AFLAC Incorporated

Welcome to the AFLAC second 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 and Rating Agency Relations. Thank you, sir. You may begin. Sir, could you check your mute button, please?

Thank you, Fran. Good morning and welcome to Aflac Incorporated's second quarter call. As always, we have posted our earnings release and financial supplement to investors.aflac.com. 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 ongoing response. Fred Crawford, President and COO of Aflac Incorporated, will then touch briefly on conditions in the second quarter before providing perspective on claims exposure to COVID-19. Max Brodin, Executive Vice President and CFO of Aflac Incorporated, will conclude our prepared remarks with a summary of second 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 U.S. Teresa White, President of Aflac U.S. Eric Kirsch, Global Chief Investment Officer and President of Aflac Global Investments. Rich Williams, Chief Distribution Officer. Al Ruggieri, Global Chief Risk Officer and Chief Actuary. And Steve Beaver, CFO of Aflac U.S. We are also joined by members of our executive management team in Tokyo at Aflac Life Insurance Japan. Charles Lake, Chairman and Representative Director, President of Aflac International. Masatoshi Koide, President and Representative Director. Todd Daniels, Director and CFO. And Koji 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.

Shortly, I will provide an overview of the quarter and how we performed. ...aflac's perspective on the ongoing... and their families, the people who are on the front lines fighting the spread of COVID-19, and those who are providing essential services, including our own employees. As I shared with you last quarter, the guiding focus of our actions has centered on the healthy and safety of our employees, distribution partners, and policyholders we serve. You'll recall last quarter, that we ramped up our work-at-home staffing models in both Japan and the United States. We saw little in the way of disruption in the operations, and our employees adapted well. Since our last earnings call, the government of Japan has lifted its state of emergency on May 25th, and the country has seen new cases rise since mid-June, but on a lesser scale relative to the United States. Recently, Japan reported a little over 900 cases in a day. With risk of infection remaining, the national and local governments are monitoring the spread very closely as the country gradually opens, taking action when necessary. Appalachia, Japan has also taken steps with approximately 50% of the workforce returning to work on site. Our actions are taken into consultation with leading medical experts in Japan, including Professor and Dr. Koji Wada, and following health and safety protocols for the industry developed by the Japanese Business Federation and Life Insurance Association of Japan. Applied Japan continues to monitor the situation and encourage remote work to the greatest extent possible. At the same time, the United States has seen daily new cases and hospitalizations significantly on the rise since mid-June. Recently, new cases exceeded 75,000 in one day in the United States. Increasingly, public health experts are advocating for the need to observe prudent protective measures through the fall and early winter. As a result, APLAC-US plans on beginning a regional stage gating approach for returning to on-site work in 2021. We feel that this is the best approach for our employees as well as the health of our communities. Our employees in both countries have shown incredible determination and professionalism over the course of this year. For example, Even amid the global pandemic, ever-changing working locations and conditions, our employees in Japan and the United States have demonstrated a determination to now more than ever put policyholders first. In fact, two weeks ago, Appalachia Japan received the honor of being the number one company in customer loyalty among the 13 life insurance companies in in the NTT.com online benchmark survey. This survey was conducted in May, right in the middle of the COVID pandemic, which shows our ability to adapt. Our factors customers ranked were AFLAC number one included our customer service and listening approach, our corporate and brand image, and our friendly, policyholder website. Receiving recognition such as this from the very people we support is the highest honor, especially considered in the current environment. It also reflects our collective hard work and dedication to be there for the policyholders when they need us most. Another way we have supported our policyholders through this difficult time is extending the grace periods for premium payments in both Japan and the United States. Initially, Appalachia Japan followed the FSA guidance and extended the grace period on premium payments to September 30, 2020. In June, Appalachia Japan, like its industry peers, extended the premium grace period until April 30, 2021. Policyholders are required to file for relief through this extension. AFLAC-US has also implemented premium grace periods, and those periods remain in effect in 23 states as of July 20, 2020. The environment created by COVID-19, which has included sheltering in place and social distancing, continues to impact our sales results, both in the United States and in Japan. We are carefully monitoring our core products, and actual to expected non-COVID claims. We are proactively reaching out to employers and policyholders to assist in understanding our product benefits and to ease the filing of qualified claims. We are also communicating on the value of the wellness benefits attached to our products for reimbursement of routine doctor, dentist, and hospital visits. as shelter-at-home orders subside and normal activities recover. We have done this in the past, and while current conditions are unique, our experience is that this will drive utilization, benefit ratios, and improve persistency. Turning to sales, Aflac US total sales were down 56% in the quarter. Aflac Japan sales were down 60% in the quarter. which also reflects last year's strong second quarter sales by Japan Post. While the technology for virtual sales existed prior to the pandemic, market practice and preference favored face-to-face presentations. In both countries, we're having to pivot to a more virtual sales execution. Within the current environment, Virtual takes on greater importance, especially in those areas that are slower to open up. For AppLight Japan, this will mean additional digital transformation initiatives utilizing artificial intelligence to better identify customers' needs and consult with customers through the web. On July the 3rd, at the Strategic Alliance Executive Meeting, Japan Post's CEO, Masuda-san, and I agreed to a joint promotion of such digital transformation initiatives. I was glad that we were able to have our virtual meeting that evening, and I hope that we can visit very soon in person. Recognizing that face-to-face sales will be challenging, AppFlight Japan continues to pursue new business through direct mail and calling campaigns to existing and prospective customers. We're also preparing to introduce a new system that enables online consultation by allowing the customer and our agency to see the same screen through a digital device. Additionally, we will enhance this system to enable smartphone-based insurance application ahead of all other companies in Japan. Likewise, our production model in the United States relies heavily on face-to-face interaction at the work site and is small business oriented. As such, we were hit hard by temporary closures of business and lack of access at the work site, especially in the second quarter. Keep in mind the fourth quarter is typically the quarter in which we see strong results in the broker-driven group market, which has generally been more resilient to conditions. This makes us cautiously optimistic as we see potential for modest sales improvements for Appalachian U.S. in the second half of the year, also contingent upon the pace of the economic recovery. We continue to progress toward closing our definitive agreement to acquire Zurich Group Benefits businesses. which allows us to extend our distribution reach and extend our appeal to brokers and larger employers. When stepping back from the quarter and reflecting on the events impacted the economy and our business model, I remain confident in how we are positioned. Despite our shared concerns over conditions in the United States, we're able to move forward with key growth and efficiency initiatives that require near-term investments in order to be positioned for future growth and opportunity. We are learning more about how the pandemic is impacting our business and are quickly pivoting to better balance to face-to-face and virtual sales practices. We have thus far depended our strong margins in Japan and the United States, and asset quality remains strong. Additionally, our overall capital and liquidity positions allow us to continue uninterrupted the balance of the investments in the business, opportunistic investments, and returning capital to the shareholders. Let me conclude with the topic of social justice, which has been thrust into the spotlight in the United States since the last earnings release. AFLAC is and has always been for fairness and justice. Diversity and inclusion are not new concepts for AFLAC. We have consistently received recognition in various publications, including being named to Black Enterprise list of the 50 best companies for diversity 13 times and Latino style list of the 50 best companies for Latinos to work for in the United States 20 times. A key tenet of the AFLAC way is treating people with respect and care. This is critical when considering that 46% of our U.S. employees are ethnic minorities and 66% are women. We continue to partner with organizations like the Congressional Black Caucus Institute's 21st Century Council and the Business Roundtable to raise issues that can lead to meaningful change in public policy. As an inherent part of the culture, we oppose any form of bigotry, intolerance, and disrespect in our society. We are committed to fight for racial justice and equality for all. At AFLAC, we have always believed that fostering a diverse workforce isn't just the right thing to do, it makes good business sense. When our people reflect the diversity of our communities in which we operate, we strengthen our opportunities and connections with customers and policyholders. Now I'll hand the program off to Fred and Max. Fred?