Aflac(AFL)2023-11-02 15:50Financial Data and Key Metrics - Adjusted earnings per diluted share increased 27.8% YoY to 0.06 negative impact from FX [19] - Adjusted book value per share increased 10.3%, and the adjusted ROE was 15.6% [20] - Japan's net earned premium declined 2.8%, with an adjusted decline of 1.7% [21] - Japan's total benefit ratio was 65.1%, down 170 bps YoY, and the third sector benefit ratio was 54.8%, down 460 bps YoY [21] - US net earned premium increased 3.2%, with persistency up 80 bps YoY to 78.7% [24] - US total benefit ratio was 35.9%, 890 bps lower than Q3 2022 [24] - Pretax margin for Japan was 32.8%, up 350 bps YoY, and US pretax margin was 28.8% [23][26] Business Line Performance - Japan sales increased 12.4% YoY, driven by a 23% increase in cancer insurance sales [9] - US sales increased 7.5%, driven by group life and disability, consumer markets, and network dental and vision [11] - New medical insurance product launched in Japan on September 19, with early positive reception [10] - Cancer protection assurance policy in the US provides enhanced benefits at no additional cost [12] Market Performance - Japan Post and Japan Post Insurance contributed significantly to cancer insurance sales growth in Japan [9] - US group platform benefited from group life and disability sales [12] - Japan's expense ratio was 19%, down 100 bps YoY, driven by expense control and reinsurance transactions [22] - US expense ratio was 40.6%, up 70 bps YoY, including a 190 bps impact from software intangibles write-down [25] Strategy and Industry Competition - Company focuses on leveraging distribution channels and product bundling to drive growth [9][12] - Proactive steps taken to defend cash flow and deployable capital against a weakening yen [14] - Company emphasizes prudent liquidity and capital management, with strong capital ratios and tactical share repurchases [15][29] - Reinsurance platform continues to perform well, with plans for another tranche in Q4 [28] Management Commentary on Operating Environment and Future Outlook - Management remains committed to fulfilling promises to policyholders while balancing shareholder interests [14] - Company expects to maintain strong capital ratios and continue tactical capital deployment [15] - Management is optimistic about the product strategy in Japan and the momentum in the US [16] - Succession planning is in place, with internal candidates being prepared for leadership roles [17] Other Important Information - Board declared a 19% increase in the Q1 2024 dividend to 700 million of its own stock in Q3 [29] - Commercial real estate watch list remains at approximately $1 billion, with active foreclosure proceedings on two-thirds of the properties [27] Q&A Session Summary Succession Planning - Dan Amos discussed the company's succession planning, emphasizing internal candidates and the Board's role in ensuring the best person for the job [34][35] Reserve Releases in the US - Max Broden explained that the reserve release in the US was influenced by lower hospitalizations due to COVID, with changes in treatment patterns factored into actuarial models [38][57][61] Tri-Agency Rules Impact - Virgil Miller and Dan Amos discussed the potential impact of tri-agency rules, noting that Aflac has historically sold policies without pretax benefits and is prepared to adapt if necessary [41][42][44] Commercial Real Estate (CRE) Watch List - Brad Dyslin provided insights into the CRE watch list, explaining the modest CECL reserves due to conservative LTVs and ongoing appraisal processes [46] FX Hedging Program - Max Broden confirmed that hedge costs in Q3 are expected to remain stable or slightly lower going forward, with adjustments made to reduce tail risks [49][52] Reinsurance Transaction - Max Broden indicated that capital freed up from the reinsurance transaction could be deployed within business units or returned to shareholders [54][80] Japan Post Partnership - Koichiro Yoshizumi and Dan Amos highlighted the strong performance of the Japan Post partnership, with continued focus on cancer insurance sales and agent training [65][67] Capital Management Priorities - Max Broden outlined capital management priorities, emphasizing strong capital ratios, share repurchases, and dividend increases [69][94] Digital Transformation in Japan - Fred Crawford discussed the long-term plan to digitize operations in Japan, focusing on digital applications and customer self-service, with expected efficiency gains over time [71][73] Middle Market Loan Portfolio - Brad Dyslin noted the strong performance of the middle market loan portfolio, with disciplined underwriting and modest leverage contributing to better-than-expected results [89]