AFLAC INC Q3 FY2024 earnings call

• Japan: Drove 12.3% Y/Y sales growth in Q3 with Tsumitasu (asset formation + nursing care option), boosting sales at agencies. Cancer insurance sales through Japan Post Channel improved. Celebrating 50 years in Japan on Nov 15, with marketing focusing on customer touch points. - U.S.: Achieved 5.5% sales growth in Q3, strong in Group Life, Absent Management and Disability. Focus on profitable growth, disciplined expense management, optimizing Dental and Vision platform. - Investments: Investment portfolio performing well, net investment income strong. Commercial real-estate loan watchlist ~$1B, CECL reserves increased by $3M. First lien senior secured middle market loans performing well. - Capital Allocation: Strong capital position, ended Q3 with SMR ~1,100%, combined RBC >650%. Repurchased $500M in stock, paid dividends $280M.

Japan Segment: Net earned premiums for the quarter declined 10.5%, with negative impacts from internal cancer reinsurance, paid-up policies, and deferred profit liability. Policies in force declined 2.3%. Japan's total benefit ratio was 49.2% (down 15.9 ppt Y/Y), third sector benefit ratio 41.8% (down ~13 ppt Y/Y). Pre-tax margin for Japan in Q3 was 44.7% (up 11.9 ppt Y/Y), full-year expected 35%-36%. U.S. Segment: Net earned premium up 2.8%, persistency increased to 78.9% (up 20 bps Y/Y). Full-year net earned premium expected toward lower end of 3%-5% range; benefit ratio toward higher end of 45%-47% range. Pre-tax margin in U.S. was 20.8%, adjusted net investment income up 0.5% mainly due to higher fixed rate income.

• Japan full-year pre-tax margin expected 35%-36%. - U.S. full-year net earned premium expected toward lower end of 3%-5% range, benefit ratio toward higher end of 45%-47% range. - Intend to continue prudently managing liquidity and capital, tactical share repurchase.

• Foreign exchange risks due to yen strengthening. - Distressed market impact on commercial real-estate loans, potential for further CECL reserve increases. - Competitive environment in Japan's third sector products.

Q: Joel Hurwitz from Dowling & Partners asked about Japan sales, specifically third sector sales and plans related to 50th anniversary.

A: Koichiro Yoshizumi responded on Tsumitasu driving sales, cancer insurance sales using 50th anniversary as a hook, and medical sales recovery with new product plans.

Q: Tom Gallagher from Evercore ISI asked about capital allocation and sales split between new and existing customers.

A: Max Broden spoke on capital allocation considering long-term returns, and Dan Amos noted Tsumitasu bringing in new young and middle-aged customers with sales numbers in line with expectations.

Q: Wes Carmichael from Autonomous Research asked about Tsumitasu's impact on first sector vs third sector mix.

A: Max Broden and Koichiro Yoshizumi discussed Tsumitasu's role in securing profits, with Tsumitasu expected to be a meaningful component of the portfolio going forward.

Q: Ryan Krueger from KBW asked about Japan benefit ratio guidance and Corporate segment run rate earnings.

A: Max Broden addressed benefit ratio impact from unlock and capital generation, and Virgil Miller discussed U.S. claims utilization and mix impacts.

Q: John Barnidge from Piper Sandler asked about benefit ratio and total addressable market.

A: Max Broden and Alycia Slyck discussed future trend incorporation in unlocks and no direct link to Bermuda addressable market.

Q: Jimmy Bhullar from J.P. Morgan asked about Tsumitasu sales trend and U.S. incurred claims.

A: Koichiro Yoshizumi spoke on Tsumitasu's stable sales trend, and Virgil Miller discussed U.S. incurred claims driven by mix, benefits, and underwriting discipline.

Q: Wilma Burdis from Raymond James asked about promotions and U.S. macro impacts.

A: Dan Amos discussed succession planning and Virgil Miller spoke on U.S. sales impacted by macro environment and recruitment efforts.

Q: Nick Annitto from Wells Fargo asked about U.S. persistency.

A: Virgil Miller noted persistency influenced by mix, intentional efforts on high-persistency products, and wellness benefits.

Q: Jack Ellison [ph] on for Alex Scott from Barclays asked about competitive environment in Japan's third sector products.

A: Koichiro Yoshizumi discussed competitive severity in third sector (medical insurance), leveraging Aflac's history and channels like Japan Post to compete.