Aflac Incorporated (AFL) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Solid Earnings Results: Aflac Incorporated reported solid earnings for the quarter and six months, with net earnings per diluted share at $3.10 for the quarter and $4.64 for the first six months. Adjusted earnings per diluted share were up 15.8% to $1.83 for the quarter and up 11.5% to $3.49 for the first six months.
• Profitable Growth in the US and Japan: The company generated profitable growth in both the United States and Japan through new products and distribution strategies, contributing to long-term value for shareholders.
• Strong Investment Portfolio Performance: Aflac's investment portfolio continued to produce strong net investment income with minimal losses and impairments, supporting the company's financial strength and commitments to policyholders and shareholders.
• Record Profit Margins in Japan: Aflac Japan delivered record profit margins for the quarter, driven by successful sales strategies and efficient expense management.
• Commitment to Dividend Growth: The company continued its track record of dividend growth, marking 41 consecutive years of dividend increases.

Pessimistic Highlights

• Decline in Net Earned Premiums in Japan: Net earned premiums in Japan declined by 5.7%, reflecting impacts from internal reinsurance transactions, paid-up policies, and negative impacts from FX.
• Elevated Lapses and Decline in Policies in Force: Lapses in Japan were somewhat elevated, and policies in force declined by 2.4%.

Company Outlook

• Continued Focus on Profitable Growth: Aflac aims to continue focusing on profitable growth, optimizing its Dental and Vision platform in the US, and maintaining strong capital ratios to support its financial commitments.
• Tactical Capital Deployment: The company plans to continue its balanced approach to investing in growth and driving long-term operating efficiencies, including share repurchases and dividend payments.

Q & A Highlights

• Q: Can you talk about the target return on the new first sector product in Japan and the cross-sell opportunity there? (Joel Hurwitz, Dowling & Partners)

  A: The new product has at or higher GAAP margins than core third sector business and attractive returns post-reinsurance. It targets younger customers, offering opportunities for cross-selling core third sector products over time. (Max Broden)

• Q: What are you seeing in the competitive environment in Japan? (Jimmy Bhullar, JPMorgan)

  A: Competitors have entered the third sector market, but Aflac focuses on offering valuable products rather than competing on price. The company aims to maintain its number one position by providing appropriate products based on customer needs. (Koichiro Yoshizumi)

• Q: On the distribution of the new first sector product in Japan, have you identified how much of the existing customer base is the target for this new product? (John Barnidge, Piper Sandler)

  A: The product targets young and middle-aged customers, aiming to respond to their asset accumulation needs. It has been well-received in the market, and sales agents are trained to use it as a hook to cross-sell third sector products. (Koichiro Yoshizumi)

• Q: How do you see the rollout of the Tsumitasu product affecting third sector sales in Japan? (Tom Gallagher, Evercore ISI)

  A: The product is expected to sell at a certain volume on its own and serve as a means to cross-sell third sector products. The sales strategy is designed to increase third sector sales by leveraging Tsumitasu as a hook. (Koichiro Yoshizumi)

• Q: Can you touch on net investment income in Japan and the sustainability of the level implied in Q2? (Joel Hurwitz, Dowling & Partners)

  A: The solid second quarter was driven by attractive short rates, tactical portfolio actions, and accelerated deployment in structured private credit. These tailwinds are expected to continue, supporting a good second half of the year. (Brad Dyslin)

• Q: What are your thoughts on US persistency and the impact of initiatives put in place? (Joel Hurwitz, Dowling & Partners)

  A: Early signs from persistency efforts are encouraging, with a focus on driving profitable growth and improving persistency across all business lines. Mix of business will also impact persistency rates over time. (Max Broden)