Q2 2024 Summary
Published Jan 6, 2025, 8:15 PM UTC- 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.
- 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.
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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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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.