Aflac Incorporated (AFL)
Q2 2010 Earnings Call Transcript
July 28, 2010 9:00 am ET
Ken Janke – SVP, IR
Dan Amos – Chairman and CEO
Charles Lake – Chairman, Aflac Japan
Tohru Tonoike – President and COO, Aflac Japan
Kriss Cloninger – President and CFO
Jerry Jeffery – SVP, Investments and Chief Investment Officer
Andrew Kligerman – UBS
Nigel Dally – Morgan Stanley
Jimmy Bhullar – JPMorgan
Jeffrey Schuman – KBW
Colin Devine – Citi
Steven Schwartz – Raymond James
Randy Binner – FBR Capital Markets
Edward Spehar – Bank of America
Good morning and welcome to the Aflac’s second 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. Ken Janke, Senior Vice President of Investor Relations. Sir, you may now begin.
Thank you, Tray. Good morning, everybody, and thanks for joining us for our second quarter conference call. With me today in Columbus are Dan Amos, Chairman and CEO; Kriss Cloninger, President and CFO of Aflac Incorporated; Paul Amos, President of Aflac and Chief Operating Officer of our US Operations and Jerry Jeffery, Senior Vice President and Chief Investment Officer. From Tokyo we are joined by Tohru Tonoike, who is President and COO of Aflac Japan.
Before we begin, let me remind you that some of the statements in this teleconference are forward-looking within the meaning of federal securities laws. Although we believe these statements are reasonable, we can give you no assurance they will prove to be accurate because they are prospective in nature. The actual results in the future could differ materially from those we discuss today. So I’d encourage you to look at our quarterly press release last night for some of the various risk factors that could materially impact our future results.
With that, I’ll turn the program over to Dan who will talk about the quarter and our outlook for the year and I’ll follow up with some highlights, and then we’ll take your questions. Dan?
Thank you, Ken. Good morning and thank you for joining us today. I’m pleased with Aflac’s overall financial performance in the second quarter. Now, half the year behind us, I believe we’ve established a solid foundation toward achieving our annual operating earnings goal and capital strength objectives.
Let me start this morning’s call with a review of the insurance operations beginning with Aflac Japan. Aflac Japan produced strong financial results for both the second quarter and the first six months of the year.
We experienced good improvement and premium income growth reflecting our strong sales over the last several quarters. In addition, our pre-tax profit margin continue to expand as expected resulted in solid earnings growth for the quarter and for the first half of the year.
I was especially pleased with continued sales momentum in the second quarter. Total new annualized premium sales in yen were up 12.6% for the second quarter to ¥33.9 billion, which was a record for the second quarter production. For the first half of the year, total annualized sales rose 11.4%.
You’ll recall in March of 2009 we introduced the child endowment policy, which is a popular means in Japan for savings for children’s future education. Since that time, child endowment has done solid job.
Not only does our product feature the highest return ratio in the industry but we successfully link the marketing of our child endowment product to the new government subsidy that was first sent in June to families with the age of children of 15 of younger. This strategy has been especially effective in bank channel.
As a result, ordinary life emerged as our number one product category in the second quarter with child endowment accounting for about half of the ordinary life category.
Although child endowment product has a lower profit margin than the health products, the premium is almost three times higher than our cancer or medical products. As such, it’s a solid contributor to both the top and bottom lines. Because of the relevance, simplicity and universal appeal to families with young children, we expect our child endowment product to remain an important part of the life insurance sales category.
Medical sales also remain strong and rose 23.5% in the second quarter. This increase was largely attributable to the successful revision and the promotion of our popular medical product ever.
As you know, maneki-neko duck or cat duck advertising campaign became an overnight sensation in Japan last year. We have shifted some of the promotional spendings from maneki-neko advertising to support other new product introductions. So even so the popularity of the advertising featuring the maneki-neko duck remains effective in generating sales.
In addition to product development and the expansion of our traditional sales force, we’ve established a very strong position with the bank channel. We continue to have significantly more bank selling our third sector products than any other insurer operating in Japan.
At the end of June, Aflac was represented by 354 or 88% of the total number of banks in Japan. Our estimated market share for cancer and medical sales was combined at 60% in the second quarter.
As we expected, we continue to experience strong sales gains through the bank channel. Sales in the second quarter were a record ¥3.9 billion, which represents a 177.7% increase over the second quarter of 2009, and a 26% increase over the first quarter of this year.