AFLAC Incorporated

Welcome to the AFLAC Incorporated 2021 Second Quarter 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 Ratings Agency Relations. Please go ahead.

Thank you, Andrea. Good morning, and welcome to Aflac Incorporated's second 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 related to our operations in Japan and the United States amid the ongoing COVID-19 pandemic. Dan Amos, Chairman and CEO of Aflac Incorporated, will begin with an overview of our operations in Japan and the U.S., Fred Crawford, President and COO of Aflac Incorporated, will then touch briefly on conditions in the quarter and discuss key initiatives, including how we are navigating the pandemic. Max Brodin, Executive Vice President and CFO of Aflac Incorporated, will conclude our prepared remarks with a summary of second quarter financial results in current capital and liquidity. Members of our U.S. Executive Management Team joining us for the Q&A segment of the call are Teresa White, President of Aflac US, Virgil Miller, President of Individual and Group Benefits, Eric Kirsch, Global Chief Investment Officer and President of Aflac Global Investments, 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. Masatoshi Koide, President and Representative Director. Todd Daniels, Director and CFO. And Koichiro Yoshizumi, Director, Deputy President and Director, Sales and Marketing. Before we begin, some statements in this teleconference are forward-looking within the meanings 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.athlete.com and includes reconciliations of certain non-U.S. GAAP measures. I'll now hand the call over to Dan. Dan?

Thanks, David, and good morning. With the pandemic conditions to evolve, we remain cautiously optimistic and vigilant as the vaccination efforts continue in the face of uncertainty associated with the emerging variants. I'm proud of our response over the last year and our ability to adapt to what has been a very challenging time for everyone, and I continue to pray each day for everyone affected. adjusted earnings per diluted share excluding foreign currency impact increased 24.2 percent for the quarter and 24.5 percent for the year while earnings are off to a very strong start for the first half of the year it's important to bear in mind that they are largely supported by a low benefit ratio associated with the pandemic conditions as well as a better than expected return on alternative investments. At the same time, sales improved year over year for the first time during the pandemic in the second quarter in both the United States and Japan. As part of our strategy, we strive to be where people want to purchase insurance. That applies to both Japan and the United States. Face-to-face sales are still the most effective way for us to convey the financial protection only AppLife products provide. However, the pandemic has clearly demonstrated the need for virtual means. In other words, non-face-to-face sales that help us reach potential customers and provide them with the protection that they need. We've continued to invest in tools from a distribution in both countries and to integrate these investments into our operation. Recognizing the uncertain nature of recovery from the pandemic, we expect a stronger second half of the year in both countries, especially if the communities and businesses continue to open up, which would allow more face-to-face interactions. Keeping vaccinations in mind. Right now, I'm addressing our employees in a way that is similar to how I talk to my family, keeping them informed with the medical community by bringing doctors in, but also by encouraging them to get COVID-19 vaccinations, as I want people to avoid being sick or, even worse, becoming a casualty of the virus or variants. Looking at our operations in Japan, in the second quarter, Athlete Japan generated solid financial growth results as reflected in its profit margin of 26.5%. This was above the outlook range provided at the 2020 Financial Analyst Briefing. Athlete Japan also reported strong premium persistency of 94.7%. Sales improved year over year, generating an increase of 38.4% for the quarter and 15.7% for the first six months. These results reflect easier comps, improved pandemic conditions, and a boast from the first quarter launch of our new medical product. While sales in the first half of 2021 are at approximately 65% of 2019 levels, we continue to navigate evolving pandemic conditions in Japan. The states of emergency have been in the targeted areas, especially Tokyo and Okinawa, However, cases have begun increasing in Tokyo and Osaka metropolitan area, and we expect the Japanese government to make a determination soon to expand the declaration of the state of emergency to three other prefectures surrounding Tokyo and Osaka. But most importantly, these states of emergencies are less restrictive and limited in scope and do not represent lockdowns as experienced in other countries. Japan's post-resumption of proactive sales starting in April is contributing toward a gradual improvement in Appalachian cancer insurance sales, and we continue to work to strengthen the strategic alliance to create a sustained cycle of growth for both companies. In June, for example, AFLAC and Japan Post Holding, Japan Post Company, and Japan Post Insurance reached agreements to further the strategic alliance in a manner consistent with Japan Post Group's five-year medium-term management plan, which was announced in May. While we do not expect this to have an immediate impact on sales recovery, it will further position our company for long-term growth as we respond to customers' needs, provide customer-centric services, and create shared value of resolving societal and local community issues. Turning to Aflac US, we saw a strong profit margin of 25.4% and very strong premium persistency of 80.1%. As expected, we also saw sequential sales improvement and more opportunities for face-to-face activities. As a result of softer sales a year earlier and more face-to-face opportunities, sales increased 64.1% for the quarter and are at a 73% of the first half of the 2019 level. In the U.S., small businesses are still in recovery mode, which we expect to continue through 2021. At the same time, larger businesses remain primarily focused on returning employees to the work site. As I stated earlier, we will focus on being able to sell and service customers, whether in person or virtually. In addition, we continue to build out the U.S. product portfolio with previously acquired businesses, Aflac Network Dental and Vision, and premier life and disability. While these acquisitions have a modest near-term impact on the top line, they better position Aflac for future long-term success in the U.S. Meanwhile, strong persistency, underwriting profits, and investment income continue to drive strong pre-tax margins in the United States, as they do in Japan. As always, we place significant importance on continuing to achieve strong capital ratios in the U.S. and in Japan on behalf of our policyholders and investors. We remain committed to prudent liquidity and capital management. We treasure our 38-year track record of dividend growth and remain committed to extending it, supported by the strength of the capital and the cash flows. At the same time, we will continue to tactically repurchase shares, focus on integrating the growth investments that we've made in our platform. We are well positioned as we work toward achieving long-term growth, while also ensuring we deliver on our promise to our policyholders. By doing so, we look to emerge from this period in a continued position of strength and leadership and look forward to sharing more about the strategic and financial priorities at our financial analyst briefing on November the 16th, 2021. So now I'll turn the program over to Fred. Fred?