Q2 2023 Aflac Inc Earnings Call
Good morning, and.
And welcome to the Aflac Incorporated's second quarter 2023 earnings call.
All participants will be in a listen only mode and so do you need any assistance on the call today. Please signal conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.
Please note that this event is being recorded today.
I would now like to turn the conference over to David Young Vice President of Investor Relations. Please go ahead.
Thank you Chad.
Good morning, and welcome. This morning, we will be hearing remarks about the quarter related to our operations in Japan, and the United States from Dan Amos Chairman and CEO of Aflac incorporated.
Fred Crawford, President and CFO of Aflac incorporated will touch briefly on conditions in the quarter and discuss key initiatives and Brian disciplined Global Chief investment Officer, President of Aflac Global investments will provide an update on the investments.
Yesterday after the close we posted our earnings release and financial supplement to investors thought Aflac Dot Com. We also posted under financials on a same site updated slides of investment details related to our commercial real estate and middle market loans.
In addition, Max Broden Executive Vice President and CFO of Aflac incorporated provided his quarterly video update addressing our financial results and current capital and liquidity Max will also be joining us for the Q&A segment of this call along with the following members of our executive management in the U S virtual Miller.
President of Aflac U S Al Ruggeri 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 from Aflac Life Insurance, Japan, Charles Lake Chairman and representative director President of Aflac International Masatoshi, <unk>, President and representative director.
Todd Daniels director and CFO <unk> Yoshida.
Executive Vice President and director of sales and marketing and alliance strategy.
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 release is available on investors Aflac Com and includes reconciliations of certain non U S GAAP measures.
Now hand, the call over to Dan Dan.
David Good morning, Glenn.
Glad you joined us.
Lastly on the second quarter of 2023, our management team employees and sales distribution have continued to work tirelessly as dedicated as stewards of our business. This has allowed us to be there for the policyholders when they need us most just as we.
We promise.
<unk> incorporated delivered very strong earnings for both the quarter and the first six months.
We remain actively focused on numerous initiatives in the United States and Japan around new products.
Distribution strategies to set the stage for future growth.
Looking at the operation in Japan, We have continued our rollout of our wings cancer insurance.
And refreshed ways and child endowment policies.
By introducing new refresh products, we position our distribution channels for success as Japan makes great strides in recovering from the pandemic.
I am very pleased with our new sales premium increase of 26, 6% increase in Japan.
This reflects a 60% increase in cancer insurance sales versus the second quarter of 2022.
And a significant contributor from.
Japan Post company and Japan post insurance.
Which began selling our new cancer product in early April .
I'm also pleased to see improvements in our sales through agencies and.
Our other strategic Alliance died alive and Daiichi life.
We also continued to gain new customers through ways and child Endowment, while also increasing opportunities to sell our third sector products, which Fred will address in a moment.
Thus far our product strategy has served us well and I'm encouraged by our progress as we prepare for the anticipated mid September launch of our new medical product.
In addition to our products, we know how important it is for us to be where the customers want to buy insurance.
Extensive network of distribution channels, including agencies Alliance partners and banks allow us more opportunities to help provide financial protection to Japanese consumers as we are working hard to support each channel.
Turning to the U S.
I remain encouraged by the continued productivity improvements of our agents.
And the contribution from growth initiatives, we continue to see success in our efforts to Reengage our veteran associates.
In time, we are seeing strong growth through brokers.
I am very excited at our cancer protection assurance policy, which provides enhanced benefits at no additional cost.
We know that when people experience the value of our products it increases persistency, which benefits our policyholders.
And lowers our expenses.
I believe that the need for the products and solutions, we offer is strong or stronger than it's ever been before in both Japan and the United States.
We are leveraging every opportunity an avenue to share this message with consumers.
As always we are committed to prudent liquidity and capital management.
We continue to generate strong investment results, while remaining in a defensive position as we monitor evolving economic conditions.
In addition, we have taken proactive steps in recent years to defend cash flow and deployable capital against a weakening yen.
We remain committed to extending our track record of annual dividend increases.
Posted by the strength of our capital and cash flows.
At the same time.
We remain in the market repurchasing shares with the tactical approach.
Just on integrating the growth investments, we've made in our platform to improve our strength and leadership position.
Okay.
Yeah.
Overall, I think we can say that it's been a very strong quarter, especially with a vast number of factors that are in our favor.
Japan had a strong quarter of sales as we executed product and distribution strategy.
<unk> continued to build on its momentum.
As it nears pre pandemic sales level.
Pre tax profit margins will remain very strong in Japan at 34%.
And in the U S at 22, 2% plus.
Our capital ratios remained very strong and our quarterly share repurchase was like last quarter one of the biggest in the company's history.
So with that I'll turn the program over to Fred for it.
Thank you Dan let me begin by briefly commenting on conditions in Japan.
As Dan commented on our revised cancer product, which we referred to as wings is doing well now introduced in the Japan Post group.
<unk> rolled out wings in Japan post we are now at full strength with this refreshed product in all channels.
Our entire cancer platform, including in force policyholders is now supported by our <unk> cancer consultation services. This platform provides <unk> care to cancer policyholders connecting them with non insurance services and.
In dialogue with key alliance and distribution partners. We continue to receive feedback that this platform is a differentiator in the marketplace from a data perspective, our market research has shown a positive and meaningful impact to our net promoter scores.
The sale of ways and child Endowment continues to deliver on our strategy of attracting younger and new policyholders along with cross sell performance since.
Since the launch of our refreshed waste product approximately 80% of sales are to younger customers below the age of 50.
This cohort of younger buyers has driven a concurrent third sector sales rate of approximately 50%.
Looking forward, we anticipate launching our new medical product mid September .
As mentioned last quarter. This product design has been simplified to appeal to both younger policyholders with basic needs and older or existing policyholders, who desire upgrading coverage.
As we move through the natural product renewal cycles, we believe simplifying our products is key to driving sales productivity.
<unk>, new and younger policyholders and lowering our operating costs.
Turning to operations, we are pleased with our expense ratio traveling below 20% in the first half of the year and in the face of continued revenue pressure.
We are actively working to increase digital adoption focused on new business applications customer self service and claims.
As we look forward, we anticipate increased levels of investment to drive digital adoption with the goal of remaining competitive by lowering our long term operating expenses on a per policy basis.
Turning to the U S. Our second quarter results, followed a similar pattern as the first quarter with individual dental and vision group life and disability and consumer markets all contributing to sales growth.
Group voluntary sales has been down modestly from a strong 2022. However, we remain encouraged by the level of quoting activity that we believe positions us for a stronger second half of the year.
Our growth platforms of dental and vision group life, and disability and consumer markets are beginning to have a more material impact on performance.
Aggregate sales produced by these platforms are up over 50%, albeit off a smaller in building base.
With the build largely behind US we are focused on driving scale stabilizing new platforms and leveraging our ability to bundle core voluntary products as we work with brokers on larger groups.
We are absorbing our pace of investment in growth platforms that pressures our expense ratio, but naturally precedes revenue development.
This is particularly the case in our group life and disability business, which is more capital intensive as.
As we settle into operating these platforms. We're also refining our approach to drive expense efficiencies and a long term path to profitability in some cases, making decisions around business, we choose to exit and opportunities we aggressively pursue.
Last quarter, we commented on our renewed focus on product development in the U S. A refreshed cancer product is up roughly 23% and still in the early stages of rollout.
Of all the critical illnesses cancer remains the most frequent and devastating to families and their financial security and we have high expectations for this product.
Last week, we announced a new group voluntary term life product, which is part of an important effort to increase our overall worksite life sales, we have lagged in terms of life sales and see this product line is an area, where we have market share opportunity like cancer insurance. This is a product that should contribute to improved.
Persistency.
We are pleased to see a return to earned premium growth in the U S and modest recovery in persistency, we continue to drive utilization through wellness campaigns and benefit endorsements to enforce policies with the objective of improved sales persistency and driving core revenue growth.
Now, let me pause and I'm going to turn the call over to Brad discipline to bring you current on the health of our investment portfolio with a focus on the loan book Brad.
Fred.
During last quarter's call, we provided an update on our loan portfolios with a special focus on our middle market direct lending and real estate mortgage holdings.
I am pleased to report that both of these portfolios continue to perform in line with the expectations, we shared last quarter let.
Let me start with commercial real estate.
As a reminder, most of our exposure is to transitional properties, where we make short term floating rate loans to facilitate the asset repositioning in the local market.
<unk> comprises $6 4 billion or about three fourths of our total $8 $1 billion commercial mortgage loan portfolio with the balance held in more traditional longer term fixed rate loans.
Our commercial real estate loan watch list has remained constant at approximately $900 million and consists almost entirely of Trs office properties.
The workout process for these loans is complex and negotiations with the property's owner tend to be very fluid dynamic we follow very closely.
As a result, our foreclosure watch list gets updated relatively frequently as negotiations with the property owner ebb and flow. However, the total value of these loans has also remained relatively stable with only a modest increase from first quarter.
As we mentioned last quarter when the loan foreclosure is likely to occur we must mark the carrying value of our loan to the fair market value of the underlying property assets.
With our average loan to value of 65%.
This accounting process resulted in a small $11 million of additional reserves in the quarter.
This brings the total amount of additional reserves recognized in the first half of the year to 21 million, which represents about 26 basis points of our $8 $1 billion total commercial real estate portfolio and is the result of property value declines generally in the range of 25% to 40 per.
<unk> price drops that are in line with those of the financial crisis.
If you simply apply a 40% price decline across our entire $900 million watch list, we would expect very manageable additional reserves of $50 million.
Once the property goes into foreclosure proceedings, we no longer accrue interest on the loan, but instead realize the net operating income from the property.
Given the transitional nature of these properties, we will see a decline in net investment income from this change when.
When considering overall investment performance, we do not expect this to have a material impact to enterprise MRI.
While we are not immune from the industry pressure in commercial real estate, we remain confident in the quality of the properties supporting our loans, our strong capital position and ample liquidity allow us to be a patient investor as we manage through the downturn to maximize our overall economics.
I am pleased to report our portfolio of loans to middle market companies continues to perform well and is exceeding our expectations for credit losses at this point in the cycle.
Recall this is our primary outlet for below investment grade exposure and was purposely built with a quality bias to perform well during difficult periods for credit.
Our strategy of allowing only modest levels first lien leverage on growing companies and non cyclical industries owned by supportive sponsors is delivering strong risk adjusted returns.
Finally, you may have seen the announcement last month, the Paragon capital is being acquired by Man group, a leading UK alternative asset manager.
As part of this transaction as was announced we are exiting our equity position in Paragon, but will remain a major client.
We generated strong returns on this strategic investment realizing over three times, our invested capital. In addition to solid performance on the $3 billion.
Of middle market loans, barragan, who can manage for us, but last three plus years.
<unk> has proven to be a great partner and terrific investor and we are excited about their future as part of the man group.
Our relationship with <unk> and our other current strategic equity partners is a valuable part of our strategy for accessing certain specialized private asset classes that have a strategic role in our portfolio.
We continue to invest significant amounts in these high value add forms of private credit we look forward to continuing to execute on this strategy and creating additional value through an ownership presence in these important asset class.
Let me turn it back to Brian .
Thank you Brad.
As Brad noted, we followed a disciplined approach that began with building out our external manager program that matured into taking a minority interest in select managers. These investments have produced strong returns and we intend to expand upon this strategy as opportunities present themselves.
Conditions remain volatile as both the U S and Japan economies go through a period of transition.
Last week featured moves by both the fed and the boj. The U S is looking to calm down inflation and avoid recession, while Japan continues to maintain its ultra loose monetary policy as economic and inflationary uncertainty remain high.
As Max noted in his recorded comments through investment strategy hedging and capital engineering, we have greatly reduced our enterprise economic exposure to movements in the yen. In addition, our low asset leverage places us in a naturally strong position to absorb week or volatile economic conditions and maintain capital deployment plan.
I'll now turn it back to David to take Us to Q&A David.
Thank you Fred.
Before we take questions I want to ask that you. Please limit yourself to one initial question and a follow up before getting back in the queue to allow other participants an opportunity to ask the question and Joe We will now take that first question.
Our first question will come from Tom Gallagher with Evercore ISI. Please go ahead.
Good morning.
It was encouraging to see the growth in Japanese sales.
Yes.
Question I have related to it has two parts one is.
How do you see the contribution from Japan Post building out is that the continued gradual slow ramp for the year are you seeing any any signs of stronger.
Acceleration there and then I guess the follow up is.
While there were good sales the overall top line in terms of earned premium was.
A bit soft so can you talk about your expectations for earned premium and what's what's weighing on that and not allowing the sales improvement to necessarily translate.
Okay.
Let me, let me start by making just a couple of comments and then I'll hand off to.
Some of the folks around the table to contribute.
Tom This is Fred.
First on sales results in Japan post in the quarter.
We as you may know or May remember based on our alliance. We don't comment on some of the specific results coming out of those channels, but we certainly can say is that the launch of the cancer product in the quarter was the majority contributor to the increase in cancer sales that you saw in our results for <unk>.
Sample in the first quarter without being launched in Japan post our sales were up.
In cancer around 25% or so and as Dan mentioned in his comments in the second quarter, we were up around 60% and you can safely assume the majority contributor of that was from Japan Post. Your question then is what about continuation.
And our view is that there is still <unk>.
Much more runway in Japan post over the long term predominantly as they build efficiency and their distribution channel and more and more agents take on the cancer product and begin producing so we do think that there is a continuation of upside in Japan post. However, it is also the case that.
Commonly right when you launch the product you will have an immediate jump in sales in the early months.
Followed by a calming down.
But let me just turn to Yoshi Zoomy Sun <unk>, if they would like to comment or add any color beyond what I just said.
<unk> excuse me.
Maybe any color as to what it does.
Thank you this is actually Jamie Jamie answers your question regarding J P. J P. Nicholas de La Hello, Ashish, you're looking at <unk> and we'll get there.
Let's finish with your local unless you got something going to stock and I'm just kind of a more. So then you look at the <unk> cut up.
You bring up a couple of them in.
Jim Koch and look up any types of 10 and up.
And we'll just kick it off.
Well, let me maybe new products launched in the Japan Post channel. It character product indicate Pamper channel was launched in April and towards this April timing, we have been conducting training to the Japan post.
Postal company as well as a temporary insurance January throughout their entire nationwide post offices kotzebue.
Hum.
<unk> separately from <unk>, but almost Tamar and we do believe is steadily.
The increase of sales by the Japan post.
Is the result of US conducting these kinds of training as well as offering our support to them directly after the launch of the product tiny quarter equalled isn't it.
Jeff are impossible to offer up.
Chris a little bit.
Scott.
One instrument a processor.
Ownership the facility.
And since the second quarter between Japan, and Japan post and Aflac, we have been confirming.
Each layer each level a sales process at the management level and we will be managing these processes at each level, let me cut out as iron ore through <unk>.
Total leitzke photos of the <unk>.
Hello.
But it will get to the kind of gets.
Stick to your portfolio critical gentleness reached critical and what that means is that we will try to identify where the issues are at each manager level and we are checking those items on a monthly basis and we are also offering a solution to issues and solving them on a monthly basis, so that Dunkirk the clinical gung Ho Hum safety stock.
Who knew almost 30 months as a result of all of these we do believe that the cancer sales will gradually increase going forward as well that's all for me.
Tom Your second question was related to revenue in Japan, and how to think about it obviously having to take into account both our reinsurance agreement and paid up policies. So I'll ask.
Todd to address that real quick I think that one thing to remember when we went to <unk> accounting.
We had to move our deferred profit liability from the benefits fine to the earned premium line and that's going to create a little bit of noise.
In that it's not going to be as stable as it was before but as Fred said the reinsurance transaction that we entered into at the beginning of the year.
Caused about 8 billion yen reduction in earned premium in the quarter the.
Paid up impact is also still there and that was again about 8 billion yen when you normalize for those two factors and considering the GPO, we're still in the right in the middle of the range that we gave.
For guidance for earned premium at approximately minus one 9%.
And Tom I would just add as well.
You look at it long term for us to sort of get to a level, where we are replacing the business that is falling off you get to an earned premium growth of zero, we need to essentially get back for all distribution channels to pre pandemic levels in terms of production and also have the Japan post.
Channel get back to a restored production level.
Gotcha, alright, thanks, guys.
And our next question will come from Alex Scott with Goldman Sachs. Please go ahead.
Hi, Good morning, first one I had for you is on some of the comments that were made in the <unk>.
Remarks video that you all post.
It was mentioned that the actual to expected are continuing to run favorable.
When the new one came out but for some reason you are seeing more and more trends.
To do well, we know one outpatient treatments and things of that nature as we're seeing changes take place where have to adapt accordingly, but some of the policy holders don't change over all season, and that's something that we continue to monitor and encourage people to do if you specifically.
Wanted to talk about U S.
It is a great example, the wellness benefit hadn't been used as much. So we have really encourage that we're seeing that improvement and we feel like that will be reflected in a in a positive manner I think virgil might touch on that if he's around to say something Virgil.
Thank you Dan Yes utilization continues to be our focus of the U S.
We have launched a series of wellness campaigns really driving.
Our policyholders to leverage the coverage.
Thing for you.
I mentioned that we've seen over 22% increase it well as utilization during that time period, which started about the first quarter of the year and we're going to continue to do that our our main thing. It's a drive in demonstrating value. We know that the average American is less than a thousand dollars in savings out there. So.
A benefit to them to make sure they're prepared for anything unexpected medical.
And also getting regular check ups will help anyone that gets diagnosed with some kind of struck a disease like cancer.
Them of course be able to get the right treatment to save your life. So we're going to continue to push on that and I expect us to see continued improvement going for.
And now, let's just just to sort of add in terms of utilized station. If you think about U S is absolutely out of the pandemic now and you should expect the utilization to sort of get back to normal level. At this point I think we're still a little bit of what we should expect some rebound all utilization, but definitely.
The vast majority of the benefits that we offer should run it more normal levels at this point.
So what we're doing a as Dan and virtually alluded to we are enhancing our products for that because we have not seen at utilization bounce back to pre pandemic levels and so why yourself well there are some fundamental differences that have happened during the pandemic and there's definitely less usage of emergency rooms that we.
See in the data rate of use of.
And local facilities greater use of outpatient services water than in hospital services. All of this leads to lower claims utilization overall for us.
Go to Japan, and we continue to see the long term trends or shorter hospitalization and space.
Especially as it relates to cancer, we have seen first.
First diagnosis I E a diagnosis of cancer bounce back to more normal levels, but the.
Surgeries in Hospitalisation trends are still pretty muted and we believe that that's more driven by credit use of outpatient services as well in Japan as well because we see that increase overall the net net effect of this is that it leads to a lower benefit ratio overall for us if these trends.
Continuing to stay in place.
Got it very helpful follow up I had it's just on a Japanese interest rates.
Gives me.
[laughter] I was interested in just you know how it affects your strategy in terms of if you. If you all are thinking through different products that you may emphasize more and I are rude environment as well as you know on the investment side choices, you're making between USD investing in your in investing.
All it all like Brad comment on the.
Asset allocation question I think relative to the business model as you may know from some of our previous comments. We continue to work on what we would call what we call internally or acid formation product strategy in Japan.
Most notably surrounding the waste product and refreshment and refinement to the waste product training and development around that product and working with.
Customers and then of course, an emphasis on cross selling.
We've also mentioned Alex in the past is that not only has a recent recovery I put recovery and quotes of course, but recovery and rates in Japan helped with supporting those types of products. Also importantly is building out our reinsurance strategy. Because there is no question reinsurance is gonna play into.
To the long term viability of those types of products and maintaining.
Economic value as a company so yes summarized in rates as supportive of acid formation products and.
And we pay attention to that but as you can see there's a long way to go before we characterize the right environment that's supportive of.
Strong profitability and those products you still need some heavy engineering and you're absolutely are in that business for the cross sell experience and bringing younger policyholders into the fold that we can cross sell into the future.
<unk> comments I'm sure. It is in terms of investment activity. The rise in an UN rates are certainly welcome news it's been a long time since we've had these kinds of levels, but one of the biggest issues. We face in Japan is finding attractive spread products and that remains our biggest challenge we continue.
You too take advantage of those opportunities when we can find them. We have been relatively successful in finding UN credit, where we can get an acceptable level of pick up over J G. B yields for what we think is a pretty acceptable level of risk low rates are definitely the rising rates is definitely welcome it's still.
Pales in comparison to what we are able to get in some of the dollar assets. So we'll continue to always be active there, but you shouldn't expect to see a big wholesale change the strategy at least not yet.
Okay. Thank you.
Our next question will come from so need to come up with Jeffries. Please go ahead.
Thanks, Good morning.
I wanted to go back to some of that comment.
Comment that you're making on utilization both in Japan, and the U S. It seems like things are moving in the in the right direction. My question is how quickly these benefits.
Reflected in your financial statements under this kind of Remeasurement concept and LDP I. My thought was historically these impacts would take awhile to kind of feather in but I'm wondering if under L. DTI does this get.
Reflected in your financials much faster.
They are definitely coming to our financials faster than they've done historically nights because we we run these.
Re measurements each quarter and reset the net premium ratio for.
Four what reserves.
So therefore, you you get it into the results much quicker.
And I guess, where are we with that now I mean are we kind of should we expect some of the benefits that you saw here in queue to persist going forward or is it more you've baked in these lower utilization trends and so going forward, we need to see them decline, even more to get incremental benefits.
With true up.
Four recent experience in to our best estimate and.
Then going forward what that means is that for you to get lower reserves in the future and need to have.
Improved trend.
If the utilization of space at this level of reserves are adequate if you were to have worsening trends at the opposite would that occur.
That makes sense and then my follow up is just on persistency in Japan, I, just noticed it fell below 94%, which.
Is there something we haven't seen in a while just wondering if you could unpack that a little bit as this lapsed re issue related to the new cancer product or is there something else going on.
<unk> tied to comment on it but you pretty much answered your own question. It has a lot to do with the introduction of cancer in natural replacement activities Huh.
Yeah, I think that we saw a lower laps and reissue rate during the quarter than we did first quarter.
And that's typical as we launch a new product, we expect that to Wayne over time.
With the product being launched into Japan Post channel, we did have some laps and reissue activity during the quarter, but it's within our expectation and it's still running somewhere around 50 per cent.
Some people you naturally have sales running lower than lapses by definition the age of the block increases and when you have an older and more mature block.
You are gonna get higher lapses vomit as well.
One thing that.
I.
Really like to add when we have this conversation, particularly spending some time in Japan and with the team is we proactively promote the notion of an existing policy holder with an older cancer policy, replacing their policy if it's in their best interest.
Serves them economically and from a benefit and overall quality of coverage perspective.
And we do that because it's good for the customer, but we also do it because it brings that customer into our shops and allows for face to face interaction between our distribution partners and their clients and that often leads to cross sell cross cell activity with the individual but also crossed cell activity with their family members.
As the agents have a chance to engage in so please realize that we don't actually look to avoid or curtail laps and re issue activity, it's actually part of the strategy.
And it's particularly important on the cancer side as you can imagine.
So.
The next question.
I would like because we have coheed I hear from Japan.
President that lifespan I, just think it's important for him to say a couple of words, because we had such a stellar.
Four months with sales and thanks. So <unk> would you just I'll ask the question tell us how things are going in Japan.
And all <unk>.
How about what it is.
And I'll take unless Misdate authority.
<unk> <unk> <unk> <unk>, okay, and it seems shocking when Scott put them all cultural this.
Sales results shell cancer insurance product that we launched nearly in August last year called link it's gonna go extremely well.
<unk> <unk> <unk>, <unk>, <unk> <unk> and <unk>.
<unk> <unk> <unk> <unk> <unk> <unk>.
Counseling through all the channels because we have somewhat of progressive launch of this product starting August last year with our associates and then in January this year that each of <unk> Bank channel has been turning this day and then the April and this year difference Pam posed as long as this product.
I'm all in Iowa on a senior <unk> added the ability to eat at home more <unk> Ah High school that he didn't eat octopus, but that the timing with my total cause I'm not <unk> I don't know.
<unk> <unk>, who can no harm vinyl cuts the hold that <unk>.
Oh.
Distribution channel sales has been very active surrounding cancer product because of the new product launch. It is obviously the case that things will become very active but at the same time, the Japanese to Friday, the economic activity have recovered during the same time. So with these two factors I teach a chronic has been extremely well.
Thanks for the <unk> for that I don't know, who they must've hated them all.
<unk> <unk> <unk> <unk> <unk> <unk> <unk> <unk> <unk> you.
Normally he told me my statements.
And our cats or a new product competitiveness has increased as well as Fred mentioned earlier, we now have the support service called <unk> cancer consultation services, which is somewhat of a concierge service.
Perfect for our customers and by having this integrated with that cancer product is also pushing a sales as well that's the best thing yeah.
<unk>.
You'll get an essential he not a hot spot.
<unk>, Yeah also preparing to launch a new medical product with very good competitiveness in September .
Thank you for providing us that you must be <unk>, <unk> <unk> <unk>, <unk>, <unk>, <unk> <unk> and got nothing.
So as a result of the all of these things that are going well all of our employees and Affleck, Japan as well as our salespeople in our distribution channel of all the channels are extremely motivated to do more sales.
Yeah.
Our next question will come from West Carmichael with Wells Fargo. Please go ahead.
Good morning, hoping you could just talk a little bit about the laps and persistency Transneft like you asked it looks like it's improving a bit but maybe you could help us with your expectation for how that should trend from here and maybe any impact on the expense ratios I think that's been a little bit elevated my lapses.
Thank you hate this was virtual let's let me first say that I'm pleased with the stabilization that you see this occur in well <unk>. So this quarter. We came in at 78.2%. It's about 10 basis points higher than last year I mentioned in Q1, we have done quite a few conservative efforts to go after this.
<unk> <unk>.
We have stood up what I call. It the office of the persistence.
Which is really team of data the scientists that's been 24 hours a day looking at different errors that we can really do so I think that you're going to see even more to come from that today. What you heard me say earlier, mainly about driving utilization, we're really pushing out campaigns were wellness what we did in.
Q1, and Q2 was more of a shotgun approach reminding everyone that have those benefits with the bills policy to Guadeloupe Valensuela's claims what you'll see is doing going forward now is more of what I would call a more strategic or surgical attack, which is around event driven notifications for example, with someone.
Recently got married or they have a birthday would have been reaching out there to remind them to you if those benefits that we have.
Overall, you solve the persistently plus the 6.4% increase we have in the U S sales drove through higher premiums for the earned premium rate was up about 2.2% and that's really what help what's happening right now the growth is what's happened to balance of our expense ratios, we still see higher <unk>.
Right now with our investment growth initiatives with those growth initiative contributes about 48% growth in the second quarter toward our revenue.
Let me just ask the Beaver also you're avoiding U S. As he wants to come in and.
Thanks for the advice.
I remember.
Activity around driving.
Takes time Rovers in that 12 months.
Matrix.
But we do expect like Max.
Oh.
All of those bands at her and lower the expense ratio Don followers and.
In west the impact on the second quarter expense ratio from Ida normal back monetization was about 50 basis points.
Got it thanks very helpful. And then on I just wanted to kind of clarify maybe a follow up to Tom's question, but on minimum premium growth in Japan, I think he was impacted by 260 basis points related to reinsurance transaction in some lapses I just Wanna clarify it for the rest of 2023 do you think that roughly six ish percent decline is is <unk>.
Using a bowl for the full year and then it kind of moves back into that one and a half to two per cent two and a half per cent decline in 2024.
What's your thoughts are on that.
So the impact from reinsurance will continue throughout the year and I would expect it to be running up at that level the impact.
From paid up and the D P al impact.
Was wrought are high in this quarter it it's going to be a quite a volatile number overall, yeah, but I would just note that it was it would deem it to be quite hide this quarter.
Thank you.
Our next question will come from a Jimmy Bueller with J P. Morgan. Please go ahead.
Hey, good morning, So first just a question on the upcoming lawn to the medical products in mid September .
Should we assume that going into that sales of medical policies will be depressed.
Sort of sort of waiting for the new product to be rolled out or is that already in your numbers and took you as well.
Why don't we have our team here in Japan comment on that so you should assume you saw on the question is is there a natural pullback in medical when there is anticipation of the new medical product to come later in the year.
Oh, I forgot about that it was almost.
One milk with a smoker.
Great. Thank you L as answer the question.
<unk> each other to the time of the law Associates Terminator, we only did well.
Okay. Los initial you know pulling your thoughts or <unk> <unk> <unk> <unk> <unk>.
Get home by one game show, let me Communist.
Since we are selling our products in multichannel, let me start out with your first it's channel and the first it's channel athlete longterm medical Oh that soon but.
But I need to talk about is the cancer product that we launched in August last year.
Sir accounts, if possible I have gone around a cycle of a year that sales will go down.
<unk> <unk> <unk> <unk>.
<unk>.
Diagnose aiming to do <unk>.
Essentially you know pulling your vehicle at night.
But the email.
It didn't really look at other channels that only sound cancer products, such as that Japan post channel Daiichi lifestyle and diet of life.
Might have been a year since they've lost new cast a roof and there should not be any impact on medical insurance.
Sorry, there should not be any impact on cancer cells from the medical watch.
And then.
Oh man.
Any time, we come out with a new product. It always has some impact so we're.
We're taking that as being a standard no matter, what if it's a new cancer it affects medical but the new medical it's cancer because everyone goes to the easiest thing to sell and so something new and sparkly always looks better. So that's gonna always happen, but the very.
Asian can be as such but all in all that is part of the system.
While we're constantly having to upgrade is because we have to show that competitors come out with new things, we have to come out with new things because it is an actual expenses, but but ah fixed cost we have to do this.
And then as you think a longer term the alliance with the post what's your view on the likelihood of that being expanded beyond just cancer.
Do you think it's unlikely given that they've already got other providers for some of the other products.
Well I don't think you ever say never and you also remember that they're our largest shareholder.
Those are positive things.
That will look at going forward brand you got any comment.
No I agree down I think right now what we focus on is just expanding within the line of cancer, meaning so when looking at refreshing or cancer product. We also have lump sum critical illness that we include we also has a as I mentioned earlier this year <unk> cancer consulting service and so.
Quite honestly, what we're focusing on now with Japan post is not just cancer sales, but how do we expand and enrich the overall activity.
Within that cancer line of business. So I think what you can assume is anything that comes out for any developments or innovation around the cancer line of business that we will certainly deploy that within the Japan Post's system.
[noise] okay. Thanks.
And our next question will come from Ah, Josh Shanker with Bank of America. Please go ahead.
Yeah. Thank you for taking my question looking at the a turnaround in premium growth in the <unk>.
Favorable is there any senior management type compensation to support the turnaround growth specifically a company.
Essentially.
Fall off and both senior management and employees have an incentive compensation based on earned premium.
And is it targeted <unk>.
Are you going to how that works a little bit.
You mean in terms of specific levels.
Above a certain target, there's there's a longterm compensation grant.
Is there a trajectory how should we think about how how invested the company is in growing premium.
In the in the short term it's out finding our proxy on you can see it might be targets there.
Okay and.
That's true for both of us and business and the business that.
That is correct.
Okay. Thank you so.
We will try our best to keep these tied together too I bonuses.
<unk>.
When you are happy we're happy we're happy.
A year at so.
If you look at the allergy will say that that's a very important part of our foreign bumped under the compensation committee that we have that together.
Yeah, you'll see very clearly in each segment U S and Japan, there's both sales and earn premium targets and then as you can imagine we cascade that down and get more particular by line of business. When we get down to executives are officers that are in charge more directly to a particular line of business. So the concept of.
And premium is an essential piece.
Of of how we compensate.
And Joshua just remind you that.
Earn premium outlook that we gave for the year 2023, and 2024 is a keg of 3% to 5% premium growth.
Yep I do I'm aware of that thank you very much.
Yeah.
Our next question will come from Mark Hughes, a tourist securities. Please go ahead.
Hey, good morning. This is actually a maxwell furniture I'm, calling on behalf of Mark Hughes.
So looking at the total recruited agent count it looks like it reduced 4% year over year, one tough cop, though and fix up 6% sequentially I was just wondering.
If you could give me an outlook or what the environment looks like for recruiting in the labor market right now.
Alright. This is virtual from the U S.
Actually I would tell you I'm sitting I'm very pleased with our performance for the first half of the year to your point, we'd be a few a decline in the second quarter, but if you look on the needs. Some of the numbers I look at the lead indicators. We had strong recruitment of January February March April and May the client really happened in June .
Look at for the first six months ago were sitting at about 8% up if you look at the actual courageous themselves. We had a stronger increase Q1 note about 35%.
So we're sitting about cannot be specific on a number we got about 600 more than I really expected. This time of year, what it really means to me, though is we've got a great opportunity, which we did in June to really push on productivity and conversions. We have first your conversion was up 5.2%.
Really drive into our average weekly producers so everybody could produce a number is up again for the quarter over 2%. That's really what we're trying to do we're bringing them into the pipeline with getting quality recruits, we're giving them converted would you happen to drive productivity.
Turn them with the average weaker producers. So I would tell you that recruiting is favorable for the remainder of the year, we really don't see any major hit wigs out there.
But we will take those recruit convert them to get them average we could produce are so looking forward to even stronger second half of the year.
Let me make a comment about hurting.
And we have to remember where in the post.
Pandemic period.
But.
Act track record for the past is banned.
That with.
Unemployment.
People tend to come selling for us.
Because they can't get a job on a sour.
So they're working on commission, that's not limited Aflac anybody that's in that business. Most people prefer a salary with a bonus versus all commission.
So that's the first point.
But on the other hand, when you have high unemployment recruiting becomes more difficult, but at the workplace. There are more people to enroll so the people that are selling are seeing more people at the work site.
It will be interesting what happens here is we see more people working from home, we're seeing that there I was in a restaurant. The other day that it was closed for lunch because they couldn't get enough people to work. There. So these things are happening and we're having to do that.
But I would say considering that it's hard to find employee certainly at the lower levels.
It tells you that we're doing a pretty good job and I I give kudos to Virgil and their team for what they're doing because it is it is a little bit uncharted waters, because the tradition of the way we've been doing it I've just got to see how it falls out so I want to make that comment.
To a point that we had that big you drove numbers. So that's what I mean, when I play.
Target with our expectations.
I mentioned in the queue. One you won't see these these humongous numbers, where you see in the past right. We've got and that's why we use a concerted effort I'm, making sure we convert we'd have man, it's it's going pretty well for us this year.
If we could for a minute before we go to the next question.
Jimmy had asked a question earlier about our expansion opportunities in Japan Poston.
As Dan mentioned, our President Quita soundness here with US today. This morning in Columbus, and he would like to add just a few comments about the Japan Post alliance squeeze huh.
Uh-huh Stephane <unk> <unk> <unk>.
You must <unk>, an accomplished them ethanol <unk> <unk> <unk> <unk>, yeah, that's it.
<unk> <unk> <unk> <unk> Oh.
<unk> sorry about that.
<unk> I'll upset some program or so.
He said an adult some of them, but you have to.
<unk> <unk> <unk> <unk> <unk> <unk>.
This is once again, let me just add a little bit on what we are doing alright.
<unk> first group or they get pampered insurance.
We are actually doing a lot of collaboration in various areas. For example, apart from the Cafe insurance sales. We are also what can we get Japan post insurance group to have concierge service to our nursing care area and on top of that we are also doing some start up acceleration program together with <unk>.
Insurance script. So as you can see we are working with the Japan Post's group outside of cancer insurance area as well.
That's all.
Thank you.
Alright, I believe that.
This concludes our question and answer session.
Like to turn the conference back over to David Young for any closing remarks.
Thank you Jeff.
That concludes our call I want to thank you all for joining US. This morning, please reach out to the Investor Relations team. If you have any questions and we look forward to speaking with you soon and wish you. All continued good health. Thank you.
The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines.