Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Aflac Inc (AFL, Financial) reported strong earnings with net earnings per diluted share of $3.10 for the quarter and $4.64 for the first six months.
- Adjusted earnings per diluted share increased by 15.8% to $1.83 for the quarter and by 11.5% to $3.49 for the first six months.
- The company achieved a 2% sales growth in the US, driven by growth in Group Life, Absent Management, Disability, and individual voluntary benefits.
- Aflac Inc (AFL) repurchased a record $800 million in shares during the quarter and declared dividends of $0.50 for the first, second, and third quarters.
- Persistency rates in the US improved by 50 basis points year-over-year to 78.7%, indicating strong customer retention.
Negative Points
- Net earned premiums in Japan declined by 5.7%, impacted by internal reinsurance transactions and paid-up policies.
- The total benefit ratio in Japan increased to 66.9%, up 120 basis points year-over-year, indicating higher claims costs.
- Persistency in Japan declined by 50 basis points year-over-year to 93.3%, reflecting a slight decrease in customer retention.
- The expense ratio in the US, while improved, is expected to increase in the second half of the year due to higher sales activity and investments in growth initiatives.
- The commercial real estate loan watch list stands at approximately $1 billion, with less than $300 million in the process of foreclosures, indicating potential risks in the investment portfolio.
Q & A Highlights
Q: The new product launch in Japan that happened in June had very strong sales. Can you talk about the targeted return on that first sector product and how it compares to the third sector product? And what do you see as the cross-sell opportunity there?
A: (Max Broden, CFO) The new product has at or higher GAAP margins than our core third sector business. On an IR basis, it is lower due to high reserves, but with reinsurance, it brings attractive returns similar to our third sector business. The product targets younger clients, providing opportunities to cross-sell medical and cancer insurance over time.
Q: The expense ratio in both Japan and the US businesses is the best it’s been in several years. How much of that is sustainable and driven by expense savings versus timing of discretionary spending?
A: (Daniel Amos, CEO) In Japan, the 17.8% expense ratio is low, and we expect to operate within the 19%-21% range long-term. For the US, we had good expense control in the first half, but expect higher expenses in the second half due to seasonality and business scaling. Over time, as businesses reach scale, the expense ratio should decrease.
Q: What are you seeing in the competitive environment in Japan, especially with competitors launching low-price products?
A: (Koichiro Yoshizumi, Senior Managing Executive Officer, Aflac Life Insurance Japan) Competitors have entered the third sector market with low-price products. However, Aflac focuses on providing value to customers rather than just lowering prices. We aim to maintain our number one position by offering appropriate insurance policies and leveraging our history and trust with customers.
Q: Have you identified how much of the existing customer base is the target for the new first sector product in Japan?
A: (Koichiro Yoshizumi, Senior Managing Executive Officer, Aflac Life Insurance Japan) Our target customers are young and middle-aged individuals. The Japanese government is encouraging asset accumulation, and our new product responds to this need. The product offers various options post-premium payment, increasing touchpoints with customers and opportunities to sell third sector products.
Q: Can you talk about the 50th anniversary plans in Japan and how they relate to the new product?
A: (Koichiro Yoshizumi, Senior Managing Executive Officer, Aflac Life Insurance Japan) The 50th anniversary plans include promoting cancer insurance and offering gifts to customers. We will highlight our concierge service through various channels. Our sales agents and agencies are motivated to sell a large proportion of third sector products, and we will support them to maximize sales.
Q: How do you see the rollout of the Tsumitasu product in Japan affecting third sector sales?
A: (Daniel Amos, CEO) We expect a spike in sales initially, followed by a leveling off. The product will help cross-sell third sector products. We aim to maintain our strong position in the third sector market while leveraging the new product to attract younger customers and drive long-term growth.
Q: Can you provide more details on the net investment income in Japan and the sustainability of the current levels?
A: (Bradley Dyslin, Global Chief Investment Officer) We had a solid second quarter, driven by attractive short rates, tactical portfolio adjustments, and accelerated deployment in structured private credit. These factors are expected to continue through the second half of the year, positioning us well for sustained performance.
Q: What are your thoughts on the US sales performance and confidence in hitting full-year guidance?
A: (Virgil Miller, President, Aflac U.S.) We had a strong quarter with balanced growth, improved persistency, and lower expense ratios. We expect stronger performance in the second half due to seasonality and scaling of new businesses. We are confident in achieving our full-year guidance.
Q: Can you touch on recruiting trends in the US and the recovery to pre-pandemic levels?
A: (Virgil Miller, President, Aflac U.S.) We saw a strong increase in recruiting in the second quarter and expect this trend to continue. We focus on quality recruiting, better conversion rates, and higher productivity. We leverage national recruiting efforts and local agent nominations to drive growth.
Q: How do you manage the risk of the sales force monetizing the in-force customer base with the new Tsumitasu product?
A: (Daniel Amos, CEO) We closely track sales to ensure the focus remains on acquiring new customers. While we will sell to existing customers if they are interested, our primary goal is to attract younger customers and build long-term relationships.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
