Aflac Earnings Call Nuggets: Japan Post and U.S. Sales Outlook

Aflac Inc (NYSE:AFL) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Japan Post

Yaron Kinar – Deutsche Bank: I wanted to touch a little bit more on the Japan Post deal. First of all, understand it is the 0.5% guidance referred to third sector growth in sales. Is that at all impacted by (indiscernible) deal?

Daniel P. Amos – Chairman and CEO: No, that does not include anything with Japan Post. But Charles Lake and Tohru on the line and the three of us were at the news conference on Friday. So, let me see if they want to add any to that.

Tohru Tonoike – President and COO, Aflac Japan: This is Tohru Tonoike. That is correct. Our original expectation of 0.25% growth for the third sector does not include anything from the Japan Post. At the same time, I have to remind you that we start operations under the new agreement beginning October 1 this year, but we will start by adding not all of the 20,000 offices, but just only a part of it because we want to make sure that we will have the Japan Post offices start selling our products, after both Japan Post and we are comfortable that we have provided sufficient training to their employees regarding the features of our product and the new market conduct rules. So, we will begin that operation rather smaller then increase over time.

Daniel P. Amos – Chairman and CEO: Let me make a couple of comment by Japan Post is that number one is, it’s the largest insurance company in the world with over $1 trillion in assets. It also has – is the largest company in terms of employees and remember that the 79 agencies at the insurance company of Japan Post is never sold for us, and these agencies would be equivalent to mega agencies in the United States. So, as I said on CNBC this morning, this is a game changer for us in terms of what can take place in the future. Charles you were very instrumental in this, any comments from you?

Charles D. Lake II – Chairman, Aflac Japan: I think you outlined everything, but I think the important point also to talk about is the fact that this is a corporate group, Japan Post group, so this alliance deal was not only with Japan Post, the network in Japan Post insurance, but Japan Post group as a whole. Dan, you signed that document with the CEO of the Japan Post group, so that makes this agreement even stronger in my view.

 

U.S. Sales Outlook

Jimmy Bhullar – JPMorgan: Just a question on U.S. sales. Dan, you mentioned you are still comfortable that sales will pick-up in the second half of the year. I would have assumed that with the healthcare reform coming on, that small employers would be more preoccupied with that and wouldn’t really want to put on – or enhance their offering and put on new products on the shelf. So, I just was wondering what gives you the comfort that sales in the U.S. won’t actually deteriorate in the second half, just given all this uncertainty that healthcare reform is going to create?

Daniel P. Amos – Chairman and CEO: Well as I said I still – because right now we’re within 1% I think down, I think it’s a reasonable assessment that we can achieve it. I do not have the comfort level with the U.S. as I do with Japan in terms of achieving the objectives. I am very comfortable even though Japan looks like it’s coming further from behind because of this new product, that they are getting this month, I feel very good and Paul could relate more to that because he has been more involved. But with the U.S., Jimmy, I am concerned that because of the delays and the other things it can have an impact. We’ve got some things that we are working on like, for example, we have a toll free number that will go online effective the middle of August to where our agents can call in and ask questions. I think some of our agents are a little bit reluctant to go out and talk about healthcare reform with the fear that they won’t know all the answers, but we’ll have the safety net of this watch of this toll free number they can call that will allow them to feel more comfortable calling on the employers; new and old, old for re-enrollment and new to do that; that may help us in the second half. So I am counting on that as being something that will help us. But your concern is something we too worry a little bit about…

Jimmy Bhullar – JPMorgan: You had mentioned that you’ve already – obviously, you have started to hedge capital repatriation and you’ve repatriated the amount for 2013, but what are your thoughts on capital repatriation for 2014 and whether you want to hedge that for currency moves?

Kenneth S. Janke, Jr. – EVP and Deputy CFO: Jimmy, this is Ken, let me comment on that. As I mentioned at the Analyst meeting in May, we had begun to hedge a portion of our expected 2014 repatriation. You may recall that I talked about the possibility of about JPY96 billion to JPY98 billion in repatriation next year. As of today and we will probably hold with this for the time being we hedged JPY47 billion and as far as what we ultimately pull out the same commentary that we would have said a year ago applies to now, meaning we have to see how the macro market – the macro environment changes between now and next June, and what the impact might be on realized or unrealized gains in making the final determination about how much we pull up, but that’s where we stand today.

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