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    Aflac Inc (AFL)

    Business Description

    No business description found.

    Q2 2024 Summary

    Initial Price$85.85April 1, 2024
    Final Price$89.06July 1, 2024
    Price Change$3.21
    % Change+3.74%

    What went well

    • Strong sales growth from new product launches in Japan, specifically the TSUMITAS product targeting younger customers, leading to increased sales and cross-selling opportunities for third sector products.
    • Improved U.S. persistency rates, with early signs from initiatives showing positive results; even a 100 basis point improvement is meaningful and contributes to additional net earned premium over time.
    • Maintained #1 position in Japan's third sector market despite increased competition, highlighting Aflac's strong customer trust and ability to provide appropriate insurance policies, leading to continued sales growth.

    What went wrong

    • The new TSUMITAS product in Japan has a lower internal rate of return (IRR) than core third sector products due to significant new business strain associated with higher reserves, relying on reinsurance to achieve acceptable returns, which may pressure profitability.
    • Competitors in Japan are entering the third sector market with low-priced products, creating a challenging competitive environment that is "totally different compared with maybe 5 years ago or 10 years ago," potentially impacting Aflac's market share and margins.
    • Aflac's strategy of targeting younger customers who may have less disposable income may lead to slower cross-selling opportunities and impact sales growth and immediate profitability in the near term.

    Q&A Summary

    1. Profitability of TSUMITAS Product
      Q: How does TSUMITAS's return compare to third sector products?
      A: The TSUMITAS product launched in June has at or higher GAAP margins than our core third sector business. On an IRR basis, though initially lower due to higher reserves, reinsurance brings returns to very attractive levels, similar to our core business.

    2. U.S. Sales and Guidance
      Q: Can you achieve full-year sales guidance despite a light quarter?
      A: Despite a 2% sales increase this quarter, we're confident in hitting guidance. We anticipate stronger sales in the second half due to seasonality, new products, and improved productivity.

    3. Expense Ratio Sustainability
      Q: Are low expense ratios in Japan and U.S. sustainable?
      A: In Japan, the expense ratio of 17.8% is expected to be at the lower end of the 19%–21% range for the year. In the U.S., expenses may rise due to seasonality, keeping the ratio within the 38%–40% guidance.

    4. Competition in Japan
      Q: How is the competitive environment in Japan evolving?
      A: Competition has intensified with new entrants offering low-priced products. However, we focus on providing value, maintaining our position as the #1 seller of third sector products in Japan.

    5. Net Investment Income in Japan
      Q: What drove higher net investment income and is it sustainable?
      A: The strong quarter was driven by attractive short rates, tactical portfolio actions, and accelerated deployment in structured private credit. We believe these tailwinds are sustainable into the second half.

    6. U.S. Persistency Improvement
      Q: How much can you improve U.S. persistency?
      A: Even a 100 basis points improvement is meaningful. We're focusing on business improvements and beneficial mix shifts toward products with higher persistency.

    7. U.S. Recruiting Trends
      Q: What is the status of U.S. recruiting recovery?
      A: Recruiting improved over 10% in Q2. We're emphasizing quality recruiting and better productivity, expecting similar recruitment numbers as last year.

    8. TSUMITAS Product Rollout
      Q: Will TSUMITAS become a larger sales percentage?
      A: After an initial sales spike, we expect TSUMITAS sales to level off but continue contributing significantly, aiding cross-selling of third sector products without capping sales due to strong returns.

    9. Difference from WAYS Sales
      Q: How does TSUMITAS differ from previous WAYS sales?
      A: TSUMITAS involves more frequent repricing, diligent distribution management, and use of reinsurance to improve IRRs, differentiating it from the significant WAYS sales of 2012–2014.

    Revenue by Segment - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Aflac Japan2,7902,7102,6602,50410,6642,4732,4472,378
    - Net Earned Premiums1,4281,4251,4191,4035,6751,4751,4551,459
    - Net Investment Income197203209245854206218210
    - Other Income35353325128181115
    Aflac U.S.1,6601,6631,6611,6396,6231,6991,6841,684
    Other Business Segments--------
    Corporate and Other12914011576460247249225
    Total Adjusted Revenues4,5794,5134,4364,21917,7474,4194,3804,287
    Total Revenues4,8005,1724,9503,77918,7015,4365,1382,949
    Revenue by Geography - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Aflac Japan----10,6642,4732,4472,378
    - Net Earned Premiums-----1,475--
    - Adjusted Net Investment Income-----206--
    - Other Income-----18--
    Aflac U.S.----6,6231,6991,6841,684
    Corporate and Other----460247249225
    Total Revenue4,8005,2005,0002,74717,7475,4365,1382,949
    KPIs - MetricFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    New Annualized Premium Sales (¥ Billion)¥13.2¥16.1¥15.6¥15.8-¥12.5¥16.8¥17.5
    New Annualized Premium Sales ($ Million)$100$117$108$107-$84$108$117
    Contributions by Major Insurance Product - Cancer (%)59.967.765.662.5-63.258.855.1
    Contributions by Major Insurance Product - Medical (%)20.817.520.022.8-21.115.812.2
    Contributions by Agency Type - Independent (%)50.944.844.447.7-48.949.546.2
    Contributions by Agency Type - Affiliated (%)45.452.551.949.2-48.048.450.2
    Number of Sales Agencies7,3007,2007,1007,000-7,2107,0826,600
    Number of Licensed Sales Associates110,000113,000113,000113,000-112,645114,424114,000
    Agreements to Sell at Banks359360360360-360360360
    New Money Yield (%)5.184.754.286.73-5.575.966.21
    Return on Average Invested Assets (%)2.572.773.073.12-3.143.593.16
    Portfolio Book Yield (%)3.133.193.193.18-3.243.323.21
    Premium Persistency (%)93.993.893.593.4-93.493.393.3
    Annualized Premiums in Force (¥ Trillion)¥1.28¥1.27¥1.26¥1.246-¥1.23¥1.22¥1.22
    Weighted-Average DSCR for CMLs2.432.422.432.49-2.302.342.50

    Executive Team

    NamePositionStart DateShort Bio
    Daniel P. AmosChairman, Chief Executive OfficerCEO: 1990, Chairman: 2001Daniel P. Amos has been the Chief Executive Officer of Aflac Incorporated and Aflac since 1990 and has served as Chairman since 2001. He will resign as President effective January 1, 2025 .
    Steven K. BeaverExecutive Vice President, Chief Financial Officer, Aflac Japan2024Steven K. Beaver is the Executive Vice President and Chief Financial Officer of Aflac Japan since 2024. He previously served as the First Senior Vice President and Deputy Chief Financial Officer of Aflac Japan .
    Robin L. BlackmonChief Accounting Officer, Senior Vice President, Financial Services2024Robin L. Blackmon has been serving as the Chief Accounting Officer and Senior Vice President, Financial Services at Aflac Incorporated since 2024. She was previously Vice President, Deputy Chief Accounting Officer .
    Max K. BrodénExecutive Vice President, Chief Financial Officer, Aflac Incorporated2020Max K. Brodén has been serving as the Executive Vice President and Chief Financial Officer of Aflac Incorporated since 2020. He was also Treasurer for Aflac from 2017 until 2021 .
    Bradley E. DyslinExecutive Vice President, Global Chief Investment Officer, President, Aflac Asset Management LLC2023Bradley E. Dyslin has been serving as the Executive Vice President, Global Chief Investment Officer at Aflac since 2023. He is also the President of Aflac Asset Management LLC since the same year .
    Masatoshi KoidePresident and Representative Director, Aflac Japan2018Masatoshi Koide has been serving as the President and Representative Director of Aflac Japan since 2018. He has focused on innovative insurance products and addressing societal needs .
    Charles D. Lake IIPresident, Aflac International; Chairman and Representative Director, Aflac JapanPresident: 2014, Chairman: 2018Charles D. Lake II has been serving as the President of Aflac International since 2014 and as the Chairman and Representative Director of Aflac Japan since 2018 .
    Virgil R. MillerPresident, Aflac U.S.; President, Aflac Incorporated (effective January 1, 2025)Aflac U.S.: 2023, Aflac Inc.: 2025Virgil R. Miller joined Aflac U.S. in 2004 and has served as President of Aflac U.S. since 2023. He will also serve as President of Aflac Incorporated effective January 1, 2025 .
    Albert A. RiggieriSenior Vice President, Global Chief Risk Officer2018Albert A. Riggieri has been serving as the Senior Vice President, Global Chief Risk Officer at Aflac Incorporated since 2018. He was also Chief Actuary from 2018 until 2023 .
    Frederic J. SimardSenior Vice President, Chief Financial Officer, Aflac U.S.2023Frederic J. Simard has been serving as the Senior Vice President, Chief Financial Officer of Aflac U.S. since 2023. He previously worked as a consultant at Gerson Lehrman Group in 2023 .
    Audrey B. TillmanExecutive Vice President, General Counsel2014Audrey B. Tillman has been serving as the Executive Vice President and General Counsel of Aflac Incorporated and Aflac since 2014 .

    Questions to Ask Management

    1. With competitors aggressively entering the third sector market in Japan and offering lower-priced products, how does Aflac plan to maintain its market share and profitability without engaging in a price war?
    2. The TSUMITAS product targets younger customers with less disposable income; how are you addressing the potential challenges of lower profitability and higher lapse rates associated with this demographic?
    3. Given that your expense ratios in both Japan and the U.S. reached record lows this quarter, but with anticipated increases in promotional spending and unscaled businesses, how sustainable are these expense levels moving forward?
    4. Considering the increase in your commercial real estate loan watch list to approximately $1 billion and ongoing foreclosures, what is your strategy to mitigate potential risks, and how might further real estate market deterioration impact your financial position?
    5. The significant boost in net investment income appears driven by tactical asset reallocations and favorable short-term rates; with potential rate cuts on the horizon, how do you plan to sustain this elevated income level in your U.S. dollar portfolio?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateNovember 2022
    End Date/DurationN/A
    Total Additional Amount100,000,000 shares
    Remaining Authorization54.3 million shares
    DetailsPart of capital deployment strategy focusing on value creation through growth investments, stable dividend growth, and disciplined tactical stock repurchase.

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: N/A
    • Guidance: The documents do not contain information about the guidance for Q3 2024 for Aflac Incorporated. Therefore, no specific metrics or periods were guided.

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: N/A
    • Guidance:
      • Expense Ratios:
        • Japan: 19% to 21%, expected to end up in the lower end for the full year .
        • U.S.: 38% to 40% for the full year .
      • Sales and Growth Initiatives:
        • U.S.: Stronger sales push expected in the second half of the year .
        • Japan: New product TSUMITAS expected to contribute to sales .
      • Persistency: Focus on improving persistency in the U.S. .
      • Capital Management: Commitment to maintaining strong capital ratios and liquidity .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      • Sales Guidance:
        • U.S.: Stronger performance expected in the latter part of the year .
        • Japan: Expects to exceed 2023 sales results .
      • Expense Ratio:
        • Japan: 19% to 21% for the full year .
      • Persistency: Improved by 80 basis points to 78.7% in Q1 2024 .
      • Capital and Liquidity:
        • SMR above 1,100% in Japan and RBC greater than 650% .
        • Liquidity position of $3.7 billion .
      • Profit Margins:
        • Japan: 32.8% pretax profit margin .
        • U.S.: 21% pretax margin .
      • Investment Income:
        • Japan: Adjusted net investment income up 19.3% .
        • U.S.: Adjusted net investment income up 4.6% .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      • Japan Segment:
        • Net earned premiums: Decline by 2.5% to 1.5% .
        • Benefit ratio: 66% to 68% .
        • Expense ratio: 19% to 21% .
        • Pretax profit margin: 29% to 31% .
      • U.S. Segment:
        • Net earned premium growth: 3% to 5% .
        • Benefit ratio: 45% to 47% .
        • Expense ratio: 38% to 40% .
        • Profit margin: 19% to 21% .
      • Corporate Segment: No specific numeric guidance provided .