AFLAC Incorporated

Welcome to the AFLAC first quarter 2020 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. David Young, Vice President of AFLAC Investor Relations.

Thank you, Brittany. Good morning and welcome to AFLAC Incorporated's first quarter call. As always, we have posted our earnings release and financial supplement to investors.aflac.com. There, you will also find slides relevant to today's remarks. This morning, we will be hearing remarks about the quarter, as well as our operations in Japan and the United States amid the COVID-19 pandemic. Dan Amos, Chairman and CEO of Aflac Incorporated, will begin by discussing the impact of the pandemic and our response. Fred Crawford, President and COO of Aflac Incorporated, will then touch briefly on conditions in the first quarter before providing perspective on future claims exposure to COVID-19 and commenting on our group benefits acquisition. Then, Eric Kirsch, Global Chief Investment Officer and President of Aflac Global Investments, will provide investment highlights from the quarter, including an update on our investment portfolio and related stress tests. Max Brodin, Executive Vice President and CFO of Aflac Incorporated, will conclude our prepared remarks with a summary of first quarter financial results and current capital and liquidity. Joining us this morning during the Q&A portion are members of our Executive Management Team in the United States. Teresa White, President of Aflac U.S., Rich Williams, Chief Distribution Officer, and Al Ruggieri, Global Chief Risk Officer and Chief Actuary. We are joined by members of our executive management team in Tokyo, as well at Aflac Life Insurance Japan. Charles Lake, Chairman and Representative Director, President of Aflac International. Masatoshi Kuide, President and Representative Director. Todd Daniels, Director and CFO. And Kochi Ariyoshi, Director and Head of Sales and Marketing. 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 discussed 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 the company's investor site, investors.aflac.com, and includes reconciliations of certain non-U.S. GAAP measures. I'll now hand the call over to Dan. Dan?

Thank you, David, and good morning, everyone. Normally I begin by providing a high level of view of the quarter and how we performed, but we're in an unusual and unprecedented time. Instead, I want to start by thanking all of those who are on the front lines fighting the spread of COVID-19, and those who are providing essential services, including our own employees. We truly appreciate all that you do. Our thoughts and prayers are also with those who are among the confirmed cases. This is a challenging time, but we will get through it together. Let me start by addressing our enterprise-wide COVID-19 response efforts. The guiding focus of our actions has centered around, first, the health and safety of our employees and distribution partners. Second, the well-being of our policyholders. Third, the business community and maintaining our operations. And fourth, prudent financial and risk management. I will concentrate on how we're protecting our people, operations, and brand. and asked Fred, Eric, and Max to collectively cover how we've positioned from an operational, financial, and risk perspective. First, I want to note that we took early actions when the news of the virus broke. We benefited from Japan providing us with an early window into the potential response efforts as they were about three weeks ahead of the U.S. in combating the spread of the virus. We also benefited from the board expertise, specifically longtime director, Dr. Barbara Reimer, who is the dean and alumni distinguished professor of Gillings School of Public Health at the University of North Carolina at Chapel Hill. She advised us back in early February about the emerging threat of the virus. Early on, we implemented travel restrictions shifted to working remotely and installed several social distancing measures, both in Japan and the United States. Japan remains ahead of many countries with respect to COVID-19, with 14,000 confirmed cases and 400 related deaths as of yesterday. We see several possible reasons for this, including existing social norms of wearing masks, not shaking hands. In addition, Japan jumped out early, having to deal with the cruise ship Diamond Princess and prepare for the Olympic Games. Finally, it's worth noting that Japan has taken a more measured approach to testing, focused on symptomatic cases and localized to where outbreaks had been identified. Despite these factors, Cases have been on the rise, resulting in the Prime Minister declaring a national state of emergency through the end of Golden Week holidays on May 6, and possibly extending further. Along with economic stimulus packages, the state of emergency includes a requirement for business to reduce employees at the worksite by 70%. COVID-19 is now classified as an infectious disease requiring doctors to prescribe hospital care. Further, the Japanese government recognized that the potential shortage of hospital beds and is allowing doctors to instruct a patient with symptoms to receive medical treatment outside the hospital consistent with government policy and industry guidelines and standards. Appalachia Pan and other major domestic life insurance companies announced that hospitalization benefits will be paid for the period. A test by a doctor if a patient receives medical treatment at an alternative accommodation or a temporary facility. I'm sure most of you are all familiar with the U.S. government's actions and state-by-state shelter-in-place restrictions. From a state regulatory environment, several states have issued executive orders directing premium grace periods and guidance on treating policyholders with care. In both the United States and Japan, we have taken action in response to COVID-19 to help mitigate risk to our employees, policyholders, and communities. We have ramped up work at home staffing models with more than 75% of our on-site employees in Japan and more than 90% of our employees in the U.S. working from home. I'm pleased to report that we have had little in the way of disruption in operations, and while not optimal, we have adapted very well. We have adjusted our approach to employee benefits to accommodate the need for extended pay leave and to account for school closing. In terms of policyholders, we have liberalized how we pay claims to include such things as expanded definition of hospitalization, accepting telemedicine diagnosis from doctors, and easing documentation requirements. We have offered premium payment grace periods with no risk of cancellation and following any regulatory guidelines or suggested practices. Given our strong relationships with the healthcare industry in both Japan and the United States, we recently announced additional contributions to help provide support to combat the virus in both countries. In the U.S., our contribution of $5 million supports medical device shortages particularly as it relates to ventilators and protective masks, and humanitarian aid to the 50 state organizations. This aid will be used to provide personal protection equipment and essential medical items for health workers responding to the coronavirus. Similarly, Athlete Japan is also making a charitable contribution in yen equivalent of approximately $5 million to Japan Medical Association and identified local municipalities in support of medical professionals on the front lines fighting COVID-19. With this donation, Applite Japan hopes to help foster improvements and enhance the work environment for medical institutions and healthcare professionals in Japan. Turning to the first quarter production and beginning with Japan, total sales were down 25.4% in the first quarter, recognizing last year's quarter was prior to Japan Post running into the challenges. Japan Post made up the majority of the decline, and as they remained focused on rebuilding the trust of customers and installing high-quality governance and compliance processes. With respect to what we're seeing in April, total sales are down in the range of 65%, reflecting a full month's impact of reduced activity related to COVID-19 and Japan Post having been a full strength in 2019 period. We have taken steps to defend our distribution franchise in Japan. We have focused our attention on our exclusive agency relationships and walk-in shops impacted by the virus. Actions in place or under review include extending interest-free loans to the agencies. For walk-in sale shops, we're offering to provide rent assistance. Recognizing the face-to-face sales will be a challenge. We are remaining active in generating business focusing on direct mail, and calling campaigns to existing and prospective customers. In addition, we are promoting digital and web-based sales to groups. We are also preparing to introduce a new system that enables smartphone-based insurance applications by allowing the customer and Aflac operator see the same screen through the smartphones. In the U.S., total sales were down 5.2% in the quarter. Recruiting of career agents was up 2.5% for the first quarter, and average weekly producers' productivity increased 4.9%. Recognizing our production model in the U.S. relies heavily on face-to-face agent interaction at the worksite and is small business-oriented, we are being hit hard by temporary closures of businesses and lack of access to the work site. In April, sales were down in the range of 55%, and we are actively working to adjust. In the U.S., we have focused on our agency channel, for example, providing zero interest rate loans to qualified producers, helping agents pivot to digital solutions, which include training and recruiting, It's important to remember that the more successful agents are, in fact, independent small business owners and are suffering through the same dynamics you're reading about with respect to the U.S. economy. On a positive note, we continue to build out our digital consumer market platform. Also, our recent definitive agreement to acquire Zurich Group Benefits Business Group allows us to expand our distribution reach and extend our appeal to brokers and large employers. Fred will cover more of this a little later. Just to wrap things up, let me say the way a company responds during unprecedented times like this truly defines the company and its brand. Our people come first, and that includes our employees, our sales force, policyholders and the communities in which we operate. In doing so, we create value for the shareholders. As I often say, the product we sell is an intangible product. It is nothing more than a promise on a piece of paper that we will be there for the policyholder when they need us most. So for many, that time of need is right now. Our policyholders have put their trust in AFLAC, to come through, and I am proud to say that we will be there when they need us most because that's who we are and what we do. Finally, I've always said that with change comes opportunities. With all the changes that we're seeing, we think there will be opportunity not just to survive but to thrive. So with that, I'll turn the program over to Fred. Fred?