Aflac Incorporated (AFL)

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Q4 2010 Earnings Call

February 02, 2011 9:00 am ET


Daniel Amos - Chairman, Chief Executive Officer, Chairman of AFLAC and Chief Executive Officer of AFLAC

Toru Tonoike - President of Aflac Japan and Chief Operating Officer of Aflac Japan

Kriss Cloninger - President, Chief Financial Officer, Treasurer, Director, Chief Financial Officer of American Family Life Assurance Company and Executive Vice President of American Family Life Assurance Company

W. Jeremy Jeffery - Chief Investment Officer and Senior Vice President

Robin Wilkey - Senior Vice President of Investor Relations


Thomas Gallagher - Crédit Suisse AG

Randy Binner - FBR Capital Markets & Co.

Jeffrey Schuman - Keefe, Bruyette, & Woods, Inc.

John Nadel - Sterne Agee & Leach Inc.

Jamminder Bhullar - JP Morgan Chase & Co

Edward Spehar - BofA Merrill Lynch



Thank you for standing by, and welcome to Aflac's Fourth Quarter Earnings Conference Call. [Operator Instructions] I would like to turn the call over to Ms. Robin Wilkey, Senior Vice President of Aflac Investor Relations. Ma'am, you may begin.

Robin Wilkey

Thank you, Catherine. And good morning, and welcome to our fourth quarter conference call. Joining me this morning is Dan Amos, Chairman and CEO; Kriss Cloninger, President and CFO; Paul Amos, President of Aflac and COO of U.S. Operations; Ken Janke, Executive Vice President and Deputy CFO; Jerry Jeffery, Senior Vice President and Chief Investment Officer; and Toru Tonoike, President and Chief Operating Officer of Aflac Japan, is joining us from Tokyo.

Before we start, I'd like to mention the Safe Harbor language to you. Let me point out that some statements in this teleconference are forward looking within the meaning of the 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 discussed today. We encourage you to look at our quarterly report for some of the various risk factors that could materially impact our results. Now, I'll turn the program over to Dan who will begin this morning with some comments about the quarter and our operations in Japan and the United States. I'll follow up with a few financial highlights for the fourth quarter and the year, and then we'll take your questions. Dan?

Daniel Amos

Thank you, Robin, and good morning. Thank you for joining us. Let me begin a review of 2010 with Aflac Japan. Aflac Japan generated strong results throughout 2010. We were again pleased with the financial performance of our largest earnings contributor. Sales results were especially impressive considering the tough comparisons, particularly in the fourth quarter.

Total new annualized premium sales in yen exceeded our expectations, and we're up a solid 6.5% for the fourth quarter. For the full year, sales rose 11%, for the second consecutive year, we exceeded our annual sales goal of a zero to 5% increase. Additionally, the persistency improved for our large block of in-force business in Japan, rising from 94.0% to 94.2%. An improvement in Aflac Japan's persistency rate contributes to the continued growth in premium income. Although Aflac Japan's benefit ratio rose in the fourth quarter, it improved for the full year. The fourth quarter benefit ratio reflects reserve adjustments made to a closed block of Dementia Care business that we stopped selling almost 20 years ago. As we look to 2011, we expect further improvement in the benefit ratio resulting in continued expansion of the profit margin.

In the first quarter of 2010, Japan's premium income grew 3.3% and improved to 4.4% for the fourth quarter, which contributed to a 3.8% increase for the full year. As expected, our premium pretax profits continued to expand, resulting in strong earnings growth for the year. The bank channel had a great year in 2010. Our innovative products aligned well with the product needs of the banks. Bank sales in the fourth quarter posted another record with sales of JPY 7 billion, which represents an increase of 140.4% over the fourth quarter of 2009. Last quarter I mentioned how we believe more banks and mega banks in particular would step up their efforts in selling Aflac's products, and that's exactly what happened. At the end of December, Aflac Japan was represented by 364 banks, or more than 90% of the total number of banks in Japan. Of all the banks, we now have enrolling our products, there's still many branches in their system that are not actively selling yet, which means there's still enormous sales potential.

In addition to having a great year from a distribution standpoint, we saw a success on the product side of our business. Aflac Japan has honed its ability to customize our product portfolio to appeal to new market segments by enhancing the benefits of our existing product line. A good example is our expanding suite of medical products that we've successfully created over the last decade. In fact, the medical product category was the number one contributor to total sales for both the fourth quarter and full year. You'll recall that in August of 2009, we launched new EVER, an updated version of our popular medical product. Promotion for the new EVER featured the Maneki Neko or cat duck advertising campaign that literally became an overnight sensation in Japan, and prompted an incredible surge in the fourth quarter of 2009 medical sales. Although we saw a slight decline in medical sales compared to last year, this category generated a significant amount of new annualized premium.

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