AFLAC Incorporated

Good day, everyone, and welcome to AFLAC third quarter 2020 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. I would now like to turn the call over to your host, David Young, Vice President of Aflac Incorporated Investors Relations. Please go ahead, sir.

David Young Thank you, Adrienne. Good morning and welcome to Aflac Incorporated's third quarter earnings 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 with an overview of our operations in Japan and the US. Fred Crawford, President and COO of Aflac Incorporated, will then touch briefly on conditions in the third quarter and discuss how we are navigating the pandemic, including some key initiatives. Max Brodin, Executive Vice President and CFO of Aflac Incorporated, We'll then conclude our prepared remarks with a summary of third 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. Theresa 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. June Howard, Chief Accounting Officer. And Steve Beaver, CFO of Aflac US. 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. Matsutoshi Kuide, President and Representative Director. Todd Daniels, Director and CFO. and Koti Eriyoshi, 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 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. Thank you for joining us. As we all know, the COVID-19 pandemic has ushered in some of the most difficult times for so many people around the globe, and we continue to pray for all those affected. I'd like to share my appreciation for our employees and sales force in Japan and the United States for their tireless work in helping our policyholders and communities impacted by the pandemic. During this difficult time, it's important to note that we remain focused on doing what we do best, that is, providing protective products to help consumers when they need it most. This morning, I'll provide an overview of the quarter and how we performed by operating segments. Financially, AFLAC continues to be impacted by the pandemic, but remains strong in terms of capital and liquidity. In addition, our investments are high quality, diversified, and they're among the highest return on capital and lowest cost of capital in the industry. Amid the challenges of COVID-19, this quarter was also significantly impacted by the release of favorable US tax regulations related to the utilization of foreign tax credits. You'll recall that our Japanese subsidiary is taxed as a US domestic company for US tax purposes. In the quarter, we recognized a cumulative year-to-date benefit from these regulations of $202 million, or $0.28 per share, compared to our previous run rate. Max will provide additional details. Turning to our operations, starting with Aflac Japan, the effects of COVID-19 continues noticeably impacted our results. as seen in the third quarter with sales decreasing 32 percent we continued to have around 50 of the workforce working from home in japan and in september traffic coming into the shops remained at 70 of pre-pandemic levels while these sales results represent sequential improvements Relative to the last quarter, the effects of the reduced face-to-face activities are evident, and we continue to promote virtual sales. 2020 has also ushered in a change on the Japanese political front. Prime Minister Abe was Japan's long-asserting prime minister and a source of political stability with nearly eight years in office. Mr. Suga was a core member of Abe's administration leadership team, serving as the chief cabinet secretary. We believe Mr. Suga's administration will carry on skilled leadership. This will continue to promote a good business environment in Japan and emphasize policies in terms of the response to the COVID-19 and economic policies. Prime Minister Suga is accelerating efforts to move toward to move forward with regulatory reforms for a post pandemic world promoting digital transformation. In that respect, I am pleased that that black Japan's paperless initiatives is well underway, and Fred will share more. Turning to Aflac U.S., the effects of COVID-19 continue to noticeably impact our results in this segment as well. Largely due to reduced face-to-face activity, third quarter sales were down 35.7%. In the U.S., we continue to feel the impact of temporary business closures and lack of access to the work site, especially among our career agents who have historically relied upon face-to-face meetings, to engage our small business owners and their employees. At the same time, the fourth quarter, typically when we see strong results in the broker driven group market, which has generally been more resilient to face to face to non face to face conditions. As a result, we remain cautiously optimistic for modest sequential sales improvement for Aflac U.S. in the fourth quarter compared to the second and third quarter, contingent upon the pace of the economic recovery. We're also on track to close our acquisition of Zurich Group Business Benefits soon, which allows us to extend our distribution reach and appeal to brokers and large employers. While having little effect on the fourth quarter, the acquisition positions us for expanded capacity as we look forward to 2021. To place Aflac in a position of strength, we know that we must balance investing in growth with an eye toward reducing expenses in the long run. As such, we took an opportunity to offer a very generous voluntary separation package to eligible employees who expressed an interest. As a result, we have achieved an approximate 9% reduction in our U. S. And corporate workforce with expected one time expenses of $45 million in the fourth quarter. This allowed us to thank employees for their years of faithful service and dedication as they pursue a new path or open up the next chapter. You'll recall that the US benefit ratio was significantly affected by policyholders limited visits to the doctor. With this in mind, we launched a U.S. initiative early in the third quarter to remind policyholders of the value of their wellness benefits attached to their products. The wellness benefits pays on certain routine doctor, dentist and hospitalization visits. In addition, we make sure that it pays a benefit for COVID-19 testing. The wellness initiative has been a success. We are glad we emphasize this important aspect of our policies as it reinforces how we are there for the policyholder when they need us most. This wellness campaign and the voluntary separation programs were a couple of near-term headwinds to the profit margin. However, we expect that they will serve us well as we enter 2021. To conclude our operational discussion, as I've said before, we want to be where the people want to purchase insurance that applies to both Japan and the US. In the past, this is meant meeting face to face with individuals to understand their situation, propose a solution and close the sale. However, the pandemic clearly demonstrates the need for virtual means. In other words, non face to face sales to reach potential customers and provide them with the protection that they need. Therefore, we have accelerated investments to enhance the tools available to our distribution in both countries. As always, we are committed to prudent liquidity and capital management. This includes maintaining strong capital ratios on behalf of the policyholders in both the U.S. and Japan and a tactical approach to capital allocation. It goes without saying that we treasure our record of dividend growth. With the fourth quarter declaration, 2020 will mark the 38th consecutive year of dividend increases. Our dividend track record is supported by the strength of our capital and cash flows. At the same time, we have remained tactical in our approach to share repurchase, buying back $400 million of our shares in the third quarter. We have also focused on integrating the growth investments that we have made in our platform. By doing so, we look to emerge from this period of continued position of strength and leadership. As always, we are working to achieve our earnings per share objective while also ensuring we deliver on our promise to our policyholders. We look forward to going into greater detail on our strategic growth plans and efforts to drive efficiency at the financial analyst briefing conference call in a few weeks. So now I'd like to turn the program over to Fred.