Aflac Incorporated · NYSE:AFL
Aflac — Investor Presentation (September 2008)
56 slides from Aflac's investor presentation, Sep 8, 2008
Slide 1: 2008 Tokyo Analyst Meeting Presentation Slides
2008 Tokyo Analyst Meeting Presentation Slides September 8, 2008 For more information contact: Ken Janke, Jr. or Robin Wilkey 800-235-2667, Option 3 Fax: (706) 324-6330 aflac.com Aflac Worldwide Headquarters 1932 Wynnton Road Columbus, GA 31999
Slide 2: Company description and forward-looking statements
For more than 50 years, Aflac products have given policyholders the opportunity to direct cash where it is needed most when a life-interrupting medical event causes financial challenges. Aflac is the number one provider of guaranteed-renewable insurance in the United States and the number one insura
Slide 3: Introduction to Aflac Japan
Introduction to Aflac Japan Tohru Tonoike President and Chief Operating Officer, Aflac Japan Life Insurance Policies in Force (FSA Basis, in Millions) First sector Third sector 120 110.2 109.3 109.6 110.0 109.8 110.0 100 80 60 40 20 0 3/03 3/04 3/05 3/06 3/07 3/08* Source: Life Insurance Association
Slide 4: The Number One Life Insurer in Japan
The Number One Life Insurer in Japan (Policies in Force, FSA Basis, in Millions) 20 Aflac = No. 1 18.8 18 16 14 12 10 8 6 4 2 0 3/75 3/80 3/85 3/90 3/95 3/00 3/05 3/08 New Business in Policies (FSA Basis, in Thousands) 12,000 Life industry Third sector 10,000 8,000 6,000 44.2% 47.7% 41.4% 47.4% 44.9
Slide 5: National Medical Expenses and Third Sector Competitors
National Medical Expenses (Yen in Trillions) Medical expenses For elderly National medical expenses to national income ¥100 13.2% 14% 90 12 80 9.9% 70 8.9% ¥69 10 60 8 50 ¥41 6 40 ¥33 30 4 20 2 10 0 0 2007A 2010E 2025E Source: Ministry of Health, Labor and Welfare, 7/08 Competitors in the Third Sect
Slide 6: Aflac's Share of In-Force and New Business
Aflac’s Share of In-Force Business: Cancer (FSA Basis, Stand-alone, Life Industry Only) (Policies in Thousands) Market Growth Market Share 100% 18,400 18,200 80 18,000 60 17,800 17,600 40 17,400 20 17,200 17,000 0 3/04 3/05 3/06 3/07 3/08 3/04 3/05 3/06 3/07 3/08 Source: Insurance Research Institute
Slide 7: Insurance Product Penetration; Mid-term Management Policy
Aflac’s Share of New Business: Medical (FSA Basis, Stand-alone, Life Industry Only) (Policies in Market Growth Market Share Thousands) 100 ％ 3,500 3,000 80 2,500 60 2,000 1,500 40 1,000 20 500 0 0 FY 2003 2004 2005 200 2007 FY 2003 2004 2005 2006 2007 Source: Insurance Research Institute, Aflac Othe
Slide 8: Aflac Japan's Mid-term Management Policy
Aflac Japan’s Mid-term Management Policy Three Keywords • Quality • Segmentation • Priority Aflac Japan’s Mid-term Management Policy Nine Areas • Market • Products • Distribution channels • Business operations • IT • Finance • HR/HR development • Internal control • CSR/Corporate brand Aflac Japan’s
Slide 9: Japan's Regulatory Environment
Japan’s Regulatory Environment Charles Lake Chairman, Aflac Japan Progress in Financial Regulatory Reform Pre-1998 “Convoy system” MOF 1998 - June 2007 Rules-based approach FSA July 2007- “Better Regulation” policy (The best mix of principles-based regulation and rules-based regulation) 7
Slide 10: FSA Competitiveness Plan and Regulatory Initiatives
FSA’s “Financial and Capital Market Competitiveness Plan” and Other Regulatory Initiatives • “Plan for Strengthening the Competitiveness of Japan’s Financial and Capital Markets” (Dec. 2007) FSA’s “Financial and Capital Market Competitiveness Plan” and Other Regulatory Initiatives • “Plan for Streng
Slide 11: Divided Diet; Financial System Council Agenda
Divided Diet Lower House Upper House (480 seats) (242 seats) Social Democratic Others, 15 Others, 18 Social Party, 7 Japan Democratic LDP, 84 Communist Party, 5 Party, 9 Japan DPJ, 112 Communist Party, 7 New Komeito, 31 DPJ, 107 New LDP, 306 Komeito, 21 Opposition Ruling bloc bloc The Financial Syst
Slide 12: Postal Privatization
Postal Privatization: Current Status and Before IPO Holding Company (100% of shares held by the government) Japan Post Japan Post Japan Post Japan Post Bank Insurance Service Network (Yucho) (Kampo) Postal Service; Miscellaneous Domestic and Retail Services; Banking Life Insurance International Bank
Slide 13: Aflac Japan Administration
Aflac Japan Administration Hiroshi Yamauchi First Senior Vice President; Chief Administrative Officer, Aflac Japan Maintenance Expenses Per Policy in Force (FSA Basis, 3/08) General Operating Policies Rank by Expenses in Force Cost Assets (In Millions)* (In Thousands) Per Policy 1 Nippon ¥258,609 12
Slide 14: Efficiency Measures; Surrender and Lapse Rates
Efficiency Improvement Measures by Leveraging IT • AANET • e-App • eco • Aflac Net Billing Surrender and Lapse Rates (Individual Insurance Only, FSA Policy Basis) 10 % 9.1 9 8.1 8.2 7.9 8.1 8 7.5 6.9 7 Life insurance 6.6 6.2 5.9 6 industry 5 5.0 4.9 4 4.4 4.4 4.4 4.1 4.1 4.1 3 3.7 3.8 Aflac 2 1 0 19
Slide 15: Claims Payments; Aflac Japan Investments
Claims Payments (Yen in Billions) ¥ 400 Cancer Medical/Rider MAX 300 200 100 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: Internal data Aflac Japan Investments Hitoshi Oda Second Vice President; Asset Management Department, Aflac Japan 13
Slide 16: Aflac Investment Organization and Considerations
Aflac Investment Organization Aflac Japan Investment Considerations • Product needs Long liability durations Yen-denominated policy liabilities • Credit risk • Aflac Incorporated objectives 2008 Longer-Dated Yen Purchases (Six Months, June 30) Acquisition Cost % of 2008 Remaining (In Billions) New M
Slide 17: Average Maturity and Duration; Credit Ratings
Average Maturity and Duration (Yen-Denominated, in Years) 19 Maturity 18 18.2 18.1 18.0 17 17.8 17.3 16 15 15.2 14 14.9 13 12.5 12.6 12.6 12.6 12.1 12 11.1 11.6 11 10 9 Duration 8 7 2003 2004 2005 2006 2007 6/07 6/08 Credit Ratings on Aflac Japan Purchases 2006 2007 6/08 AAA 9.7% 18.0% 5.5% AA 53.7
Slide 18: Below-Investment-Grade Holdings; Impairment Policy
Below-Investment-Grade Holdings (June 30, 2008, Yen in Millions) Amortized Unrealized Cost Fair Value Gain (Loss) Ahold ¥32,000 ¥30,424 ¥ (1,576) Ford Motor Credit 30,000 18,400 (11,600) CSAV, Tollo Shipping 24,000 17,067 (6,933) BAWAG Capital Finance 14,000 8,402 (5,598) Ford Motor Company 4,331 2,
Slide 19: Composition of Investments; Net Investment Income
Composition of Investments and Cash* 2006 2007 6/08 Yen-denom. bonds: Government 16.3% 14.7% 14.4% Industrial 2.3 2.1 2.0 Public utility 1.0 .9 .8 Euroyen/Samurai 48.1 49.3 49.1 ABS, RMBS, CDO .9 1.5 1.8 Yen-denom. stocks Dollar-denom. securities 7.4 7.0 6.5 Loans 23.3 23.9 24.3 Cash & short-term in
Slide 20: Aflac Japan Financial Results
Aflac Japan Financial Results Yuji Arai Senior Vice President; Principal Financial Officer, Aflac Japan Comparison of Premium Income Growth (FSA Basis, 3/03 = 100) 150% 125 100 75 50 3/03 3/04 3/05 3/06 3/07 3/08 Aflac Industry Source: Japan Institute of Life Insurance 18
Slide 21: Premium Income and Total Assets Rankings
Premium Income (FSA Basis, 3/08) Amount Rank Company (In Billions) % Increase 1 Nippon ¥4,889 .7 % 2 Dai-ichi 3,098 (5.9) 3 Meiji Yasuda 2,652 3.3 4 Sumitomo 2,544 (13.2) 5 Alico 1,348 (2.1) 6 Aflac 1,114 4.2 7 Daido 842 (2.6) 8 ING 805 23.8 9 Mitsui 800 (1.6) 10 Fukoku 736 2.0 Source: Disclosure st
Slide 22: Policies in Force; Investment Income and Margin
Individual Policies in Force (FSA Basis, 3/08, Policies in Thousands) Rank Company No. of Policies % Increase 1 Aflac 18,812 2.8% 2 Nippon 12,458 (3.9) 3 Dai-ichi 11,221 (1.5) 4 Meiji Yasuda 8,994 (3.5) 5 Sumitomo 8,666 (2.6) 6 Asahi 7,774 (.2) 7 Alico 5,616 2.7 8 Sony 4,392 6.9 9 Gibraltar 3,507 (1
Slide 23: Assumed Interest Rates for Product Pricing
Assumed Interest Rates for Product Pricing Jul. Sept. Oct. Jul. Apr. 1994 1995 1996 1999 2001 Cancer life 4.5% 4.5% 3.1% 2.35% 2.35% Care 5.5 4.5 3.1 2.35 2.35 LBL 4.5 3.1 2.35 2.35 Medical 5.5 4.5 3.1 2.35 2.35 Ordinary life 2.35* 1.85 Annuity** 2.15 1.65 *Changed in April 1999 **Periodic payment o
Slide 24: Benefit Ratios and Persistency Rates
Benefit Ratios by Product Traditional cancer life - full CSV 68% - 73% Cancer life - reduced CSV 63% - 68% 21st Century Cancer life - full CSV 55% - 60% 21st Century Cancer life - reduced CSV 50% - 55% Cancer Forte - full CSV 55% - 60% Cancer Forte - reduced CSV 48% - 53% Riders to cancer and medica
Slide 25: Solvency Margin and Financial Strength Ratings
Solvency Margin, Real Net Asset, Basic Earnings (FSA Basis, 3/08) Solvency margin 937.1% Real net assets ¥502 billion Real net asset ratio* 8.8% Basic earnings ¥112 billion Basic earnings ratio** 1.96% * Real Net Assets/Total Assets ** Basic Earnings/Total Assets Financial Strength Ratings Rank by P
Slide 26: Pretax Operating Earnings Growth; Aflac Japan Marketing
Pretax Operating Earnings Growth (Yen in Billions) Pretax Total Profit Operating Revenues Margin Earnings 2003 ¥ 1,014.8 × 12.8% = ¥130.2 2004 1,075.6 × 13.9 = 149.3 2005 1,146.1 × 14.5 = 166.4 2006 1,218.8 × 15.8 = 192.1 2007 1,279.0 × 16.8 = 214.7 Reflects SFAS 123R beginning in 2002 Aflac Japan M
Slide 27: Third Sector New Sales and Share
Third Sector New Sales (FSA Basis, 2005 = 100) Aflac Nippon Sumitomo Dai-ichi 100 Alico Industy Total 90 80 70 60 2005 2006 2007 Share of Third Sector New Sales (New Annualized Premium Sales, FSA Basis) 100% Others 80 Dai-ichi 60 Sumitomo 40 Nippon Alico 20 14.2 15.2 15.6 Aflac 0 2006 2007 2008 Excl
Slide 28: New Sales of Cancer and Medical Insurance
New Sales of Cancer Insurance (Number of Cancer Policies) 21st Century Cancer + Other Forte for Existing Policyholders (In Thousands) Forte 250 200 150 100 50 0 3QT/07 4QT/07 1QT/08 2QT/08 New Sales Growth of Medical Insurance (Quarterly Growth Rates) 20 % 16.8 17.6 8.7 10 0 (.4) (10) (15.6) (13.4)
Slide 29: Consumer Preferences in Selecting an Insurer
Preference for Low Priced Insurance Full-range of coverage with high premiums - 22% Minimum necessary coverage with low premiums - 78% Source: Yahoo Value Insight Corporation, 4/08 Key Factors in Selecting an Insurance Company 90% 80% 70% 60% Proper Prompt Coverage Low Insurer's claim/benefit respon
Slide 30: Areas of Innovation
New Sales Support System “JUMP” Major functions •Facilitates the understanding of daily sales results •Prepares proposals for many agencies •Enables detailed analysis of sales results Marketing & Sales Innovation Project Channel Market Areas of Product Innovation Sales Organization & Personnel Syste
Slide 31: Agency Support Stance; Japan Post Network
Support Stance According to Each Agency’s Growth Stage Aflac’s Agency’s Stage Support Stance highly AA preferred A preferred B selected C limited Television Commercial Cancer Sales Through Japan Post Network Japan Post Network Co., Ltd. Aflac Japan 13 regional branches 10 territories 24,000 post off
Slide 32: Training and Sales Support for Post Offices
Outline of Training for Post Office Employees Large post offices Small post offices Training August through September Period 7 times in total Training Institutes of Postal Services Venue (11 venues nationwide) Approx. 5,000 staff members Target from 300 post offices Sales Support to Post Offices Pos
Slide 33: Aflac Japan Sales
Aflac Japan Sales Jun Isonaka Senior Vice President; Director of All Territories, Aflac Japan Sales Organization 10 Territories General managers in charge of sales promotion and training 112 sales offices 18,800 agencies with 104,000 licensed associates Historical Transition of Sales Channel (New An
Slide 34: Reorganization of Sales Support Departments
Reorganization of Sales Support Departments Organization tailored to each agency channel • Affiliated corporate Wholesale Marketing agencies Division • Independent corporate agencies Retail Marketing • Individual agencies Division Financial Institution • Bank channel Division Strategy Planning • Dai
Slide 35: Annualized Premium in Force by Agency Type
Annualized Premium in Force by Type of Agency Individual/Independent Dai-ichi Affiliated corporate 12/03 6/08 56% 41% 51% 45% 3% 4% Measures for Wholesale Market Direct Mail Outbound Call Activation of existing policyholders Recruitment of New Agencies Number of Number of newly newly recruited recru
Slide 36: Light Consulting Training; Service Shops
Promotion of Light Consulting Training AP ¥10,000,000 or more Veteran About 500 Agencies agencies 2-3-year agencies From AP ¥2,400,000 to ¥10,000,000 About 2,500 Agencies “Light Consulting” Newly-registered agencies Less than AP ¥2,400,000 “New ABT” About 10,000 Agencies ・Better consultation capabil
Slide 37: The Operations of an Affiliated Corporate Agency
The Operations of an Affiliated Corporate Agency Yoichi Kita Representative Director, President, Ricoh San-ai Service Co., Ltd. Ricoh’s Advertisement Photo 1
Slide 38: Company Overview
Company Overview z Year of foundation: 1967 z No. of employees: 520 z Annual sales: ¥15.7 billion (2007) z Founding spirit: Love the people, love the country and love the job ～San-ai spirit～ • Business areas: Business support, Employee life assistance and Management support • Market: 150,000 employe
Slide 39: Premium Income, Commissions and Aflac's Strengths
Premium Income (Yen in Millions) 1,739 ¥ 1,800 1,641 1,555 1,600 1,443 1,348 1,400 1,200 899 1,000 800 600 400 200 0 2003 2004 2005 2006 2007 6/08 Commissions from Aflac (Yen in Millions) ¥ 250 225 219 207 208 201 200 150 116 100 50 0 2003 2004 2005 2006 2007 6/08 Aflac’s Strengths z Solid brand z S
Slide 40: Measures
Measures - 1 z Promote briefing sessions and meetings - DM is just an additional tool Photo of a Briefing Session Measures - 2 z Promote briefing sessions and meetings - DM is just an additional tool z Focus on selling to new employees 4
Slide 41: Measures
Measures - 3 z Promote briefing sessions and meetings - DM is just an additional tool z Focus on selling to new employees z Set up a unit for life insurance sales: 7 people Measures - 4 z Promote briefing sessions and meetings - DM is just an additional tool z Focus on selling to new employees z Set
Slide 42: The Operations of an Independent Corporate Agency
Results and Outlook z Won a prize in all the three overseas Aflac agent award conventions in 2007 - Monaco, Gold Coast and Singapore z Seek solid and stable growth and further improve customer service The Operations of an Independent Corporate Agency Tamiko Takeuchi Representative Director, Chairwom
Slide 43: Nihon Business Company Overview
Location of Nihon Business Yachiyo City, Chiba Pref. Company Overview z Foundation: October 1977 z No. of customers: 16,045 z No. of employees: 27 z Corporate philosophy: » Customer satisfaction » No. 1 in the region » Contribution to community » Compliance Distribution of Customers by Age (No. of P
Slide 44: Premium Income, Commissions, Changes in Consumer Needs
Premium Income (Yen in Millions) ¥1,600 1,419 1,342 1,400 1,276 1,124 1,200 1,064 1,000 800 617 600 400 200 0 2003 2004 2005 2006 2007 6/08 Commissions from Aflac (Yen in Millions) 189 ¥ 200 180 180 167 150 149 160 140 120 100 83 80 60 40 20 0 2003 2004 2005 2006 2007 6/08 Changes in Consumer Needs
Slide 45: Aflac's Strengths and Measures
Aflac’s Strengths z High name recognition z Excellent products: Best cancer insurance in the Japanese market, etc. z High-quality customer service: Good response to benefit payment, etc. Measures - 1 z Area strategy: Break down the sales area into five and set up a shop or sales office in each area
Slide 46: Measures
Measures - 3 z Area strategy: Break down the sales area into five and set up a shop or sales office in each area as a base z Promote multiple policy purchase by taking advantage of cancer insurance as a door opener z Share the sales mindset between shop staff and field salespeople through comprehens
Slide 47: Aflac Japan Bank Channel Sales
New Annualized Premium Sales (Yen in Millions) ¥ 200 180 180 151 154 160 138 140 113 120 88 100 80 60 40 20 0 2003 2004 2005 2006 2007 6/08 Aflac Japan Bank Channel Sales Hisayuki Shinkai First Senior Vice President; Financial Institutions, Aflac Japan 11
Slide 48: Financial Institutions in Japan; Shinkin Industry
Financial Institutions in Japan No. of Branches No. of Employees No. of Avg. per Avg. per Institutions Total Institution Total Institution Mega banks 4 2,192 548 79,129 19,782 Major banks 7 466 67 25,996 3,714 Regional banks 64 7,442 116 126,634 1,979 Second-tier regional banks 45 3,252 72 48,194 1,
Slide 49: Commission Revenues at Banks; Compliance
Commission Revenues at Banks (Yen in Billions) ¥ 2,500 2,222 2,128 2,009 2,000 1,793 1,519 1,500 1,325 1,000 500 0 FY 2002 2003 2004 2005 2006 2007 Source: Japanese Bankers Association Necessity of Selling Insurance Products • Slow growth in lending • Sluggish result of investment trust and variable
Slide 50: Number of Banks Selling Aflac Products
Number of Banks Selling Aflac Products (Third Sector Products Only) 190 200 185 180 154 160 140 118 123 120 105 100 80 55 50 60 41 34 40 67 20 0 12/07 1/08 2/08 3/08 4/08 5/08 6/08 7/08 8/08 Mega banks, regional banks, etc. Shinkin banks 2008 New Sales through the Bank Channel (Yen in Millions) 680
Slide 51: Top-down and Bottom-up Approaches
Top-down Approach • Insurance sale in retail strategy » Deepen understanding on merits and profitability » Long term relationship with customers and families • Sales target and implementation » Numerical sales target is the key » Assigned to branches, salespeople and monitoring » 33 banks out of 190
Slide 52: Outlook; Insurance Sales at the Hyakugo Bank
Outlook Key factors for 4Q and 2009 • Number of banks finishing “test period” is increasing • Many banks have set numerical sales target from October • Sales incentives and campaigns • New single premium product “Sanjuso” (Trio) to be introduced in October • Gentle EVER and WAYS to be sold by Shinki
Slide 53: Company Overview of the Bank
Company Overview of the Bank z Established in December 1878 z Reorganized into an ordinary bank in July 1897 z Company size (as of 3/31/08) » Total assets：¥3.97 trillion » No. of branches: 128 » No. of employees：2,325 Location of the Bank Largest bank in Mie Pref. Market share (as of 9/30/07): Depos
Slide 54: Efforts on Insurance Sales through Bank Channel
Efforts on Insurance Sales through Bank Channel z Annuity products: Since October 2002 13 products (Including Aflac’s) z Third sector products： Since December 2007 2 medical products (Including Aflac’s “EVER”) 2 cancer products (Including Aflac’s “Forte”) Purpose of Selling Third Sector Products z C
Slide 55: Initiatives at Model Branch; Characteristics of Aflac Products
Initiatives at Model Branch z Approach customers waiting in the lobby » A team consisted of 5 employees going around in the lobby » Raise customers’ awareness of availability of insurance products in the branch » Refer customers to a dedicated booth for further consultation Measures Going Forward z
Slide 56: ‘AC.
‘AC.