Q1 2024 Aflac Inc Earnings Call - Q&A
Operator: Good day, and welcome to the Aflac Incorporated First Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and one on a touchtone phone. To withdraw your question, please press star then 2. Please note, this event is being recorded. I would now like to turn the conference over to David Young, Vice President, Investor and Rating Agency Relations.
Good day and welcome to the Aflac Incorporated's first quarter 'twenty 'twenty four earnings conference call.
All participants will be in a listen only mode.
Should you need assistance. Please signal a 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 and one other touchtone phone.
To withdraw your question. Please press Star then two.
Please note this event is being recorded.
I would now like to turn the conference over to David Young Vice President Investor and rating Agency relations. Please.
David Young: Please go ahead.
David Young: Good morning and welcome. Thank you for being here a bit earlier than our usual start time.
David Young: Good morning, and welcome.
David Young: Thank you for being here a bit earlier than our usual start time.
David Young: This morning, Dan Amos, Chairman, CEO, and President of Aflac Incorporated, will provide an overview of our results and operations in Japan and the United States. Then, Max Broden, Executive Vice President and CFO of Aflac, will provide an update on our financial results and current capital and liquidity. These topics are also addressed in the materials we posted with our earnings release and financial supplement on investors.aflac.com, including Max's quarterly video update. We also posted, under financials, on the same site, updated slides of investment details related to our commercial real estate and middle market loans.
David Young: This morning, Dan Amos Chairman CEO and President of Aflac incorporated will provide an overview of our results and operations in Japan, and the United States.
David Young: And then Max Broden Executive Vice President and CFO of Aflac incorporated will provide an update on our financial results and current capital and liquidity.
Max Kristian Broden: These topics are also addressed in the materials, we posted with our earnings release financial supplement on investors thought Aflac dot com, including Max's quarterly video update.
Max Kristian Broden: We also posted under financials on the same site.
Max Kristian Broden: Tinted slides of investment details related to our commercial real estate and middle market loans.
David Young: For Q&A today, we are also joined by Virgil Miller, President of Aflac U.S. Charles Lake, Chairman and Representative Director, President of Aflac International Masatoshi Koide, President and Representative Director, Aflac Life Insurance Co., Japan, and Brad Dyslin, Global Chief Investment Officer, President of Aflac Global Investments. Before we begin, some statements in this teleconference are forward-looking within the 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.
Speaker Change: For Q&A today, we're also joined by virtual Miller President of Aflac U S. Charles Lake Chairman and representative director President of Aflac International Macedonia at Cui Day, President and representative director Aflac life insurance, Japan and.
And Brad as one global Chief investment Officer, President of Aflac Global investments.
David Young: Actual results could differ materially from those we discussed today. We encourage you to look at our annual report on Form 10-K for some of the various risk factors that could materially impact our results. As I mentioned earlier, the earnings release is available on investors.aflac.com and includes reconciliations of certain non-U.S. GAAP measures. I'll now hand the call over to Dan. Thank you.
Speaker Change: Before we begin some statements in this teleconference are forward looking within the meaning of federal Securities laws.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: As I mentioned earlier the earnings release is available on investors Aflac Com and includes reconciliations of certain non U S GAAP measures.
Speaker Change: Now hand, the call over to Dan.
Daniel Paul Amos: Thank you, David, and good morning, and we're glad you joined us at this earlier hour. The first quarter marked a good start for the year in terms of earnings but proved to be challenging for sales. Incorporated delivered another solid earnings result. Net earnings per diluted share for the quarter were $3.25, on an Adjusted Basis.
Daniel Paul Amos: David and good morning, and we're glad you joined US at this earlier, our the first quarter marked a good start for the year in terms of earnings but proved to be challenging for sales aflac.
Speaker Change: Aflac incorporated delivered another solid earnings results that.
Net earnings per diluted share for the quarter were $3.25 on adjusted basis earnings per diluted share were up seven 1% to $1 66.
Daniel Paul Amos: Earnings per diluted share were up 7.1% to $1.66. Beginning with Japan, our latest medical insurance launch in September of 2023, we are encouraged by the success that independent corporate and individual agencies have had in marketing this product, especially to younger individuals.
Speaker Change: Beginning with Japan, our latest medical insurance launch in September of 2023.
Speaker Change: We are encouraged by the success that.
Speaker Change: That independent corporate and individual agencies that had in marketing this product.
Speaker Change: Especially to the younger individuals however, we clearly need to make better progress and plan on doing so.
Daniel Paul Amos: However, we clearly need to make better progress and plan on doing so. Cancer insurance sales, however, were modestly better year-over-year. We entered the final stage of our new cancer insurance launch in April of 2023 through the Japan Post Channel, and while we saw a significant and understandable year-over-year increase in cancer insurance sales through the Japan Post Channel. We expect to see improvement with the start of the new fiscal year as they cross-sell Aflac Cancer Insurance along with the new Japan Post Life Insurance Project. Being where customers want to buy insurance remains an important element of our growth strategy in Japan. Our broad network of distribution channels, including agencies, alliance partners, and banks.
Speaker Change: Cancer insurance sales, however were modestly better year over year, we entered the final stage of our new cancer insurance launch in April of 2023 through the Japan Post channel, while we saw a significant and understandable year over year increase in cancer insurance sales.
Speaker Change: Through Japan post channel.
Speaker Change: We expect to see improvement with the start of the new fiscal year as they cross sell Aflac cancer insurance, along with the new Japan Post's life insurance product.
Speaker Change: Being where customers want to buy insurance remains an important element of our growth strategy in Japan.
Our broad network of distribution channels, including agencies Alliance partners and banks continually optimize opportunities to help provide financial protection.
Daniel Paul Amos: Continually optimize opportunities to help provide financial protection to Japanese consumers. We will continue to work hard to support each channel. In addition... We are initiating sales campaigns around our 50th anniversary in Japan, starting this quarter.
Speaker Change: Two Japanese consumers, we will continue to work hard to support each channel.
Speaker Change: In addition, we are initiating sales campaigns around our 50th anniversary in Japan, starting this quarter, let me be clear.
Daniel Paul Amos: We have not lowered our sales outlook for 2024 and still expect to achieve it. With the launch of the new policy this quarter, Koide-san and his team are working hard to achieve that objective. In addition, we have maintained disciplined underwriting and expense management to continue driving strong pre-tax profit margins of 32.8%. Turning to the U.S., as you've seen in prior years, the first quarter tends to generate the lowest sales of the year. We have focused on driving more profitable growth by exercising a stronger underwriting discipline. We are deliberately avoiding sales opportunities to certain less profitable accounts.
Speaker Change: We have not lowered our sales outlook for 2024 and still expect to achieve it.
With the launch of the new policy this quarter <unk>, Sean and his team are working hard achieving that objective.
Speaker Change: In addition, we have maintained disciplined underwriting and expense management to continue driving strong pre tax profit margins of 32, 8%.
Speaker Change: Turning to the U S as you've seen in prior years, the first quarter tends to generate the lowest sales of the year.
We are focused on driving more profitable growth by exercising a stronger underwriting discipline.
Speaker Change: We are deliberately avoiding sales opportunities to certain less profitable accounts.
Daniel Paul Amos: While this appears to have had a temporary impact on sales in the first quarter, we're seeing positive results in net earned premium growth, which grew 3.3%. At the same time, we have increased benefits in certain cases to improve value for the policyholders. We believe persistency will continue to improve as customers realize the value of their policy and the related benefits. We are pleased with the 80 basis points.
Speaker Change: This appears to have a temporary impact on sales in the first quarter. We are seeing positive results and net earned premium growth, which grew three 3%.
At the same time, we have increased benefits in certain cases to improve value for the policyholders. We believe persistency will continue to improve as customers realize the value of their policies and their related benefits.
Speaker Change: We are pleased with the 80 basis points improvement in persistency this quarter.
Daniel Paul Amos: Improvement in Persistency This quarter. I believe that the need for the products we offer is as strong or stronger than it has ever been before in both Japan and the United States. We continue to work to restore our momentum and reinforce our leading position as we aim to exceed $1.8 billion in sales by the end of 2025. We have also continued our disciplined approach to expense management. We are beginning to see progress on our expense ratio in Group Life and Disability, and Consumer Markets Continue to Grow and Scale. We are continuing to focus on optimizing our dental and vision platform and expect to see stronger second half sales this year. At the same time, we have maintained a strong pre-tax margin of 21%.
Speaker Change: I believe that the need for the products, we offer is as strong or stronger than it has ever been before in both Japan and the United States.
Speaker Change: We continue to work to restore our momentum and reinforce our leading position as we aim to exceed $1 8 billion of sales by the end of 2025.
Speaker Change: We have also continued our disciplined approach to expense management, we are beginning to see progress.
Speaker Change: Our expense ratio.
In group life, and disability and consumer markets continued to grow in scale.
Speaker Change: We are continuing to focus on optimizing our dental and vision platform and expect to see stronger second half sales. This year at the same time, we have maintained a strong pre tax margin of 21%.
Daniel Paul Amos: Overall, I'm very pleased with what Virgil and his team are doing to balance profitable growth, enhance the value of the proposition of our policyholders, and curb the expense ratio. I'd like to end by addressing our ongoing commitment to prudent liquidity in capital management. I'm very pleased with how Max has led the team to take proactive steps in recent years to defend our cash flows and deployable capital against a weakening yen, as well as the establishment of our reinsurance platform in Bermuda.
Speaker Change: Overall, I'm very pleased with what virtual and his team are doing to balanced profitable growth enhance the value of the proposition of our policyholders and curb the expense ratio.
Speaker Change: To end on addressing our ongoing commitment to prudent liquidity and capital management.
Speaker Change: Very pleased with how Max has led the team to take proactive steps in recent years to defend our cash flows and deployable capital against a weakening yen as well as the establishment of our reinsurance platform in Bermuda as an insurance company our primary raw.
Daniel Paul Amos: As an insurance company, our primary responsibility is to fulfill the promises we make to our policyholders while being responsive to the needs of our shareholders. We remain committed to maintaining strong capital ratios on behalf of our policyholders. We balance this financial strength with tactical capital deployment. We intend to continue prudently managing our liquidity and capital to preserve the strength of our capital and cash flow. This supports both our dividend track record and our tactical share repurchase program.
Speaker Change: Sponsor ability is to fulfill the promises we make to our policyholders, while being responsive to the needs of the shareholders.
Speaker Change: We remain committed to maintaining strong capital ratios on behalf of the policyholders.
Speaker Change: We balanced this financial strength with tactical capital deployment.
Speaker Change: We intend to continue prudently managing our liquidity and capital to preserve the strength.
Speaker Change: Of our capital and cash flows this supports both our dividend track record and our tactical share repurchase.
Daniel Paul Amos: We treasure our track record of 41 consecutive years of dividend growth and remain committed to extending it. I am pleased that the board set us on a path to continue this record when it increased the first quarter 2024 dividend by 19% to 50 cents and declared the second quarter dividend of 50 cents. We repurchased a record $750 million in shares in the first quarter and intend to continue our balanced and tactical approach of investing in growth and driving long-term operating efficiency.
Speaker Change: We treasure our track record of 41 consecutive years of dividend growth and remain committed to extending it.
Speaker Change: I am pleased that the board set us on a path to continue this record when it increased the first quarter 2024 dividend, 19% to 50 cents and declared the second quarter dividend of <unk> 50.
Speaker Change: We repurchased a record $750 million in shares in the first quarter.
Speaker Change: And intend to continue our balanced and tactical approach of investing in growth and driving long term operating efficiencies our management team employees and sales distribution continue to be dedicated stewards of our business.
Daniel Paul Amos: Our management team, employees, and sales distribution continue to be dedicated stewards of our business, being there for our policy holders when they need us most, just as we promised. This underpins our goal of providing customers with the best value in supplemental products in the United States and in Japan. In 2024, we celebrated our 50th year of doing business in Japan and our 50th year as a publicly traded company on the New York Stock Exchange. We are reminded that one thing has not changed since our founding in 1955.
Speaker Change: Being there for our policyholders when they need us most just as we promised.
Speaker Change: This underpins our goal of providing customers with the best value in the supplemental products in the United States and in Japan.
Speaker Change: In 2024, we celebrated our 15th year doing business in Japan, and 50 at the year as a publicly traded company on the New York Stock Exchange.
Speaker Change: We are reminded that one thing has not changed since our founding and $19 55.
Daniel Paul Amos: Families and Individuals still seek to protect themselves from financial hardship that not even the best health insurance company covers. Today's complex healthcare environment has produced incredible medical advances that come with incredible cost. It's more important than ever to have a partner. We believe our approach to offering relevant products makes us that partner. We believe that in the underlying strengths of our business and our potential for continued growth in Japan and the U.S., two of the largest life insurance markets in the world, Aflac is well positioned as we work toward achieving long-term growth while also ensuring we deliver on our promise to our customers. I'd now like to turn the program over to Max to cover more details of the financial results. Max?
Speaker Change: Families and individuals still seek to protect themselves from financial hardships.
Speaker Change: That not even the best Health insurance company covers.
Speaker Change: Today's complex.
Speaker Change: Healthcare environment has produced incredible medical advances that come with incredible cost, it's more important than ever to have a partner, we believe our approach to offering relevant products makes us that partner.
Speaker Change: We believe that in the underlying strengths of our business and our potential for continued growth in Japan and the U S. Two of the largest life insurance markets in the World Aflac is well positioned as we work toward achieving long term growth while also.
Speaker Change: Ensuring we deliver on our promise to our policyholders.
Speaker Change: I would now like to turn the program over to Max to cover more details of the financial results Max.
Max Kristian Broden: Thank you for joining me as I provide a financial update on Aflac Incorporated's results for the first quarter of 2024. For the quarter, adjusted earnings per diluted share increased 7.1% year-over-year to $1.66, with an 8 cents negative impact from FX in the quarter. In this quarter, re-measurement gains totaled $56 million, and variable investment income ran $11 million, or one cent per share, below our long-term return expectation. Adjusted book value per share, including foreign currency translation gains and losses, increased 8.7%.
Max Kristian Broden: Thank you for joining me as I provide a financial update on Aflac Incorporated's results for the first quarter of 2024.
Max Kristian Broden: Fourth quarter adjusted earnings per diluted share increased seven 1% year over year to $1 66, with an eight cents negative impact from FX in the quarter in this quarter re measurement gains totaled $56 million and variable investment income around $11 million.
Max Kristian Broden: Our <unk> per share below our long term return expectations adjusted book value per share, including foreign currency translation gains and losses increased eight 7%.
Max Kristian Broden: And the adjusted ROE.
Max Kristian Broden: 13, 7%.
Max Kristian Broden: Acceptable spread to our cost of capital.
Max Kristian Broden: And the adjusted ROE was 13.7%, an acceptable spread to our cost of capital. Overall, we view these results for the quarter as solid. Starting with our Japan segment, net-term premiums for the quarter declined 6%. This decline reflects a 6.2 billion yen negative impact from paid-up policies. In addition, there is a 7 billion yen negative impact from internal reinsurance transactions and a 1.4 billion yen positive impact from deferred profit liability. Losses were somewhat elevated, but within our expectations.
Max Kristian Broden: Overall, we view these results in the quarter as solid starting with our Japan segment net earned premiums for the quarter declined 6%.
Max Kristian Broden: This decline reflects a $6 2 billion yen negative impact from paid up policies.
Max Kristian Broden: In addition, there is a 7 billion yen negative impact from internal reinsurance transactions and a $1 4 billion positive impact from deferred profit liability.
Max Kristian Broden: Lapses were somewhat elevated but within our expectations.
Max Kristian Broden: At the same time, the number of policies in force declined 2.3%. Japan's total benefit ratio came in at 67% for the quarter, flat year-over-year. And the third sector benefit ratio was 57.5%, down approximately 20 basis points year over year. We continue to experience favorable actual to expected results on our well-priced, large, and mature in-force block. We estimate the impact from re-measurement gains to be 144 basis points favorable to the benefit ratio in Q1 2021. Long-term experience trends as it relates to treatment of cancer and hospitalization continue to be in place, leading to continued favorable underwriting experience.
Max Kristian Broden: At the same time policies in force declined two 3%.
Max Kristian Broden: Japan's total benefit ratio came in at 67% for the quarter flat year over year.
Max Kristian Broden: And a third sector benefit ratio was 57, 5%.
Max Kristian Broden: Down approximately 20 basis points year over year.
Speaker Change: We continue.
Speaker Change: <unk> experienced favorable actual to expected on our well priced large and mature in force block.
We estimate the impact from re measurement gains to be 144 basis points favorable.
Speaker Change: The benefit ratio in Q1 2024.
Speaker Change: Long term experienced trends as it relates to treatment of cancer and hospitalization continue to be in place leading to continued favorable underwriting experience persistency remains solid with a rate of 93, 4%, which was down 50 basis points year over year, but flat quarter over quarter.
Max Kristian Broden: Persistency remained solid with a rate of 93.4 percent, which was down 50 basis points year over year but flat quarter over quarter. We tend to experience some lapses in lapses as customers update and refresh their coverage.
Speaker Change: We tend to experience some elevations in lapses as customers update and refresh their coverage. This change in persistency is not out of line with expectations are.
Max Kristian Broden: This change in persistency is not out of line with expectations. Our expense ratio in Japan was 18%, down 170 basis points year-over-year, driven primarily by good expense control and to some extent by expense allowance from reinsurance transactions. Adjusted net investment income in yen terms was up 19.3%, mainly due to lower hedge costs and a favorable impact from FX on our US dollar investments in yen terms, as well as higher return on our alternative portfolio compared to the first quarter of 2023.
Speaker Change: Our expense ratio in Japan was 18% down 170 basis points year over year.
Speaker Change: Driven primarily by good expense control and to some extent by expense allowance from reinsurance transactions adjusted net investment income in yen terms was up 19, 3%, mainly by lower hedge costs and favorable impact from FX on our U S dollar investments in yen terms as well.
It's higher return on our alternatives portfolio compared to first quarter of 2023.
Max Kristian Broden: This was offset by the transfer of assets due to reinsurance in the previous year, leading to a lower asset base and lower floating rate income. The pre-tax margin for Japan in the quarter was 32.8%, up 460 basis points year-over-year, a very good result. Turning to the U.S. results,
Speaker Change: This was offset by the transfer of assets due to reinsurance in the previous year, leading to a lower asset base and lower floating rate income the pretax margin for Japan in the quarter was 32, 8% up 460 basis points year over year, a very good result, turning to U S.
Max Kristian Broden: Net Bend Premium was up 3.3%, and persistency increased 80 basis points year over year to 78.7%. This is a function of a poor persistency quarter falling out of the metric and stabilization across numerous product categories. Our total benefit ratio came in at 46.5%. 90 basis points higher than Q1 2023, driven by product mix and lower remeshment gains than a year ago. We estimate that the re-measurement gains impacted the benefit ratio by 200 basis points in the quarter.
Speaker Change: Net earned premium was up three 3%.
Speaker Change: <unk> increased 80 basis points year over year to 78, 7%.
Speaker Change: This is a function of a poor persistency quarter falling out of the metric and stabilization across numerous product categories. Our total benefit ratio came in at 46, 5% 90 basis points higher than Q1 2023.
Speaker Change: Driven by product mix, and lower re measurement gains than a year ago.
Speaker Change: We estimate that the re measurement gains impacted or benefited ratio by 200 basis points in the quarter.
Max Kristian Broden: Claims utilization has stabilized, but as we incorporate more recent experience into our reserve models, we have released some results. Our expense ratio in the U.S. was 38.7%, down 90 basis points year-over-year. Primarily driven by platforms improving scale and lower acquisition expenses. Our growth initiatives, group life and disability, networked television, and direct-to-consumer, increase our total expense ratio by 230 basis points. We would expect this impact to decrease going forward as these businesses grow to scale and improve their profitability.
Speaker Change: Claims utilization has stabilized.
Speaker Change: As we incorporate more recent experience into our reserve models, we have released some reserves.
Speaker Change: Our expense ratio in the U S was 38, 7% down 90 basis points year over year.
Speaker Change: Primarily driven by platforms, improving scale and lower acquisition expenses.
Speaker Change: Our growth initiatives group life, and disability network, dental and vision and direct to consumer increased our total expense ratio by 230 basis points.
Speaker Change: We would expect this impact to decrease going forward as these businesses grow to scale and improve their profitability.
Max Kristian Broden: Adjusted net investment income in the U.S. was up 4.6%, mainly driven by higher yields on both our alternatives and fixed rate portfolio. Profitability in the U.S. segment was solid, with a pre-tax margin of 21%, driven primarily by net and premium growth and improved net investment income year over year. Our total commercial real estate watch list remains approximately $1.2 billion, with around $600 million of these in active foreclosure proceedings.
Speaker Change: Adjusted net investment income in the U S was up four 6%.
Mainly driven by higher yields on both our alternatives and fixed rate portfolios.
Speaker Change: Profitability in the U S segment was solid with a pretax margin of 21% driven.
Speaker Change: Driven primarily by net earned premiums growth and improved net investment income year over year.
Speaker Change: Our total commercial real estate watch list remains approximately $1 2 billion.
Speaker Change: With around $600 million of these inactive foreclosure proceedings.
Max Kristian Broden: As a result of these current low valuation marks, we increased our CECL reserves associated with these loans by $10 million in this quarter. We also moved one property into real estate owned, which resulted in a $3.7 million gain. We continue to believe that the current distressed market does not reflect the true intrinsic economic value of our portfolio, which is why we are confident in our ability to take ownership of these quality assets, manage them through the cycle, and maximize our recovery.
Speaker Change: As a result of these current low valuation marks we increased our seasonal reserves associated with these loans by $10 million in this quarter.
Speaker Change: We also moved one property into real estate owned which resulted in a $3 7 million gain.
Speaker Change: We continue to believe that the current distressed market does not reflect the true intrinsic economic value of our portfolio.
Speaker Change: Which is why we are confident in our ability to take ownership of these quality assets managed them through the cycle and maximize our recoveries.
Max Kristian Broden: Our portfolio of first lien senior secured Miller market loans continues to perform well with losses well below our expectations for this point in the cycle. In our corporate segment, we recorded a pre-tax loss of $3 million; adjusted net investment income was $43 million higher than last year due to higher volume on the investable assets at Aflac REIT. Inc., and a lower volume of tax credit investments at Aflac, Inc. These tax credit investments impacted a corporate net investment income line for use gap purposes negatively by $32 million, with an associated credit to the tax line.
Speaker Change: Our portfolio of first lien senior secured middle market loans continue to perform well with losses, well below our expectations for this point in the cycle.
Speaker Change: In our corporate segment, we recorded a pretax loss of $3 million.
Speaker Change: Adjusted net investment income was $43 million higher than last year due to higher volume on the investable assets at Aflac REIT.
Speaker Change: And a lower volume of tax credit investments at Aflac, Inc.
Speaker Change: These tax credit investments impacted our corporate net investment income line for U S. GAAP purposes negatively by $32 million with an associated credit to the tax line.
Max Kristian Broden: The net impact to our bottom line was a positive $4 million in the quarter. To date, these investments are performing well and in line with our expectations. We are continuing to build out our reinsurance platform, and I am pleased with the outcome and performance. Our capital position remains strong, and we ended the quarter with an SMR above 1100% in Japan, and our combined RBC, while not finalized, we estimate it to be greater than 650%.
Speaker Change: The net impact to our bottom line was a positive $4 million in the quarter.
Speaker Change: To date these investments are performing well and in line with our expectations.
Speaker Change: We are continuing to build out our reinsurance platform and I am pleased with the outcome and performance.
Speaker Change: Our capital position remains strong and we ended the quarter with an SME above 1100% in Japan, and our combined RBC, while not finalized we estimated to be greater than 650%.
Max Kristian Broden: Unencumbered holding company liquidity stood at $3.7 billion, $2 billion above our minimum balance. These are strong capital ratios which we actively monitor, stress, and manage to withstand credit cycles as well as external shocks. U.S. statutory impairments were a release of $3 million, and Japan FSA impairments were 3.6 billion yen, or roughly 24 million dollars, in Q1. This is well within our expectations and with limited impact on both earnings and capital. Adjusted leverage remains at a comfortable 20.4%, at the low end of our leverage corridor of 20 to 25%.
Speaker Change: Unencumbered holding company liquidity stood at $3 7 billion.
Speaker Change: 2 billion above our minimum balance.
Speaker Change: These are strong capital ratios, which we actively monitor stress and managed to withstand credit cycles as well as external shocks.
Speaker Change: U S statutory impairment, where a release of $3 million.
Speaker Change: And Japan, FSA impairments were $3 6 billion yen or roughly $24 million in Q1.
This is well within our expectations and with limited impact to both earnings and capital adjusted leverage remains at a comfortable 24% at the low end of our leverage corridor of 20% to 25%.
Max Kristian Broden: In the quarter, we issued 123.6 billion yen in multiple tranches with an average coupon of 1.72%. As we hold approximately 60% of our debt denominated in yen, our leverage will fluctuate with movements in the yen-dollar rate. This is intentional and part of our enterprise hedging program, protecting the economic value of Aflac Japan in U.S. dollar terms. We repurchased $750 million of our own stock and paid dividends of $288 million in Q1, offering good relative IRR on these capital deployments.
Speaker Change: In the quarter, we issued $123 6 billion yen in multiple tranches with an average coupon of 172%.
Speaker Change: As we hold approximately 60% of our debt denominated in yen, our leverage will fluctuate with movements in <unk> dollar rate.
Speaker Change: This is intentional and part of our enterprise hedging program protecting the economic value of Aflac, Japan in U S. Dollar terms, we repurchased $750 million of our own stock and paid dividends of $288 million in Q1 offering good relative IRR on these capital deployments.
Max Kristian Broden: 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. I'll now turn the call over to David so that we can begin our Q&A.
Speaker Change: 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.
Speaker Change: With a meaningful spread to our cost of capital I'll now turn the call over to David So that we can begin our Q&A.
David Young: Thank you Max.
David Young: Before we begin, I just want to remind everyone, please mark your calendars for our financial analyst briefing on December 3rd at the New York Stock Exchange. We'll have more information coming out. And before we begin our Q&A, we ask that you limit yourself to one question and a related follow-up and then get back in the queue. Betsy, if you will, would you please remind everyone how to do that, please?
David Young: Before we begin I just want to remind everyone. Please mark your calendars for our financial analyst briefing on December 3rd at the New York Stock Exchange, we will have more information coming out and before we begin our Q&A. We ask that you limit yourself to one question and a related follow up and then get back in the queue.
David Young: Betsy if you will will you remind everyone how to do that please.
Operator: To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.
Betsy: To ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing me Keith.
Operator: If at any time your question has been addressed and you would like to withdraw your question, please press star and two. As a reminder, please limit yourself to one question and one follow-up. If you have additional questions, please rejoin the queue. At this time, we will pause momentarily to assemble our roster. The first question today comes from Elyse Greenspan with Wells Fargo. Please go ahead.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Betsy: As a reminder, please limit yourself to one question and one follow up.
Betsy: If you have additional questions. Please rejoin the queue.
Betsy: At this time, we will pause momentarily to assemble our roster.
Betsy: The first question today comes from Elyse Greenspan with Wells Fargo. Please go ahead.
Elyse Beth Greenspan: Hi, thanks. Good morning. My first question, starting with US sales, which you guys said were weaker than expected in the quarter, but you did reaffirm the longer-term guidance for sales in that business. So can you just give us a sense of how you expect sales in the US to trend from here?
Elyse Beth Greenspan: Hi, Thanks. Good morning, My first question starting with.
Elyse Beth Greenspan: With U S sales, which you guys said.
Elyse Beth Greenspan: Well weaker than expected in the quarter, but you did reaffirm.
Elyse Beth Greenspan: The longer term guidance for sales in that business. So could you just give us a sense of how you expect.
Elyse Beth Greenspan: Sales in the U S to trend from here.
Virgil Raynard Miller: Yeah, good morning. This is Virgil from the U.S. First, let me start with a little bit more color on how sales performed in Q1. As you mentioned, they were a little bit softer in Q1.
Elyse Beth Greenspan: Yes. Good morning. This is virgil from the U S.
Virgil: Let me start with a little bit more color on how sales performed in Q1 as you mentioned there were a little softer for Q1.
Virgil: A couple of drivers for that first let me start with our plans our life after the disability business.
Virgil Raynard Miller: A couple of drivers for that. First, let me start with our plan, our life absence disability business. You know, normally that is a business that takes place in the latter part of the year. Well, last year, in 2023, we did have some business processes in Q1. So, therefore, we were down on that comparison. That is an anomaly. That normally doesn't happen.
Virgil: Normally that is a business that takes place in the latter part of the year last year 2023 we did have some business process in Q1. So therefore, we were down with that comparison that as an anomaly that normally doesn't happen. So again I expect continued strong performance.
Virgil: Line of business the remainder of the year.
So that was a timing element other Tommy element involves our dental and vision business as Dan mentioned in his opening we continue to work on optimizing that platform. So we had softer sales.
Virgil Raynard Miller: So, again, I expect continued strong performance from that line of business the remainder of the year. So that was the timing element. The other timing element involves our dental and vision business. As Dan mentioned in his opening, we continue to work on optimizing that platform. So we had softer sales with our dental product.
Thermal product.
Virgil Raynard Miller: We're expecting to continue to build out that platform, make those improvements, and have a stronger year in the second half of the year. Last, I will close with the emphasis on our continued focus on our strong underwriting destiny. To give more color on that, we're really looking to bring on business that has long-term profitability, which we believe helps strengthen the company over a long-term perspective. This allows us to pay claims and return shareholder value and also helps us with building on persistent growth.
Virgil: We expect them to continue to build out that platform make those improvements and have a stronger year in the second half of the year Lastly, I will close with reemphasize our continued focus on our strong underwriting discipline.
Virgil: To give more color on that we're really looking to bring on business that have long term profitability, which we believe have strength of the company over a long term range. This allows us to pay claims and return shareholder value and also helps us with building our persistency. So we do have an improve.
Virgil Raynard Miller: So we did have an improvement in persistency of 80 basis points. We had a higher premium of 3.3%, and we had a strong profit margin of 21% for the quarter. So we believe this is the right way to manage the company going forward.
Virgil: And persistency of 80 basis points, we had higher premium of three 3%.
Virgil: And we have strong profitability of 21% profit margin for 'twenty, one specific quarter. So we believe this is the right way to manage capital going forward.
Elyse Beth Greenspan: Thank you. And then my follow-up question, you know, shifting to, you know, sales in Japan, you know, the third sector sales went negative this quarter. You guys did highlight some initiatives you have to improve sales in Japan, but just hoping you could provide, you know, more color specifically on how you expect third sector sales to trend, you know, over the course of 2024.
Thank you and then my my follow up shifting to sales in Japan.
Virgil: Now the third sector sales went went negative this quarter.
Virgil: You guys did highlight some initiatives you have to improve.
Virgil: Sales in Japan, but just hoping you could provide more color specifically.
Speaker Change: How you expect third sector sales to trend.
Speaker Change: Over the course of 2024.
Daniel Paul Amos: Let me let Aflac Japan answer that, but I think the most important thing is we still expect to attain our objective for the full year. So Koide, would you mind taking that? Or Yoshizumi?
Speaker Change: So let me lead.
Koichiro Yoshizumi: Aflac, Japan answer that but I think the most important thing is we still expect to attain our objective for the full year. So <unk> would you mind taking that.
Koichiro Yoshizumi: Yes.
Daniel Paul Amos: Yeah, Yoshizumi-san, we will answer that. Okay.
Speaker Change: Yes, yes.
Speaker Change: Answer to that question.
Koichiro Yoshizumi: Thank you for the question. This is Yoshizumi. I will be answering your question.
Aflac: Thank you for the question.
Speaker Change: Let me just start off with.
Speaker Change: I will be answering your question Michael.
Michael: Well, thank you Sean.
Speaker Change: No just thank you all run out of stock.
Koichiro Yoshizumi: And starting from 2024, what we are expecting is that we will exceed 2023 results.
Speaker Change: Starting from 2020 for what we are expecting is that we expect to exceed 2020 results you cannot do you cut out.
Koichiro Yoshizumi: Ita no riyuu kara hanbai no kaifuku wo mikonde orimasu.
Speaker Change: <unk> and.
Due to the following reasons that we are expecting our sales will recover.
Koichiro Yoshizumi: And due to the following reasons, we are expecting our sales to recover. 1. We are planning to enhance our associates channel sales agents, meaning they will increase the number of sales associates. Number one, we are planning to enhance our associates channel sales agents, meaning they will increase the number of sales associates.
Speaker Change: I appreciate the color on abortion when you want to look at.
Speaker Change: Number one.
Speaker Change: Plenty to enhance our associates channel sales agents I mean, the increase the number of sales associates.
Koichiro Yoshizumi: In 2023, we adopted about 600 people and strengthened education.
Yep.
Speaker Change: Hi.
Speaker Change: Your question was strong.
Koichiro Yoshizumi: And in 2023, we hired approximately 600 new sales agents and recruited and enhanced their training.
23.
Speaker Change: We proximately hired 600 600, new sales agents and recruited and have it in house their training.
Koichiro Yoshizumi: I think that 600 people will be active after the second quarter.
Speaker Change: During the quarter.
During the quarter equal well cut it on a country are critical.
Speaker Change: Almost 30 months.
Koichiro Yoshizumi: We are expecting that these 600 will become more productive in the second quarter and be successful.
Unknown Executive: [inaudible]
Speaker Change: We're expecting at least 600 will become more productive in the second quarter and be successful.
Speaker Change: <unk> auto for Silicon metal Telecommuting custodial.
Koichiro Yoshizumi: We are also continuing agent recruitment in 2024 and taking steps to ensure their effectiveness.
Speaker Change: We're also continuing agent recruitment in 2024 and taken steps to ensure their effectiveness.
Koichiro Yoshizumi: ???????????????????????????????
Speaker Change: Bob.
Speaker Change: Group and essential.
Brian: Hey, Brian.
Koichiro Yoshizumi: And the second point is that we are going to... Promoting the sales of Japan Post's new product as well as our counseling product for the Japan Post channel.
Bob: And the second point is that we are going to be promoting sales of Japan post new product as well as our cancer product to Japan post channel time chunk in Europe, <unk> got local for local statutory rules and we do expect that cancer cell cancer insurance sales will increase in the second quarter.
Koichiro Yoshizumi: In the second half of the year, we expect to see an increase in the sale of cancer insurance.
Koichiro Yoshizumi: And we do expect that counselor sales and counselor insurance sales will increase in the second quarter.
Koichiro Yoshizumi: And then my third point is related to Yoriso Cancer Consultation Support Service, which has been highly rated by our customers. This is a counseling service for customers who are able to discriminate against each other.
Speaker Change: Hi, Joe.
Joe: I'll put up solid golf hotel, coupled <unk>, coupled with its good at the mall and then my third point is related to <unk> cancer.
Speaker Change: Catherine.
Speaker Change: Consultation support service capital high rated by our customers.
Speaker Change: Sure.
Speaker Change: Right.
Speaker Change: Scott will talk some moment cannot Philadelphia Holden. This is like our consultation service to our customers that could further differentiate ourselves from our competitors tend to be commercial.
Koichiro Yoshizumi: This is our consultation service for customers that can further differentiate us from our competitors.
Koichiro Yoshizumi: TV Commercial, Web Video, Advertising, etc.
Speaker Change: Coca Cola coffee, you'll see how this core.
Koichiro Yoshizumi: We will be using TV commercials, web video ads, etc.
Speaker Change: Good morning.
Speaker Change: We will be using TV commercials web video ads et cetera, and leverage them to differentiate further against our competitors.
Unknown Executive: Japanese interpretation
Speaker Change: No cost at all.
Speaker Change: <unk> done it in the oil <unk> gas with another on <unk>, China. So they will get it all authority Dr. Jonathan <unk>.
Koichiro Yoshizumi: And my fourth point is that we have plans to implement measures to attract more young and middle-aged customers, as medical insurance has been well-received among those segments and with significant growth at large non-exclusive agencies.
Speaker Change: Yes.
Dr. Jonathan: And my fourth point is that we are close to input measures to attract more young our middle east customers at medical insurance has been well received among those segments with significant growth at large non exclusive agencies.
Koichiro Yoshizumi: In addition, we are planning to release a new mass-produced product in June.
Dr. Jonathan: Okay.
Dr. Jonathan: Sure.
Koichiro Yoshizumi: And furthermore, we are planning to launch a new asset formation type of product in June.
Speaker Change: There is still demand. Furthermore, we are planning to launch a new asset formation type of product in June short haul Shlomo I look at the mortality.
Unknown Executive: Unknown Executive, Unknown Attendee, Unknown Attendee, We are also looking forward to additional sales of third-sector products to customers who have recently acquired them.
Alright, I think Akshay will get some.
Akshay: So it's not free.
Akshay: I thought about the product will include future nursing care coverage feature that will bring a value to young customers.
Koichiro Yoshizumi: Products will include future nursing care coverage features that will bring value to young customers. We also expect to sell additional third-sector products to these new customers through concurrent and follow-on sales.
Akshay: So expect to sell additional third sector product to these new customers or concurrent and follow on sales timeshare homebuyers Lucas you were saying.
Koichiro Yoshizumi: The second half of the year is expected to see an increase in sales and an increase in results in 2024 and 2023.
Thank you.
Lucas: Your first step.
Koichiro Yoshizumi: And by implementing these measures, we expect an increase in second quarter sales and exceed 2023 results, and as we aim to steadily increase sales. 2026 We are aiming for a steady increase in sales toward our 2026 target.
Speaker Change: And by implementing these measures we expect an increase in second quarter sales and exceed 2000 <unk> results.
Speaker Change: Aim to steadily increase sales.
Manager open and buy market share when you look at the <unk>.
Speaker Change: Goldman is starting off.
Speaker Change: Amy for steadily increasing sales toward our 2026 targets.
Speaker Change: That's all for me thank you.
Operator: The next question comes from Tom Gallagher with Evercore. Please go ahead.
Speaker Change: The next question comes from Tom Gallagher with Evercore. Please go ahead.
Thomas George Gallagher: Good morning. And I just wanted to circle back on Japanese sales. Do you think the issue as you try and assess it today is more of an industry issue or is it Aflac specific? The reason I asked is you mentioned you're deliberately not underwriting certain products in Japan. When I hear that, I think that implies there's some irrational pricing for product features that you don't like. So just a little bit of color on what's going on, is it? Medicine, where that's happening, and overall, how do you see that playing out?
Thomas George Gallagher: Good morning.
Thomas George Gallagher: And just just wanted to circle back on Japan.
Thomas George Gallagher: And sales do you think.
Thomas George Gallagher: Issue as you try and assess it today is more of an industry issue. It's at Aflac specific.
Thomas George Gallagher: Reason I ask is I think you mentioned, you're deliberately not underwriting certain products in Japan.
Tom Gallagher:
Tom Gallagher: Did I hear that I think that implies there's some irrational pricing and product features that you don't like.
Tom Gallagher: Just just a little bit of color on what's what's going on.
Tom Gallagher: Medical.
Tom Gallagher: Where that's happening in the overall, how do you how do you see that playing out thanks.
Daniel Paul Amos: Let's let our Japanese cover that, and if they don't, I'll pick up on it a little bit more too.
Tom Gallagher: And that's what our.
Japanese.
Tom Gallagher: Cover that in adult.
I'll pick up on it a little bit.
Daniel Paul Amos: Koide. Koide. Yoshizumi. Yoshizumi.
Tom Gallagher: Alright.
Tom Gallagher: Yes.
Unknown Executive: This is Nancy Zimuland again. They've answered some questions.
Tom Gallagher: Sure.
Speaker Change: Once again, let me answer your questions.
Unknown Executive: Japanese interpretation
Speaker Change: You won't get all of this net <unk>.
Speaker Change: Target younger.
Speaker Change: You say that you've got.
Speaker Change: Jonathan just to pick you up.
Jonathan: Well the only about still.
Koichiro Yoshizumi: Regarding medical insurance sales, we have been increasing our sales on a year-on-year basis, especially to those customers under age 50 or those at 40 and below.
Jonathan: Regarding the medical insurance sales.
Jonathan: Okay.
Jonathan: Alright, so from year on year basis, especially to those customers.
Jonathan: Sure.
Jonathan: At 40.
Koichiro Yoshizumi: Also, there is a benchmark for whether the sale of medical insurance is a good thing.
Speaker Change: To wrap up.
Speaker Change: Oh no no.
Speaker Change: <unk> got to all of you to hold on the benchmark <unk>.
Speaker Change: Cocoa then a humble.
Speaker Change: Okay.
Speaker Change: Okay.
And then also through the stores and also.
Koichiro Yoshizumi: And also, our sales in large non-exclusive agency sales increased significantly this year. And this large non-exclusive agency sales is a benchmark to see how well the medical insurance is doing. We are planning to roll out promotional measures to further enhance our sales to young and middle-aged customers. We have already sold successfully. That's all from me.
Our sales in large nonexclusive agency sales are nearing a basis increased significantly this year and this large telcos are the agency sales, it's a benchmark to see how well the medical insurance is doing.
Speaker Change: Our courtyard carload, Dr. Jonathan <unk>, you already spoke yoga front on any promotional level. Thank you guys.
Speaker Change: Real data, we are planning to rollout our promotional measures to further enhance our sales to young emulation customers.
Speaker Change: We have been selling already successfully.
Speaker Change: Thats all from me.
Masatoshi Koide: This is Aflac Japan, Koide, and I would like to make a few comments.
Speaker Change: Got it.
Aflac: This is Aflac, Japan Korea.
Speaker Change: Our state of mind, I would like to be adding a few comments.
Speaker Change: Thanks Andrea.
Tony: Hey, John it's Tony.
Speaker Change: Uh huh.
Tony: And then can you just go nuts devices in Japan, right now third sector sales is becoming more and more competitive year on year.
Masatoshi Koide: In Japan right now, third sector sales are becoming more and more competitive year on year.
Unknown Executive: [inaudible]
John: Got it.
John: <unk> okay.
John: Okay.
John: Same silicon you all have to die.
John: Hello.
John: Qvc's total that got it okay some of them on using sort of shocking that Scotty.
Six.
John: Santa Clara frequently muscle and our strategy is to have some solid fell by meeting these customers under the very competitive situation by launching new products in both medical and cancer insurance and we'd like to do this in a timely manner by really taking in the needs of customers.
Masatoshi Koide: And our strategy is to have solid sales by meeting these customers under a very competitive situation by launching new products in both medical and cancer insurance. And we like to do this in a timely manner by really taking into account the needs of customers.
Unknown Executive: Japanese interpretation
Speaker Change: Yes, let's say Sunday today at all.
John: In North Dakota.
Speaker Change: And I was hoping you Scott.
Speaker Change: It is the Mustang <unk> carcinoma, the Ocado 33 no.
Speaker Change: So in the North sea.
Speaker Change: So I'd say no causal.
Speaker Change: Scott I'll eat at that XL can update it.
Speaker Change: According to your demo sampling at all.
Masatoshi Koide: And as Yoshizumi-san mentioned earlier regarding the Associates Channel sales agents increase, particularly as we increase the number of sales agents, we are not only increasing the head counts, but we are also trying to increase the productivity per head per year through training. And that way, we should be able to increase our sales and strengthen our sales in the third sector.
Speaker Change: And as you also Jim as I mentioned earlier regarding the associates channel sales to Asia increased particularly as we increase the number of sales agents. We are not only increasing the head count, but we are also trying to increase the productivity per head per year, so with training and that way, we should be able to increase our sales.
Speaker Change: Strengthen our sales in third sector.
Masatoshi Koide: Also, the strength of Aflac in the Japanese market is that its alliance partners, especially Japan Post, which has a network all over Japan, are working with Aflac.
Speaker Change: The market on your right after I cannot say.
Speaker Change: Hello, I am not talking about.
Jim: Thank you.
Jim: He told me Alan you want to think of.
Jim: No Thats a lock on what data you have ample stock.
Jim: I need to call today.
Masatoshi Koide: Another strength of Aflac in Japan is that we have a very strong alliance across the entire Japan, namely the Japan Post network, because Japan Post has a nationwide network that can sell a product.
Jim: Another strength of Aflac in Japan is that we have very strong alliance across the entire Japan, namely the Japan Post network, because Japan post has nationwide network that can sell a product.
Masatoshi Koide: We are still waiting for sales to recover, but as Mr. Yoshizumi said earlier, we are working to increase the sales of health care products and increase the total amount of health insurance recruitment activities. And as Yoshizumi-san mentioned...
Jim: And I look at it but as you kind of cut that you must get them all at our email.
Jim: I guess, what youre, saying is on that.
Jim: A couple of sourcing.
Okay.
Jim: Yoga and a political thing Youll say garlock and <unk>.
Jim: And <unk> got a.
Jim: Let me take the only.
Jim: Could it continue to do this.
Daniel Paul Amos: Dan, anything you would add, or should I ask more?
Masatoshi Koide: And, as Yoshizumi-san mentioned, the Japan Post Network... Sales Recovery is taking a bit more time. However, as Yoshizumi-san mentioned, Japan Post Insurance sales are increasing, especially in its activity volume. So not only will they only be increasing their sales activities and their whole station activities, they should also be increasing the actual sales on the counter, and that's what we are hoping to have done.
Jim: And as Sam mentioned.
Jim: Pam posting Japan post network.
Jim: Recovery is taking a bit more time. However, I just can you give me some mentioned Japan post insurance sales is increasing especially in its activity volume. So not only will they only be only increasing their sales activities and the solicitation activities. They will they should also be increasing the actual sale.
Jim: On cancer and Thats, what we are hoping to have done.
Speaker Change: That's all from us.
Speaker Change: And any any anything you would add or should I ask one follow up.
Daniel Paul Amos: Yeah, okay. Let me make a couple of comments, and then anything else you want to ask, we'll be glad to. First of all, our cancer insurance is doing very well, both through our existing distribution channel and Japan Post. The other thing I would say is that medical products are more competitive, and we have to continue to watch that. That's really nothing new, but it hasn't slackened off. And then we don't sell the foreign currency products that some of our competitors sell. We just don't think we want to take on that exposure and pass it on to our customers, and so we haven't done that. So I think those are the real differences that are being created.
Speaker Change: Okay. Let me, let me make one other a couple of comments and then we'll.
Speaker Change: Anything else you want to ask we'll be glad first of all our cancer insurance is doing very well both through our existing distribution channel Lynch and us.
Speaker Change: Other thing I would say is that the medical products are more competitive and we have to continue to watch that.
Speaker Change: That's really nothing new.
Speaker Change: It Hasnt slack.
Speaker Change: And then we don't sell the foreign currency products. Some of our competitors sale. We just don't think we want to take on that exposure and <unk>.
Speaker Change: Pass it on to our customers and so we haven't done that so I think those are the real differences that are created any other question you had.
Daniel Paul Amos: Yeah, thanks, Dan. And just for a follow-up, the weaker persistence in Japan, can you talk a little bit about what you're seeing there from a product standpoint? Is it cancer and medical that you're seeing it on? And is it just a lapse of coverage, or is it switching to other companies, do you suspect? So, Tom.
Speaker Change: Yeah. Thanks, Dan just for a follow up there.
Speaker Change: The weaker persistency in Japan.
Speaker Change: Can you talk a little bit about what youre seeing there from a profit standpoint is that cancer and medical.
Speaker Change: But youre seeing it on them.
Speaker Change: Hey, Jay just lapsing of coverage or is it switching to other companies do you suspect.
Max Kristian Broden: So, Tom, let me take that. One of the main reasons is that we obviously have an aging block of imports, so our new sales are lower than our last session. That means that you have a natural aging of the overall block. When you have that, then you are going to see some higher surrenders, lapses, and also mortality associated with the overall block. So it's very natural when you have an aging block that you have higher lapses.
Speaker Change: So Tom.
Speaker Change: Let me take that.
Speaker Change: Sure.
Thomas George Gallagher: One of the main reasons.
Thomas George Gallagher: We obviously have an aging block of in force. So our new sales is lower than our last patients that you have a natural aging of the overall block.
When you have that.
Thomas George Gallagher: Than.
Thomas George Gallagher: You are going to see some some.
Thomas George Gallagher: Higher surrenders lapses and also mortality associated with the overall block. So it's very natural when you have an H block that you have higher lapses.
Max Kristian Broden: That, in combination with we've also now, in the last five, six years, we moved into a little bit of a shorter product cycle. When you have that and you refresh product, you tend to have a little bit higher structural lapse and reissue come through your block. So I would point out those are the two main reasons why we are probably in an environment now where you have a slightly lower persistency now structurally than what we did see five, six years ago.
Thomas George Gallagher: That in combination with we've also now.
Thomas George Gallagher: The last five six years, we moved into a little bit of a shorter.
Thomas George Gallagher: Product cycles, when you have that MDU refresh products, you tend to have a little bit higher structural lapse and reissue come through a block. So I would point to those are the two main reasons why we are probably in an environment now where you have a slightly lower persistency now structurally than what we did see.
Thomas George Gallagher: Five six years ago.
Operator: The next question comes from Jimmy Bueller with AP Morgan. Please go ahead.
Thomas George Gallagher: The next question comes from Jamie.
Jamie: With JP Morgan. Please go ahead.
Unknown Attendee: Hey, good morning. So the first question, just along the lines of what's been discussed already, and I think Virgil mentioned this as well, this was in your press release also, Dan, just discipline underwriting is not something that people generally associate with Aflac because your products have pretty high margins, just given the nature of your business. So I'm wondering what's changed because it seems like the environment for pricing in your business has changed, and with higher interest rates, you could potentially even price them better than before.
Jamie: Hey, good morning. So the first question just along the lines of what's been discussed already and I think we mentioned this as well. This was in your press release also then just.
Jamie: Disciplined underwriting is not something that people generally associated with Aflac, because you brought it up pretty high margins just given the nature of your business still.
Jamie: I'm wondering what's changed because it seems like the environment for pricing in newer business.
Jamie: With higher interest rates, you could potentially even priced better than before.
Unknown Attendee: So, wondering if it's outside factors that have gotten worse, and maybe you could talk about the U.S. as well, where you're seeing your competitors trying to be more aggressive, or what's really different now than before, because it's not like before you weren't trying to be disciplined, right? So just anything that you could and sort of highlight on that, and especially in the U.S. market, you talked a little bit about Japan.
Jamie: So wondering if it's outside factors that have gotten worse.
Jamie: And maybe you could talk about the U S as well.
Jamie: Where are you seeing your competitors trying to be more aggressive or what's really different now than before because it's not like before you weren't trying to be disciplined rate. So just anything that you could.
Jamie: Okay.
Jamie: Sort of highlight on that especially in the U S market, you talked a little bit of a bunch of them.
Virgil Raynard Miller: Yeah, let me add to that. Again, this is Virgil.
Jamie: Yes.
Jamie: Let me add to that agenda, Virgil just want to say that what you are seeing is the evolution of our block of business.
Speaker Change: Our group voluntary benefit business has continued to grow over the past several years and really when we talk about the underwriting discipline that is where you're most you're going to see that there is strong.
Virgil Raynard Miller: I just want to say that what you're seeing is the evolution of our block of business. Our group voluntary benefit business has continued to grow over the past several years. And really, when we talk about that underwriting discipline, that is where you're most certainly going to see that. Yes, there's strong competition out there, fierce competition in the group business. And what we're doing is making sure, though, that we are able not only to compete, but we want to look at the business that yields profit.
Speaker Change: Petition out their fierce competition in the group business and what we're doing is making sure though that we are able to compete and we want to look at the business that yields profit. So any time you bring in new business on our books, a course of acquisition expenses and everything that go into that and we want to make sure that we're getting the right. This is on our books.
Speaker Change: The Tennessee to persist so we're able to end up.
Speaker Change: Absolutely, making profit on that business.
Virgil Raynard Miller: So anytime you're bringing new business on the books, of course, there's acquisition expenses and everything that goes into that. And we want to make sure that we're getting the right business on the books that has the tendency to persist so we're able to end up absolutely making profit on that business over a couple of years. Period.
Speaker Change: A couple of years period.
Virgil Raynard Miller: And if you think about it for a minute, it'll make plenty of sense that you take an account that has high turnover, then you have a low benefit ratio, and you have a high expense ratio and basically no profit. So you actually improve every aspect of the business, the overall business, when you just don't write.
Speaker Change: And if you think about it in a minute.
It'll make plenty of sense.
Speaker Change: Is that you.
Speaker Change: You take an account that has high laxation.
Then you have a low benefit ratio and you have a high expense ratio and basically no profit. So you actually improve every aspect of the.
Speaker Change: Business the overall business when you just don't write it.
Virgil Raynard Miller: And that's what we've been looking at and seeing. And then that allows us, by doing that, for our customers, as we've increased benefits in other policies, to move it up and give better value. So it's a good balance that we think ultimately creates value, not only for the policyholder but ultimately for the shareholders as well.
Speaker Change: And that's what we've been looking at and seeing and then that allows us doing that.
Speaker Change: As we've increased benefits and other policies to move it up and give a better value. So it's a good balance that we think ultimately creates value not only for the policyholder, but ultimately for the shareholders as well.
Max Kristian Broden: Okay, thanks. And then Max, do you have an update on the Japan ESR and its potential impact on your Bermuda Reinsurance business or just overall capital management strategy?
Speaker Change: Okay. Thanks, and then do you have an update on the Japan, ESR and its potential impact on your <unk>.
Speaker Change: Bermuda reinsurance or just overall capital management strategy.
Max Kristian Broden: So our ESR in Japan continues to track well. We are running a little bit north of 250% on our ESR based on our internal model. We would expect relatively soon, in the second quarter, for the FSA to come out with a final calibration. I would not anticipate that that would have a material impact on our, i.e., the difference between the FSA calibration and our current internal model, so I wouldn't expect that number to move materially.
Speaker Change: So our ESR in Japan continues to track well.
Speaker Change: We are running a little bit north of 250% on our ESR and based on our internal model, we would expect relatively soon in the second quarter.
Speaker Change: They can come up with a final calibration.
Speaker Change: I would not anticipate that that would.
Speaker Change: Had a material impact on our.
Speaker Change: The difference between the FSA calibration and our current internal model, so I wouldn't expect to have.
Max Kristian Broden: But then, obviously, we will assess the ESR based on that, and we will talk about it in more detail at a FATA in December. But currently, we're tracking on our internal model a little bit north of 250%. The next question comes from Joel Hurwitz with Dollingen Partners. Please go ahead. Hey, good morning.
Speaker Change: Has that number moved materially.
Speaker Change: But then obviously we will assess it.
Speaker Change: The ESR based on that and we will talk about it in more detail.
Speaker Change: Pat.
Speaker Change: December are currently we're tracking on our internal model a bit north of 250%.
Operator: The next question comes from Joel Hurwitz with Doling & Partners. Please go ahead. Hey, good morning. So Japan continues to see pretty strong remeasurement gains.
Speaker Change: The next question comes from Joe <unk> with.
Joe: The OEM partners. Please go ahead.
Joe: Hey, good morning.
So Japan continues to see pretty strong.
Joe: Re measurement gains can you just talk about the underlying claim trends that youre seeing there and I guess, if this level of favorability of the remeasurement gains persist.
Joe: Should we likely see a bigger unlocking this year with more experience we need it.
Joel Hurwitz: So, Joel, the main driver continues to be hospitalization trends that have been favorable for a long, long period of time, and they, quite frankly, have continued to improve. The way we do, when we do our reserve calculations, we are looking to true up to current experience, but we don't necessarily anticipate that there will be continued future improvement in that experience. And that's why you see these, if the hospitalization trends continue to improve from current levels, then you could see in the future that that would lead to future remeasurement gains as well. But if they stabilize at current levels, then you wouldn't necessarily see that. Okay, that makes sense.
Speaker Change: So Joe.
Joe: The main driver continues to be at the hospitalization trends that have been favorable for a long long period of time and they quite.
Joe: I think they have continued to improve the way we do when we do our reserving we are looking and to true up to current experience.
But we don't necessarily anticipate that there will be continued future improvement in that experience.
Joe: And that's why you see these.
Joe: If the hospitalization trends continued to improve from current levels, then you could see in the future.
Joe: But that will lead to future re measurement gains as well.
But if they stabilize at current levels and then you wouldn't necessarily see that.
Max Kristian Broden: And then just in Japan on expenses, they came in very favorable this quarter. But how much of that was cost controls that could be sustainable longer term versus just, you know, seasonality or timing? There's a significant element of both seasonality and timing in this number, and for the full year, we are tracking towards our expense ratio outlook of 19 to 21%.
Joe: Okay.
And then just in Japan on expenses. They came in very favorable this quarter, how much of that was cost controls that could be sustainable longer term.
Joe: Versus just seasonality or timing.
Joe: Yes.
Joe: A significant element of that both the seasonality and timing in this number and for the full year, we are tracking towards.
Joe: Our expense ratio outlook of 19% to 21%.
Operator: The next question comes from Josh Shanker with Bank of America. Please go ahead.
Joe: The next question comes from Josh Shanker with Bank of America. Please go ahead.
Joshua David Shanker: Yeah, thank you. There's a lot of news out there right now about the Japanese government doing some major intervention to support the yen. What does that mean for the cost of your hedging program?
Joshua David Shanker: Yes. Thank you there's a lot of news out there right now about the Japanese government.
Joshua David Shanker: Doing some major intervention to support the yen what does that mean for the cost of your hedging program.
Max Kristian Broden: So Josh, volatility can obviously impact the pricing of options; that, together with all the other sort of normal inputs into the pricing of an option would be the main impact from that. However, the level itself has less impact on the ultimate cost of those put options. So at this point, we see relatively limited impact on the pricing of options. Quite frankly, I would think that the volatility in the yen, even though it's been trending, the short-term volatility has been quite low recently.
Joshua David Shanker: So Josh.
Joshua David Shanker: Volatility.
Joshua David Shanker: You can obviously impact the pricing of options.
Joshua David Shanker: That would be that together with all the other sort of normal inputs into the pricing of an option.
Joshua David Shanker: Would be the main.
Joshua David Shanker: Impact from that that level itself.
Joshua David Shanker: Less impact to the ultimate cost of those put options.
Joshua David Shanker: So at this point, we see relatively limited impact.
Yes.
Joshua David Shanker: The pricing of options.
Joshua David Shanker: I think that.
Joshua David Shanker: The volatility in the yen, even though it's been trending.
Joshua David Shanker: The short term volatility has been quite low.
Max Kristian Broden: So given that, we don't see any significant impact. I would tell you, though, that obviously there has been a significant move overall in the end because it's been trending and it has been weakening, and that obviously has an impact on all of our financial statements and capital ratio. The way we approach this is that we take an economic view, and we try to protect the economic value of apps like Japan with a holding company lens.
Joshua David Shanker: Recently so.
Joshua David Shanker: Given that.
Joshua David Shanker: We don't see any significant impact.
Joshua David Shanker: I would tell you, though that obviously theres RVP test that theres been a significant move overall in the because it's been trending and it has been weakening.
Joshua David Shanker: And that obviously has an impact.
Joshua David Shanker: To all of our financial statements and capital ratios. The way. We approach. This is that we've taken economic view and we try to protect the economic value of Aflac, Japan with our holding company lens.
Max Kristian Broden: And we feel that we are very well protected with the three levers that we are using to do that, that being the US dollar assets that we hold in the Japanese general account, that being the yen-denominated debt that we issue out of the holding company, and then also the FX forwards that we have at the holding company. So, we have designed this program with these kinds of moves in mind, and at this point, the program overall is performing very well.
Joshua David Shanker: And we feel that we are very well protected with the three levers that we're using to do that that would be the U S. Dollar assets, we hold in the Japanese general account and that being the yen denominated debt that we issue out of the holding company and that also the FX for which that we have at the holding company. So.
Joshua David Shanker: We have designed this program with these kind of moves in mind.
Joshua David Shanker: And at this point the program overall is performing very well.
Joshua David Shanker: I don't want to lessen the significance of a very large dividend increase as well as a lot of shares bought back in the quarter, but it seems to me that the capital ratios are even higher now at the end of the first quarter than they were at the end of this past year. I've been harassing David a little bit on Better Color, but can you walk through all the gating factors in your internal model that guide your willingness to return capital to shareholders?
Speaker Change: And look I don't want to.
Speaker Change: Lessen the significance of a very large dividend increase as well as.
Speaker Change: A lot of shares bought back in the quarter, but it seems to me that the capital ratios are even iron now.
Speaker Change: At the end of the first Gordon worthy of this past year.
Speaker Change: Harassing David a little bit better color, but can you walk through all of the gating factors in your internal model that guide.
Speaker Change: <unk> willingness to return capital to shareholders.
Max Kristian Broden: So, the overall return on capital to shareholders is really, quite frankly, driven by, number one, meeting the capital ratios in the subsidiaries, and that means all of the subsidiaries. Then we look at the pool of capital that we have at the holding company, which currently sits at $3.7 billion on an unencumbered basis, which is roughly $2 billion north of our minimum liquidity level. We then think about what capital generation will be going forward, and that helps us then think about how we can deploy capital both short-term, i.e.
Speaker Change: So the overall return on capital to shareholders is really quite frankly, driven by number one satisfy the capital ratios in the subsidiaries and that means all of their subsidiaries.
Speaker Change: Then we look at the pool of capital that we have at the holding company, which currently sits at $3 $7 billion on an unencumbered basis, which is roughly $2 billion north of there.
Speaker Change: Our minimum liquidity level.
We don't think about what is the capital generation going forward and that helps US then think about how we can deploy capital both short term I E.
Max Kristian Broden: in the next couple of quarters, but also long-term, i.e., thinking about what it's going to look like over the next two, three, five years as well. That helps us sort of guide then also what kind of returns we can expect on dividends, buybacks, etc., when we take into account what other alternatives we have for that capital. And obviously, we try to deploy the capital in the areas where we think we can get the best IRR. The next question comes from Wes Carmichael with Autonomous.
Speaker Change: In the next couple of quarters, but also long term I E thinking about what it is going to look like over the next 235 years as well that helps us sort of guy down also.
Speaker Change: What kind of returns we can expect on dividend buybacks et cetera.
Speaker Change: When we take into account.
Speaker Change: Alternatives, we have for that capital and obviously.
Speaker Change: Tried to deploy the capital.
Speaker Change: In the areas, where we think we can get the best IRR.
Operator: The next question comes from Wes Carmichael with Autonomous Research. Please go ahead. Good morning. In the transitional real estate portfolio, Max, I think you mentioned foreclosing on a loan and
Speaker Change: The next question comes from Wes Carmichael with Autonomous Research. Please go ahead.
Wesley Collin Carmichael: Hey, good morning.
Wesley Collin Carmichael: The transitional real estate portfolio mix I think you mentioned foreclosing on alone taking it on balance sheet as real estate owned can you just talk about are there other ones that you are monitoring right now and maybe just give us an update on the size of the overall watch list there.
Wesley Collin Carmichael: Sure. Good morning, Wes.
Wesley Collin Carmichael: Sure. Good morning, Les this is Brad.
Wesley Collin Carmichael: In the quarter, we saw our overall commercial real estate, which is predominantly the transitional real estate as you've called out the.
Bradley Dyslin: This is Brad Dyslin. In the quarter, we saw our overall commercial real estate, which is predominantly transitional real estate, as you've called out. The watch list has been relatively stable. Our overall foreclosure watch list is about $1.2 billion. Of that, about half is in active workup proceedings where we are fully prepared to foreclose on the property. We did have one, as you mentioned, that we foreclosed on in the quarter. We were actually able to book a small gain on that. The accounting rules are such that if the appraised value exceeds our loan value, we're able to book it at the higher value.
Brad: Watch list has been relatively stable.
Brad: Overall foreclosure watch list is about $1 2 billion of that about half is in active workout proceedings, where we are fully prepared to foreclose on the property. We did have one is you mentioned that we foreclosed in the quarter, we were actually able to book a small gain on that.
The accounting rules are such that if the appraised value exceeds our loan value, we're able to book it at the higher value, it's a pretty small number but it does highlight.
Bradley Dyslin: It's a pretty small number, but it does highlight the value of disciplined underwriting and maintaining a good, solid loan-to-value on the underlying assets. Generally, things were stable in the quarter. We are seeing some very early signs of life in the market. We're seeing headlines about a lot of capital being raised in different outlets focused on commercial real estate. That will certainly help with liquidity. It's a little bit early, but we're optimistic that we could be turning a corner here in the next couple of quarters. Of course, all eyes are on the Fed right now to see what impact that will have. All in all, nothing really significant happened to our watch list in the quarter.
The value of disciplined underwriting and maintaining a good solid loan to value on the underlying assets generally things were stable in the quarter.
Brad: We are seeing.
Brad: Some very early signs of life in the market, we're seeing headlines about a lot of capital being raised in different outlets.
Brad: Focused on commercial real estate that will certainly help with liquidity.
Brad: So a little bit early.
Brad: But we're optimistic that we could be turning.
Brad: Corner here in the next couple of quarters of course, all eyes are on the fed right now.
Brad: See the impact that will have but all in all.
Brad: Nothing really significant has happened to our watch list in the quarter.
Speaker Change: Thanks, Brad.
Speaker Change: And just turning to the U S could you maybe just talk about agent recruiting what's the environment like given strong employment in the U S or you're kind of expecting that to change any of your outlook there.
Virgil Raynard Miller: Yes, so I would say it's definitely a tough environment when you're recruiting for commission roles out there. But still, I would tell you, if you look back at Q1 of 2023, it was a strong Q1 quarter for us. So this year, we knew we had a tough comparison. And so, therefore, I would tell you we expect to be slightly down. So I'm not thrown off about the performance of Q1. I'm expecting us to rebound and continue to recruit, develop, convert, train, and actually build up our average we can produce going forward. Again, knowing the environment is tough, we just have to recruit differently. We're deploying different means to make sure we hit our expected numbers this year.
Yes, so I would say, it's definitely a tough environment, we recruiting for commission rolls out there.
Speaker Change: Ill tell you if you look back at Q1 of 2023.
Speaker Change: A strong Q1 quarter for us this year, we knew we had a tough comparison and so therefore I would tell you we expect it to be slightly down so I'm not throwing off about the performance of Q1, I would expect them to rebound and continue to recruit.
Speaker Change: Help convert train and actually build on average which produces going forward.
Speaker Change: Again, knowing the environment is tough.
To recruit differently, we're deploying different means to make sure we hit our expected numbers this year.
Operator: The next question comes from Suneet Kamath with Jeffrey. Please go ahead. Thanks. I wanted to start with Japan.
Speaker Change: The next question comes from Sumit Kumar with Jefferies. Please go ahead.
Suneet Laxman L. Kamath: Thanks. I wanted to start with Japan sales. It seems like one of the issues I think that you're having is the mix of sales between exclusive and non-exclusive channels. So my question is, what percentage of your sales come from these non-exclusive channels? And relatedly, are you behind the industry in terms of the mix from that channel?
Speaker Change: Thanks.
Sumit Kumar: Wanted to start with Japan sales.
Sumit Kumar: It seems like one of the issues I think that you are having is the mix of sales between exclusive and nonexclusive channels. So my question is what percentage of your sales come from these nonexclusive channels and Relatedly are you behind the industry in terms of the mix from that channel.
Daniel Paul Amos: Uh, hold on there, let me, guys, can you hear? Did y'all hear the question, Koide?
Sumit Kumar: Yeah.
Sumit Kumar: How long.
Scott.
Speaker Change: Did you all hear the question.
Daniel Paul Amos: Yes, we will answer that question.
Speaker Change: Yes.
Speaker Change: Without question.
Operator: Hold on just one second there to translate.
Speaker Change: Although the just one secondary.
Speaker Change: Hey.
Koichiro Yoshizumi: This is Yoshizumi. I will be answering your question.
Speaker Change: So she is coming to fruition when we got off with US about Hey. This is yes is there any I will be answering your question.
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I'm sorry. This is translator speaking I just needed to clarify with your system, you're talking about the numbers that you mentioned here.
Speaker Change: In terms of the number of exclusive and nonexclusive agencies, six 2% our exclusive agencies and 40% are nonexclusive agencies that is in terms of the number of sales agency, but then when it comes to sales.
Speaker Change: 70, 30 exclusive agencies, 37% and corporate agencies, 40%, it's not that which is larger which is smaller that really matters, but it is what it is.
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Paul: <unk> two explaining about our nonexclusive agencies channel. There are particular agencies that are called large non exclusive agencies. Among the Nonexclusive Agency channel, So Paulo Rio de La <unk>.
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Paul: And the sales from that large nonexclusive agency channel accounts for about 5% of our sales.
Speaker Change: I mean, I guess that's it.
Speaker Change: The bigger question is are you behind the curve here. It seems like the industry is moving towards these nonexclusive agencies Thats my sense and if it's only 5% in terms of these large non exclusive agencies is that just going to be an ongoing headwind in terms of your sales growth or do you have strategies to gain share in.
Speaker Change: That channel.
Koichiro Yoshizumi: 40% of the votes are in favor of each other. So, it's not that one or the other has more votes, but about 70% of the votes are in favor of the executive. [inaudible] Aflac-Japan has 60% of the stores and 40% of the passengers.
Speaker Change: That's all.
Speaker Change: So.
Speaker Change: Efflux upon of course, they cut off with ice Muscat Oman. So let me start out this is <unk> from Aflac, Japan speaking.
Speaker Change: From a sensor.
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Speaker Change: Davidson.
Speaker Change: So if you look at us at all.
Speaker Change: So first of all let me just clarify our agency structure our agency purpose.
Unknown Executive: I'm sorry, this is translator speaking. I just needed to clarify with Yoshizumi-san about the numbers that he mentioned. Now, here we go.
Since our foundation in Aflac, Japan, we have always had exclusive agency channel as our main channel plus the so called non exclusive agencies, but self mainly our product in cancer and medical insurance area and these are the main agencies that we have been dealing with some of that.
Koichiro Yoshizumi: In terms of the number of exclusive and non-exclusive agencies, 60% are exclusive agencies, and 40% are non-exclusive agencies. That is, in terms of the number of sales agencies. But then when it comes to sales, it's 70-30. Exclusive agencies, 70%, and non-exclusive agencies, 40%. It's not that which is larger, which is smaller, that really matters, but it is what it is.
Unknown Executive: [inaudible]
Koichiro Yoshizumi: In addition to explaining about our non-exclusive agencies channel, there are particular agencies that are called large non-exclusive agencies among the non-exclusive agency channel.
Speaker Change: I cannot say their body mass and this in fact is the strength of Aflac Japan.
Hi.
Speaker Change: No.
Okay.
Speaker Change: Because.
Speaker Change: This does just means that there are many agencies that are very loyal to aflac.
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Speaker Change: And as you know other companies are entering into agency channel from <unk>, because they are new entries that they are not able to build their own exclusive channel anymore. So as a result, what they've been doing is to go into the non exclusive channel, especially trying to deal with a large non exclusive agencies to increase their sales.
Koichiro Yoshizumi: And sales from that large non-inclusive agency channel account for about 5% of our sales.
Speaker Change: No the ultra cruise Anthony Schmidt.
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Speaker Change: Total UK cut any muscle.
Suneet Laxman L. Kamath: I mean, I guess the bigger question is, are you behind the curve here? Right?
Speaker Change: In other words as we.
Suneet Laxman L. Kamath: It seems like the industry is moving towards these non-exclusive agencies; that's my sense. And if it's only 5% in terms of these large non-exclusive agencies, is that just going to be an ongoing headwind in terms of your sales growth? Or do you have strategies to gain share in that?
Speaker Change: We mentioned are the sales from large nonexclusive agencies is small in aflac overall sales. However, this does not mean that we are any behind are there other insurance companies because we have our strength. This is in fact, our strength because we have our own exclusive channels that are kind of August <unk>.
Masatoshi Koide: So let me start out. This is Koide from Aflac Japan speaking.
Masatoshi Koide: So first of all, let me just clarify our agency structure or our agency purpose. Ever since our foundation in Aflac Japan, we have always had an exclusive agency channel as our main channel, the so-called non-accrual agencies, but they sell mainly our product in the cancer and medical insurance area. And these are the main agencies that we have been dealing with.
Masatoshi Koide: That's the strength of Aflac.
Unknown Executive: And this, in fact, is the strength of Aflac Japan. This just means that there are many agencies that are very loyal to Aflac.
Unknown Executive: Japanese interpretation
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Speaker Change: But then at the same time is also a fact that the market of large non exclusive agency customers is increasing because the main customers have large noninterest agencies is younger customers. So that they also dockets that panel called one I'll say, it's all the time.
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Speaker Change: Thanks Scott.
Speaker Change: Okay. Good I'll pass the message.
Speaker Change: So however, as a result of why we need to do to grow Aflac, Japan going forward, it's not just focus on <unk>.
Speaker Change: An exclusive agencies.
Speaker Change: Also need to start focusing more on large non exclusive agencies and that has been our strategy for the past few years and as a result of that what we have done last year is to launch a new medical insurance product, which we have been able to sell a lot through our large non exclusive agencies, because we have targeted mainly young emulation.
Unknown Executive: And as you know, other companies have been entering the agency channel in recent years. Because they are new entries, they are not able to build their own exclusive channel anymore. So as a result, what they've been doing is going into the non-exclusive channel, especially trying to deal with large non-exclusive agencies to increase their sales.
Speaker Change: We are using this medical insurance so as a result of this we had have had a very large growth in our medical insurance sales in the first quarter. This year.
Speaker Change: Let me try to summarize because I think it's important here.
Speaker Change: Number one is.
Speaker Change: And the Nonexclusive area. This isn't something new if you go back and you look and you've been around a long time, you'll remember that there was this major agency that was independent and.
Speaker Change: Other competitors were selling for them, we ended up selling for them. They had been in the cell phone business and transfer it over to the insurance business.
Speaker Change: We found a way to get into that market, we ended up selling a lot with them.
Speaker Change: They ended up going a different direction, but the point being is wherever the business is will be there as the leader in <unk> and third sector product and yes, we do have a strategy and yes.
Speaker Change: We do plan on winning but the point that I think Aflac, Japan is making is the bread and butter of everything we do are the agencies that we've had in <unk>.
Speaker Change: Since the inception that along now with Japan Post has made a big difference again, Japan, OSB and only cancer, but all in all it's what's dominated our business and we will be ready to handle that and it's really nothing new going on 15 years ago.
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Speaker Change: When David Nicholas Dan, Thank you and I would like to add a little bit more color to that we are really truly working on the large non accruals at ACC channel right. Now however, as Dan mentioned, we have Japan post and we have an exclusive agencies, we have nonexclusive agencies and as I mentioned that we have Japan post channel as well as the other business partners.
Speaker Change: And bank channel. So we have this variety of channels that sell our third sector product and so that is how we are going to be increasing and growing our sales.
Speaker Change: This is really just because of the more most of its good growth also.
Speaker Change: So all of that ammonia 30, then with Panera two <unk> Daiichi will never tuition to combine them. So this is yes, just give me once again, let me just add a little bit more information to your question the large non accruals.
Speaker Change: Now, let's go through the agency's main product that they sell to a customer is a first sector product also should oak sourcing the other golf game.
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Speaker Change: Yep.
Speaker Change: And Aflac.
Speaker Change: Our main products, our cancer and medical insurance product and the total number of policies of cancer and medical added altogether combined we are number one in overall Japan.
Speaker Change: Okay.
Speaker Change: China alone fluid status.
Speaker Change: Yes, Steve.
Speaker Change: I think it is the only month. So we truly believe that we will be able to increase the number of sales.
Speaker Change: Other channels as well.
Speaker Change: Since local alternative.
Speaker Change: And I do think that the our driver will be our exclusive agencies.
Speaker Change: Alright, I think we've answered that question if you need follow up we'll be glad to do that but David Betsy I think that's our last call correct.
David: Correct I would like to hand, it back over to David Young for any closing remarks.
Unknown Executive: Japanese interpretation
Unknown Executive: So in other words, As we mentioned, the sales from large non-exclusive agencies are small in Aflac's overall sales. However, this does not mean that we are any behind other insurance companies because we have our strength. This isn't, in fact, our weakness because we have our own exclusive channel.
David Young: Yes. Thank you all very much for joining us this morning, and in the coming months Youll get more information about our financial analyst briefing at the New York Stock Exchange on December 3rd and if you have any questions that you want to follow up please reach out to Investor and rating Agency relations. We will talk to you then have a great day.
Unknown Executive: However, the customer base of this large retail channel is a channel that has a lot of low-middle-aged customers, and it is true that this is growing as a market.
Unknown Executive: But then, at the same time, it is also a fact that the market for large non-exclusive agency customers is increasing because the main customers of large non-exclusive agencies are young and middle-aged customers.
Unknown Executive: We want to expand not only the previous channel but also the OOTC channel. Based on that, last year, we launched a new medical insurance. In particular, we launched a new medical insurance targeting the weakly aging customer base of OOTC. The first quarter of the OOTC medical insurance sales will be greatly increased by the end of the year.
Unknown Executive: So, however, as a result, what we need to do to grow Aflac Japan going forward is not just focus on exclusive agencies, but we also need to start focusing more on large non-exclusive agencies. And that has been the strategy for the past few years. And as a result of that, what we did last year was to launch a new medical insurance product, which we have been able to sell a lot through our large non-exclusive agencies because we targeted mainly young and middle-aged customers using this medical insurance. So as a result of this, we had a very large growth in our medical insurance sales in the first quarter this year.
Unknown Executive: Japanese interpretation
Daniel Paul Amos: Suneet, let me try to summarize because I think it's important here. Number one is in the non-exclusive area; this isn't something new. If you go back and look, and you've been around a long time, you'll remember that there was this major agency that was independent, and other competitors were selling for them. We ended up selling for them. They had been in the cell phone business and transferred over to the insurance business.
Unknown Executive: And Dan, thank you. And I would like to add a little bit more color to that.
Daniel Paul Amos: We found a way to get into that market, and we ended up selling a lot with them. They ended up going in different directions. But the point being is, wherever the business is, we'll be there as the leader in the third sector product. Yes, we do have a strategy, and yes, we do plan on winning, but the point that I think Aflac Japan is making is that the bread and butter of everything we do are the agencies that we've had since inception.
Unknown Executive: We are really, truly working on a large non-exclusive agency channel right now. However, as Dan mentioned, we have Japan Post, and we have exclusive agencies; we have non-exclusive agencies. And as I mentioned, we have the Japan Post channel, as well as other business partners and the bank channel. So we have this variety of channels that sell our third sector products. And so that is how we are going to be increasing and growing our sales.
Daniel Paul Amos: That, along with Japan Post, has made a big difference. Again, Japan Post being only a cancer, but all in all, it's what's dominated our business, and we will be ready to handle that. It's really nothing new. It was going on 15 years ago.
Koichiro Yoshizumi: [inaudible]
David Young: Yeah, thank you all very much for joining us this morning. And in the coming months, you'll get more information about our financial analyst briefing on the New York Stock Exchange on December 3rd. And if you have any questions and you want to follow up, please reach out to Investor and Rating Agency Relations. We will talk to you then.
Koichiro Yoshizumi: So this is Yoshizumi once again. Let me just add a little bit more information to your question. The large non-exclusive agencies' main product that they sell to customers is a first sector product.
Unknown Executive: [inaudible]
Koichiro Yoshizumi: And Aflac, our main products are cancer and medical insurance products, and the total number of policies for cancer and medical added all together, combined, we are number one in overall Japan.
Unknown Executive: [inaudible]
Koichiro Yoshizumi: So we truly believe that we will be able to increase the number of fails through other channels as well.
Unknown Executive: And I do think so.
Unknown Executive: And I do think that our driver will be our exclusive agent.
David Young: Alright, I think we've answered that question. If you need follow-up, we'll be glad to do that, but, uh, David? That's the, I think, uh, that's our last call, correct?
David Young: Correct. I'd like to hand it back over to David Young for any closing remarks.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change #101: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change #101: [music].
Okay.
Speaker Change #101: [music].