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Aflac Inc Earnings - Analysis & Highlights for Q4 2024
Overview
PositivesNegativesOutlook
- Net earned premiums increased by 2.7%.
- The pre-tax profit margin for the year was strong at 21.1%.
- Aflac Japan's premium persistency was 93.4% and sales increased by 5.6% YoY, including a 9% sales increase in Q4.
- Adjusted net investment income in yen terms was up 3.7% in Q4, due to the transfer of assets to Aflac Re Bermuda associated with reinsurance and lower floating rate income.
- The net impact to the bottom line was a positive $4 million in Q4.
- Aflac Incorporated's deployment of $2.8 billion in capital to repurchase more than 30 million shares of Aflac stock.
- Strong sales in Japan reflect the success of agencies selling Tsumitasu.
- The company has been very pleased with its investments, which have continued to produce strong net investment income.
- The company believes the need for its products and solutions is as strong or stronger than ever in both Japan and the United States.
- Net earned premiums for the Japan segment declined by 5.4% in Q4.
- Dental sales declined by 33% in Q4.
- The company expects the Aflac Japan's pre-tax profit margin to be at the lower end of the 30% to 33% range.
- The company saw a 33% decline in dental sales for Q4.
- The company had some service degradation earlier in the year that impacted the perception of trust and making sure that the brokers and agents will come back and sell it.
- The company expects the benefit ratio in Japan to be toward the higher end of the 64% to 66% range in 2025.
- The company expects the expense ratio to be at the lower end of the 20% to 23% range as it pursues various growth and strategic initiatives.
- The company expects to generate solid results from the Tsumitasu in comparison to the sales volume in 2024.
- The company expects to demonstrate an increase in sales over last year for the dental platform.
- The company expects floating rate income to be lower in 2025 due to projected yields.
Q&A Highlights from Aflac Inc Earnings Call Q4 2024
- Analyst asked about the impact of competition on Aflac's US sales.
- Virgil R. Miller, President of Aflac, explained that the company's sales were impacted by a tough comparison to the previous year's sales, as well as by the company's commitment to underwriting discipline, which led to the rejection of businesses that do not fit the company's profit profile. He also mentioned that the company's dental and vision platform had been recovering from a failed system implementation and that the company needed to regain the trust of brokers and agents. The company saw a 33% decline in dental sales for Q4, but was still able to demonstrate solid financial management, with pre-tax earnings up 9.3%, margins up 1.3%, earned premiums up 2.7%, and persistency up 0.7%.
- Virgil R. Miller, President of Aflac, explained that the company's sales were impacted by a tough comparison to the previous year's sales, as well as by the company's commitment to underwriting discipline, which led to the rejection of businesses that do not fit the company's profit profile. He also mentioned that the company's dental and vision platform had been recovering from a failed system implementation and that the company needed to regain the trust of brokers and agents. The company saw a 33% decline in dental sales for Q4, but was still able to demonstrate solid financial management, with pre-tax earnings up 9.3%, margins up 1.3%, earned premiums up 2.7%, and persistency up 0.7%.
- Analyst asked about the accounting for the benefits from floating rate security hedges in Japan.
- Max K. Brodén, Chief Financial Officer of Aflac, explained that the company has a floating rate book in the Japan segment, as well as a floating rate book in the Corporate segment. These asset balances are sensitive to SOFR, and that the company expects lower yields for 2025. The company also has an interest rate swap, which is a tail hedge swap that protects the company from significant declines in interest rates at the short end of the curve. However, the swap is out of the money and somewhat ineffective at this point, and the full brunt of any relatively small declines in interest rates at the short end immediately flows through and impacts the company's net investment income. The mark to market component of the interest rate swap falls below the line in the realized gains losses, and is included in the company's US GAAP earnings.
- Max K. Brodén, Chief Financial Officer of Aflac, explained that the company has a floating rate book in the Japan segment, as well as a floating rate book in the Corporate segment. These asset balances are sensitive to SOFR, and that the company expects lower yields for 2025. The company also has an interest rate swap, which is a tail hedge swap that protects the company from significant declines in interest rates at the short end of the curve. However, the swap is out of the money and somewhat ineffective at this point, and the full brunt of any relatively small declines in interest rates at the short end immediately flows through and impacts the company's net investment income. The mark to market component of the interest rate swap falls below the line in the realized gains losses, and is included in the company's US GAAP earnings.
- Analyst asked about the impact of the dental rollout on sales and if it is expected to be a headwind.
- The dental rollout is not expected to be a headwind, as the company has invested time, resources, and dollars to make sure they have a strong platform and are prepared to deliver on the customer experience. The concern is making sure the brokers and agents are back in the market with it and that they are on board to sell it. The company is confident in their dental platform and is focusing on getting the brokers and agents back in the market.
- The dental rollout is not expected to be a headwind, as the company has invested time, resources, and dollars to make sure they have a strong platform and are prepared to deliver on the customer experience. The concern is making sure the brokers and agents are back in the market with it and that they are on board to sell it. The company is confident in their dental platform and is focusing on getting the brokers and agents back in the market.
- Analyst asked about the contribution of Tsumitasu to Japan sales growth and whether the company might rely more heavily on first sector sales to reach their sales targets.
- The company does not disclose the sales percentage or contribution of Tsumitasu, but they do consider it a primary driver of growth. The company is focused on growing their third sector performance, but Tsumitasu will make a certain contribution to their first sector performance. The company expects sales to settle compared to 2024, but they believe the product will continue to generate solid results. Tsumitasu is a unique product that is developed to respond to the needs of the younger generation and carries a strategic objective to expand their customer base. The company does not have a sales cap on Tsumitasu sales and believes it will help grow both their first sector business and the third sector business.
- The company does not disclose the sales percentage or contribution of Tsumitasu, but they do consider it a primary driver of growth. The company is focused on growing their third sector performance, but Tsumitasu will make a certain contribution to their first sector performance. The company expects sales to settle compared to 2024, but they believe the product will continue to generate solid results. Tsumitasu is a unique product that is developed to respond to the needs of the younger generation and carries a strategic objective to expand their customer base. The company does not have a sales cap on Tsumitasu sales and believes it will help grow both their first sector business and the third sector business.
- Analyst asked about the recruiting environment in the US and whether the company is seeing progress in its efforts to re-engage agents.
- Virgil R. Miller, Chief Operating Officer of Aflac Inc., stated that the company is seeing progress in its efforts to re-engage agents in the US, but there are challenges due to competition and the economy. He noted that the company's core strength lies in its distribution, and it will continue to recruit agents and convert them into producers. He also mentioned that the company has added new levels of leadership and is investing in its field force to maintain its strong distribution network.
- Virgil R. Miller, Chief Operating Officer of Aflac Inc., stated that the company is seeing progress in its efforts to re-engage agents in the US, but there are challenges due to competition and the economy. He noted that the company's core strength lies in its distribution, and it will continue to recruit agents and convert them into producers. He also mentioned that the company has added new levels of leadership and is investing in its field force to maintain its strong distribution network.
- Analyst asked about the impact of a data sharing issue with Japan Post on Aflac's sales in Japan.
- Masatoshi Koide, Senior Vice President and Chief Operating Officer of Aflac Japan, clarified that there was no impact on the sales of Aflac Japan's cancer insurance due to the data sharing issue. He stated that Japan Post is taking a conservative approach to addressing the matter, and Aflac Japan is in close communication with the Japan Post group at all levels of the organization. He also noted that the Japan Post group is committed to selling Aflac's products and that the company will continue to work closely with Japan Post group in support of its sales of Aflac cancer Insurance.
- Masatoshi Koide, Senior Vice President and Chief Operating Officer of Aflac Japan, clarified that there was no impact on the sales of Aflac Japan's cancer insurance due to the data sharing issue. He stated that Japan Post is taking a conservative approach to addressing the matter, and Aflac Japan is in close communication with the Japan Post group at all levels of the organization. He also noted that the Japan Post group is committed to selling Aflac's products and that the company will continue to work closely with Japan Post group in support of its sales of Aflac cancer Insurance.
- Analyst asked about the impact of a failed implementation on Aflac's dental and vision offerings in the market.
- Virgil R. Miller explained that there was a service degradation earlier in the year that impacted the company's reputation and trust with brokers and agents. However, during the fourth quarter, the company was open for business and ready to go, with a large network of dentists and a proprietary network to offer. The company has worked with a partner who has a strong reputation and is doing a good job with Aflac. While sales from prior year were down 33%, Aflac has seen progress in January and is regaining confidence among brokers and agents.
- Virgil R. Miller explained that there was a service degradation earlier in the year that impacted the company's reputation and trust with brokers and agents. However, during the fourth quarter, the company was open for business and ready to go, with a large network of dentists and a proprietary network to offer. The company has worked with a partner who has a strong reputation and is doing a good job with Aflac. While sales from prior year were down 33%, Aflac has seen progress in January and is regaining confidence among brokers and agents.
- Analyst asked about the impact of the weaker yen on Aflac's operations or results aside from repatriation impacts.
- Max K. Brodén explained that the yen/dollar exchange rate does have an impact on Aflac's GAAP financials, but the company does not hedge its GAAP financials. The company has an enterprise hedging program that protects the economic value of Aflac Japan through an overlay of FX forwards at the holding company. The company believes that this program provides good protection on an economic basis to any moves, both small and significant, to the yen/dollar rate.
- Max K. Brodén explained that the yen/dollar exchange rate does have an impact on Aflac's GAAP financials, but the company does not hedge its GAAP financials. The company has an enterprise hedging program that protects the economic value of Aflac Japan through an overlay of FX forwards at the holding company. The company believes that this program provides good protection on an economic basis to any moves, both small and significant, to the yen/dollar rate.
- Analyst asked about Aflac's capital position in Japan and whether they anticipate getting an extraordinary dividend out of that entity.
- Aflac's capital position in Japan is very strong, and they are still going through the transition of the capital regime framework from SMR to ESR. While ESR has not formally been implemented yet, the company plans to wait and fully evaluate the situation until after the ESR has been implemented, which is expected to be at the end of the first quarter of 2026. The company does not expect any special dividend in the near term.
- Aflac's capital position in Japan is very strong, and they are still going through the transition of the capital regime framework from SMR to ESR. While ESR has not formally been implemented yet, the company plans to wait and fully evaluate the situation until after the ESR has been implemented, which is expected to be at the end of the first quarter of 2026. The company does not expect any special dividend in the near term.
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