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Aflac Incorporated (



Q3 2010 Earnings Call Transcript

October 27, 2010 10:00 am ET


Ken Janke – SVP, IR

Dan Amos – Chairman and CEO

Robin Wilkey – SVP, IR

Tohru Tonoike – President and COO, Aflac Japan

Kriss Cloninger – President and CFO

Paul Amos – President and COO, Aflac U.S.

Jerry Jeffery – SVP, Investments and Chief Investment Officer


Jimmy Bhullar – J.P. Morgan

John Nadel – Sterne, Agee

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Thomas Gallagher – Credit Suisse

Jeff Schuman – KBW

Suneet Kamath – Sanford Bernstein

Ed Spehar – Bank of America Merrill Lynch

Darin Arita – Deutsche Bank

Steven Schwartz – Raymond James



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Welcome to the Aflac third quarter earnings conference call. Your lines have been placed on listen-only until the question-and-answer session. Please be advised today’s conference is being recorded.

I would now like to turn the call over to Mr. Kenneth Janke, Jr., Executive Vice President; Deputy Chief Financial Officer of Aflac Incorporated.

Ken Janke

Thank you Laurel, and good morning everybody. Thanks for joining us today on our third quarter conference call. We are off site, and joining me this morning is Dan Amos, Chairman and CEO, Kriss Cloninger, President and CFO, Paul Amos; President of Aflac and Chief Operating Officer of our U.S. operations and Jerry Jeffery, Senior Vice President and Chief Investment Officer, Tohru Tonoike; President and Chief Operating Officer of Aflac Japan is joining us from Tokyo.

Before we begin this morning, let me remind you of the effect that some of the statements that we will make in this teleconference are forward-looking within the meaning of Federal Securities laws and although we believe these statements are reasonable, we can give no assurance that they will prove to be accurate because they are perspective in nature. Our actual results could differ materially from those that we discuss today.

So I’d encourage you to look at the various risk factors that we’ve disclosed in our quarterly earnings releases and SEC filings to see some of those risk factors that could materially impact our results.

Now, I’ll turn the program over to Dan, who will begin with the discussion of our business in the United States and Japan and then Robin will follow up with some financial highlights for the quarter and the nine months and then we’ll be happy to take your question. Dan?

Dan Amos

Thank you, Ken. Good morning and thank you for joining us today. I am pleased with Aflac’s overall financial performance in the third quarter. With nine months of the year behind us, I’m confident in the progress that we’ve made toward our annual operating earnings growth and capital strength objective.

Let me start this morning’s call with a recap of the insurance operations, beginning with Aflac Japan. Aflac Japan produced strong financial results and better than expected sales for both the third quarter and the first nine months of the year. I think it’s important to know that Aflac Japan’s strong sales has improved premium income growth.

In the first quarter of the year, Japan’s premium income growth of 3.3% has improved to 3.8% by the third quarter. In addition, as expected, our pre-tax profit margin expanded resulting in solid earnings growth both through the quarter and year to-date.

I was especially pleased with Aflac Japan’s strong sales momentum continued in the third quarter. Total new annualized premium sales in yen were up 15.5% for the third quarter to 34.6 billion yen, a record for the third quarter production.

For the first nine months of the year, Aflac Japan’s total new sales rose 12.8%. I’m excited about these outstanding results. At the same time, my mind now shifts as worry about going against these increases in 2011, which will be difficult.

Our strong sales results are largely attributable to two primary factors-accelerated sales activities within the bank channel and innovative product development. Bank sales in the third quarter posted another record at 5.9 billion yen, which represents a 170.7% increase over the third quarter of 2009 and a 51.3% increase over the second quarter of this year.

At the end of September, Aflac Japan was represented by 360 banks or 90% of the total number of banks in Japan. While we’ve been successful in signing up a large number of the banks, the majority of these banks have not actually ramped up sales for Aflac products. As such, we have shifted our focus toward increasing sales penetration at the banks we already secured.

Make no mistake, we believe more banks, especially the mega banks, will expand their sales efforts as the word gets out about the momentum other participating banks are experiencing.

Banks have proven to be a natural fit in terms of selling our products. Total ordinary life sales emerged as the number one product category for Aflac Japan and represented 42% of the overall product sales in the third quarter. The child endowment product, which was first introduced in March 2009, accounted for about half of our ordinary life sales.

As you’re probably aware, Japanese consumers place a high priority on the financial responsibility and education. Attribute to that has made child endowment policies very popular in Japan for many years.

A few distinct competitive advantages have contributed to Aflac’s sales success with child endowment products including Aflac Japan’s strong brand, this product unmatched returns and strong bank presence.

In June of this year, parents of children under the age of 16 started receiving a child subsidy from the Japanese government. We believe this prompted many of the parents to earmark this subsidy for a child endowment policy and Aflac’s competitive advantage helped make our endowment policy the product of choice through banks.

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