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Q4 2009 Earnings Call

February 3, 2010 9:00 am ET


Ken Janke – Senior Vice President, Investor Relations

Dan Amos – Chairman, Chief Executive Officer

Kriss Cloninger – President, Chief Financial Officer

Paul Amos – President of AFLAC, Chief Operating Officer of U.S. Business

Jerry Jeffery – Senior Vice President, Chief Investment Officer

Toru Tonoike – President, Chief Operating Officer of AFLAC Japan


Jimmy Bhullar - J.P. Morgan

Edward Spehar

Steven Schwartz - Raymond James

Randy Binner - FBR Capital Markets & Co.

Andrew Kligerman

[Sydney Thomas] – Sanford Bernstein



Welcome to the AFLAC fourth quarter earnings conference call. (Operator Instructions) I would now like to turn the call over to Mr. Ken Janke, Senior Vice President of Investor Relations.

Ken Janke

Thank you, Wendy. Good morning everybody and thanks for taking the time to join us this morning. With me in Columbus is Dan Amos, Chairman and CEO; Kriss Cloninger, President and CFO; Paul Amos, President of AFLAC and Chief Operating Officer of our U.S. Business; Jerry Jeffery – Senior Vice President and Chief Investment Officer; and Toru Tonoike, who is President and COO of AFLAC Japan, joins us from Tokyo.

Before we begin this morning, let me remind you that some of the statements we’ll make 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 they’ll prove to be accurate because they’re prospective in nature. The actual results in the future could differ materially from those we discuss today and I’d encourage you to look at our press release from last night for some of the various risk factors that could materially impact future results.

Now I’ll turn it over to Dan who will begin this morning with some comments about the quarter and our operations. I’ll follow up with some financial highlights and then we’ll be pleased to take your questions. Dan?

Dan Amos

Thank you, Ken. Good morning and thank you for joining us. Let me begin a review of last year with a discussion of the insurance segment starting with Japan. AFLAC Japan posted strong results through 2009. We were happy with the financial performance of our largest earning contributor and we were extremely pleased with AFLAC Japan sales results. We had an incredibly strong fourth quarter and sales significantly surpassed our expectations. In fact, the month of December was the largest December in AFLAC’s 35 year history in Japan.

Total annualized premium sales in yen were up 14.9% for the quarter and 6.7% for the year, which surpassed our goal of 0 to 5% increase for the year. Additionally, our large block of in force business was marred by strong persistency as expected and our margins again improved. Our sales growth was mainly propelled by product innovation, effective promotion and channel expansion.

Fourth quarter medical sales were exceptionally strong, rising 57.7% over the fourth quarter of 2008. In August we launched a revision of our popular medical product, EVER. The advertising for this updated EVER product featured the AFLAC duck dressed up as the manekineko or beckoning cat that is frequently seen in drawings and figurines throughout Asia. The raised paw of this cat is said to attract good luck and the AFLAC’s duck affiliation with the character links the cat’s good fortune with the positive brand image. For AFLAC Japan the manekineko duck campaign created an overnight sensation for consumers of all ages. Most importantly it also helped us sell more than 361,400 EVER policies from the time the new EVER plan was launched through the end of 2009, which exceeded our expectations.

We also continued to experience strong sales in the ordinary life category, which was up 45% and accounted for 30% of the sales in the quarter. The positive reception of a child endowment product we introduced in March was largely responsible for the strong life sales in 2009. During the quarter we sold 27,500 child endowment policies at an average premium of 152,800 yen which is a significantly higher premium than our core medical or cancer products.

In addition to new products, we also achieved greater distribution through the bank channel and our new agency recruitment. Bank channel sales continue to improve and we were a record 2.9 billion yen in the fourth quarter. That represents a 33% increase over the third quarter of 2009 and a 202.7% increase over a year ago. At the end of December, a total of 353 banks represented AFLAC Japan. We have a very strong position within the bank channel and have significantly more banks selling for us than any other insurer operating in Japan.

We have also been developing our distribution beyond the bank channel. In that regard traditional agency recruitment remains strong. In the fourth quarter, newly recruited agencies were 22.4% higher than a year ago. For the year we produced a 17.9% increase in recruited agencies. We believe recruiting has not only benefited from the weak economy but also from the strength of the brand and the relevant products, and the improvement in recruiting and training techniques.

As we noted in last night’s press release, AFLAC Japan has again targeted flat sales to a 5% increase in 2010. We believe we still have solid momentum in the medical and ordinary product categories to start 2010. Also the first quarter represents a fairly easy comparison to last year. However, the comparisons get tougher as the year progresses, especially in the fourth quarter. In addition, we expect much lower sales contribution from an alternative distribution channel, which are primarily telemarketing based agencies. This type of independent agency has always produced varied sales results. The largest of these agencies has made a large reduction in its number of telemarketers. As a result we expect these sales contributions to be about 50 million lower this year. We also expect to see a decline in the AG Life sales. However, we still believe we’re positioned to have a good year in 2010 and we remain excited about the opportunities we see in the Japan market.

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