Aflac(AFL) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Aflac Incorporated reported a net earnings per diluted share increase of 23.8% to $9.63 and adjusted earnings per diluted share up 15.7% to$ 7.21 for 2024 [9] - Adjusted earnings per diluted share for Q4 2024 increased 24.8% year over year to $1.56, with a one-cent negative impact from foreign exchange [23] - The adjusted return on equity (ROE) was 12%, and 14.5% excluding foreign exchange remeasurement [24] Business Line Data and Key Metrics Changes - Aflac Japan accounted for over 70% of pretax adjusted earnings and three-quarters of the consolidated balance sheet in 2024, with a 15.5% increase in pretax adjusted earnings and a record 36% pretax profit margin [9] - In Japan, net earned premiums for Q4 declined 5.4%, impacted by an internal cancer reinsurance transaction and paid-up policies [25] - In the US, net income premium increased by 2.7%, with a total benefit ratio of 46.3%, which was 170 basis points higher than Q4 2023 [30] Market Data and Key Metrics Changes - Aflac Japan maintained a premium persistency rate of 93.4%, unchanged year over year, while the US persistency improved by 70 basis points to 79.3% [27][15] - The expense ratio in Japan was 20.8% for Q4, down 30 basis points year over year, while the US expense ratio was 40.3%, down 310 basis points year over year [28][31] Company Strategy and Development Direction - Aflac Japan's strategy focuses on acquiring younger customers and expanding product offerings, including a new cancer insurance product set to launch in March 2025 [11][13] - The company aims to enhance product persistency in the US by ensuring policyholders understand the value of their products [14] - Aflac is committed to maintaining strong capital ratios and has deployed$ 2.8 billion in capital for share repurchases, reflecting a focus on shareholder returns [20][21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the underlying strengths of the business and potential for continued growth in both Japan and the US, despite challenges in the competitive landscape [22] - The company anticipates a higher benefit ratio in Japan for 2025, with expectations for the expense ratio to be at the lower end of the range [40] - Management acknowledged the impact of higher claims on future remeasurement gains, indicating a cautious approach to underwriting [93] Other Important Information - Aflac has maintained a track record of 42 consecutive years of dividend growth, returning $3.9 billion to shareholders in 2024 [21] - The company ended the quarter with strong capital ratios, including an estimated SMR above 1150% and an ESR above 270% [36] Q&A Session Summary Question: Can you provide more color on the competitive environment impacting US sales? - Management noted that Q4 2023 was a tough comparison due to high sales, and emphasized a focus on underwriting discipline to ensure profitable business [45][46] Question: What is the outlook for Japan sales growth? - Management indicated that sales activities are recovering post-pandemic, with a focus on integrated marketing and new product launches to drive growth [64][66] Question: How is the recruiting environment in the US? - Management confirmed a stable recruitment level around 10,000 agents, emphasizing the strength of Aflac's distribution network [96] Question: What is the impact of the weaker yen on Aflac's operations? - Management explained that the yen-dollar exchange rate affects GAAP financials, but the company has a hedging strategy to protect economic value [134][135] Question: How much of the Japan margin guidance is impacted by floating rate income? - Management indicated that the majority of the margin guidance is driven by net investment income, with expectations for a decline in floating rate income due to lower short rates [140][144]