Q1 2025 Aflac Inc Earnings Call
Good day and welcome to Aflac incorporated first quarter 2025 earnings call. All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star.
Speaker Change: Our key followed by zero.
Speaker Change: After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your touch tone.
Speaker Change: To withdraw your question. Please press Star then two please note. This event is being recorded I would like now to turn the conference over to David Young Vice President of capital markets. Please go ahead.
David Young: Good morning, and welcome. Thank you for joining us for Aflac Incorporated's first quarter 2025 earnings call.
David Young: This morning, Dan Amos Chairman and CEO of Aflac incorporated will provide an overview of our results and operations in Japan, and the United States.
David Young: And then Max Broden Senior Executive Vice President and CFO of Aflac incorporated will provide more.
Max Broden: More detail on our first quarter financial results current capital and liquidity.
Max Broden: These topics are also addressed in the materials, we posted with our earnings release financial supplement and quarterly CFO video update on investors Dot Aflac Dot com.
Virtual Miller: For Q&A today, we're also joined by virtual Miller, President of Aflac incorporated and Aflac U S.
Charles Lake Chairman and representative director President of Aflac International Masatoshi, <unk>, President and representative director Aflac Life insurance, Japan, and Brad disciplined Global Chief Investment Officer, President of Aflac Global investments.
Virtual Miller: Before we begin some statements in this teleconference are forward looking within the meaning of federal Securities laws.
Virtual Miller: 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.
Virtual Miller: Actual results could differ materially from those we discussed today.
Virtual Miller: 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.
Virtual Miller: As I mentioned earlier the earnings release with reconciliations of certain non U S. GAAP measures and related earnings materials are available on investors Dot Aflac dot com.
Dan Amos: I'll now hand, the call over to Dan.
Dan Amos: Dan Thanks.
Speaker Change: Thank you David and good morning, everyone. We're glad you joined US although we just have one quarter under our belt. The first quarter marked a good start for the year.
Speaker Change: Aflac Incorporated's reported net earnings per diluted share of five cents, which was significantly impacted by net investment losses this quarter compared to net investment gains in the first quarter of 2024 at.
Speaker Change: At the same time the company reported adjusted earnings per diluted share of $1 66.
Speaker Change: Which is unchanged from the first quarter of 2024.
Speaker Change: Beginning with Aflac, Japan, I am pleased with the 12.6% year over year sales increase this quarter sales reflected a continued significant contribution consuming task and a six 3% increase from cancer insurance sales.
Speaker Change: Taking into account Japans demographics.
Speaker Change: And product strategy is to fit the needs of customers throughout all stages of life.
Speaker Change: Acquiring younger customers is critical to our success.
We believe semi TASS helped us appeal to and more importantly reach younger customers in Japan.
Speaker Change: Our strong sales in Japan reflect the success our agencies have had selling soon VITAS as.
Speaker Change: As the pioneer of cancer insurance, and leading third sector insurer. We also aim to sell these sumi task policyholders.
Speaker Change: Medical policy or cancer policy.
Speaker Change: We have also launched the initial stage of sales and me Righto.
Speaker Change: Our newest cancer insurance on large to 17, while it is still very early the results that we have seen thus far has been positive as of April 21st the product has been available through all of Japan sales channels.
Speaker Change: Our ability to maintain strong premium persistency is a testament to aflac reputation and customer recognition of the value of our products.
Speaker Change: Maintaining this level of persistency and adding new premium through sales, we are partially offsetting the impact of reinsurance and policies, reaching paid up status.
Speaker Change: This will be vital to our future growth of Aflac, Japan.
Speaker Change: Turning to Aflac U S. I was pleased by the three 5% year over year increase in sales and encouraged by the momentum we are seeing within all areas of our group business, especially our group life and disability as well as network dental.
Speaker Change: In addition, we believe our efforts to drive more profitable growth with a stronger underwriting discipline have contributed to our strong premium persistency and manner premiums growth.
Max Broden: At the same time Aflac U S is maintained its prudent approach to expense management and maintaining a strong pre tax margin as Max will expand on in a moment.
Max Broden: In both Japan, and the United States, I believe that consumers need the products and solutions aflac golfers more than ever before.
Max Broden: Our our policyholders who become climates aflac is more than an insurance company. We are a partner and held a supporter of families during their times of knee and a pioneer and leader in the industry.
Max Broden: We are leveraging every opportunity convey how our products can help fill gaps during challenging times, providing not just financial assistance, but also compassion and care.
Max Broden: At the same time, we continued to generate strong capital and cash flows while maintaining our commitment.
Max Broden: Two prudent liquidity and capital management, we have been very pleased with our investments which have continued to produce strong net investment income.
Max Broden: As an insurance company our primary responsibility is to build the promises we make to the policyholders, while being responsive to the needs of our shareholders.
Max Broden: Our solid portfolio supports our promise to our policyholders as does our commitment to maintaining strong capital ratios.
Max Broden: We balanced this financial strength with tactical capital deployment.
Max Broden: I am very happy with how management has had on capital deployment liquidity and specifically how well we've adapted to this environment.
Max Broden: In the first quarter Aflac incorporated deployed $900 million in capital to repurchase eight 5 million shares of our stock.
Max Broden: Additionally.
Max Broden: We treasure our track record of 42 consecutive years of dividend growth at the same time.
Max Broden: We have maintained our position among companies with the highest return on capital and the lowest cost of capital in the industry combined with dividends. This means we delivered $1 $2 billion that to the shareholders in the first quarter of 2025.
Max Broden: We believe in the underlying strengths of our business and our potential for continued growth in Japan, and the United States two of the largest life insurance markets in the world.
Max Broden: On an ongoing basis, we are taking action to reinforce our leading position and build on our momentum.
I will now turn the program over to bags to cover more details of the financial results Max.
Max Broden: Thank you Dan.
Speaker Change: Thank you for joining me in so I'll provide a financial update on Aflac Incorporated's results for the first quarter of 2025.
Speaker Change: For the quarter adjusted earnings per diluted share was flat year over year and $1 66.
Speaker Change: With a one cents negative impact from FX in the quarter.
Speaker Change: In this quarter re measurement gains from reserves totaled $41 million reducing benefits.
Speaker Change: Variable investment income around $27 million below our long term return expectations.
Speaker Change: While one make whole call generated income of $16 million.
Speaker Change: Book value per share excluding foreign currency re measurement increased two 2%.
Speaker Change: The adjusted ROE was 12, 7% and a 15, 6% excluding foreign currency Remeasurement.
Speaker Change: An acceptable spread to our cost of capital overall, we view these results in the quarter as solid.
Speaker Change: Starting with our Japan segment net earned premiums for the quarter declined 5%.
Speaker Change: Aflac Japan's underlying earned premiums, which adjust net earned premiums to exclude the impact on deferred profit liability paid up policies and reinsurance.
Speaker Change: One 4%.
Speaker Change: We believe this metric better provides insight into long term premium trends.
Speaker Change: Japan's total benefit ratio came in at 65, 8% for the quarter down 120 basis points year over year.
Speaker Change: The third sector benefit ratio was 56, 3% per quarter down approximately 120 basis points year over year.
Speaker Change: We estimate the impact from Remeasurement gains to be approximately 150 basis points favorable to the benefit ratio in Q1 2025.
Speaker Change: Long term experienced trends as it relates to treatment of cancer and hospitalization continued to be in place leading to continued favorable underwriting experience.
Speaker Change: Persistency remained solid at 93, 8%, which is up 40 basis points year over year and in line with our expectations.
Speaker Change: However, beginning in this quarter, we have revised the premium persistency definition to better reflect the economic trends for the business.
Speaker Change: As a result, we do not treat amortization as a lapse for persistency purposes. In this revised definition raised the reported persistency part of our fleet 30 basis points, our expense ratio in Japan was 19, 6% for the quarter up 160 basis points year over year.
Speaker Change: Driven primarily by an increase in technology expenses for the quarter adjusted net investment income in yen terms was down seven 6%.
Speaker Change: Primarily driven by lower floating rate income the transfer of assets to Aflac re Bermuda associated with reinsurance and variable investment income somewhat offset by higher returns from our structured private credit portfolio. The.
Speaker Change: The pretax margin for Japan in the quarter was 31, 8% down 100 basis points year over year, but a very good result.
Speaker Change: Turning to U S results net earned premium was up one 8% persistency increased 60 basis points year over year to 79, 3%.
Speaker Change: Our U S total benefit ratio came in at 47, 7%.
Speaker Change: 120 basis points higher than Q1, 'twenty 'twenty, four driven by business mix and lower re measurement gains than a year ago, we estimate that the re measurement gains impacted a benefit ratio by approximately 100 basis points in the quarter.
Speaker Change: Claims have remained below our long term expectations.
Speaker Change: In the quarter, we benefited from favorable underwriting on our small but growing long term disability block our expense ratio in the U S was 37, 6% down 110 basis points year over year.
Speaker Change: Primarily driven by platforms, improving scale and continuous focus on expense efficiency, our growth initiatives group life and disability network down ambition and the direct to consumer increased our total expense ratio by 50 basis points for the quarter.
Speaker Change: This is in line with our expectations and we would expect this impact to decrease as we continue to approach scale adjusted net investment income in the U S was down one 9% for the quarter, primarily driven by lower floating rate income.
Speaker Change: Profitability in the U S segment was very strong with a pretax margin of 28%.
Speaker Change: 20 basis points decline compared to a year ago.
Speaker Change: During the quarter, we increased our seasonal reserves associated with our commercial real estate portfolio by $2 million net of charge offs as property values remain at distressed valuations. We also foreclosed on two loans, adding them to our real estate owned portfolio consistent with our strategy for Max.
Speaker Change: <unk> recovery values.
Speaker Change: Our portfolio of first lien senior secured middle market loans continue to perform well with increased seasonal reserves of $7 million in the quarter net of charge offs.
Speaker Change: In our corporate segment, we recorded a pretax gain of $43 million.
Speaker Change: Adjusted net investment income was $47 million higher than last year due to a combination of lower volume of tax credit investments and higher asset balances, which included the impact.
Speaker Change: Of the reinsurance transaction in Q4 2024, our tax credit investments impacted the corporate net investment income line for U S. GAAP purposes negatively by $8 million in the quarter with an associated credit to the tax line.
Speaker Change: The net impact to our bottom line was a positive zero point $4 million in the quarter.
Speaker Change: To date these investments are performing well and in line with our expectations.
Speaker Change: Unencumbered holding company liquidity stood at $4 $3 billion to.
Speaker Change: $2 $6 billion above our minimum balance.
Speaker Change: We repurchased $900 million of our own stock and paid dividends of $317 million in Q1 offering good relative IRR on these capital deployment we.
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 with a meaningful spread to our cost of capital our capital position remains strong and we ended the quarter with an SME above 950%.
Speaker Change: An estimated regulatory ESR above 250 per cent, our combined RBC, while not finalized we estimate to be greater than 600%.
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: For U S. Statutory we recorded a $6 million valuation allowance on mortgage loans as an unrealized loss.
Speaker Change: We ended the quarter March 31, with net $5 2 billion yen of Japan, FSA realized gains net of losses securities impairment.
Speaker Change: This is well within our expectations and with limited impact to both earnings and capital.
Speaker Change: Our leverage was 27% for the quarter, which is within our target range of 20% to 25%.
As we hold approximately 59% of our debt in yen. This leverage ratio is impacted by moves in the yen dollar exchange rate.
Speaker Change: This is intentional and part of our enterprise hedging program protecting the economic value of Aflac, Japan, and the U S. Dollar terms on a U S GAAP basis.
Speaker Change: We are impacted by moves in again as our yen denominated earnings will translate into U S dollars at different exchange rates.
Speaker Change: We currently estimate that every five yen to the dollar move would impact our underlying EPS by roughly seven.
Speaker Change: As foreign currency markets have experienced a marked increase in volatility I would like to reiterate our approach to managing foreign currency exposure.
Speaker Change: Fundamentally we size, our unhedged U S dollar exposure to the estimated economic surplus associated without Japanese business.
Speaker Change: At the end of Q1, we had $25 $5 billion of Unhedged U S dollar assets in our Japan General account.
Speaker Change: Forward contracts at Inc, with a notional balance of $2 $7 billion.
Speaker Change: And $4 4 billion of yen denominated debt.
Speaker Change: We also hold $24 $2 billion of notional of out of the money put options.
Speaker Change: Which provide tail protection against a large appreciation in the yen.
Adding this up we feel that we are very well positioned on an economic basis.
David Young: I'll now turn the call over to David to begin Q&A.
David Young: Thank you Max.
David Young: Before we begin our Q&A, we ask that you. Please limit yourself to one initial question and a related follow up you May then rejoin the queue to ask additional questions. We.
David Young: We will now take the first question.
David Young: To ask a question you May press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys if in any kind of your question has been addressed and you would like to withdraw. It. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Speaker Change: Our Allen question today.
Speaker Change: Sorry for the way to everyone. Our first question today comes from Tom Gallagher of Evercore ISI.
Speaker Change: Go ahead.
Speaker Change: Hey, good morning.
Speaker Change: Max just had a few questions on Japan, solvency and overall macro sensitivities.
Max Broden: I guess my first question is.
Max Broden: Why did the ESR ratio declined by so much in Q1, if I just look at the sensitivities.
Max Broden: I think the sharp rise in Japan rates should have offset the strengthening of the yen Andrew I'll start with that and then I had a follow up thanks.
Max Broden: Thank you Tom I appreciate the question.
Max Broden: Youre right that in in the first quarter, we saw.
Max Broden: A small drop in our ESR.
Max Broden: Yes, and that is driven by the yen strengthening and that you saw that is partially offset by higher Japan interest rates, especially the 30 year GDP rose in the first quarter and that certainly helped us.
Max Broden: That being said, we also had relatively high dividends flowing up from Aflac, Japan to Aflac, Inc. During the quarter as well and that's the reason why you see the cash balances at Inc. Increasing as much as they did despite very significant capital deployment in terms of dividends and buybacks in the quarter. So.
Max Broden: And that's the I think that's the missing piece is the dividends flowing up to the holding company.
Max Broden: That makes sense Max and then my follow up is <unk>.
Max Broden: Just in light of everything that's changed macro wise with the yen now strengthening.
Max Broden: And looking at where long long rates are in Japan.
Max Broden: Sure.
Max Broden: Have you I guess, how should we think about that when you think about forward capital planning do you still feel that drawing down excess and returning it as is.
Max Broden: The best path forward.
You still have considerable excess so I'm not suggesting you Don but I guess the volatility of capital seems kind of on the high side when I think about sensitivities to what's happened in macro recently. So just curious are you looking maybe to.
Max Broden: The change philosophy at all on capital return and door, how about just the way you are hedging that because he'll take right. Now you have some very deep added in the money hedges any any thought of maybe locking in all of that capital strength.
Max Broden: Or are you fine with the structure you have thank you.
Max Broden: So Tom when we design our capital management, it's really done with a long term view, it's done running many different scenarios, including stress scenarios as well.
Max Broden: So.
Max Broden: If you use that as a base that means that fundamentally we are not changing the way we are doing our capital management or in the way we are structuring the different instruments that we use for it.
Max Broden: Taking you back and just think through the <unk>.
Max Broden: Underlying business that we conduct which we sell products that are rare.
Max Broden: A relatively defensive in in the way they behave that going through lab station.
Max Broden: Going through volatility in benefit ratios and underlying profitability as well that is married up with relatively low asset leverage which means that the risks associated with our asset portfolio is somewhat limited as well.
Max Broden: And when you bake all that together it means that.
Max Broden: Our profitability and cash flows are relatively stable and predictable.
Max Broden: Now you point out one item and that is the volatility of our ESR as it relates to FX.
Max Broden: And that is something that we have designed ourselves.
Max Broden: So when we protect the economic value of Aflac, Japan.
Max Broden: Main component of that is the $25 $7 billion held in U S dollars on our Japanese balance sheet.
Max Broden: And that is there to obviously help protect the long term economics.
Max Broden: Our Aflac, Japan business in the U S dollars.
Max Broden: But it does introduce volatility to our ESR ratio.
Max Broden: But what we have done.
Max Broden: Is that we have protected the tails I E. We have looked at how much risk are we willing to take on FX as it relates to the volatility in the ESR ratio.
Max Broden: And that's where we have executed a put option program.
Max Broden: Most of those Puds are currently out of the money by 25% to 30%.
Max Broden: And that helped cut the tail and the volatility of dose. These are one sided that means that we have protection if the yen strengthens, but if the yen work to weekend, we keep.
Max Broden: Of that upside.
Max Broden: So if I look at the moves that we have seen in rates the move we've seen in FX.
Max Broden: At this point us, making any significant changes to the way we are approaching this or hedging this.
Max Broden: That being said, obviously, it's something that we closely monitor and there may be tactical moves.
Max Broden: In the future around it.
Max Broden: But I would.
Max Broden: I would add.
Max Broden: Assume that those are relatively minor in the scheme of things. So so far we feel like the FX hedging program.
Max Broden: Yes.
Max Broden: Working very well and in line with our expectations.
Jack Mountain: The next question comes from Jack Mountain.
Speaker Change: <unk> capital markets.
Speaker Change: Please go ahead.
Speaker Change: Hi, Good morning, just a question on the new cancer product launch.
Speaker Change: Can you talk about what youre seeing so far in the uplift of sales you saw this quarter.
Speaker Change: Then the box in stages, so maybe you'd see more of a benefit in the second quarter as well. So just curious what your expectations are for sales of that product this year.
Speaker Change: Okay.
Dan Amos: Well, yes, let me Mike. This is Dan let me make a couple of comments and then I'm alternate over to Aflac, Japan, but just in general.
Speaker Change: <unk>.
Speaker Change: I think that we're going to be fine I think youre going to see these things.
Speaker Change: The new cancer policy continue to grow.
Speaker Change: But all in all about virtual has spent a lot of time.
Speaker Change: In this quarter, and Japan, and I'd like for him to take a high level view and go over both U S and Japan, and then had the Japanese operation talk about it.
Speaker Change: And we can cover that and then follow up with match and Brad on any comments they might have in those regards so virtual why don't you just give a few comments and then let's turn to the program outage band, Yes. Thanks, Dan I'll, just make a few comments Greg visit I had to Japan.
Speaker Change: I would just say that as Mike pointed out earlier, our business is really more to do from a long term perspective.
Speaker Change: We remain confident in the strategies, we have all products now services that we have is what customers need and want.
Speaker Change: Thanks to Dan I would just add though that as you look at Japan in particular, what we've done with the launch of accounting product.
Speaker Change: So how we approach the market with similar to us.
Speaker Change: And our focus we have on selling more third sector products.
Speaker Change: It will help us during this time, yes, we do look at economic downturn match to share with you about how we go through that methodology, but specifically on the capture though I'm going to let Japan talk about how the launch went and what we see for remainder of the year, So I'm going to turn it over to you guys.
Speaker Change: Hi.
Speaker Change: Marketing.
Speaker Change: <unk> studio Susan Smith.
Speaker Change: Thank you for that question I'm encouraged with our marketing and sales I'll, Let me take that question.
Speaker Change: It is a more modern eco tomorrow morning, It's Scott.
Speaker Change: Okay sure.
Speaker Change: Sorry.
Speaker Change: Isn't it.
Speaker Change: Please go ahead.
Speaker Change: The new cancer insurance was just launched in May this year, but it is progressing as expected.
Speaker Change: Sorry, a collection that was launched in March.
Speaker Change: Can you talk to the compound you want a sofa.
Speaker Change: Let me briefly talk about the characteristic of this new product.
Speaker Change: A couple of simple and a whole Shaw Sidoti.
Speaker Change: Sidoti without getting a CD or much you do want to also look organic white.
Speaker Change: Listen why don't you walk how do you ask the English first.
Speaker Change: First they have full and simple coverage. In addition to strengthening coverage not only Germany, but also before and after treatment. The qualification for payment of benefits have been changed to be easier to understand who the EDA organic onions to Qatar Mccann all one of the Bronco.
Speaker Change: Yeah. So we can from a Korea cassano video.
Speaker Change: Julian who sells it.
Speaker Change: And it has the flexible coverage designs that enable a combination and cross selling with existing policies and other product E add on plans for those who already have medical insurance.
Speaker Change: Hung up the Jew Hutchinson of Essentials.
Speaker Change: A lot of other domain Jonathan for Jonathan.
Speaker Change: So the adult type thing.
Kevin: Thank you Kevin.
Speaker Change: On March 18th.
Speaker Change: Sales.
Speaker Change: With made available our mainstay associate channel.
Speaker Change: <unk> and Daiichi she got freeing up the cash.
Speaker Change: Do you plan for the group.
Speaker Change: And in April we started the sales that bank channel in Japan post great Nano, China automotive for that Joe.
Speaker Change: Let's see.
Speaker Change: Oh Wow.
Speaker Change: And all the catalysts have made a great start and we are still seeing a positive result from all of these channels.
Johan: Thank you Johan.
Johan: Let me talk a little bit about our forecast for 2025.
Johan: Oh, you got theory CMO for Qi <unk>.
Johan: GMO marketing.
Johan: And then a whole sequence of the total money so that they know good anecdotal cut sheet with no debt.
Johan: Thank you.
Johan: Bronchomotor zelle contacts amortization.
Johan: We have changed the structure and from.
Johan: This January and established a new position CMO and disposition will supervise the sales and marketing and all brands.
Johan: The go areal she found cancers.
Derrick: Hello Derrick.
Johan: The chemical capstone in multiple key sourcing Norfolk.
Speaker Change: Youll see some of it.
Johan: Did you see steel.
Johan: And we at this position will look after the asset formation cancer and medical in all areas and will be totally design oriented and to develop the field.
Brandon: Hello, Brandon.
Brandon: <unk> got a cross functional team also Fuji keto. Thank you couple of June on meal kits.
Brandon: Okay. Thank god tanker for the room.
Brandon: And we will because we are responding to the ever changing customer needs with agility in a cross functional way by engaging our actuarial and policy service Department.
Brandon: It's a lifestyle.
Brandon: Thank God.
Brandon: Jim Shaughnessy.
Brandon: Jennifer you stayed in a more.
Brandon: Picking up on almost on Tau, Kolkata Keynotes analytical Lowe.
Brandon: That marketing.
Brandon: Great.
Speaker Change: Dave is still anymore, and we are proud to see the successful marketing activity with the optimum activities conducted the each channel under the lead of the CMO and we are seeing a positive with their support we are seeing a positive result from cancer insurance that was launched in March on all marketing.
Brandon: There are no capital.
Brandon: Oh, Okay, well optimized at midnight on.
Speaker Change: Oh, sorry.
Speaker Change: Some of that.
Speaker Change: I know Judy.
Speaker Change: Judith stuck without it isn't it.
Speaker Change: Guys I'm doing.
Speaker Change: So no humbug.
Speaker Change: Police will speak.
Speaker Change: Lincoln Electric.
Speaker Change: We believe the third sector sales will continue to grow with now having a very expensive product lineup.
Speaker Change: Semi test and the new cancer insurance.
Speaker Change: Pseudo-code era, John Ed Bastian, Joe Colannino, Ohio, Colorado, Bulkier walk up to a month and we are now also focusing on hiring activities of Asians and the mainstay associates.
Speaker Change: Although I will not go to look it up.
Speaker Change: Gonnella roofing Giuliano Lamar book starts to Lima, and with all of these efforts we expect.
Speaker Change: 25 sales will be about a third of 'twenty 'twenty four.
Speaker Change: That's all.
Speaker Change: Yeah.
Speaker Change: Thank you very much.
Speaker Change: Just to follow up on the medical.
Speaker Change: Insurance market in Japan can you talk about competitive dynamics there.
Speaker Change: And how you see the outlook for the first sales of your medical products.
Speaker Change: Okay.
Susan: Hi, Susan.
Speaker Change: If there was any muscle.
Speaker Change: Got it.
Speaker Change: Okay.
Speaker Change: And this is he if he has any months again, let me talk about a competitor.
Speaker Change: Yes.
Speaker Change: It was very much sir.
Speaker Change: First of all about the third sector overall.
Fernando: Thank you Fernando.
Fernando: So <unk> got to go okay, Okay, no <unk> gone from a CLO.
Fernando: Right.
Fernando: Based on the latest data we have the largest share of the total new policies of cancer and medical insurance, our core products in physical year 2023, potash looping easy to garner more golf organ Homebase linked annuity sale number looking Jordan have us steel demand in 2025, we expect to maintain a number one share.
Fernando: With new policies by expanding sales of cancer and medical insurance.
Fernando: Okay.
Fernando: Let me talk about Cancelation kill.
Fernando: So a good custodian.
Fernando: The home the more come on over to gone to Linky uptick you've got Gorgon Ione are there any version of Nordic Chinook audits.
Fernando: Scalar.
Speaker Change: <unk> modeled out the Jewish Telus, although competition has increased we are pioneering cancer insurance, having faith cancer for the longest time in Japan and the knowledge. We have accumulated over 50 years of history is something no. Other company can have also an equal.
Fernando: So not only partially.
Fernando: I do.
Fernando: <unk> gone through a portal.
What are the sort of what they're going to take us all going to get someone who.
Fernando: He also you feel.
Speaker Change: Hey, good morning, guys.
Speaker Change: We continue to provide services like yogurt, so consulting services unique consumer service that no. Other company offers in addition to insurance coverage by doing so we will meet the needs of our customers and maintain a competitive advantage.
Speaker Change: Otherwise, they're going to hook in Suzhou in Uli I don't know.
Speaker Change: And we aim to achieve further sales growth with our new cancer insurance product launched in March.
Speaker Change: Again that was nine months ago, and moving onto the medical insurance Gahagan careful hadn't gone hundred sushi yielded all global getting the Cisco partnership shortly.
Speaker Change: Our current share capital.
Speaker Change: <unk>.
Speaker Change: Sure Steven the medical insurance sector is a much more competitive market in cancer insurance. This is largely due to the number of large number of insurance companies entering the market and launching product we will revise our product line every two years or so in order to gain a higher market share.
Speaker Change: Conoco solo.
Speaker Change: Hogan market Tanaka there.
Speaker Change: Marketing Hancock no model.
Speaker Change: But also Paul Kolkata, Peanuts, antidote, absolutely tighten up that market.
Speaker Change: Oh, okay.
Joe: Thanks, Joe.
Speaker Change: And under this intensified.
Speaker Change: Thanks, if I competition in the medical market, we will conduct an optimized activities in each channel and bringing about a better result.
Speaker Change: That's good.
Speaker Change: Political in the hotel.
Speaker Change: And let me talk about the specific activities that were carried out in Q1.
Speaker Change: So looking at October Kolkata, Guinea, fitness through Boston, and Kelly, Chuck I'll start with the ball we have strengthened.
Speaker Change: Turning to our sales agents, so that they can provide easy to understand the explanation to the consumer not for me.
Speaker Change: Sure.
Speaker Change: Okay.
Tony: Tony I'm going out on what else is going to be 30 months and with let me pass it we're proceeding the concurrent sales with a third sector product.
Speaker Change: Please go ahead.
Speaker Change: Yeah.
John Barnidge: Our next question comes from John Barnidge of Piper Sandler.
Speaker Change: Please go ahead.
Speaker Change: Sure.
Speaker Change: Good morning, Thank you for the opportunity.
Speaker Change: So my question is focused on re measurement gain.
Speaker Change: Continue to be present.
Speaker Change: In both Japan, and the U S.
Speaker Change: We'll further removed around the dislocation.
Speaker Change: Individuals behavior, how should we thinking about the waterfall or decay of remeasurement gain and will they primarily be concentrated in third quarters. Thank you.
Speaker Change: Let me kick it off and I'll also ask.
Speaker Change: Alicia maybe give some comments from her perspective as well.
Speaker Change: Yes.
Speaker Change: So obviously the third quarter is when we unlock our actuarial assumptions.
Speaker Change: That means that the third quarter is when we will have.
Speaker Change: The more significant re measurement gains and losses.
Speaker Change: Associated with the.
Speaker Change: The claims patterns that we're seeing in the marketplace.
Speaker Change: In the other quarters, we are truing up the experience from those quarters.
Speaker Change: That means that they are generally going to be smaller that being said.
Speaker Change: We have experienced favorable claims utilization both in the U S and Japan.
Speaker Change: And this has been in place for a long time.
Speaker Change: Or was it goes back to <unk> as well we're under legacy gap you did see this come through as IBM releases and that was feeding through into our benefit ratio and now you're seeing it as re measurement gains losses coming through andreoli Ti.
Speaker Change: So it's a continuation of especially in Japan in the long term trends that we've been seeing there and in the U S to some extend this shift in claims patterns that we've seen post COVID-19.
Speaker Change: I'll stop there and see if Alicia if you want to add any any color from your perspective.
Alicia: Matt the only thing I'd add is that we do unlock or assumptions annually in the third quarter.
Alicia: To reflect all of our best estimate actuarial expenses and our experience to date, and then youll see that flow through the third quarter earnings. Thank you so much.
Alicia: Okay.
Alicia: Thanks for the answers that's it for me.
Alicia: Okay.
Speaker Change: The next question comes from Jimmy Buhler of J P. Morgan.
Speaker Change: Please go ahead.
Jimmy Buhler: Hey, good morning, So first I had a question just along the lines of what you.
Jimmy Buhler: You were commenting in terms of the dental or medical product in.
Japan sales have been weak and you pointed out competitors coming out with maybe lower benefit type products.
Jimmy Buhler: And.
Jimmy Buhler: That affecting your business should we assume.
Jimmy Buhler: That if the competitive environment stays the way it is sales of muddle along.
Jimmy Buhler: These levels or are you doing anything that would suggest.
Jimmy Buhler: But there could be a recovery because that line has been sort of steadily dropping over time.
Jimmy Buhler: I'm going to answer that.
Jimmy Buhler: Let me just say that.
Jimmy Buhler: Everything that we do tends to be cyclical in nature with a rebound or a new product and although we can't talk about that because of FSA and the way. They operate as Yossi mentioned every two years or so we come back to the table.
Jimmy Buhler: With changes in the marketplace, whether it be consumer and what they want or need or.
Jimmy Buhler: Medical treatments and what are happening, whether it's more outpatient and inpatient whatever it might be from a medical standpoint, or even the cancer insurance standpoint. So.
Jimmy Buhler: This year is the year, where cancer insurance should be dominating along with our with our new product.
Jimmy Buhler: So we should continue to see that I can't stress enough how much we like what's going on in the life insurance area of adding new and younger policyholders that we've never had before.
Jimmy Buhler: And that opens the opportunity to go back and add cancer and medical to them. So this year will be that I think you can look for next year.
Jimmy Buhler: Revisit which campaign, we will be looking at but all in all Im very excited about is making our numbers this year.
Jimmy Buhler: Sales and believe we will ultimately do that at the breakdown. Although we continue to watch and monitor is the overall sales numbers that we want to see us achieve because the profit margins are there for our success long term.
Jimmy Buhler: Okay.
Jimmy Buhler: And then just for Voyager.
Jimmy Buhler: <unk> business in the U S. It.
Jimmy Buhler: It seems like sales have stabilized following the change in the tech platform, but are you expecting a normal production this year and open enrollment or is it more likely that that will be next year.
Speaker Change: Alright, well thanks, Jamie this virtual I do expect us to have a consistent momentum what I've mentioned in the fourth quarter. Our focus is on stabilization of that platform, but making sure that the brokers and our veteran agents knew about that we were open for business and we had a slow start in Q4, but.
Jimmy Buhler: A much better start here in Q1.
Jimmy Buhler: Can tell you a few things about that we did invest and making sure. We got the right talent, we hired some additional talent from the industry. We maintained the talent that we have there we continue to invest in the technology to make sure. We've got the best portals for the dentist that are doing business with us as well as make.
Jimmy Buhler: Sure there is an easy enrollment process.
Jimmy Buhler: Our agents our brokers and then the final thing I mentioned is the partnership we launched.
Jimmy Buhler: Now can I ask you what sky Jan.
Jimmy Buhler: Great job.
Speaker Change: Administrative services that they're providing for us behind the scenes.
Speaker Change: They are industry, leading third party administrator out there and we're pleased with what we've seen.
Speaker Change: <unk> said all of that we have been going around to each market late in ages no to try it for those agents that so the dermal product in Q1 alone our voluntary benefits product their sales were up 20%. My point is that that's a strategy that works because we look at selling both together and I.
Speaker Change: The more we get that message out you will see that momentum carry forward I expect.
Speaker Change: If they hit the plan that we set forth this year Jamie.
Speaker Change: Thank you.
Yes.
Speaker Change: Our next question comes from Sue need to come off of Jefferies.
Speaker Change: Please go ahead.
Sue Jefferies: Great. Thanks, Max I wanted to come back to the ESR in the one way hedge that you have is that program designed to keep you at your es or target or is it possible. If we see the dollar weakened significantly before those options sort of kick in you're ESR ratio could fall below your target.
Sue Jefferies: Thank you Nate so that always depends a little bit on what your starting point is.
Sue Jefferies: Generally speaking we originally designed is to.
Sue Jefferies: Size the risk associated with FX that we're willing to take on and we generally size that at around 40% to 45 ESR points. So that will gave you a little bit of a.
Sue Jefferies: <unk> for the.
Sue Jefferies: The impact and how we have overall size of that program.
Sue Jefferies: So that means that at that level, we are no longer having any significant FX volatility associated with our ESR.
Sue Jefferies: And our starting point today is in a Ram based numbers. This morning that we estimate that our ESR as of this morning is around 250%. So it's a good starting point for us.
Sue Jefferies: Okay. That's helpful.
Sue Jefferies: Then I wanted to come back to something that we talked about last night in terms of the U S weekly average producers.
Sue Jefferies: Think one of the comments around why it was down year over year I think 11% is that more of your agents are selling other non aflac products.
Sue Jefferies: I just wanted to get a sense of how prevalent is that how common is that and does that create some issues for you in terms of the recovery in sales if theyre focused on other company's products.
Speaker Change: Hi, This is Bob I'll take that question I would say.
Sue Jefferies: Total.
Speaker Change: Don't have any data for that here's what I mean by that.
Sue Jefferies: We have.
Sue Jefferies: Our veterans look at their productivity now you can see overall, our productivity is up when you look at the fab supplement.
Sue Jefferies: That's driven mainly by the production we've got.
Sue Jefferies: Veterans, but with brokers also.
Sue Jefferies: In that number and we're having success in larger case.
Sue Jefferies: Right, but when you look into the smaller cases, I mean accounts generally averaging less than 50 employees.
Sue Jefferies: This is where we made the focus and I think that comment was may in particular, when we saw last year. Our agents, we're having success with several of the dental product.
Sue Jefferies: If you look at the newest statistics are out there from Lima from each branch.
Sue Jefferies: Still in the top two products that are being requested.
Sue Jefferies: So having said that.
Sue Jefferies: So other carriers product and when you sell that product you tend to sell the other voluntary benefit products alongside it.
Sue Jefferies: This quarter, though as I mentioned, starting to see them return back.
Sue Jefferies: A 23% increase in demo sales for Q1.
Sue Jefferies: And again I've mentioned, the Jimmy a few moments ago that when they sell a demo overall that a 20% overall sales increased utilization so that we're.
Sue Jefferies: We're going to do this year is focus on those veterans, maybe some compensation that is tied to that we're going to explain to them. The demo is stable is working.
Sue Jefferies: And really get them back to selling back on a normal basis with aflac.
Speaker Change: I have seen the momentum in Q1, and I expect that momentum to continue throughout the year.
Sue Jefferies: Okay.
Speaker Change: Mr. Horowitz Nate your line be muted.
Sue Jefferies: Oh, Hey, Hey, good morning, sorry about that.
Speaker Change: And I assume you Tessa I know you're targeting younger customers, but I believe in the past you've indicated that existing customers, where we're a larger percentage of the sales last year is that is that still the case or are you seeing more new and younger customers buy the product.
Speaker Change: The short version is we're seeing more U.
Speaker Change: Younger people buy the product.
Speaker Change: So that's what I'd give you his answer.
Speaker Change: Okay, and then just shifting to NII. So last quarter, you indicated there'd be some pressure just given the floating rate portfolio, which we saw I'm. Just curious how you see NII trending through the rest of the year is there further impact from last year's rate rate cuts to still flow through.
Speaker Change: Sure. Thank you Joel you are right, we have seen some pressure in first quarter, it's predominantly from the floating rate portfolio. It's both a reduction in balances as well as the roughly 100 basis point decline, we've seen as sofa year on year.
Speaker Change: We're going to be facing that that headwind throughout the year the comps do get a little better later in the year when the differential in sulfur is less because of the fed action.
Speaker Change: Cut later in the year last year.
Speaker Change: We are taking steps to try to offset that we're doing more things to reposition the portfolio to capture higher yields both in Japan and the U S. We've also been able to deploy a significant amount of capital in first quarter and take advantage of the wider spreads.
Speaker Change: We also took advantage of the wider spreads in April and deployed a significant amount so.
Speaker Change: Yeah.
Speaker Change: We are facing that floating rate headwind, but we think we've got some things in the tool kit, that's going to help us offset that.
Speaker Change: And Joel just as a reminder, that our floating rate portfolio. It resets with one month and three month sulfur.
Speaker Change: Got it thank you.
Speaker Change: Just to follow up I wouldn't got the number over half of our sales are from younger.
Speaker Change: So I wanted to.
Speaker Change: Validate that number for you.
Speaker Change: For semi to us and that was question you had.
Speaker Change: Our next question comes from Ryan Krueger of K VW.
Speaker Change: Please go ahead.
Speaker Change: Hey, Thanks, Good morning, one more question on the yen sensitivity.
Speaker Change: Been talking mostly about the ESR impact from a strengthening yen can you can you talk more about the offsets, though within the rest of the organization.
Speaker Change: I believe you.
Speaker Change: More economically.
Speaker Change: Sensitive on a on a consolidated basis.
Speaker Change: Yes, that's right Eric.
Speaker Change: Other components of our business that we hold $2 $7 billion of.
Speaker Change: Full of awarded contracts at the holding company.
Speaker Change: And obviously as the yen strengthens.
Speaker Change: Hey.
Speaker Change: Move.
Speaker Change: More into.
Speaker Change: US being out of the money on those forwards now we also hold roughly $4 $4 billion of yen denominated debt at the holding company as well that means that when the yen moves our leverage will move with that as well so.
Speaker Change: Well in a strengthening yen scenario, all things being equal see our leverage ratio increased somewhat.
Speaker Change: Earl obese, obviously down work in the negative category as you think about the ESR as you think about.
Speaker Change: Settlements on our forwards at Inc, and as you think about our leverage ratio.
Speaker Change: The offset to this is that we now expect higher future dividends.
Speaker Change: Our terms from Aflac, Japan.
Speaker Change: So when you then think about the long term dividend cash flows in U S. Dollars. They are now going to be higher and that offsets. The decline that you see elsewhere on these other instruments and that's what I mean by when we've taken economic approach with think about sizing what our expected cash flows.
Speaker Change: And they are offset by these other instruments. So that means that we are very well hedged protected in U S. Dollar terms around the group.
Speaker Change: Great. Thank you.
Speaker Change: And then just a quick follow up on.
Speaker Change: Third sector, Japan sales you gave a lot of detail on the new cancer product and your strategy around both cancer and medical and I know you said you thought cancer sale.
Speaker Change: Overall, Japan sales would be up in 2025 I was just can you give any more color than I think you've typically seen a bit of a surge in sales when you have a new product introduction like this.
Speaker Change: Should that be our expectation that in the second quarter, you'll see a pretty meaningful positive impact from the cancer launch.
Speaker Change: Hi.
Speaker Change: Thank you Mike.
Speaker Change: That's how we think so because he said to me once again.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question comes from Wilma Burtis of Raymond James. Please go ahead.
Speaker Change: Hey, good morning could you provide any update on the Japan post and others I think it was a data breach or something like that but if you could just give us any update.
Speaker Change: Well you were asking about it.
Speaker Change: The Japan post quoted us.
Speaker Change: Hi, This is <unk> from Aflac, Japan.
Speaker Change: And all <unk> been employing you say group on ethanol upon European bump off the company they open.
Speaker Change: All he coke Ikea in telco.
Speaker Change: The deal or someone dying.
Speaker Change: That's the only one I believe that question is regarding the Japan post company's inappropriate use of nonpublic financial information.
Speaker Change: Yeah.
Speaker Change: Hi, Daniel.
Speaker Change: Japan Postal company by Hudson.
Speaker Change: <unk>.
Speaker Change: She LNG of course, David O'connor.
Speaker Change: Now with J P C or Japan post company have now established a preventative measure them implementing them.
Speaker Change: Hello.
Speaker Change: Jeff I'll pass the company for Stella Courtney she chose to no debt.
Speaker Change: Okay no.
Speaker Change: Oh Hello.
Speaker Change: You must carry them all.
Speaker Change: And Japan Post company is now focused on addressing this issue. So there are a certain impact on the cancer insurance sales.
Speaker Change: And all.
Speaker Change: Group and you added a couple say my God, you Master it and within the Japan Post group there was another entity with Japan post insurance a couple of things.
Speaker Change: On a Monday and it took sits at all.
Speaker Change: Okay.
Speaker Change: And all that and Japan post insurance is not directly impacted by this.
Speaker Change: Okay.
Speaker Change: So the total Alco Guy know canola data and offtake sitting ideal oh for ethanol and Hogan.
Speaker Change: Uh huh.
Speaker Change: Yeah.
Speaker Change: And also this.
Speaker Change: <unk> matter, we regarding the inappropriate use is as data has nothing to do with an Aflac insurance correct.
Speaker Change: Hum bylaw, okay. It looks at the method. So therefore, the cancer insurance sales activity are still continuing today.
Speaker Change: It seems to me you guys had missed Io and he has he got cut off.
Speaker Change: And your point, you say go to put them, all but I see okay.
Speaker Change: As you might think method and she's going to be described earlier, Japan Post group started the new cancer product. This April.
Speaker Change: Plus the company demo on the scene so he not.
Speaker Change: Oh, Okay, Sistema and Japan Post company has also started the sales of this new product.
Speaker Change: That's helpful.
Speaker Change: Yeah.
Speaker Change: Okay. Thank you.
Speaker Change: The next question comes from Nick <unk> of Wells Fargo. Please go ahead.
Speaker Change: Hey, Thanks, Good morning, just one more for Max on the ESR and appreciate all the comments before on it but.
How should we be thinking about the future use of Bermuda in terms of reinsurance the Japan balance sheet.
Speaker Change: The yen continues to appreciate further does it impact any of the ability or willingness to do more of the balance sheet reinsurance. Thanks.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: So our ability to execute execute reinsurance is not really associated with our ESR levels.
Speaker Change: It's not making them more or more difficult or easier depending on where the ESR level is that being said it is absolutely clear that when we execute reinsurance between Aflac, Japan, and Aflac Bermuda, we tend to structure transactions in a way too.
Speaker Change: Lower the overall risk for both the enterprise and for the seed and for Aflac, Japan. In this case that tend to have the outcome that the ESR is going up.
Speaker Change: So it's obviously a tool that we have available to us that we can use but it's one of the tools that we have and that we use and overall to manage the capital base of Aflac, Japan, and B ESR ratio, yes, we have a relatively broad toolkit.
Speaker Change: We can use at this point, obviously, we are trading significantly above our target operating both range and made the point. So at this point, we feel very good about where we are as it relates to our ESR ratio.
Speaker Change: The next question comes from Mike Ward of UBS. Please go ahead.
Mike Ward: Thank you and good morning.
Mike Ward: I was just wondering how you guys are seeing the environment in Japan.
Mike Ward: And I'm just kind of curious.
Mike Ward: You guys are well tapped into their sort of cultural attitude.
Mike Ward: But is there any anti U S sentiment growing their from.
Mike Ward: From a trade war that could pose.
Mike Ward: Pose incremental sales challenges.
Speaker Change: Let me, let Charles take that on Jos.
Mike Ward: Yeah. Thank you this is John.
Mike Ward: We do not see any reaction in a way that will be anti American as you know the Japan government.
Mike Ward: On the support of the U S, Japan Alliance deep economic relationship as the basis.
Speaker Change: The confidence that Japan, and the United States as you know in the past five years, Japan was our largest investor into Japan.
Speaker Change: When you look at the National Security side, when you look at the economic relationship side. It's a deep relationship. In addition to that because of the exchange rate is a large visitor from United States to Japan, that's booming in terms of inbound tourism. So at this stage of course.
Speaker Change: The trade talks are gaining a lot of attention, but it is not affecting in any way in my view the sentiment among the Japanese people about the United States.
Speaker Change: Yeah.
Speaker Change: Super helpful. Thank you.
Speaker Change: And then maybe for Matt just high level on the on the buyback.
Speaker Change: Pretty solid amount this quarter just.
Speaker Change: If if it ends up that there's incremental sort of ongoing I guess sales headwinds.
Speaker Change: Should we think about you being comfortable continuing in excess of operating income.
Speaker Change: Even at this level right.
Speaker Change: For as long as those headwinds may or may not persist.
Speaker Change: Yes.
Speaker Change: Our buyback, it's truly a function of the capital and liquidity we have on hand.
Speaker Change: The capital and the liquidity, we see coming through to us.
Speaker Change: In the future and then obviously the investment opportunities we have for that capital and we look at the IRR that we can get on different types of capital deployment.
Speaker Change: <unk> organic growth I E. What returns are we getting by selling new products and Thats generally our number one source of it.
Speaker Change: Where we deploy capital that's why we wanted to go we want to grow our franchise and grow it at strong IRR.
Speaker Change: When those capital over and we are looking at other deployment opportunities and obviously buyback has been one of the greatest sources of that over the last couple of years.
Speaker Change: And that has given us very good irr's. So this framework, we just continue to run and operate.
Speaker Change: Okay.
Speaker Change: The next question comes from Alex Scott of Barclays. Please go ahead.
Alex Scott: Hey, Thanks for fitting me in here.
Speaker Change: I had one on the corporate segment.
Speaker Change: I guess just from the outside it's a little difficult to model given theres. The derivative program in there Theres a Bermuda reinsurance in there and then there is the typical kind of what we think about it as a corporate segment in there so.
Speaker Change: Could you help us think through.
Speaker Change: The different components and how we should think about the trajectory there maybe.
Speaker Change: Where do you see it running more nearer term versus where you know me.
Speaker Change: Build to just based on the Bermuda business.
Speaker Change: So.
Speaker Change: Alex.
Speaker Change: I understand the difficulties in modeling this.
Speaker Change: Segment, given that you have so many different pieces that are sort of rolling up into it.
Speaker Change: If you think about the most the biggest pieces that are moving that number it would be around.
Speaker Change: Any sort of reinsurance that we would do the reinsurance profitability is very stable and predictable, but any further transactions that we would do would obviously increase the profitability of this segment.
Speaker Change: The other piece is interest expense. So if we were to issue any more depth.
Speaker Change: And go up in leverage that obviously would impact the profitability of this segment as well and the last piece is the strategy that we have around the tax credit investments and the way. This is accounted for and that is particularly interesting in this quarter. When you compare it year over year there was a significant.
Speaker Change: Delta where in the first quarter of last year, we had pretty significant tax credit investments. They were lower this year and as you know the way. They work is that we have a negative component to the net investment income in the corporate segment.
Speaker Change: And more than offsetting credit to the tax line. So in this quarter, we only had I believe the $8 million of tax credit investments hitting the net investment income line.
Speaker Change: And that is why you also saw the <unk>.
Speaker Change: Tax line.
Speaker Change: Having a higher tax rate than what we normally run rate on a core run at on a quarterly basis.
Speaker Change: So if you boil all of that together, yes. It means that you can can you will continue to see some volatility in this number but I would certainly expect the number to be on a pre tax basis positive.
Speaker Change: But generally speaking lower than what you saw in the first quarter.
Speaker Change: Yeah.
Speaker Change: Got it okay. That's helpful. I can leave it there. Thank you.
Speaker Change: This concludes the question and answer session I would like to turn the conference back over to David Young for any closing remarks.
David Young: Thank you Alan and thank you all for joining US. This morning. We appreciate your time, if you have any other questions. Please reach out to Investor Relations will help you with what we can and look forward to speaking to you soon thank you.
David Young: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
David Young: Okay.
David Young: [music].