U S for 2022.
When you go to Japan.
You have a somewhat of a similar pattern, but it has lagged the U S. You don't see the reactions as quick as you do in the changes as quick as you do in the U S and you don't see the ups and downs as much as we have seen in the U S. So you have a much more flatter and more prolonged.
Pattern of claims utilization in Japan.
We are still in Japan, we we are trending a little bit below but not significantly below what we would deem to be sort of R. F.
Normalized claims utilization.
I hope that helps.
It does thank you very much and then my follow up.
As you think about pet insurance for 'twenty, two how meaningful of a contributor do you think that'll be thank you.
So a couple of things about the pet insurance products. So as I mentioned in my comments later in the quarter. We expect to launch we're taking a very targeted approach and that is we're launching in what we characterize internally as our premier broker platform. These are some of the largest brokers in the country that deal.
Particularly with typically larger companies think of it as a 1000 employees and larger.
That's also where a lot of the employee benefit base demand is for pet insurance.
And we expect there is theres a lot of pent up expectation for the product there's a lot of momentum around pet insurance in the work site. So we do believe there's going to be a lot of interest.
Now remember in terms of our results recognize that we don't book any earned premium if you will our sales on that product.
<unk> earned premium and sales booked by true Pan Ewen.
Our rationale for putting our brand on it powered by <unk> is that it creates a first it checks a box in terms of having a pet insurance product, which many of the brokers and their clients like to see and have interest in.
But also it creates an opportunity to have a.
A more unique conversation and broader capability when we're in finalist presentations on voluntary benefits overall.
So it really helps create more energy around our broader voluntary products and once again looking for that Halo effect.
So that's our expectation we don't have really specific sales expectations other than it's going to be gradual.
Because we want to get it right and when you come into the Premier broker world with a new product.
Don't have too many chances to get it right you need to get it right out of the gate.
Need to measure three times and cut once and the reason is because if it doesn't get off to a good and controlled start.
It can be problematic in that community of brokers and we don't want that to happen.
But it is a very unique product those of you who are familiar with true Pan here and I'm sure you've read the news recently that they were excited to announce an alliance with chewy, which has really.
Bonafide their unique value proposition. We think this is a different type of a product. We think this is not simply a check the box pet insurance product, we think the special value proposition veterinarian driven.
Type product set.
A unique differentiator and we've coupled it even with benefits.
U S employee can purchase a rider that pays you hear out of pocket costs. If your pet is sick and you need to take off work and an experienced some of the same out of pocket costs that come with human health conditions. So we really have built a unique value proposition. We think it is a differentiator and we think it will create more fulsome conversations when selling our broader voluntary.
<unk>.
Thank you best of luck.
The next question comes from Humphrey Lee from Dowling and partners. Please go ahead.
Good morning, and thank you for taking my questions. My first question is whether the accounting the Japan post employee kind of transferring 10000 of them too to Japan post insurance, how should we think about the required time for them to ramp up and how should we think about the potential impact on the sales outlook.
I think it's best for our Japan colleagues to address that so you should assume is on the.
Transfer of postal sales people to Japan post insurance and how that flows through and is there any ramp up period.
Hi, Jeff.
I'm going to start off with I must say.
So any demanding.
Japan post the company put out its a bump.
Each company.
Must be a little more.
Julian.
The compensation.
The <unk> campus.
<unk> segmental <unk>.
Okay. Thank you <unk>.
Hey, this is Scott.
As you mentioned there will be 10000 people, our salespeople moving from Japan Post the company to Japan Post insurance in April and this is being planned.
What is very important about this is that after people are transferred to Japan post insurance, they will only be selling Japan post insurance product and effort cancer product.
So that's when you look at the <unk> Houston, they must be that unless you've got to talk about.
Or is it.
We'll go to Marty muscovado, more so not all those or any.
Bye.
The winter months and with it <unk>.
No.
You know puts us in a cool hanging onto that gunk.
Bank and the Humber and you.
Positive, but not at yoga steamer.
Steve.
And then they're People's moves are in April and.
Preparation is going extremely well for us April however, right. After their move in April there may not be a significant impact. However, once they get used to it will be gradual increase in the momentum.
What we are expecting is that after this transfer occurs and then perhaps in the second half of this year there will be some more momentum in sales so it got to.
It's among the best this gives them all.
<unk> been the Susan Hogan hooking up with data.
So that suggests no day Gung Ho Hum vinyl.
<unk> yeah.
Thank you.
And let me just add a little bit more information at these 10000 salespeople that are currently working for Japan post.
Company is already are already selling our accounts there is no cancellation insurance and therefore have the experience and the knowledge of cancer insurance.
That's all for me.
Yes.
That's helpful. Thank you for that color just staying on Japan. So you talked about some of the content measures for Copa is not really restrictive.
One of the bigger question would be.
<unk> will react given the current environment I think I read somewhere that the the lawmakers are looking at potentially.
More restrictive countermeasures for Covid and also the consumer confidence has been dropping in Japan I was just wondering if you can elaborate a little more.
There is more restrictive measures put to put in play.
Place and the consumer confidence continue to drop like should we see could we see a more dampened sales outlook for 2022.
This is Dan let me I want to make a couple of comments number one as it has been stated.
They have.
They have 90%.
The people have been vaccinated in Japan, and so the.
As we've seen with the new variance.
The death rate is much lower and there is improvement.
Sure.
I don't think we have any specific answers at this time I'll, let them answer in terms of what the government will require but I think youre going to see the death rate and the issues.
<unk> down instead of up.
Cause we're seeing everybody vaccinated compared to the United States. Some states of course are higher than others, but.
There is a movement in that direction.
You also may have solved the Johns Hopkins.
Report last week that a lot of these.
Things that theyre doing in regard to trying to control.
That.
Variant has not worked very well and so.
I think youre going to see more movement back to normal we certainly as a corporation, both in Japan, and the United States.
Moving.
And a gradual but.
For example, we had a meeting of <unk>.
People of our salespeople.
We tested them all before they came some didn't want to come but over 800 showed up after it was all said and done we had about 15 cases of Covid in the United States.
For that particular meeting.
Which was really if you took 1000 people at random that would be a relatively small number so I think youre seeing things move back in Japan.
Yeah.
Back to over 50% of the employees are at work.
They will have to give you the exact number but it's over 50%. So so I see things moving back more to normal Kohei day would you take that question, please and talk a little bit about it.
Hi.
Constantly.
And our policy.
Musket at all thank.
Thank you.
If we get the right Tony.
<unk>.
Can you just I think anymore.
And I'll say again.
The demand.
Hey, this is going to once again.
And it is true that even in Japan. The number of new features that are on the increase.
However, as Fred mentioned earlier the Carlin.
Infection prevention niches that are being issued.
Much milder than the state of emergency is that the government has issued a long time ago.
Yes.
The continent postal ksi customers auto not doing well.
Steve.
The government of Japan is Amy to strike a balance between prevention of infection at the same time that promote economic measures and activity gains TBC.
QVC QVC.
Can you just say again.
That schedule can you pick them will he is only on the heat.
And therefore, the government extra careful about whether to issue even severe or like emergency measures.
Can you just I think annuity TBE say game rule don't usually during the holidays.
Okay.
Got it.
TBE.
And then you wanted to comment.
So as a result, we are not.
There is no plan of Japan, issuing very severe measures such as <unk>.
Locked down or any severe or major has been the state of emergency by the government of Japan has issued.
While ago. So there is no change no plans with the change in loss either.
That's helpful.
One thing.
The pile on this is Fred but one thing I would say just in terms of the basis of your question is you always want to be careful about the correlation of economic activity in Japan, and the sale or demand for our products right now really what we're talking about is the practical implications of meeting face to face and having a naturally higher close rate meeting face to face.
But it is after all a pandemic and so you would imagine that supplemental medical.
Disability product, even elderly care in cancer product that there'll be a natural level of elevated demand and awareness for these types of products given pandemic conditions. So it's really more a practical execution issue than it is a demand and economic issue in my view.
Appreciate the color. Thank you.
Thank you Humphrey and Jason and I believe that was our last call. We've gone past the top of the hour for anyone that has any follow up questions. Please ask you to contact Investor and rating agency relations will be happy to help you. Thank you all for your time today and look forward to speaking to you soon thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.