Aflac Incorporated (NYSE:AFL) has announced robust financial results for the second quarter of 2024, with a notable increase in net earnings per diluted share and adjusted earnings per diluted share. The company has seen sales growth in both the Japanese and U.S. markets, driven by the introduction of new products and a focus on third sector products such as cancer insurance. Aflac's commitment to expense management and capital ratio maintenance, alongside a record share repurchase and continued dividend growth, underscores its strategic approach to growth and operational efficiency.
Key Takeaways
- Aflac's net earnings per diluted share stood at $3.10 for the quarter, with adjusted earnings per diluted share up by 15.8% to $1.83.
- The company achieved a 4.5% sales increase in Japan, thanks to the new life insurance product Tsumitasu and a focus on third sector products.
- In the U.S., sales grew by 2%, largely due to Group Life Absent Management and Disability and individual voluntary benefits.
- Aflac repurchased $800 million in shares and paid dividends of $283 million during the quarter.
- The company anticipates higher expenses in the second half of the year but remains confident in its value proposition despite market conditions.
Company Outlook
- Aflac expects continued growth in sales and maintains a positive outlook for the full year.
- The company plans to recruit over 10,000 agents in the U.S., aiming for quality and better conversion rates.
Bearish Highlights
- Higher expenses are anticipated in the latter half of the year.
- The company acknowledges the current distressed market conditions but believes they do not reflect the true value of their portfolio.
Bullish Highlights
- Aflac has a strong capital position and remains committed to investing in growth and operating efficiencies.
- Net investment income in the U.S. increased by 7.4% due to higher yields on portfolios.
- Early signs of improvement in persistency could have a meaningful impact on net earned premium.
Misses
- There were no significant misses reported in the earnings call.
Q&A Highlights
- Brad Dyslin confirmed the sustainability of the solid second-quarter performance, attributing it to attractive short rates and tactical portfolio adjustments.
- Max Broden highlighted that improvements in persistency across different business segments can have a meaningful economic impact.
In Japan, Aflac's new life insurance product, Tsumitasu, targets a demographic encouraged by the government to accumulate assets. The product offers flexible options and has been well received, contributing to sales growth. The company aims to leverage Tsumitasu to boost sales of third sector products, while celebrating its 50th anniversary with customer-focused campaigns.
In the U.S., Aflac's strong quarter is attributed to increased sales, improved profit margins, and strategic recruiting efforts. The company's confidence in the U.S. market is reflected in its long-term outlook and the belief that the operation will continue to strengthen.
The earnings call concluded with an invitation to the Financial Analysts Briefing on December 3rd, indicating Aflac's commitment to transparency and ongoing dialogue with investors and analysts.
InvestingPro Insights
Aflac Incorporated's (AFL) latest financial results underscore the company's resilience and strategic acumen in a challenging market environment. The company's robust performance is further illuminated by key metrics and insights from InvestingPro.
InvestingPro Data for Aflac reveals a solid market capitalization of $57.06 billion, reflecting investor confidence in the company's market position. The P/E ratio stands at an attractive 10.57, suggesting that the stock may be undervalued relative to near-term earnings growth. This is further supported by the PEG ratio of 0.41 for the last twelve months as of Q1 2024, indicating potential for investment value relative to expected earnings growth.
InvestingPro Tips highlight Aflac's consistent shareholder returns, with the company raising its dividend for an impressive 40 consecutive years. This commitment to returning value to shareholders is a testament to the company's financial health and disciplined capital management strategy. Moreover, Aflac's stock has shown low price volatility, which might appeal to investors looking for stability in their portfolio.
For readers seeking additional insights, there are more InvestingPro Tips available at https://www.investing.com/pro/AFL, which could provide further depth into Aflac's financial health and market performance. These tips could be particularly valuable for investors considering Aflac's stock in light of the company's positive outlook and strategic initiatives in both the Japanese and U.S. markets.
Full transcript - Aflac Inc (AFL) Q2 2024:
Operator: Good day, and welcome to the Aflac Incorporated Second Quarter 2024 Earnings Conference Call. All participants will be in a listen only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to David Young, Vice President of Investor and Rating Agency Relations. Please go ahead.
David Young: Good morning, and welcome. Thank you for joining us for Aflac Incorporated Second quarter earnings call. While I have your attention I also want you to mark your calendars to join us for our Financial Analyst Briefing at the New York Stock Exchange on December 3rd. Now this morning, Dan Amos, Chairman, CEO and President of Aflac Incorporated will provide an overview of our results and operations in Japan and the United States. Then, Max Broden, Executive Vice-President and CFO of Aflac Incorporated will provide an update on our financial results and current capital and liquidity. These topics are also addressed in the materials we posted with our earnings release and financial supplement on investors.aflac.com, including Max's quarterly video updates which also includes information about the outlook for 2024. We also posted under Financials, on the same site, updated slides of investment details related to our commercial real-estate and middle-market loans. For Q&A today, we are also joined by Virgil Miller, President of Aflac US.; Charles Lake, Chairman and Representative Director, President of Aflac International; Masatoshi Koide, President and Representative Director, Aflac Life Insurance Japan; and Brad Dyslin, Global Chief Investment Officer, President of Aflac Global Investments. Before we begin, some statements in this teleconference are forward-looking within the meaning of federal securities laws. Although we believe these statements are reasonable, we can give no assurance that they will prove to be accurate because they are prospective in nature. Actual results could differ materially from those we discuss today. We encourage you to look at our annual report on Form 10-K for some of the various risk factors that could materially impact our results. As I mentioned earlier, the earnings release is available on investors.aflac.com and includes reconciliations of certain non-US GAAP measures. I'll now hand the call over to Dan.
Dan Amos: Thank you, David, and good morning, and we're glad you joined us. Aflac Incorporated delivered another quarter and six months of very solid earnings results. Net earnings per diluted share were $3.10 for the quarter and $4.64 for the first six months. On an adjusted basis, earnings per diluted share for the quarter were we're up 15.8% to $1.83 and for the first six months, we were up 11.5% to $3.49. From a broad operational perspective, we've generated profitable growth in the United States and Japan with new products and distribution strategies. We believe our strategy will continue to create long-term value for the shareholders, at the same time, we believe that the need for our products we offer is a strong or stronger than it has ever been before in both the United States and Japan. Beginning with Japan, we have continued to focus on third sector products like our cancer insurance product called the WINGS as the new fiscal year began in Japan, we saw continued improvement in cancer insurance through the Japan Post (NYSE:POST) Channel. We have continued our strategy of introducing life insurance products including Tsumitasu, which we launched on June 2nd. This product offers policyholders an hazard formation component with nursing care option. It was designed to attract new and younger customers, while also introducing opportunities to sell them our core third sector products. While still very early, we are pleased with how our agencies have sold this product, which drove a 4.5% sales increase for the second quarter being where consumers want to buy insurance remains in an important element of the growth strategy in Japan. Our broad network of distribution channels including agencies, alliance partners and banks continually optimize our opportunities to help provide financial protection to the Japanese consumers. We will continue to work hard to support each channel. Overall, Koide San and his team have done a great job of turning around sales in Japan and delivering record profit margins for the quarter. I am very pleased with their efforts. Turning to the US, we achieved a 2% sales growth for the quarter benefiting from good growth in Group Life Absent Management and Disability and individual voluntary benefits This is a welcome results as we enter the second half of the year that tends to be the heaviest enrollment period. At the same time, we continue to focus on more profitable growth by exercising a stronger underwriting discipline. Additionally, we've increased benefits in certain policies to improve the value for the policyholder. We believe persistency will remain strong as customers realize the value of their policies and the related benefits. We have also continued our disciplined approach to expense management, which Max will address. As we enter the second half of the year, we are continuing to focus on optimizing our Dental and Vision platform. Overall, I'm pleased with what Virgil and his team are doing to balance profitable growth enhance the value proposition for the policyholders and curb the expense ratios. Their efforts contributed to the very strong pre-tax profit margin of 22.7% for the second quarter. Now turn to our ongoing commitment to prudent liquidity and capital management. Max has done a great job leading his team to take proactive steps in recent years to defend our cash flow and deployable capital against a weakening yen, as well as establishing a reinsurance platform in Bermuda. We have been very pleased with our investment portfolios’ performance as it continues to produce strong net investment income with minimal losses and impairments responsibility is to fulfill the promises we make to our policyholders, while being responsive to the needs of our shareholders. We remain committed to maintaining strong capital ratios on behalf of the policyholders. We balance this financial strength with tactical capital deployment. We intend to continue prudently managing our liquidity and capital to preserve the strength of our capital and cash flows. This supports both our dividend track record and tactical share repurchase. We treasure our track record of 41 consecutive years of dividend growth and remain committed to extending it. I am pleased that the Board set us on a path to continue this record when it increased the first quarter 2024 dividend 19% to $0.50 and declared the second and third quarter dividends of $0.50. We repurchased a record $800 million in shares during the quarter, and intend to continue our balanced, tactical approach of investing in growth and driving long-term operating efficiencies. Our management team, employees and sales distribution continue to be dedicated stewards of our business, being there for the policyholders when they need us most just as we promised. This underpins our goal of providing customers with the best value in the supplemental insurance products in the United States and Japan. In November, we celebrate our 50th year of doing business in Japan. Additionally, in June, we celebrated our 50th year as a publicly traded company on the New York Stock Exchange. We are reminded that one thing has not changed since the founding in 1955, families and individuals still seek to protect themselves from financial hardships that not even the best health insurance covers. Today’s complex healthcare environment has produced incredible medical advances that come with incredible costs. It’s more important than ever to have that partner. We believe our approach to offering relevant products makes us that partner. We believe in the underlying strengths of our business and our potential for continued growth in Japan and the United States, two of the largest life insurance markets in the world. Aflac is well-positioned as we work toward achieving our long-term growth while also ensuring we deliver on our promise to our policyholders. I'll now turn the program over to Max to cover in more details the financial results. Max?
Max Broden: Thank you, Dan and thank you for joining me as I’ll provide a financial update on Aflac Incorporated’s results for the second quarter of 2024. For the quarter, adjusted earnings per diluted share increased 15.8% year-over-year to the $1.83 with a $0.07 negative impact from FX in the quarter. In this quarter, reinvestment gains on reserves totaled $51 million and variable investment income ran $1 million above our long-term return expectations. We also received a make whole payment adding approximately $20 million or $0.03 per share to our adjusted earnings. Adjusted book value per share, including foreign currency translation and the gains and losses increased 9.4% and the adjusted ROE was 14.3%, an acceptable spread to our cost of capital. Overall, we view these results in the quarter as solid. Starting with our Japan segment, net earned premiums for the quarter declined 5.7%. This decline reflects a 7.4 billion yen negative impact from internal reinsurance transaction executed in the fourth quarter of 2023 and 4.8 billion yen negative impact from paid up policies. In addition, there is a 1.2 billion yen positive impact from deferred profit liability. Lapses were somewhat elevated but within our expectations. At the same time, policies in force declined 2.4%. Japan's total benefit ratio came in at 66.9% for the quarter up 120 basis points year-over-year and the third sector benefit ratio was 57.8%, up the approximately 160 basis points year-over-year. We estimate the impact from reinvestment gains to be 140 basis points favorable to the benefit ratio in Q2 2024. Long-term experience trends as it relates to treatment of cancer and hospitalization continue to be in place leading to the continued favorable underwriting experience. Persistency remains solid with a rate of 93.3%, which was down 50 basis points year-over-year. This change in persistency is in line with our expectations. Our expense ratio in Japan was 17.8%, down 170 basis points year-over-year, driven primarily by the expense allowance from reinsurance transactions and continued discipline expense management. Adjusted net investment income in Yen terms was up 28.4%, mainly by favorably impact from FX on US dollar investments in yen terms, lower hedge costs, higher return on our alternatives portfolio compared to second quarter of 2023 and call income. The pre-tax more than for Japan in the quarter was 35.3%, up $490 basis points year-over-year, a very good result. Turning to US results, net earned premium was up 2.1%, persistency increased 50 basis points year-over-year to 78.7%. We are encouraged by early signs from our persistency efforts and we will remain focused on driving profitable growth. Our total benefit ratio came in at 46.7%, 140 basis points higher than Q2 2023 driven by product mix and lower reinvestment gains than a year ago. We estimate that reinvestment gains impacted the benefit ratio by 170 basis points in the quarter. Claims utilization has rebounded from depressed levels during the pandemic and are now more in line with our long-term expectations. Our expense ratio in the US was 36.9%, down to 210 basis points year-over-year, primarily driven by platforms improving scale and strong expense management. We tend to benefit from seasonality in the first half and would expect higher expenses in the second half. Our growth initiatives, Group Life and Disability, network, dental and vision and the direct-to-consumer increased our total expense ratio by 230 basis points. This is in line with our expectation and we would expect this impact to decrease going forward as these businesses grow to scale and improve their profitability. In just that net investment income, in the US was up 7.4%, mainly driven by higher yields on both our alternatives and fixed rate portfolios. Profitability in the US segment was solid with a pre-tax margin of 22.7%, also a very good result. Our total commercial real estate loan watch list stands at approximately $1 billion, with less than $300 million in process of foreclosures currently. As a result of these current low valuation marks, we increased our seasonal reserves associated with these loans by $14 million in this quarter net of charge-offs. We had six loan foreclosures and moved nine properties into real estate owned. We continue to believe that they currently distressed market does not reflect the true intrinsic economic value of our portfolio, which is why we are confident in our ability to take ownership of these assets, manage them through this cycle and maximize our recoveries. Our portfolio of first lean senior, secured middle market loans continue to perform well with losses below our expectations for this point in the cycle. In our Corporate segment, we recorded a pre-tax gain of $23 million. Adjusted net investment income was $39 million higher than last year due to lower volume of tax credit Investments at Aflac Inc. and higher volume of investable assets at Aflac REIT. These tax credit investments impacted the corporate net investment income line for US GAAP purposes negatively by $30 million with an associated credit to the tax line. The net impact to our bottom-line was a positive $4 million in the quarter. To-date, these Investments are performing well and in line with expectations. We're continuing to build up our reinsurance platform and I'm pleased with the outcome and performance. Our capital position remains strong and we ended the quarter with an SMR above 1100 % in Japan, now combined RBC (TSX:RY), while not finalized we estimate to be greater than 650%. Unencumbered holding company liquidity stood at $4.1 billion, $2.3 billion above our minimum balance. These are strong capital ratios, which we actively monitor stress and managed to withstand credit cycles, as well as external shocks. US statutory impairments were released of $7 million and Japan FSA impairments were 10.4 billion yen or roughly $67 million in the quarter. This is well within our expectations and with limited impact to both earnings and capital. Adjusted leverage is 19.5% and below our leverage corridor of 20% to 25%. As we hold approximately 60% of our debt denominated in the yen, our leverage will fluctuate with movements in the yen dollar rate. This is intentional and part of our enterprise hedging program protecting the economic value of Aflac Japan in US dollar terms. We repurchased $800 million of our own stock and paid dividends of $283 million in Q2, offering good relative IRR on these capital deployments. We will continue to be flexible and tactical in how we manage the balance sheet and deploy capital in order to drive strong risk-adjusted ROE with a meaningful spread to our cost of capital. Thank you. I will now turn the call over to David.
David Young: Thank you Max. Before we begin our Q&A, we ask that you please limit yourself to one initial question and a related follow-up. Then you're welcome to rejoin the queue. We will now take the first question.
Operator: [Operator Instructions] The first question today comes from Joel Hurwitz with Dowling & Partners. Please go ahead.
Joel Hurwitz: Hey, good morning. So the new product launch in Japan that happened in June had very strong sales. I guess, can you just talk about the target return on that that first sector product and how it compares to the third sector product? And then what do you see as the cross-sell opportunity there?
Dan Amos: Max might just take that for chat.
Max Broden: Yeah, let me start on the product profitability. So, when we look at this product through a GAAP lens, it has at or higher GAAP margins than our core third sector business. And on an IR basis, this is obviously lower than our third sector business because of the very significant new business strain associated with the high reserves, but we have lined up reinsurance that we then expect on a post-reinsurance basis it brings us very, very attractive returns, as well. And not too different from our core first sector business.
Joel Hurwitz: Okay and the cross-sell opportunity there with the third sector products?
Max Broden: I think we'll evolve over time where obviously this product targets a younger clientele that gives us the opportunity to build that relationship and as we travel with that customer through their lifetime, we have an opportunity to then cross-sell both medical and cancer, as well. So over time, I think, there's a good opportunity for us to both get the – Tsumitasi product to the younger clients but also over the lifetime cross-cell cancer and medical to those new clients.
Dan Amos: Yeah, I think Aflac team nicely explains that. It's important that I say it, is remember it with the Tsumitasu product we are hiding a younger group less disposable income than does an older set of potential policyholders. And so whereas, with the older, we might offer the Tsumitasu product or another product and our supplemental for third sector product. With this group, we'd start by putting in one product, which would be the Tsumitasu product and then in a year or so later follow-up and add more. So it's different as we're building that policyholder base, which of course is one of the things we promised you we would work toward doing and Aflac Japan we believe is doing the right thing here for us.
Operator: The next question comes from Jimmy Bhullar with JPMorgan (NYSE:JPM). Please go ahead.
Jimmy Bhullar: Okay. First question just on the expense ratio in both the Japan and the US businesses, I think is the best it’s been in the past several years. So wondering how much of that is sustainable and driven by expense savings or other actions versus maybe just being timing - driven by the timing of discretionary and that spending in advertising?
Dan Amos: Thank you, Jimmy. Let me start with Japan. Obviously, 17.8% in a quarter is a very low number. We have a guidance range of 19% to 21% and long-term I think that is the range that we will operate within for the Japan segment. We tend to have some seasonality in Japan with the second half having a little bit higher overall spend and I would specifically call out that Aflac Japan turns 50 this year. So we will have some promotional spend associated with that including advertising and a lot of sales activities around that. So therefore I would for the full year that we would end up in the lower end of that 19% to 21% range. For the US, we also have had very good expense control especially in the first half. There are timing differences where I would expect our spend would increase in the second half and I would also caution you to please keep in mind that the fourth quarter, every year has the highest level of sales activity with that comes expenses spend, as well as our expense ratio in the fourth quarter tends to be the highest. Over time, the US still have a number of businesses that are not at scale. And therefore we have we are running those businesses with expenses overruns right now. This includes our Group Life and Disability business, it includes our dental and vision business and it includes our direct-to-consumer business and to some extent also our group our group BB platform. As those businesses really reach that scale then they come down in expense ratio and we will no longer have that expense overrun. So that means there are - there is downward pressure over time to our US expense ratio. But we're very pleased with the expense management and expense control for the first half and in particular into second quarter. But I would caution you when you think about the full year, I still would expect us to be inside of the range of 38% to 40% for the expense ratio in the US.
Jimmy Bhullar: Okay. And then, just maybe for Dan or the Japanese team, you talked a lot about competition in Japan on the last call. And it seems like as rates gone up in Japan some of the companies have cut prices to adjust for that. But what are you seeing in the competitive environment? And is it any different than what you've seen in the last few months or over the past few years?
Dan Amos: Yoshizumi, would you like to take that?
Koichiro Yoshizumi: [Foreign Language] Thank you for the question. Good morning everyone. I'm Yoshizumi. I am in charge of sales in Japan. So as you have mentioned our competitors have entered third sector market. And so the environment is totally different compared with maybe five years ago or 10 years ago. [Foreign language] And there are competitors that are launching a very reasonable or low price products. [Foreign language] However, in Aflac, our concept is to launch and sell products that have values to our customers and not just lower product buy for the sake of lowering product - lowering prices, excuse me. [Foreign language] And as we enter into our 50th anniversary this year in Aflac Japan. And this is based on the history and trust that we have from our customers in providing the appropriate insurance policies at all points by thoroughly thinking about what is needed in each environment or at times because the illnesses change and treatment methods change. [Foreign language] Now according to the data that’s been publicized between April 2022 and March 2023, [Foreign language] And Aflac is record the number one most sold policy company in Japan in third sector products. [Foreign language] What we will aim for is to continue to provide customers that most appropriate product for our customers, so that we can maintain our number one position. That’s all for me.
Operator: The next question comes from John Barnidge with Piper Sandler. Please go ahead.
John Barnidge: Good morning. Thank you for the opportunity. My first question is on distribution of the new first sector product in Japan. The closest customers and existing customer and one that doesn’t have that products, I know the product was introduced in early June. Have you identified how much of the existing customer base is the target for this new product? Thank you.
Dan Amos: They're translating give us one second. And Koide, or Yoshizumi please?
Koichiro Yoshizumi: Hey, this is Yoshizumi once again. Let me continue to answer your question. [Foreign language] We have a large number of existing customers as you know. [Foreign language] And our target customers are young and middle-aged customers. [Foreign language] And the reason why I say our target is young and middle-aged customers is as follows: [Foreign language] Well first of all, the Japanese government is really pushing and encouraging the Japanese citizens to go after asset accumulation products and the Japanese government is offering various systems so that the Japanese citizens can do that. [Foreign language] And as a result of that asset formation needs is heightening very strongly in Japan. [Foreign language] And we’ve launched our new product in order to respond to the kind of asset accumulation needs in Japan. [Foreign language] And this product is very well taken by the market and selling well and it is increasing our sales. [Foreign language] And the reason why this product is attracted attention is because there are various options that would allow our customers to choose after they paid up their premiums for example after they paying off the premiums, this policy can be converted to death benefit or nursing care benefits or the customer can receive cash value and use that cash as asset accumulation. [Foreign language] And as we go through these kind of discussions with our customers there will be more touch points with our customers and there will be more opportunities for our sales people to talk to our customers about third sector products. We’ve already have this established sales pattern and we have trained our sales agents to do so. [Foreign language] So our purpose is to increase our third sector sales by using this new product Tsumitasu as a hook. [Foreign language] Because we are the company that would increase sales by centering on third sector product sales. [Foreign language] And the way we are doing sales is to really ultimately sell third sector products by launching first sector product. And that is based on the needs of younger middle-aged customers at each times and a period of time. [Foreign language] That's all for me.
John Barnidge: Thank you for that. Very helpful my follow up on distribution is the 50th anniversary plans mainly related to this product or is it broader? Could you to about that? Thank you.
Koichiro Yoshizumi: Hey, this is again Yoshizumi. [Foreign language] And as I just mentioned, it’s not just about Tsumitasu, but since we are a company that mainly sell third sector product. [Foreign language] Then for example as for the 50th anniversary, we will be selling pushing for cancer insurance sales and in order to increase our touch points with our customers, we will be having campaigns to offer gifts to our customers. [Foreign language] We also have a conservative service that no other competitor has. [Foreign language] And so so what we were trying to do is to appeal this conservative service in line with our 50th anniversary through the website, TV commercials, and video services. [Foreign language] We have a large number of sales agents and agencies that only sell Aflac and have walked together with Aflac for the past 50 years. [Foreign language] And these agents and agencies are extremely pleased and happy about celebrating 50th anniversary. [Foreign language] And there's a very big momentum for these sales agents and agencies to sell a large proportion of third sector products. [Foreign language] We, as a sales team would like to support these sales agencies at our maximum. [Foreign language] That’s all for me.
Operator: [Operator Instructions] The next question comes from Tom Gallagher with Evercore ISI. Please go ahead.
Tom Gallagher: Good morning. A couple of follow-up questions on the Tsumitasu product in Japan. In response to John's question, I just want to be clear I'm assuming you're not selling this product. The Tsumitasu product to existing customers that already have third sector Aflac products. This would be all brand new Aflac customers. Is that is that correct?
Dan Amos: Correct. Our thrust is to write new customers, but if someone wants to buy, we certainly will sell it to them because as was mentioned by Max, the profit margin is very acceptable on this product. And so, yes, we'll take anyone that wants to buy. But it is not our push. We want the younger customers is what we're working toward.
Tom Gallagher: And Dan, do you have a - are you keeping track of that to make sure this doesn't become a situation where the sales force kind of monetizes the in-force customer base and does a lot of selling there because then obviously that would limit the cross-sell opportunity?
Dan Amos: Absolutely, we are. Now they can call more about it. I just was cutting through the translation and Max can cover that a little bit more too.
Max Broden: Tom, we track that closely. So we know what those numbers are. We will not necessarily publish those publicly, but it's an important factor that we keep track of.
Operator: The next question comes from Nick Annitto with Wells Fargo (NYSE:WFC). Please go ahead.
Nick Annitto: Hey, thanks. Good morning. Just wanted to touch on the US a bit. I know, sales came in a little late in the quarter relative to the full year guidance. I just wanted to get your overall thoughts there on the confidence of hitting something in the guidance for the year?
Virgil Miller: Yeah, good morning. This is Virgil from the US. Let me say that, I think the big thing - the big takeaway is very strong quarter for the US, because of the balanced approach. You heard yourself from Herc and Max earlier, Herc or Dan earlier, what we saw was an increase in not just in sales of 2% but we had an increase of 50 basis points in our premium persistency. We drove a higher benefit ratio that was intentional some intentional actions to put more value into the hands of our customers. We lowered our expense ratio and then that led to one of the highest pre-tax margins we've had in US in some years of 50 basis points and 22.7%. My point on that is that, we knew going to the quarter we’ve came up negative and Q1. Second quarter, I mentioned a previous earlier that we have made a lot of changes to go to a more profitable business. That was really focused in our group with VB business, formerly it’s Continent American business that we bought. We wanted to make sure that we are only bringing business that has higher benefits where people actually filing claims and less churn. So we knew that would have an impact. So this the 2% is actually right on target of what I expected. But I am expecting a stronger push in the second half of the year. A lot of that is seasonality. But it is also what Max mentioned earlier some scale will see from buy to bills. We're going to see a stronger performance with the new files we bought with Life and Disability that we call PLATS. We're going to see better performance in the second half from our Dental and Vision property. I mentioned before that we're making huge Investments to stabilize that platform. We also announced a partnership with SKYGEN that’s bringing some operational excellence to the table with us to help manage that property. And so, all in the state being higher sales on the dental property. Stronger push with PLATS and then continue to what we have driven year-over-year with our veteran agents and with our broker partnerships, good performance from them and we'll see how our yield in the second half of the year.
Dan Amos: And I just want to make a comment. I think that we've seen one of the best years and certainly one of the best quarters in the U.S. in terms of we've got a lot of balls in the air. And to realize that they brought up the loss ratio. They brought down the expense ratio. They had switched business and our business is more complicated as we go into other products. They're training their people better. I just have a kudos to Virgil and the team for the hard work they're doing. And I think long term, our US operation is going to be a much stronger company because we're doing all the right things I think we need to do to prepare us for the future. So, I'm extremely - the sales yet I want more than 2%. But I promise you that the 2% that we had is much bigger than a normal 2%, because it's cleaner business is more profitable and it should compound as we move forward.
Nick Annitto: That's helpful. Thanks. I guess, sticking with the US can you just touch on recruiting trends there. I know you said you still have a bit of a way to go to get back to pre-pandemic levels. So it would be just good to get your thoughts on the recovery there.
Virgil Miller: Yeah, in the first quarter you know we came up with negative on recruiting came in with the second quarter though very strong with - I think we were over a 10% increase. I see us continue on that trend going forward to the second half. But when I mentioned if you kind of go back and look pre-pandemic and you look at where we are today we're going for quality recruiting. We're going for a better conversion rate. And then, that’s leading to the higher productivity. You continue to see better productivity from what we're seeing with our agents. And that is really the bigger factor for us. Last year, we were recruited over 10,000. I would expect the same this year. We've got some national recruiting efforts going on right now across the country. What we really do is we leverage support from headquarters to drive our message and then we leverage - when we call a nomination process is to local agents, local brokers going out telling people about the Aflac career path and bringing people and listen to that story. And then we actually turn them into and to recruit in the ultimately trying to get them to be average weaker producers. I am very pleased with what we did in the second quarter. Some of those efforts will definitely continue in third or fourth quarters also.
Operator: The question comes from Tom Gallagher with Evercore ISI. Please go ahead.
Tom Gallagher: Hey, thanks for taking my follow-up. Just a Tsumitasu product follow-up question. Can you talk a little bit about how you think this rollout is going to go? Clearly, the June rollout seems to have been a big success. Would you expect this to become a much larger percentage of sales as you think about the rollout over the next couple of quarters here? How do you think third sector sales are going to hang in there? Because I think it's being sold through the same distribution as your third sector. So I'm just wondering while this gets rolled out, are we going to see a slowdown in third sector? How do you see that all playing out I guess over the near term next couple of quarters? Thanks.
Dan Amos: Let me kick it off and then I'll hand it over to Yoshizumi for some more details. We do not have an explicit caps around this product. And the reason why it’s because it producing very good returns for us, both from a profit margins standpoint and also from a total - from an IRR standpoint i.e. with a significant spread to our cost of capital. So we actually do want to sell quite a bit of all this product. That being said, this product is very much about how it can lift our third sector franchise. We still believe that we are a third sector company. And we want to make sure that we keep our exceptionally strong position in that marketplace as the number one as third sector player in Japan. So, that is the context and of this product. And Yoshizumi can help give you some more details in terms of the timing of the full rollout of the product.
Koichiro Yoshizumi: [Foreign Language] Thank you. This is your Yoshizumi. I would like to answer your question. [Foreign Language] First of all this product was launched on June 2nd. We have able to record a very successful big sales. [Foreign Language] And the reason why we have been able to record such big sales at the beginning of its launch is because, we, we meaning our distribution channel has been fully prepared to really wear to sell this product where they should be selling. How we should be selling and that's what we'd be working on since the beginning of the second quarter. [Foreign Language] And the reason why this kind of preparation was needed was because. [Foreign Language] And our agents. [Foreign Language] Talk to about Tsumitasu new customers, our agents really need to practice how to sell this product. [Foreign Language] As a result, our agents did visit those customers that are easy for them to be talking to and as a result it made a big hit in the sales. [Foreign Language] And as a result of this through preparation for the June launch we are not expecting the same level of sales from July and on. [Foreign Language] But at the product to earn certain level of volume. [Foreign Language] And we are quite sure that this product will serve that kind of a role. [Foreign Language] And the big role that this product will play is to cross-sell third sector products. [Foreign Language] And it would be easier for our sales agents to talk about third sector products through their customers once they start talking about Tsumitasu. [Foreign Language] And that is the difference between other first sector products because Tsumitasu has its own feature that can make that sales agents easily talk about third sector products. [Foreign Language] So what we are expecting is to have Tsumitasu sell to certain volume on its own, but on top of that sell third sector products is to certain level, as well. [Foreign Language] That's all for me.
Dan Amos: This is Dan, I want to make a couple of comments. Number one is, we normally don't show the first month. We show a quarter of whatever new product is. It is not unusual to have a spike. What I've always said is we introduce new product no matter of what it is. You have a spike and then it levels off. We're in the spike period. And we've seen that with others. But it it will it will come down as he said and we expect that. So, just keep that in mind the other thing is that the numbers were small numbers in the past. And so that also as a percentage makes it look bigger than it normally is. But there's nothing here that makes me think that is any different from other new products other than it's doing very well as a few of our products have. And we're excited about that and pleased that we were able to find the way to get the profit margins to acceptable levels, so we could do this. We've been wanting to do it, but we haven't been able to do it and given Max his credit. He was been able to find a way to help do this and we appreciate that very much on his part.
Max Broden: Tom, I want to address a question that you did not ask, but I think you wanted to ask and that is, how is this different from the waste sales that we had in the years 2012 through 2014? And I would characterize is there are three main differences. The first one is that we will do much more frequent repricing of new business for this product. And that's very important because this is a more interest rate sensitive product than our core third sector business. The other one is that we will have a much more diligent management of the distribution channels and the third piece is that we are not utilizing reinsurance to make sure that we can relieve some of that new business train and get the IRRS higher. And if you take all of that to get or that is what makes this different from the waste sales that we had of that were very very significant back in that timeframe of 2012 through 2014. Thanks Max. You stole my follow-up. That was great. Appreciate it.
Dan Amos: Well, apparently it’s teamwork.
Operator: The next question comes from Joel Hurwitz with the Dowling & Partners. Please go ahead.
Joel Hurwitz: Hey, thanks for taking the follow-up. I just wanted to touch on net investment income in Japan and particularly, the US dollar portfolio unified just for the make whole and the slightly favorable VIII it seem to have a pretty sizeable step up in yield from the first quarter. Is there any color on what drove that and do you think that the - I guess the normalized NII level implied in Q2 is sustainable?
Brad Dyslin: Yeah, hi, Joel, this is Brad Dyslin. Thank you. Thank you for the question. We did have a very solid second quarter as you pointed out and there were several things that drove that that we do think are sustainable into the back half of the year. Besides the adjustments that you that you’ve highlighted short rates remain very attractive even with the Fed likely to cut sometime this fall, short rates remain very, very attractive compared to historical levels. And that benefits us in a few ways including our significant floating rate portfolio. We also took some actions early in the year, some tactical things we did with the portfolio. We moved a few bonds around in our public portfolio to capture some yield opportunities. It was a pretty sizable switch trade. We also took advantage of some attractive spreads and accelerated deployment in our structured private credit portfolio. So we think the things that have carried us in the second quarter these tailwinds are going to continue through the second half of the year. Now there are risks of course, but we think we're pretty well positioned and should have a good second half.
Joel Hurwitz: Great. Helpful. And then just, I had won on us persistency. So Max, you mentioned in your prepared remarks that you're encouraged by the early signs from some of the initiatives that you guys put in place. I guess, just what are you seeing and how much improvement do you guys think you can drive in persistency in the US?
Max Broden: I'm not going to put an exact number on that, but I would say that anything if you get even something like a hundred basis points is meaningful when the overtime translates that into the economic impact that would have from additional net earned premium. So, it's something that we will continue to drive over time. The other thing I want you to be aware of is that that persistency will jump around somewhat driven by mix of business. So our in-force in the US, it is gradually changing. So you are going to see more Group Life and Disability business as a proportion of our in-force, which clearly has a much, much higher persistence rate than our average. And then also the same thing applies to over time our Dental and Vision businesses as well should have an improved persistency. So we're driving all the underlying businesses and the way they improve persistency then the mix impact will be an important component as well. So, over time, what we are driving is both that business-by-business improved persistency and then obviously the mix impact, as well. So we will over time sort o. call that out and give you some more colors on that, as well.
Joel Hurwitz: I got it. Thank you.
Operator: This concludes our question and answer session. I would like to turn the conference back over to David Young for any closing remarks.
David Young: Thank you, Betsy, and thank you, all for joining us this morning. I hope you'll be able to join us on the morning of December 3rd at the New York Stock Exchange or on our webcast for our Financial Analysts Briefing. If you have any additional follow-ups, please reach out to the Investor and Rating Agency Relations team. We look forward to hearing from you. Thank you.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.