AFLAC’S FINANCIAL ANALYSTS BRIEFING 2018 About This Book This book primarily contains information about Aflac, most of which was given at the company’s 2018 Financial Analysts Briefing held on September 26, 2018, at the Park Hyatt Hotel in Tokyo, Japan. All information is intendedto provide a comprehensive discussion and analysis of Aflac’s operations. The information contained in this book was based on conditions that existed at the end of the second quarter 2018. Circumstances may have changed materially since these presentations were made. The company undertakes no obligation to update the presentations. This information was prepared as a supplement to the company’s annual and quarterly releases, 10-Ks and 10-Qs. This book does not include footnotes to the financial statements or certain items that appear in reports or registration statements filed with the Securities and Exchange Commission. We believe the information presented in this book was accurate at the time of the presentations, but its accuracy cannot be guaranteed. Forward-Looking Information The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” to encourage companies to provide prospective information, so long as those informational statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those included in the forward-looking statements. The company desires to take advantage of these provisions. This report contains cautionary statements identifying important factors that could cause actual results to differ materially from those projected herein, and in any other statements made by company officials in communications with the financial community and contained in documents filed with the Securities and Exchange Commission (SEC). Forward-looking statements are not based on historical information and relate to future operations, strategies, financial results or other developments. Furthermore, forward-looking information is subject to numerous assumptions, risks and uncertainties. In particular, statements containing words such as “expect,” “anticipate,” “believe,” “goal,” “objective,” “may,” “should,” “estimate,” “intends,” “projects,” “will,” “assumes,” “potential,” “target”, “outlook” or similar words as well as specific projections of future results, generally qualify as forward-looking. Aflac undertakes no obligation to update such forward-looking statements. The company cautions readers that the following factors, in addition to other factors mentioned from time to time, could cause actual results to differ materially from those contemplated by the forward-looking statements: difficult conditions in global capital markets and the economy; exposure to significant interest rate risk; concentration of business in Japan; foreign currency fluctuations in the yen/dollar exchange rate; operation of the former Japan branch to a legal subsidiary; limited availability of acceptable yen-denominated investments; deviations in actual experience from pricing and reserving assumptions; ability to continue to develop and implement improvements in information technology systems; governmental actions for the purpose of stabilizing the financial markets; interruption in telecommunication, information technology and other operational systems, or a failure to maintain the security, confidentiality or privacy of sensitive data residing on such systems; ongoing changes in the Company’s industry; failure to comply with restrictions on patient privacy and information security; extensive regulation and changes in law or regulation by governmental authorities; changes in tax rates applicable to the company; defaults and credit downgrades of investments; ability to attract and retain qualified sales associates, brokers, employees, and distribution partners; decline in creditworthiness of other financial institutions; subsidiaries’ ability to pay dividends to Aflac Incorporated; decreases in the Company’s financial strength or debt ratings; inherent limitations to risk management policies and procedures; concentration of the Company’s investments in any particular single-issuer or sector; differing judgments applied to investment valuations; ability to effectively manage key executive succession; significant valuation judgments in determination of amount of impairments taken on the Company’s investments; catastrophic events including, but not necessarily limited to, epidemics, pandemics, tornadoes, hurricanes, earthquakes, tsunamis, war or other military action, terrorism or other acts of violence, and damage incidental to such events; changes in U.S. and/or Japanese accounting standards; loss of consumer trust resulting from events external to the Company’s operations; increased expenses and reduced profitability resulting from changes in assumptions for pension and other postretirement benefit plans; level and outcome of litigation; and failure of internal controls or corporate governance policies and procedures. The estimated impact of tax reform, which is included in GAAP net income and equity, but excluded from adjusted earnings as defined, is a preliminary estimate and may be adjusted for the current and future periods, possibly materially, due to, among other things, further refinement of the company’s calculations, changes in interpretations and assumptions the company has made, tax guidance that may be issued and actions the company may take as a result of tax reform.
1 October 2018 Table of Contents Section I – Aflac Incorporated Aflac Incorporated Strategic Overview...... Daniel P. Amos...... 3 Aflac Incorporated Financial Outlook...... Frederick J. Crawford...... 7 Capital Management...... Max K. Brodén...... 11 Aflac Global Investments...... Eric M. Kirsch...... 14 Actuarial and Risk Discussion...... Albert A. Riggieri...... 18
Section II - Aflac Japan Overview of Japan’s Political Economy...... Charles D. Lake II...... 25 Overview of Aflac Japan...... Masatoshi Koide...... 29 Aflac Japan Sales and Marketing Overview...... Koji Ariyoshi...... 35
Section III - Aflac U.S. Overview of Aflac U.S...... Teresa L. White...... 41 Aflac U.S. Growth Strategy: Capitalizing on Market Opportunity Through Increasing Access and Penetration...... Richard L. Williams Jr...... 45
Section IV - Other Information Appendix...... 51 Aflac’s Historical Highlights in the United States...... 52 Aflac’s Historical Highlights in Japan...... 53
2 Section I Aflac Incorporated Aflac Incorporated Strategic Overview Daniel P. Amos Chairman; Chief Executive Officer; Aflac and Aflac Incorporated
Aflac has been an innovator and a pioneer in the Two Worthy Causes: 20+ Years insurance industry ever since the company was founded in 1955. Although much has changed in the decades since, our customer-centric approach to business still revolves around a simple promise: Aflac will be there for our policyholders in their time of need.
We have a strong business model that revolves around creating relevant products and expanding our distribution to yield new customers. As consumer preferences evolve around what products and benefits they are seeking, we’ll continue to adapt to ensure we meet and exceed their expectations.
Today, you only have to pick up a newspaper or click on the internet to see that the topic of social responsibility is top of mind. It’s what many of our shareholders are asking about, so as CEO, it’s on my mind too. I’d like to address how we see social responsibility.
Being a good corporate citizen has always been on my mind, and it’s been a central part of our activities as I can say that at Aflac, we have been working on our long as I can remember. I don’t think it’s coincidental that social purpose to reach our full potential for more than 20 Aflac has achieved success while focusing on doing the years. To prove it, since 1995, the Aflac family has been right things. Let’s be clear: profits and shareholder returns focused on the Aflac Cancer and Blood Disorders Center determine whether a company is successful or not. But of Children’s Healthcare of Atlanta. We have given more all things being equal, I believe employees, investors, and than $127 million, with more than half of that coming from customers would rather do business with a company that’s our field force of independent agents and employees. also a good corporate citizen. Social responsibility has also been important in Japan. Understand, I am still focused on all the same In Tokyo and Osaka, the three Aflac Parents Houses have responsibilities I’ve always been focused on; but this is supported more than 130,000 children and families over a hot topic today, and I feel the need to address it. So in the last 17 years. We believe that our efforts have also addition to our management team covering our business helped children and families with cancer and strengthened approach, outlook and strategy, I want to give you another our brand reputation and overall sales. element of our company that is made possible by the business results we achieve. Now, we are taking our fight against pediatric cancer to the next level in a very innovative way that you may Nowhere is there a better example of investors’ growing have heard about. In January, My Special Aflac Duck, a focus on social responsibility than BlackRock CEO Larry social robot that uses medical play, lifelike movement and Fink’s most recent letter to CEOs where he said: “Society emotions to engage and help comfort kids during their is demanding that companies, both public and private, cancer care, was recognized as the best unexpected serve a social purpose. To prosper over time, every product among the 3,900-plus vendors at the Consumer company must not only deliver financial performance, but Electronics Show in Las Vegas. The buzz was so big that also show how it makes a positive contribution to society it generated more than 2 billion media impressions – that’s without a sense of purpose, no company, either public or a lot of free press! To say that we are excited about it private, can achieve its full potential.” is an understatement, as we believe My Special Aflac
3 Duck symbolizes our mission to help others while making understand the kind of company we are. At the same time, our brand even more outstanding as we move forward. it gives us a symbol of Aflac that they can touch and feel. We have been working on this project for two years and will donate more than $2 million annually as part of this After seeing this and understanding what we’re doing, initiative. I believe most people will want to be associated with a company that is doing something like this. Ultimately, My Special Aflac Duck we believe that this is a more sustainable approach to business and one that will continue to increase shareholder value. One Day Pay
A symbol of
innovation
and
transformation
I think you can understand why we’re excited about for both Aflac and the Industry it because we’ll be helping children, and at the same time, people want to do business with a company helping others.
Each year, more than 15,000 kids are diagnosed with cancer, and the average treatment is more than 1,000 days. Going forward, our goal is to give a My Special Aflac Duck to every child bravely battling cancer. Presentations from this event include information Since the story ran on Good Morning America in about other ways we are applying technology within our September, our phones have been ringing off the hook operations. from pediatric hospitals wanting My Special Aflac Ducks for their patients. The positive impact to the Aflac brand You have most likely heard me mention our introduction has been enormous, and this is exactly the type of thing of One Day Pay in the U.S. This is our groundbreaking that Larry Fink is talking about when it comes to making a initiative to process, approve and pay eligible claims in just difference. one day, getting cash in the hands of our policyholders fast. One Day Pay has benefited customer satisfaction, Koide-san, president of Aflac Life Insurance Japan, increased referral opportunities and differentiated us from shared a letter with me from a brave 10-year-old Japanese our competitors. Most importantly, more than 90% of our boy who had been diagnosed with a brain tumor about six policyholders that have used One Day Pay say they are years ago. He had read in Japan about My Special Aflac likely to refer other people to Aflac. Today, getting 90% of Duck’s debut at the Consumer Electronics Show. This people to agree on anything is quite hard to do. One Day little boy’s letter emphasized the notion of how powerful Pay is a symbol of Aflac’s innovation and transformation this innovative expansion of our brand could be. Plus, it not just of our company, but of the industry. convinced me that we need to bring My Special Aflac Duck to Japan, which we hope to do as early as next year! This Today, we are leveraging technology like automation kind of initiative reinforces that while striving to achieve our and robotics to reduce the risk of errors. This allows us to financial objectives, Aflac is also a company that actively handle heavy work volumes without having to add to our seeks out ways to do the right thing for all our constituents. full-time employee headcount. Most importantly, we believe these actions exemplify the type of company people seek out to conduct business We are always looking ahead to the next wave of with. digital and mobile innovations for reaching and better serving our customers, while at the same time, improving Remember, we sell an intangible product – it is just a our operations. This means that we will continue to promise on a piece of paper, or in this day and age, typed address the evolving needs of each market as customer words on an electronic policy. My Special Aflac Duck preferences continue to change. demonstrates the compassion of our brand and lets people
4 Aflac Strategic Areas Of Focus We place a high priority on ensuring we have the right people in the right places at the right time. As you’ve heard me say before, another critical aspect of my job is • Maintaining market leadership through innovation leadership development and succession planning. This and technology • Expanding products, solutions and distribution incorporates the knowledge and skill set already inside the • Enhancing customer experience organization with the expertise and fresh ideas of people • Driving efficiencies in operations who join our company. • Aligning and optimizing capital In coordination with our Human Resources department, Foundation of Financial Strength I prepare a formal overview of our succession planning process to present to Aflac Incorporated’s board members at every August board meeting. This includes annual recommendations and evaluations of potential successors, Our approach to driving long-term shareholder value is along with a review of any leadership development plans straightforward. for such individuals. In recent years, you have witnessed our succession planning in action as some leaders retire We are laying the foundation for growth through product and new roles are developed. development and digital distribution expansion. I’m sure you know our veteran senior management As the pioneer of cancer insurance in both Japan team, including Charles Lake, Teresa White, Audrey Tillman and the United States, innovation has always been, and and June Howard. Their track records are outstanding. continues to be, a hallmark of our success. Every day, we You also know Fred Crawford, chief financial officer, and think, “How can we use technology to better understand I view him as the most impactful addition to our team in the customer, gain their trust, exceed their expectations recent years. He stepped into some big shoes when Kriss – and improve their lives?” This innovative spirit applies to retired, and he has done an outstanding job; his work the creation of products and distribution expansion as well. speaks for itself. We have fostered a culture of innovation to ensure that we offer products and solutions that are relevant today and in Koide-san is a winner and he is doing an outstanding the future. job as president of Aflac Life Insurance Japan. We’re expecting big things from him and his team at Aflac Japan In addition, we are taking action to remain in step in the future, including John Moorefield, Ariyoshi-san and with customer preferences about where our customers Kijima-san. In January of this year, Teresa promoted Virgil want to buy coverage. Our ability to adapt and innovate Miller to head up Aflac U.S. Operations and Aflac Group, significantly contributes to our long-term growth and and he is doing a stellar job. Last year, Teresa hired Rich success. We are focused on digital advancements to Williams, executive vice president and chief distribution improve the customer experience, driven by venture officer. Rich continues to build his U.S. distribution team investments that are relevant to our core business. including Stephanie shields, who was recently promoted to senior vice president over broker sales, and Andy We realize that a sustainable business model requires Glaub, senior vice president of sales, who oversees Aflac’s us to invest in our operations, and this is especially true independent career sales force. Over the last few years, in today’s technologically advanced world. Aflac has, and Todd Daniels has been instrumental in bolstering our continues to, incorporate technology into our strategy. I financial, actuarial and risk teams by hiring Al Riggieri have always said that being the low-cost producer has, as senior vice president; global chief risk officer and and will ultimately continue to be, what drives our ability to chief actuary and Joey Nichols as senior vice president win. I believe technology is the only way to be the low-cost and U.S. chief actuary. With this 50 years of experience producer. combined, they are doing an outstanding job. Eric Kirsch has developed a world-class investment operation and We successfully completed our Aflac Japan branch team in New York and Tokyo. Hideto Yamamoto, senior conversion to a subsidiary in April. While it went almost vice president and chief investment officer, of Aflac Life unnoticed, we’re very glad it took place, and it better Insurance Japan, is on a panel at this event. prepares us for the future. The conversion reaffirms Aflac’s long-term commitment to serving our policyholders in With all this emphasis on the rest of the management Japan. It also better aligns our capital within legal entities. team, a lot of you may be wondering if this is my way of We are now positioned to optimize our deployment of telling you that I’m retiring. The answer is no! As I’ve told excess capital. you before, I’m committed to staying until I’m at least 70 because I still enjoy building and watching the company Positioned For The Future grow with this strong management team. It has been our experience at Aflac that everyone wins when we surround ourselves with a diverse group of Leadership Development people. Each person on Aflac Incorporated’s board, as well as on our management team, brings different life Succession Planning experiences – and different ideas – to the table. Diversity ensures that we gain insight into how other people think. I firmly believe that fostering a diverse workforce isn’t just Diversity the right thing to do; it also makes good business sense!
5 You can see diversity reflected in the composition of At Aflac, we manage our business for the long term our board of directors, leadership and employees. For while remaining laser focused on meeting our near and example, 55% of Aflac Incorporated’s board members short-term financial objectives. Our approach to driving are minorities or women. Of the more than 4,800 Aflac long-term shareholder value is straightforward: pursuit of employees in the U.S., 77% are ethnic minorities and 66% growth, strong pretax margins and capital optimization. are women; 34% are ethnic minority women. In 1997, Aflac became the first life insurance company in Japan First, we pursue growth by leveraging our strategic to name a woman to an executive management position. advantages in both Japan and the U.S., and through Since then, Japan’s executive management team has product development, distribution expansion, and digital consistently included women. Aflac Japan’s Women’s advancements to improve the customer experience. This Leadership Program began in 2014. Most importantly, this is bolstered by venture investments relevant to our core initiative has successfully helped raise the percentage of business. Building on our leading position in both countries women in leadership positions from 17.6% to about 29% in will help position us for growth going forward. four short years. Our goal was to be at 30% by 2020, and I think you probably know that we won’t be satisfied with Second, we seek to maintain our strong pretax margins stopping there. through disciplined product pricing and leveraging a period of favorable benefit ratios to invest in our platform for future We are proud to say that Aflac Japan was the first life growth and efficiency. insurer to be awarded by Japan’s government the highest grade of certification for a company’s promotional efforts Third, having completed our Japan branch conversion for women’s advancement in the workplace. to a subsidiary, we are optimizing our capital and deploying excess capital in a very disciplined way that supports our As you’ve seen from our second quarter earnings long-term sustainability. release, the first half of 2018 has been a good year. Let me emphasize that we understand driving shareholder value It goes without saying that we treasure our 35 years of determines the success or failure of our company, and we consecutive dividend growth and want to continue that. are committed to that. We are also committed to living up When it comes to capital deployment, I continue to believe to the promise we make to our policyholders. dividends and share repurchase are the most attractive means, and those are avenues we will continue to pursue. I would like to recognize Charles Lake, president of Aflac International and chairman and representative director of At the same time, we will reinvest in our business to Aflac Life Insurance Japan. In April, Charles was selected enhance organic growth. Within this framework, we will by the Japanese government to receive one of the nation’s continue to drive shareholder value and do so by acting highest awards, the Order of the Rising Sun, Gold Rays ethically and giving back to the communities in which we with Neck Ribbon. The award was originally established operate. Ultimately, we believe this is a more sustainable in 1875 and is awarded by the emperor of Japan to approach to business that will continue to increase those who have made distinguished achievements in their shareholder value. respective fields. It is similar to the U.S. Presidential Medal of Freedom. Charles was decorated for his contributions To wrap up, I just want to say that it is our people to the development of the insurance and financial services behind the results who bring it all together. As I mentioned, industries, as well as helping to strengthen economic we place a high priority on ensuring we have the right relations, friendships and goodwill between Japan and people in the right places at the right time. I want you the United States. He attended a formal presentation to know that we have a tremendous management team ceremony in May at Japan’s Financial Services Agency, or currently in place. FSA, and the Imperial Palace. We are all proud of him, and I am glad to have him as part of the Aflac team. By staying disciplined and focusing on doing what we do best, I believe we will continue to generate results that build long-term shareholder value.
6 Aflac Incorporated Financial Outlook Frederick J. Crawford Executive Vice President; Chief Financial Officer, Aflac Incorporated
Drivers of Long-Term Shareholder Value Aflac Corporate Ventures
~$300 million of capital invested or committed since 2015 Growth
Product Development • Digital Distribution • Ventures Aflac Incorporated
Margins Aflac Corporate Ventures
Benefit Trends • Investments • Transformation • Productivity
Aflac Corporate Empowered Aflac Ventures Empowered Ventures Japan Benefits Fund Innovation Aoyama, Tokyo Charlotte, NC Capital Columbus, GA Charlotte, NC (Shibuya) Independent $100 million global Will develop Align • Optimize • Deploy Will originate technology venture investment inorganic growth venture platform for fund, which was opportunities investments in enrollment and increased to $250 leveraging digital Japan and Asia as benefits million in part of Aflac Japan technologies and administration Economic Value-Based Criteria September 2018 innovation Innovation Lab solutions
Denotes entity to be formed Our approach to driving long-term shareholder value is straightforward: we pursue growth through product development, distribution expansion, and digital Before commenting on margins, I want to spend some advancements to improve the customer experience. We time on how we approach venture investing and incubation augment this by venture investments with application to of non-organic business development opportunities. Two our core business. We seek to maintain our strong pre- years ago we formed Aflac Corporate Ventures and named tax margins through disciplined product pricing, stable Nadeem Kahn as president of that operation. Nadeem investment returns and leveraging a period of favorable comes with a rich background in strategic planning and benefit ratios to invest in our platform for future growth and corporate development and knowledge of Aflac’s core efficiency. business model.
Now having completed our Japan branch conversion Aflac Corporate Ventures is a venture holding company to a subsidiary and better aligned our capital within legal that owns several key platforms. These platforms include entities, we are now positioned to optimize our free cash our venture capital fund, which I will touch on in more flow and deployment of excess capital generation. detail in a moment. In 2015 we acquired a technology business in Charlotte, N.C. called Empowered Benefits, We are guided by our view of defending and building now shortened to Empowered to denote its recently economic value. Examples include our shift from first broadened scope. Empowered specializes in the benefits sector savings to protection products, greater emphasis on administration space and is the technology engine value of new business metrics and overall retention efforts, powering Aflac’s Everwell enrollment platform in the and from a finance and investment standpoint, hedging U.S. We have since expanded this technology center to strategies that reduce shareholder exposure to yen/dollar include digital innovation and the development of growth volatility and our overall investment strategy and build opportunities in the digital distribution space. Empowered’s of floating rate and alternative assets. We look to build location in Charlotte is not an accident, as it is a vibrant economic value while distributing a portion of that value “Fintech” environment and the home of both Bank of annually through consistent dividend growth and share America and Wells Fargo retail platforms. repurchase.
7 Finally, we are in the process of forming Aflac Corporate At the same time, we naturally come in contact with Ventures Japan that, much like Empowered, will focus interesting opportunities in our day-to-day business on non-organic digital innovation and venture investing in activities and are now a recognized name in the corporate Japan. This group is located near Shibuya, which is the venture community. Recently we have started to see digital and technology center of Tokyo. attractive opportunities actually find Aflac as we bring both capital and potential for powerful growth to a target We have committed approximately $300 million of company. capital to our overall venture efforts, a subset of which is in our venture fund activity. Dan and I view this as an To date, we have funded or have commitments in place essential piece of our strategic investment in future growth. for nearly $55 million of this fund. The common element There is also a risk management aspect: we guard against of companies we invest in is technology or digital-based the risk of disruption by participating in the development of with a direct commercial application to our business. We next generation solutions. are well diversified, and our holdings typically involve both an equity investment and a commercial contract with Aflac Aflac Corporate Venture Fund Japan or Aflac U.S.
Total Fund - $100M Sector Allocation - $54.8M We increased the size of the fund as we are now moving beyond early-stage companies with average investment 11.0 size of $1 to $6 million to later-stage companies that may 2.3 5.8 call for larger second or third round funding requirements. $45.2 We are also investing in “Insurtech” funds requiring larger 10.1 0.3 $54.8 5.3 investments. This is all to provide greater diversification and stronger market coverage while showing our commitment to the space. 20.0
Invested to Date Benefit Ecosystem Remaining Funds Aflac Japan: Strength in Core Margins External Funds Other Underwriting Innovation Health & Wellness Aflac Japan Data Analytics & Automation Distribution 1H 2018 2018e 2018e – 2020e
Allocation by Stage - $54.8M Highlights Total Total Total • Increased fund to $250 million 9/18 Benefit Ratio1 69.8% ~70% 69.0 - 71.0% 2.1 Evaluated over 1000 opportunities • 2 to date Expense Ratio 19.8% ~20% 19.5 - 21.5% 13.9 18.8 • Closed on $23.4 million of Pretax Profit 21.5% ~21% 19.5 - 21.5% investment to-date with $31.4 million Margin under evaluation • Aligned with Aflac businesses in Japan and U.S. via commercial Revenue CAGR (-1%) 20.0 relationships • Strategic partnerships with global Considerations Long-Term Targets (2022) accelerators like Plug and Play & Seed Early Stage • Business mix • Expense ratio of ~20% Carolina Fintech Hub External Funds Late Stage • IT and digital investments • Offsetting benefit ratio • Net investment income decline Current Investments • Keys: Business mix and revenue
1 Benefit ratio measured to earned premium 2 Expense ratio measured to total revenue
Turning now to cover our outlook for core insurance margins, I’ll start with our business in Japan. We have started the year strong with pretax margins near record Note: Allocations include current and proposed investments as of August 31, 2018 levels. There are notable items influencing these results, namely strong investment income results, the introduction of our new cancer product and timing of expenses Focusing specifically on our venture fund investments, expected to increase in the second half of the year. Our full last week we announced an increase in Aflac’s global year forecast is for pretax margins to remain strong around venture capital fund from $100 million to $250 million. We 21%. expect to put this capital to work over a three to four year period as attractive opportunities present themselves. This The shift in earned premium is expected to continue slide captures our current activity as a $100 million fund lowering our reported benefit ratios. We expect benefit investing in the U.S. and Japan. ratios in our core lines of cancer and medical to remain strong. Claims trends continue to benefit from fundamental We source transactions in many forms and have changes in Japan’s health care system, including natural reviewed over 1,000 opportunities since inception of incentives to reduce total days of hospitalization. Therefore, the fund. Plug and Play and Carolina Fintech Hub are we have lowered our expected benefit ratio range by 100 examples of accelerators we use to source transactions. basis points. 8 The shift in business mix applies pressure to our The expense ratio in the U.S. has been elevated recently expense ratio, but the ratio is also influenced by continued as we have been actively investing in our U.S. platforms, investment in IT and digital advancements. We are in both the group and individual business models. Realize projecting modestly higher lapse rates in select lines of that as you pull excess capital out of the U.S., you business. This impacts earned premium and elevates DAC modestly reduce net investment income and impact the amortization, applying further pressure to expense ratios. segment’s revenue and expense ratios over time. As is the However, this pressure tends to be offset by improved case in Japan, investment income has been a helper in benefit ratio performance as you release reserves. Revenue 2018 relative to our forecast, which has benefited year-to- is a key challenge in Japan with the run-off and paid-up date margins. status of first sector savings product. This in turn, is very good for FSA earnings, cash flow and economic value Earned premium is expected to grow in the 2 to 3% development. range assuming a 3 to 5% compound annual growth rate in sales, and reflecting recent improvements in persistency. Last year, we established an enterprise approach and Having pulled out excess capital and related investment project management team to drive operating efficiencies income, this translates into overall revenue growth of across the company. We continue to periodically refresh approximately 2%. our five-year estimates for our expense ratio as our efficiency efforts progress. We noted last year that we In terms of our long-term 2022 forecast for expense were targeting the mid-point of an 18 to 20% expense ratio ratio, we remain generally in line with last year’s long-term by 2022. Post conversion and with revised estimates for outlook, at the low end of the 33 to 35% range. There is product mix, persistency, and capital management plans, upward pressure related to mix of business as relative we have modified that target and are now projecting a five- strength in broker-sold group business has a lower benefit year goal of around 20%. Very importantly, this is heavily ratio and higher expense ratio. Specifically, it’s broker-sold influenced by the pace of business mix shift and calibrating group business that has that dynamic. lapse rates. Therefore, you should expect most, if not all, of this increase to be offset by a lower benefit ratio, thus Enterprise Capital Initiatives preserving our strong pretax profit margins.
Aflac U.S.: Stable Profit Margins Japan Dividend Policy Increase Capacity
U.S. RBC Drawdown Manage to Risk Profile Aflac U.S. Aflac Incorporated Available Capital Hedge Yen Exposure 1H 2018 2018e 2018e – 2020e Total Total Total Japan’s USD Optimization Enhance USD NII Benefit Ratio1 50.5% ~51% 50.0 - 52.0% Expense Ratio2 34.1% ~35% 34.0 - 36.0% Underpinned by Disciplined Risk Management Pretax Profit 21.1% ~19.5% 18.0 - 20.0% Margin Revenue CAGR ~ 2% We have set our core capital policies consistent with AA-rating standards at the insurance company and A-rated Considerations Long-Term Targets (2022) senior debt levels. Any efforts to optimize our capital • Business mix • Expense ratio in 33-34% structure and lower our cost of capital starts and ends • IT and digital investments range with our view of risk and the promises we make to our • Excess capital drawdown • Earned premium CAGR of ~2.5% policyholders for financial soundness. • Keys: Sales, retention, execution Having finished the branch conversion and recognizing 2018 as a year of transition, we have turned our attention 1 Benefit ratio measured to earned premium 2 Expense ratio measured to total revenue to optimization with the goal of yielding benefits in 2019. Four key areas of focus include:
Turning to the U.S., our overall profit margin is expected First, we are reviewing our Japan dividend policy as a to remain strong, and we believe it’s prudent for us to new subsidiary. We have a stated dividend policy of 80% reinvest some of these profits back into our business to of FSA earnings. However, this has resulted in a build both defend and build market share. of excess capital in recent years as FSA earnings have increased and credit conditions have been strong. Our Benefit ratios have been trending favorably for the overall low-risk profile gives us opportunity to increase past few years. We think trends in health care utilization dividend capacity. and hospitalization will continue in the near future, as consumers struggle to afford higher deductibles and Second, we are committed to our current risk-based copays. We generally price our products for higher benefit capital (RBC) drawdown plan, but will work with the rating ratios and, assuming the business performs to our pricing agencies and regulators to assess the risk profile of our expectations, we would expect some natural upward U.S. business for more efficient capitalization. There are a pressure on our ratios from new business over the long lot of moving parts impacting RBC currently, but we expect run. to make a case for our low-risk profile and ability to run at a more efficient level in time. 9 Third, we hold a level of excess capital and liquidity at We generated a little over $6 billion in deployable capital the holding company, but can better leverage that idle in the three-year period ending 2017. Importantly, recall capital to support a more efficient approach to reducing that 2015 was a period that included reinsurance benefiting enterprise hedge costs and our shareholder’s long-term FSA earnings in Japan and higher overall repatriation. In economic exposure to the yen. addition, this was a period of limited net impairments and realized investment losses. As we look forward to the Finally, we continue to work towards the optimal amount next three years, we benefit from U.S. tax reform adding of unhedged USD investments to hold and believe, with approximately $250 million to our annual deployable capital rising hedge costs, this is an effective use of excess capital and the drawdown of $1 billion of excess capital in the U.S. in Japan to improve net investment income over time. We have an opportunity to adjust our insurance subsidiary dividend policy. The range of annualized dividends paid by Capital Deployment: our insurance subsidiaries to the holding company of $2.0 to $2.5 billion simply represents the difference in 80% and Under Stable Conditions 100% of regulatory earnings. In the end, we see a three- year range in deployable capital of $6.5 to $7.5 billion. This all assumes stable market conditions and a productive 2015-2017 2018-2020 $6.1 billion1 ~$6.5bn to ~$7.5bn dialog with regulators and rating agencies.
Dividends With the exception of investing in core business growth and efficiency efforts, share repurchase continues to be the Repurchase standard against which all other alternatives compete for Opportunistic our deployable capital. We want to remain tactical in our use of capital for repurchase within our guidance range. Considerations As Dan noted, we are committed to maintaining our track record of cash dividend increases. Our dividend policy is • Run-rate annualized insurance subsidiary dividends2 of $2.0 billion to $2.5 billion guided by growth in adjusted earnings per share taken • Deployable Capital – excess capital after reinvestment in core together with free cash flow generation, and capital quality. insurance businesses • 2018-2020 range includes excess U.S. capital deployment of ~$1.0 We’ve allotted an “opportunistic” portion in our capital billion in 2018 and 2019 • Opportunistic represents amounts available for repurchase, deployment plans. We will look for opportunities to retention, or reinvestment enhance our business through corporate development activity, with a focus on digital distribution and leveraging 1 Amounts include repatriation of FSA earnings generated from reinsurance transaction; our franchise strengths of brand, distribution and scale. 2 Assumes average exchange rate of 110 ¥/$ and excludes dividend of excess This includes our venture investing within Aflac Corporate U.S. capital in 2019. Ventures covered earlier in my comments.
Our allocations illustrated here are not designed to be a Let me pull it all together for you as to what this means precise estimate, but directionally how we would show our for deployable capital. capital deployment priorities and approach. As is the case each year, we will give more precise guidance for 2019 on our December Outlook Call.
10 Capital Management Max Brodén Senior Vice President; Treasurer; Head of Corporate Development
2018 is a year of transition where we move capital As a reminder, Aflac Japan is now governed by the around the group, get better capital alignment and set us Japan Corporation Act, which states that the dividend up for a more efficient capital structure in the future. During capacity is composed of retained earnings plus other capital this process we are travelling with elevated capital and reserve less net after-tax unrealized losses on Available For liquidity levels at the holding company in order to facilitate Sale (AFS) securities. As our estimated dividend capacity is this long-term goal. sufficient, we think our dividend payout ratio is likely to be in the range of 80-100% in order to sufficiently fund growth Post the branch conversion we have continued to while also giving room for higher payouts when the SMR perform more economic analysis of our business, balance ratio and economic conditions would allow such action. sheet and risk exposures. This includes comprehensive stress testing, which gives us comfort to execute on Our Economic Solvency Ratio (ESR), which is based on a number of capital management initiatives due to the internal models or in other words our historical experience, financial stability of all of our legal entities. In both Japan in line with common practice for Solvency 2, continues and the U.S., this includes a refreshed view of determining to be a guiding model for capital decisions and regularly dividend payout ratio. In the U.S., we continue to draw reported to the FSA through our Own Risk and Solvency down our RBC ratio toward 500%, and at the holding Assessment (ORSA) submission. This ratio is in the 160- company we are deploying capital to internalize hedge 170% range without an Ultimate Forward Rate (UFR), costs and lower the investor exposure to the yen. which we estimate would add 70-80 points if incorporated.
All these projects have a common theme: they are FSA field testing of an economic solvency ratio is driven and underpinned by an economic value perspective influenced by the development of International Capital and framework, as well as disciplined risk management. Standards, or ICS, which remains fluid and is not expected to be adopted before 2025. Our ICS ratio is currently Aflac Japan Capital Optimization lower than ESR primarily due to more severe prescribed morbidity and lapse risk charges compared to our internal model and our experience, but it is still at a healthy level. SMR ~950% FSA Earnings Projection Overall we have a strong economic capital position. (as of June 30, 2018) (Fiscal year ending March, ¥ in millions)2 220,000 350% Includes 210,000 Market Unrealized 200,000 Gains Volatility Aflac U.S. Capital Optimization Provision 190,000 Framework 180,000 Minimum 600% 170,000 160,000 $1 billion capital drawdown began in 2018 – 2019 150,000 Targeting RBC of ~500% by year-end 2019 500% 2018 2019e 2020e 2021e Regulatory Represents asset impairment and realized Drawdown of Pro Forma U.S. Statutory Earnings Projection Minimum 200% loss budget U.S. Stand-Alone RBC (Year ending December, $ in millions) 900 2018e 2019e Dividend Policy 800 SMR Sensitivity as of June • Up to 100% of FSA earnings RBC before drawdown ~850% ~650% 700 1 U.S. excess capital 600 30, 2018 (% points ) (previously 80%) $500mm $500mm utilization1 500 Yen rates +1% (65) • AFS portfolio and foreign currency RBC after drawdown 1,2 ~650% ~550% 400 influences SMR, FSA earnings and Statutory dividend 300 Dollar rates +1% (50) Extraordinary Extraordinary ultimate dividend capacity: request 200 Yen strengthens +10 (45) 2017 2018e 2019e 2020e Represents asset impairment and realized loss budget Credit spreads +1% (95) Retained earnings Considerations + Other capital reserve 1 SMR sensitivities to rates, spreads and - Unrealized after-tax net loss on AFS • Tax reform Company Action Level impact of 75 points included in 2018 currency movement are not linear Dividend capacity forecast 2Assumes 110 ¥/$. • 2019 - 2020 annual statutory net earnings run-rate of $725 to $775 million • Ordinary dividend of 80% to 100% of U.S. statutory earnings
1 RBC projections include the full impact of tax reform and excludes the impact of proposed C-1 changes 2 Includes annual Aflac U.S. only dividends generated from operations at 80% of statutory net At June 30, 2018, we estimated Aflac Japan’s Solvency earnings Margin Ratio (SMR) to be 950%, which is down from the SMR of 1030% at March 31, 2018, immediately before Aflac Japan’s conversion to a subsidiary. The decline was Our U.S. RBC ratio and capital are developing according primarily due to a reclassification of retained earnings to to our drawdown plan laid out last year, with $500 million the other capital account within paid in capital, triggering of additional dividends over and above our normal statutory a temporarily lost tax gross up benefit of approximately dividends in both 2018 and 2019. This means that we 130 SMR points. We anticipate this will rebuild within three expect to end 2018 with an RBC of around 650% and years, as retained earnings grows due to dividends being 2019 around 550%. This includes the impact of tax reform, paid out of the other capital account. but excludes the impact of C1 changes. If we were to include our early estimation of C1 changes, this ratio would Earnings power remains strong, with FSA earnings decline by about 40 points. growth expected to be higher than Adjusted Earnings growth. This is important, as FSA earnings drives Our statutory earnings are growing and are supported regulatory capital formation and our dividend capacity. by strong benefit ratios and improved investment income
11 adjusting for the assets moved to the holding company as Now, there is a limit to how much we can do, due to a function of the drawdown. This gives us the opportunity the capital intensity of this activity. As of June 30th, the to plan for statutory dividends in the range of 80-100% Aflac Japan notional hedge balance was $9.8 billion, and of our statutory earnings. Over time we would expect our the internalized portion was $1.25 billion, generating an RBC ratio to be below the 500% level as we recognize the income of roughly $7 million during the second quarter of strength of the earnings profile, low risk and stability of our 2018 in the Corporate & Other segment. Returns on capital operations and low asset leverage, subject to discussions are very attractive, so over time we would like to grow the with ratings agencies and regulators. internalized portion, but we will take a measured and risk conscious approach. Internalizing Hedge Costs: Reducing FX Exposure Aflac Incorporated Strong Capital & Liquidity
• Enter into offsetting forward contracts at Aflac Capital Structure Aflac Incorporated Liquidity Incorporated to internalize hedge costs incurred in and Liquidity Objectives Aflac Japan KK Overview • Offset the yen exposure in Aflac Japan KK by • Maintain strong capital ratios and $mm 2016 2017 2018e investment grade ratings increasing the U.S. dollar exposure at Aflac Operating Cash1 $1,480 $2,683 $2,365 Incorporated • Support nimble investment in our strategic growth objectives - Capital Buffer2 $500 $1,000 $1,000 • Balanced shareholder distribution • The Japan policyholder remains neutral or benefits - Liquidity $250 $500 $500 from the project policy Support2 • Defend low cost of capital • Improve U.S. GAAP Adjusted Earnings on an annual Cash Available to $730 $1,183 $865 run-rate basis • Optimize yen and dollar financing Shareholders3 Key • Internalize hedge costs in the most capital efficient mix while managing duration Benefits way possible • Maintain leverage ratios within • Keep our cost of capital and ratings in line with the our current ratings current state
• Reduce net income volatility Notes Payable Maturity Profile 4 (In millions) $1,200 Yen Sub Call Date AFL Derivative Portfolios by Entity: 1,000 Yen (USD Equiv.) Mark-to-Market Movements Due to Changes In USD/JPY 800 225 538 USD Senior 600 USD/JPY Weakens (110 to 120) 400 700 750 550 540 200 350 450 400 45 300 224 257 0 Aflac Year 18 19 20 21 22 23 24 25 26 27 28 29 30 39 40 46 Mark to Mark to Aflac Japan KK … … Incorporated Derivative Buy JPY/Sell USD Market 1 Market Buy USD/Sell JPY Counterparties (U.S. Dollar Forward 1Total cash less non-operating cash (B2B Forwards/ Program) 2Balance based on internal policy Dividend Hedges) 3Net cash that may be deployable to shareholders at a given time 4As of 6/30/2018. USD notes based on issuance amount
USD/JPY Strengthens (120 to 110) 1Any third-party dealer Aflac Incorporated or Aflac Japan KK faces on derivative I have outlined strong capital generation and capital exposures. levels in the insurance subsidiaries. When we move up to the holding company, liquidity levels remain healthy Investors often tell us that when contemplating an with a total balance of $2.4 billion estimated at the end of investment in Aflac, there are two significant risks they 2018. When we determine any excess liquidity, we back evaluate and consider: the exposure to the yen and the out a minimum balance of $1 billion and $500 million that level and volatility of hedge costs. At the holding company, we currently have walled off to support our derivative we have launched an effort to reduce both of these risks. activities, leaving a year-end excess cash position of $800- 900 million. As you know, liquidity levels always fluctuate As you know, in Japan we buy U.S. dollar corporate throughout the year driven by receipt of dividend payments bonds and hedge them back to yen to synthetically create from subsidiaries, which means that Q2 and Q3 tend yen assets that match our yen liabilities. This also provides to have the lowest ending balances. This liquidity is not liquidity and a benefit from capital relief due to the currency trapped, though. It generates income and supports our hedge put on. foreign currency risk reduction activities described earlier, which generates a very strong return on capital. At the holding company, we have entered into forward contracts, which has resulted in the hedges becoming Our debt maturity profile is healthy, with an increasing internalized and by buying USD and selling yen, we are element of yen funding. We have become a regular issuer effectively lowering our overall economic exposure to the in the global yen market, which is very beneficial to us. We yen while the Japan balance sheet continues to hold a offer a stable, highly rated credit to yen credit investors, synthetic yen asset. while achieving better matching of our cash generation and coupon payments, lowering the enterprise economic The accounting follows the same concept as the hedge exposure to the yen and achieving a lower financing cost. costs in Japan, but simply in the other direction effectively We do expect the yen debt market to play a significant role internalizing a portion of the hedge costs incurred. in our future debt raising funding strategy.
Ultimately, this reduces our risk of hedge cost volatility, Leverage continues to travel at the lower end of our improves adjusted earnings as hedges are internalized, internal target range of 20-25%. As a result, we have reduces GAAP net income volatility and reduces the yen roughly $1.2 billion of potential senior debt capacity before exposure on an economic basis, enterprise wide. we reach our internal leverage constraint of 25%. However, 12 for value enhancing activities, we could temporarily go above this range, and our possible debt capacity is higher than $1.2 billion, including sub debt capacity, even without any disruption to our capital plans. We remain comfortable operating at a slightly lower leverage target despite having a low business risk profile, strong capital formation and capital levels in our insurance subsidiaries at a healthy level. Unlocking Incremental Excess Capital
Hedge • Internalize 10 to 25% of hedge costs associated Internalization with Aflac Japan’s hedged USD program
• Strong SMR and ESR supports an Aflac Japan payout ratio in the range of 80 to 100% »A 100% payout ratio would add ~$350 million Subsidiary to annual deployable capital Payout Ratio • Strong RBC supports an Aflac U.S. payout ratio in the range of 80 to 100% »A 100% payout ratio would add ~$150 million to annual deployable capital
Potential for $1 billion of incremental deployable capital for 2019-2020
I have portrayed a strong capital and liquidity profile of the company. This means that we see more cash finding its way to the holding company level in the future for future deployment. If we properly execute on these projects and assuming stable capital conditions, we will unlock a significant incremental amount of capital to be available for deployment in the 2019-2020 time period.
We expect to internalize the economics of 10 to 25% of our hedge costs. This number will fluctuate as we refine this strategy further as we move into 2019.
An increase of the payout ratio from 80% to 100% from our subsidiaries would add about $350 million from Aflac Japan and about $150 million from Aflac U.S. to deployable capital. Adding this up over two years, sums up to $1 billion of incremental deployable capital during the 2019-2020 time period, which is a very significant amount.
13 Aflac Global Investments Eric M. Kirsch Executive Vice President; Global Chief Investment Officer
2018 Investment Themes Defending against low JGB yields, we have expanded yen fixed income to assets including private placements and Japan local corporate debt, allowing Investment Performance has added us to diversify from JGBs while picking up incremental value across a number of dimensions yield commensurate with the credit risk that we carefully Hedging Strategy Expanding Yen Fixed Income underwrite. In addition we designate the majority of these • Aflac Japan Dollar Program • Navigating low Japan yields assets as “policy reserve matching” for ALM purposes • Three pronged approach • Private placements which reduces potential capital volatility. • Floating rate strategy growth • Yen public credit • Navigated Libor volatility Global Investments found new tactical asset allocation • Hedge ratio steady ~40% Diversification and Enhanced trades this year as a result of U.S. tax reform. In Japan, »Stressed economic value of Aflac Yields vs JGBs ALM we executed on a $1.2 billion switch trade, diversifying Japan Duration with Low Volatility investment grade exposure to stratify maturity dates and Improved NII less Hedge Costs (PRM) reallocate among new corporate bonds and floating rate Tactical Asset Allocation Evolution of transitional real estate loans, while picking up $18.3 million Aflac Global Investments • US tax reform provided switch trade of annual net investment income. opportunities • Converted to a subsidiary: 2 »Aflac Japan $1.2bn January 1 2018 And for Aflac U.S., tax law made investing in municipal »$11.2mm NII Impact, $18.3mm • Harvested NXT equity stake ~ annualized1 15% IRR bonds favorable on an after-tax basis, and we executed »Aflac US $500mm tax advantaged • SAA recalibration a $500 million switch trade out of investment grade munis corporates. »$2.1mm after tax income impact, $3.1mm annualized • Purchase of $1.1bn TRE portfolio We not only picked up income (approximately $3 million of after-tax income), but upgraded quality from BBB+ to Improved Income and Exploring Opportunities to AA. Finally, through our strategic relationship with NXT, Diversification Leverage Our Platform we were able to purchase a $1.1 billion bulk portfolio of 1Post Hedge Costs. See the Appendix for a definition of hedge costs, which is a non-GAAP financial measure 2Aflac Asset Management LLC; Aflac Asset transitional real estate loans at favorable terms early in the Management Japan Ltd. year, which helped accelerate the growth of our floating rate portfolio and improve income. As you know, the market environment has remained a challenge with low yields in Japan, higher hedge costs, Aflac Global Investments successfully converted into and broadly tighter spreads across all fixed income asset a legal subsidiary on January 1st as part of the broader classes. Conversely, opportunities presented themselves Japan branch conversion of Aflac. This conversion further that Global Investments was able to execute on. Let me promotes our business of asset management; leverages highlight major investment themes and how we were able the success of the NXT equity investment we recently to generate solid performance results, driving increased harvested and enjoyed a 15% return on; and promotes investment income while managing risks. finding new ways to leverage Global Investments for unique investment opportunities. One of our most important initiatives was implementing the three-pronged approach to the Aflac Japan dollar Finally, we are in the final stages of the regularly planned program. three-year strategic asset allocation analysis. While we don’t expect significant changes, we are carefully analyzing We successfully transitioned on January 1st, and since which, if any, impacts there may be from the conversion of that time have achieved growth in the floating rate asset Aflac Japan to a subsidiary, given the changes on capital program, transitioning to short dated hedges tracking the and dividend rules that go along with it. Similarly, for Aflac duration of the floaters and stabilizing the net income of the U.S., we are carefully examining RBC and dividend rule program. In addition, with LIBOR increasing this year, our impacts post the JLP conversion date. We expect our floating rate income is ahead of our budget, while hedge analysis to be completed during the fourth quarter. costs were predominately locked in as we termed out our hedges for the year.
14 Aflac Japan Portfolio Asset Allocation Aflac U.S. Portfolio Asset Allocation1 Based on BV (US GAAP) as of 6/30/18 Based on BV (US GAAP) as of 6/30/18
Portfolio Asset Allocation Portfolio Asset Allocation
6/30/2017 6/30/2018 6/30/2017 6/30/2018
5% 5% 5% 5% 4% 20% 8% 2%1% 18% 2% 1% 1% 3% 50% 1% 4% 50%
81% 24% 22% 86%
IG Corporates Munis JGBs Yen Private Placements 3 4 3 4 Other USD Fixed Rate USD Floating Rate Other Yen Fixed Income USD Fixed Income 5 USD Floating Rate 5 Growth 6 Growth Assets
Book Value: $95bn $102bn Book Value: $13bn $13bn
Duration: 13.6yrs 13.5yrs Duration: 8.9yrs 9.0yrs
New Money Yield: 1.54% 2.88% New Money Yield: 4.40% 4.33%
Book Yield: 2.55% 2.59% Book Yield: 5.54% 5.53%
New Money Asset Allocation1 New Money Asset Allocation2 ¥935bn $1,150bn MMLs (Floating) 3% 5% 4% CMLs 6% Other USD Fixed 4% 7% 12% 2 8% Growth Assets $ Growth 13% Bank Loans (Floating) 25% MML (Floating) 15% IG Corporates 7% Infra Debt 10% TRE (Floating) Corporates ¥ Private Placements TRE (Floating) 45% 35% Yen Public Credit Municipals
JGBs YTD 6/30/2018 YTD 6/30/2018
Asset Allocation Highlights Asset Allocation Highlights • 52% to Yen denominated assets; 48% to USD denominated • 22% of new money allocated to floaters assets • 45% of new money allocated to munis – switch trade • 32% of new money allocated to floaters • Modest pacing of growth assets – 6% • 17% of new money allocated to yen public and private fixed income Note: Percents may not add to 100 due to rounding 1Aflac US Segment; excludes Aflac Inc. and CAIC Retrocession 2Includes Equity • Modest pacing of growth assets; 4% Rebalancing 3Other USD fixed rate includes Government, Agency (foreign and supranational), CMLs, Infrastructure, securitized Assets and High Yield Corporates Note: Percent's may not add to 100 due to rounding 4 1 2 3 USD floating rate includes Middle Market Loans, Bank Loans, Transitional Real Includes Equity Rebalancing Includes CMLs, and HY Corporates Includes 5 RMBS, Municipal Bonds, Corporate Bonds, 4Includes HY Corporates, CMLs, Estate Includes US Equity and Alternatives Infrastructure 5Includes Transitional Real Estate, Middle Market Loans, Bank Loans, Infrastructure (floating) 6Includes Japan/US Equity and Alternatives
On this page, we see similar portfolio details for Aflac On this page you can see the Aflac Japan portfolio year U.S. Let me highlight the increased muni exposure over year through June 30th. I’ll highlight that our new resulting from tax reform and the switch trade. As a money was approximately split 52% to yen and 48% to result of tax reform, and working with our Tax team, muni dollars, with dollar investments focused on the growth of income is 70% excludable from U.S. taxable income, the floating rate portfolio and loans. Floaters now represent therefore providing a beneficial after-tax advantage. With 5% of the portfolio from 2% last year. New yen assets were that analysis, we identified high-quality AA municipals diversified, but concentrated in Japanese Government and swapped out of lower-rated, BBB+ investment grade Bonds (JGBs) for their ALM characteristics. credit. We like trades that increase credit quality while enhancing income!
I’ll also highlight growth in floaters, which we find attractive relative to fixed-rate bonds and the fact that it also provides diversification benefits.
15 Aflac Japan Dollar Program Transition Aflac Japan USD Program: Investment and Hedging Strategy Based on BV (US GAAP) as of 6/30/18
Dollar Portfolio (6/30/18) 3 Pronged Evolution 2, 3, 4 6/30/2017 6/30/2018 AUM (bn) MV ~23bn MV ~25bn 15 15 15 13 Unhedged: 51%1 12 Unhedged: 60%1 9 8 Hedged: 49% Hedged: 40% 1% 6 6 5 5 4 3% 3% 3 3 4% 2 9% 24% 2% 2% 2Q17 3Q17 4Q17 1Q18 2Q18 Group 1 Assets Group 2 Assets 70% Group 3 Assets 80% • Group 1 targeted for asset growth • Group 2 & 3 impacted by hedge IG corp. Floaters CMLs & infra. ratio HY corp. Growth Assets Portfolio Metrics and Net Investment Income Analysis YTD (6/30/18) 2,3,4 Three Market Asset Hedge Gross Hedge Net Gross Hedge Net Prongs Value Duration Duration Income Costs Income Implied Costs Yield5 ($bn) (yrs) (yrs) ($mm) ($mm) ($mm) Yield (Monthly Avg AUM) Group 1 5.8 0.2 0.3 127.2 (54.0) 73.2 5.54% 2.39% 3.15% Group 2 4.1 8.5 3.6 80.6 (56.0) 24.6 3.67% 2.34% 1.33% Group 3 14.8 8.2 - 311.4 - 311.4 4.11% - 4.11% Total 24.7 6.4 N/A 519.2 (110.0) 409.2 4.32% 0.90% 3.42% 1Economic market value of unhedged USD exposure) 2Group 1 assets Includes: BL, MML, TRE, infrastructure (floating) 3Group 2 assets Includes: CML, IG 4Group 3 Assets includes; Equity, High Yield, IG, Infrastructure, alternatives (excluding RDC income 5Not Including internal or external investment expenses; excludes alternative assets from net yield
Let’s review implementation and key metrics. Over the past year, the portfolio grew by about $2 billion, targeted to the floating rate assets, which now make up 24% of the overall program, up from 9 percent over the past year. Let me turn to the Aflac Japan dollar program. This slide You can see on the top right, growth in the dollar program should be familiar, as we presented this last year. It lays is targeted in Group 1, the floaters. Groups 2 and 3 stay out the foundation for the three-pronged approach. stable in total size.
On January 1st we officially segmented the portfolio into Hedges are adjusted between them to maintain the three groups. Group 1’s focus is on floating rate assets 40% hedge ratio. The bottom left table shows the duration and short duration hedges with a strategy to closely match of our asset and hedges, implemented within the new the duration of the assets and hedges. Group 2’s focus is approach. On the bottom right, you can also see income on long term bonds with longer duration hedges, though and hedge costs by group. Group 1, the floating rate we expect and are willing to have a duration gap between assets, enjoys a high average yield, which has actually assets and hedges to reduce hedge cost volatility against increased during the year as LIBOR has ratcheted up the asset yields. And finally Group 3, the focus of which is above our planned assumptions. Hedge costs for Group on all remaining long-term assets, which are not hedged. 1 are running at about 2.39%, which is fairly lower than As you recall, we determine the amount of unhedged today’s three-month hedge costs running at about 2.62%. dollar exposure, or said another way, the hedge ratio, by You’ll recall we termed out our Group 1 hedges for existing gradually adjusting it over time toward the risk-adjusted assets last year in anticipation of rising hedge costs. The economic surplus of Aflac Japan. Fred and Max further net effect is that we have enjoyed higher income from describe that process in their presentations. LIBOR increases while mitigating cost increases for 2018.
Let me also comment that in July, we implemented a floating for fixed LIBOR-based swap to partially protect our income in the event LIBOR comes back to normal levels. While not material to our expected results this year, you should know that we use tactical decision making and derivative tools when it makes sense to proactively manage this growing portion of the portfolio.
16 As we approach the end of the year, the termed out When we model these factors into how our portfolio is hedges for Group 1 will be rolled and their costs will be structured and managed, and assume the current market closer to the current market levels. Offsetting this will be environment continues, our preliminary planning for 2019 the higher amount of income we are already enjoying. shows general account net investment income as stable, with modest growth the following years. Of course any The net income will be in line with what we would have changes to these factors or Aflac policies may influence the expected had we just been rolling every three months all results. We’ll cover more on this at the December outlook along. Our strategy allowed us to enjoy better 2018 results. call later this year. Investment Income and Credit I also wish to note that we feel well prepared for if and when the credit cycle turns, which will result in higher Performance Well Positioned levels of impairments and losses for insurance companies and credit investors. As you know, we have managed Market Factors Credit Cycle the portfolio to be within well-defined risk limits. We have US and JPY Rates • 200 IG Historic OAS followed a strict set of underwriting criteria by our global • FX ¥/$ 160 credit team for new investments, and we continually review Markets • Credit Spreads 120 the portfolio for credit risk. While we won’t be immune to • Hedge Costs 80 a cycle shift, I am confident in our ability to outperform 40 and have credit results that are within the forecasts we 0 12/12 06/13 12/13 06/14 12/14 06/15 12/15 06/16 12/16 06/17 12/17 06/18 have established and reflected in our capital planning and budgeting. Aflac Incorporated Global Investments • Optimizing Capital • Strategic Asset Allocation Aflac Global Investments • Subsidiary Dividend • Tactical Asset Allocation Policy is Driving Performance Aflac • New Money Reinvestment Yield • Managing currency risk • Floating Rate Income • Internalizing Hedge • Hedging Strategy Costs Diversification & risk mitigation • Disciplined Credit Underwriting ü Income enhancing investments ü As you know, investment results are impacted by a number of variables, some out of our control. Those Strategic investment opportunities ü out of our control, such as market factors listed here have moved into a new regime. We have moved from an Dynamic hedge strategy accommodative central bank policy to a more restrictive ü one given greater economic growth and inflation. Evolving Asset Management Model ü We are now in more of a rising rate environment. While we have enjoyed a benign credit environment, that too will shift, though the timing could be a year or two out.
Within our control are Aflac policies and the objectives you are familiar with, and certainly have an impact on how we manage the portfolio. Fred and Max’s presentations address Aflac’s approach to managing capital, liquidity and other policies impacting the hedge program. Simple In closing, the Aflac Global Investments team is examples include the use of excess capital in Japan to focused on generating positive performance in all market support a larger unhedged USD portfolio, as was the case environments. in 2018. Alternatively, should we move additional capital out of the insurance subsidiaries, this has an obvious Our challenge of finding unique and safe assets impact on general account segment net investment that fit our balance sheet and capital, while protecting income. In some cases, what is good for our shareholders policyholders, is a large one. We will continue to evolve our may be headwinds to net investment income. asset management model, looking for growth opportunities that build capability, outsource it or even buy it through While Aflac Global Investments must consider both equity or joint venture opportunities. We believe this aligns these external and internal factors, we have a variety of well with Aflac’s objectives of safety and growth. active management tools at our disposal to add value and generate returns. I’ve listed a number out here, and we have an established track record of success with each of them.
17 Actuarial and Risk Discussion Albert A. Riggieri Senior Vice President; Global Chief Risk Officer and Chief Actuary
Global Risk Framework Pricing and Reserving Assumptions for Aflac Japan and Aflac U.S. • RBC* » Maintain ratio above 400% - 500% • Morbidity » FX and credit sensitivity • Mortality • SMR • Persistency » Maintain ratio above 500% - 600% • Expenses » AFS sensitivity • Investment returns • ESR » Monitoring with current ratios strong » Based on internal models » Further development and field testing ongoing Product pricing and reserving includes assumptions for morbidity, mortality, persistency, expenses and investment * RBC threshold reflects impact of US tax reform and updated C1 risk factors returns. In Japan, the product pricing assumptions are approved by the FSA. Premiums are calculated using assumptions that include provisions for adverse deviation, Over the past few years, management has utilized or PAD. These assumptions may be more conservative Aflac’s U.S. statutory risk based capital ratio, or RBC, than those used for GAAP reserve calculations. No explicit and Japan’s solvency margin ratio, or SMR, to help set margin for profit is added in pricing products. Instead, appropriate objectives for capital and risk management. profit margins arise from the pricing PAD. We have also expanded our management decision-making toolkit by establishing an economic capital framework The interest rate assumption for product pricing is in Japan. This framework aids our efforts to measure established by each company in Japan and must be and manage risks related to investments, insurance and justified to the FSA. The rate may vary depending onthe operations based on company-specific assumptions. With type of product. For example, we typically use a lower the completion of Aflac Japan’s conversion to a subsidiary, interest rate for pricing first sector products than for third we have a much clearer and more direct picture of these sector products. Other pricing assumptions, such as key solvency metrics for each of our U.S. and Japan morbidity and persistency, are also reviewed and approved businesses, which guides our capital and risk management by the FSA. These assumptions may be developed based processes. on Aflac’s experience, industry experience, national statistics or a blend of this data with PAD incorporated. We are also monitoring our Economic Solvency Ratio (ESR) in Japan, which is in the field-testing stage with The persistency assumptions are generally higher than Japan’s FSA and in which we are participating. This our actual persistency as this represents PAD for our measure is the economic surplus divided by the economic products. For products with cash values, we generally value of risk. Currently, our ESR remains strong at 160- assume no voluntary lapses. For products without cash 170% without the use of the ultimate forward rate, which values, we use a low level of voluntary lapse in each year. adds 70-80 points to this result if incorporated. We have also developed an internal enterprise economic value The expense assumptions reflect our actual operational model that is considered preliminary and is currently costs. Aflac Japan’s cost structure per policy is favorable subject to additional internal and external third party when compared to other life insurance companies in reviews. The economic valuation model, while preliminary, Japan. Reflecting the efficiency of our operations inour is not inconsistent with gross premium valuation results product pricing allows us to maintain a competitive edge in and other conventional methods of valuing the enterprise. our premium rates. This model provides management with an additional layer of sophistication in making critical strategic and We perform additional profit testing which removes financial decisions incorporating an enterprise risk-adjusted PADs and measures profits based on best estimate framework. assumptions. We target an explicit profit margin expressed as a percent of premium. Recently we have increased our Economic capital-based models, in conjunction focus on return on capital for our Japan products to ensure with stress testing regulatory capital, have been used that we are adding value by exceeding our cost of capital. to develop quantitative risk metrics around investment risks, such as interest rate, credit and foreign exchange, For Aflac U.S., we tend to base pricing and reserving as well as insurance risks, including persistency and assumptions on our own experience, including some morbidity. The risk levels are measured periodically and provisions for adverse deviation. In addition, it is our are used in setting risk tolerances for the company. Our practice to target an explicit profit margin, expressed risk management philosophy starts with an examination as a percentage of premium. Because most of our of the characteristics of our liabilities. Then we identify products do not consume significant amounts of statutory the appropriate level of investment risk, in addition to capital for a long period of time, we historically have not economic and regulatory surplus levels, to ensure our priced on a return-on-capital basis. However, we have policyholders are protected. started including return-on-capital metrics in our pricing 18 and profitability analysis to be sure we are growing the Aflac Japan economic value of the company by generating returns in Investment Return Assumptions excess of our cost of capital.
FSA Reserve Assumptions Life/Health (Aflac Japan) » GAAP: 1.00% - 2.00% » Pricing: 0.40% - 1.25%
• Net level method » FSA: 0.25% • Standard interest rate – 0.25% Note: Annuity line removed due to no longer selling • Lapse rate – lower than or equal to pricing basis • Mortality – standard mortality table • Morbidity – pricing basis with stress testing Our GAAP reserve assumptions generally use higher investment return rates than either the pricing or FSA reserving assumptions since the latter are conservative. GAAP assumptions generally use claim and persistency In Japan, we are required to use specific reserving assumptions that are derived from our actual experience, methods, as well as certain minimum assumptions for our or from assumptions used in the product pricing when FSA reporting. The net level premium reserving approach we don’t have enough of our own credible experience. required by the FSA is similar to what we use for GAAP We have reduced the GAAP reserve interest assumption reporting. Benefit reserves begin building within the first applied for new issues for most product lines to reflect the policy year. Unlike GAAP reporting, where we are allowed current low interest rate environment. This is something we to defer certain costs of acquiring business, FSA reporting monitor closely and have the ability to adjust with each new doesn’t make any allowance for the first-year profit strain product generation or issue year. of issuing a policy. In addition, the interest rates, lapse assumptions, mortality tables and morbidity rates required for the reserve calculation generally result in reserves Aflac Japan Expected that are larger than those calculated using the pricing Benefit Ratios by Product assumptions. The Japan standard interest rate is the rate required for determining FSA-based reserves. The standard interest rate is based on average 10-year JGB Third Sector Traditional cancer life 63% - 73% rates over a period ending in September of the prior year 21st Century cancer life 50% - 60% using the smaller of the three-year average or 10-year Cancer Forte 48% - 60% average. Cancer DAYS 50% - 55% EVER and Gentle EVER 47% - 65% FSA Standard Reserving Rate Riders to cancer and medical 40% - 53%
First Sector March 1996 & Prior Equivalent to Pricing WAYS 65% - 82% Child endowment 84% - 96% April 1996 2.75% Other 1st sector products 60% - 75% April 1999 2.00% April 2001 1.50% Now, I would like to review the expected benefit ratios April 2013 1.00% for our major products in Japan with regard to pricing April 2017 .25% expectations. The traditional cancer life product that we were selling through the 1990s had a full cash surrender Note: From 1996 to 2001, changes only apply to first sector products. value, or CSV. To offset some of the effect of the 1999 After July 2001 and forward changes apply to first and third sector products. premium rate increase on newly issued cancer life policies, which was caused by a lower assumed interest rate, we elected to reduce cash surrender values. Reducing CSVs kept the premium level attractive to consumers. It also lowered the benefit ratio. Our traditional cancer insurance The standard interest rate was lowered to 0.25% for policies had a benefit ratio range of 63% to 73%. Our business issued from April 2017. Our re-pricing of first current cancer insurance products, including the New Days sector savings and protection products in 2016 and 2017 product introduced in April of this year, have benefit ratios took this into account. For third sector business, we have that range from 50% to 55%. been lowering our assumed interest rate for pricing as part of our product development cycle to minimize first-year The expected benefit ratios from pricing of our medical strain due to low standard reserve rates. The FSA has products are 47% to 65%, including our substandard also adopted an updated standard mortality table which product, Gentle EVER. The riders to our cancer and assumes greater longevity and will be applied to new medical products range from 40% to 53%. First sector business issued after April 1, 2018. The impact on our first insurance products, including WAYS, have expected sector products is minimal, and we have incorporated this benefit ratios from 65% to 82%. Our child endowment into our third sector product pricing as new versions have product has a higher benefit ratio ranging from 84% to been introduced. 96% due to the heavy savings element in this product.
19 We have observed some favorable movement in our total For several years now, we have walked you benefit ratio as a result of our product shift mix, particularly through GAAP reserving and illustrated how favorable as we have reached the paid up status of five-pay WAYS claim experience emerges under GAAP accounting products, which have higher expected benefit ratios than rules. Understanding this is an important element in our third sector products. Although somewhat muted, we understanding Aflac’s current and future outlook, as we expect to continue to see this effect as the WAYS in force have experienced favorable claim experience and claim continues to reach paid-up status. trends on our core health lines. Aflac U.S. Statutory Reserve Assumptions GAAP reserves are computed using the net level premium method. Under this approach, benefit reserves begin to build in the first policy year. Certain expenses • 1- or 2-year preliminary term for health associated with the cost of acquiring new business are capitalized and amortized over the premium paying period • Interest rate – generally lower than pricing of a policy. The combination of the net level premium • Lapse rate – prescribed, generally lower than reserve methodology and the capitalization of acquisition pricing basis costs results in an expected profit emergence pattern • Mortality – pricing basis or lower for health that is a fairly level share of premium revenue over time. However, there are various acquisition costs we are not • Morbidity – pricing basis with load and some prescribed tables allowed to defer, so the expected profit in the first policy year is usually much lower than in other policy years.
In the United States, premium rates are filed with each Claims vs. Reserves state Department of Insurance. When we file products, we must demonstrate that premiums are reasonable in Incurred relation to the benefits provided by the policy. Many states 160% claims also require that we demonstrate the product experience 140% will meet or exceed a minimum loss ratio requirement. 120% For most of our U.S. health products, we use a two-year Deduct from preliminary term method for calculating statutory benefit 100% Net Premium reserves reserves. With this method, benefit reserves begin building 80% during the third policy year. This feature helps mitigate the 60% surplus strain caused by issuing new business. Statutory Add to 40% reserves Net Premium reporting prescribes the maximum interest rates that can Incurred be used in the reserve calculation. The lapse assumptions, 20% claims mortality tables and morbidity rates are generally based 0% on our pricing assumptions with an added margin for 0 5 10 15 20 25 30 35 40 conservatism. Policy Years Aflac U.S. Investment Return Assumptions This simplified schematic shows why benefit reserves are provided and illustrates the relationship between Life/Health incurred claims and benefit reserves. The policyholder » GAAP: 3.75% pays a level premium each year. In early years, incurred » Pricing: 3.50 - 4.00% claims are lower than the premium, net of expense loads. » Statutory: 3.50% The difference between the net premium paid and claims incurred is added to the benefit reserve. In later years, incurred claims exceed the net premium and the benefit In the United States, all of our currently issued products reserves are released to accommodate the higher claims. use a 3.75% investment return for GAAP reserves. That is generally in line with our pricing assumptions, which are In theory, GAAP benefit reserves are derived in such currently between 3.5% and 4%. We monitor interest rates a way that gross profits would emerge in a fairly level very closely to determine whether we need to update our pattern over time. However, GAAP benefit reserves are assumption. For statutory accounting purposes, we use a required to include a provision for adverse deviation, or 3.5% interest assumption for all new business. PAD, which suppresses the profit somewhat in the early years of a policy and magnifies the profit in later years. In any period where the actual incurred claims are lower than GAAP Reporting the expected amounts, a morbidity gain will emerge into profits as we have seen in Aflac’s businesses.
• Benefit reserve uses net level premium method It is too early to comment on the specific impacts of • Certain acquisition costs are capitalized and put into a the new FASB standard for targeted improvements for deferred policy acquisition cost asset long duration contracts, as interpretations and practices • The deferred policy acquisition cost asset is amortized over the premium paying period of a policy have not yet settled across the industry. We have begun planning for a 2- to 3-year period of implementation • Requires a provision for adverse deviation (PAD) in the benefit reserve calculation activities.
20 Aflac Japan’s Product Mix – In-Force AP In the case of limited-pay policies, U.S. GAAP requires (In Billions) that a deferred profit liability, or DPL, be established during the premium paying period. The DPL grows during the premium payment period and is released through ¥1,600 benefits over the remaining life of the policy after the 1,400 contract becomes paid up. The changes in the DPL flow 1,200 through policy benefits along with changes in other benefit reserves. In this way, profits emerge fairly evenly over the 1,000 life of the policy. 800 600 Limited-Pay Policy 400 Accounting – 5-Pay Example*
200 Profits Profits 0 Policy Earned Chg Chg without DPL with 2004 2009 2016 2017 6/17 6/18 Year Premium Claims Comm NBR DAC DPL Chg DPL Cancer Medical* Other WAYS Child Endowment 1 2,000 100 1,600 1,000 1,200 500 250 250 *Includes stand-alone medical, Rider MAX and other medical riders 2 2,000 200 100 900 -300 500 250 250 3 2,000 300 100 800 -300 500 250 250 4 2,000 400 100 700 -300 500 250 250 In 2009, our cancer block of insurance accounted for 5 2,000 500 100 600 -300 500 250 250 50% of in-force premium, while medical accounted for 6 600 0 -600 0 -250 250 30% of total in-force premium and WAYS represented 7 700 0 -700 0 -250 250 just 2%. As of June 2018, cancer, medical and WAYS 8 800 0 -800 0 -250 250 accounted for 42%, 27%, and 9% of total in-force 9 900 0 -900 0 -250 250 premium, respectively. This represents a mix shift to 10 1,000 0 - 0 -250 250 more cancer and medical premium over June 2017 as a 1,000 result of strong third sector sales and the premium from *Assumes 10-year policy with a 5-pay option in yen WAYS policies becoming paid up. Once a policy becomes paid-up, it is not counted in the in-force AP number and no longer contributes to earned premium. WAYS annualized The above slide is a simplified numerical example premium becoming paid up will amount to about ¥20-25 demonstrating a single policy using limited-pay accounting. billion in 2018, ¥15-20 billion in 2019, and ¥10-15 billion This shows how profits would be recognized with and in 2020. This will continue to impact our overall benefit and without the changes in the DPL for a policy with 10 years expense ratios. of benefit coverage paying premiums for five years. For simplicity, we are assuming annual premium of ¥2,000, a Limited-Pay Policy Accounting discount rate of zero, no terminations due to mortality or voluntary lapses, and excess first-year commissions are deferrable. • Premiums recognized as revenue over scheduled premium paying period In this example, you can see that the net benefit reserve, • Reserves include provision for adverse deviation or NBR, is released during the period after premiums are • Lock-in principle paid up as claims are incurred, and as net premiums are • Deferred acquisition costs (DAC) amortized over premium no longer being added to NBR. You can see this impact paying period playing out in our 2017 and 2018 year-to-date financial statements. Note that this is largely geography and does not increase our overall benefit ratio. Now, I would like to provide information regarding our limited-pay products in Japan. First, I will review the With the DPL, profits are reduced during the premium accounting practices for our ordinary life products. Most period and recognized over the remainder of the contract’s of our products, where premiums are paid over the life of life as the DPL is released. In this slide, we have added the contract, are accounted for as long-duration contracts the DPL to illustrate the impact. This accounting treatment under GAAP. For policies where the scheduled premium is important to understand as you will see a significant period is shorter than the benefit period, we are required to impact from limited-pay products in our future financials. use limited-pay accounting. Premium income will decline as policies reach paid-up status. The benefits will also decline as the NBR and the Limited-Pay Policy Accounting DPL are released, allowing profits to be recognized over the remaining life of the limited-pay contracts, even though no premium revenue is being recognized. The net result • Deferred Profit Liability (DPL) is that profit recognition for both the lifetime-pay and the » Established to recognize profits over life of policy limited-pay contracts will be similar in relation to policies in • Profits emerge as a level percentage of inforce force.
21 Aflac Japan Actual vs. Tabular Claims most cases. Aflac’s total claims are expected to improve (Tabular = 100%) due to the effect of shortened hospitalization stays.
Also, the numbers of Japan’s hospitals and beds per 100% population have historically been higher than those of Europe and the U.S., but the number of hospitals is now Cancer dropping as the central government has implemented measures to diversify functions among hospitals, thereby 80% First Sector reducing the number of such hospitals focused on long- EVER term hospitalization, mainly to offer nursing care to the elderly suffering chronic diseases. As a result, the total 60% Rider MAX number of hospitals was down to 8,389 in 2018 from more than 10,000 in 1993. Aflac Japan Trends in Sickness 40% 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Hospitalization (Average Length of Stay)
We have experienced favorable claim trends for our 100% core health products in Japan. Actual cancer life claims 98% EVER as a percentage of tabular claims continue to decline 96% since 1993 and were about 64% as of 2017. EVER claims 94% have also been lower than our original expectation since 92% that product’s introduction in 2002. The Rider MAX block is essentially a closed block of business and has 90% been influenced by increases in the surgery utilization. 88% It is important to note that this is still within our pricing 86% expectation. 84% Rider MAX 82%
The first sector product lines also show favorable ratios. 80% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 However, favorable claim ratios for first sector products have a smaller impact on profits than favorable claim ratios in third sector products. This is because benefit reserves, which include the cash value, make up a large part of the We have seen the effect of these government actions benefit ratio due to their savings element. in our actual experience. For example, with the sickness hospitalization benefit, we have seen a generally downward As we have shown you previously, our experience in trend in the average length of hospital stays for Rider MAX Japan related to the average length of stay in the hospital and EVER, with some leveling off in recent years. The next for cancer treatment has declined steadily for some time slide shows the hospitalization trends for cancer. now. As Japan’s social welfare system is strained, the Health, Labour and Welfare Ministry is taking various steps to reduce medical costs. Among those steps, shortening of Aflac Japan Trends hospitalization has been a key measure. in Cancer Hospitalization (Cancer Only, 24-Month Runoff) Specifically, since 2003, the Ministry has adopted a diagnosis procedure combination (DPC) method for its public health insurance system, which is a medical fee 150% Stays per claimant payment system similar to the U.S. diagnosis-related groups/protective payment system (DRG/PPS), thereby 120% aiming to shorten hospitalization days. The DPC method is Days per claimant a system to provide hospitals with incentives for shortening 90% hospitalization by leveling the daily hospitalization medical fee, which is a fee paid to hospitals depending on disease 60% name or medical act, at a fixed amount, so that a higher amount can be paid for short-term hospitalization. As a Days per stay medical fee payment system for ordinary hospitals offering 30% treatment during acute stage, a performance-based payment system is also available, apart from the DPC 0% 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 methodology. But each hospital has to choose either one of the two. The number of hospitals adopting the DPC methodology is gradually increasing, and the total figure of beds owned by DPC-adopted hospitals reached 488,563 Cancer treatment patterns in Japan are being influenced by April 2018, which is more than 50% of the total 891,926 by significant advances in early-detection techniques and beds for the same period. Benefit claims filed with Aflac by the increased use of pathological diagnosis rather than are mostly for cancer, myocardial infarction, or stroke, and clinical exams. Follow-up radiation and chemotherapy these diseases are treated at DPC-adopted hospitals in treatments are occurring more often on an outpatient
22 basis. Such changes in treatment not only increase the seen a generally downward trend in the average length of quality of life and initial outcomes for the patients, but also stay per hospitalization. decrease the average length of each hospital stay. In short, more people are surviving cancer, and those who continue While we generally do not project future improvements in treatment are generally living longer. in claim trends in our pricing, the impact of lower-than- expected claim costs over time and the emergence of While the average length of stay per hospitalization the profit from the better-than-expected experience have has declined, the number of hospital stays per claimant continued to have a strong impact on Aflac’s profit growth. has generally been increasing. However, since 2008, we have seen the stays per claimant stabilize and decline Aflac Japan Gross Premium Valuation slightly. Our analysis of claims data shows that the total number of days hospitalized per claimant is declining, but Net Position by Reporting Basis (% of Present Value of Premium) at a slightly slower rate than the average length of stay per hospitalization. We anticipate that the trend toward more hospital stays of shorter durations will continue going forward. GAAP FSA 35% Aflac U.S. Trends in Cancer Hospitalization 30% (Cancer Only, 24-Month Runoff) 25%
20% 110% Days per stay 15%
100% Stays per claimant 10%
5% 90%
0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 80%
70%
60% Each year, we evaluate the net margin position of our Days per claimant in-force block using a gross premium valuation. This
50% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 analysis projects financial elements of our in-force block of business through time and determines the expected future margin for that block of business. The expected margin is expressed as a ratio of the present value of future profits to the present value of future premiums. In this way, we In the United States, we are seeing a trend toward are evaluating the present value of future profit margins greater use of outpatient treatments for cancer. The expected to emerge over the remaining life of the business. average number of days per hospital stay for cancer The future profits are determined by taking the current treatment has leveled off in the last few years. The reserve for each reporting basis and adding in the present average number of hospital stays per claimant and the value of the net future cash flows, or premiums less claims total hospitalization days per claimant have declined and expenses. The present values are determined by considerably in recent years. We expect this trend to discounting cash flows using our projected portfolio yields continue. and by reflecting anticipated future new money yields. It should be noted that this is an actuarial calculation and Aflac U.S. Trends in Hospitalization is generally constructed with some conservatism in the (Average Length of Stay) underlying assumptions.
With the completion of Aflac Japan’s conversion to a 100% subsidiary, we now measure the Japan segment margins on a GAAP and FSA reserve basis only and no longer 95% measure margins under the U.S. statutory basis. The difference in profit emergence for GAAP and FSA earnings 90% is due to the difference in reserving assumptions and methodology. FSA reserve margins have historically been 85% stronger than GAAP. For example, in the early 2000s, Hospital Indemnity there were projected net FSA reserve margins of 15.7% compared with a GAAP result of 10.8%. Since that time, 80% the conservatism of FSA reserves has grown, which results in the FSA net margin diverging from GAAP. For FSA and
75% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 GAAP, the 2017 net margins were 29.3% and 18.6% respectively. We have been able to maintain very stable and relatively high margins since the financial crisis, due to favorable morbidity trends and, most recently, with the This data reflects our experience with the U.S. hospital incorporation of expected forward rates in our discounting indemnity product. For the past several years, we have assumptions. 23 Aflac U.S. Gross Premium Valuation In 2017, we incorporated further liquidity stress testing (% of Present Value of Premium) into our cash flow testing analysis. When tested for all products combined with our aggregate Japan investment portfolio, we can withstand significant liquidity stress from 35% GAAP Stat first sector products. In addition, we are also influencing
30% our strategic asset allocation (SAA) by including liquidity considerations into our portfolio efficiency analysis and 25% stress testing liquidity as part of that analysis. Finally, we
20% have increased our designation of policy reserve matching or PRM assets to reduce SMR volatility. 15%
10% We are also employing our GPV analysis through an ALM lens to optimize the size of our unhedged U.S. dollar 5% exposure in Japan. In the past, we targeted the size of our unhedged U.S. dollar portfolio in Japan relative to
0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 our U.S. GAAP equity. Over time we have progressed to more of an economic view. As part of our GPV analysis, we arrive at the best estimate yen liability and incorporate a reasonable PAD, which we match with yen assets. Any Aflac U.S. gross premium valuation results have been residual (assets) we view as surplus. The claim on this very stable at 15% to 16% for most years on a GAAP surplus resides with our shareholders, who ultimately want basis. For 2016 and 2017, the margin grew to 19% and that back in U.S. dollars. To minimize risk to shareholders, 20.8% respectively on a U.S. GAAP basis. Improvements we want to hold that surplus in U.S. dollars. In addition, we in the U.S. GAAP margins largely reflect overall, long- have a regulatory framework to which we must adhere, and term improvement in claims experience being reflected we must stress test the surplus assets so that the volatility in the claims assumptions in our projections, and, most that they might introduce to FSA earnings and SMR is recently, with the incorporation of expected forward rates within our risk tolerance. The resulting stressed U.S. dollar in our discounting assumptions. On a U.S. statutory basis, portfolio level becomes our target unhedged U.S. dollar the 2017 net margin was 30.3%. Much like Japan, these exposure. margins have been very stable through time. I hope that this has provided useful information in further Asset Liability Management (ALM) understanding our pricing methodologies, GAAP, FSA and U.S. statutory reserve and profit emergence, as well as understanding items that will impact our future financial results. • Cash Flow Testing with liquidity stresses • Strategic asset allocation (SAA) • Expansion of policy reserve matching (PRM)
24 Section II Aflac Japan Overview of Japan’s Political Economy Charles D. Lake II President, Aflac International Chairman and Representative Director, Aflac Life Insurance Japan
Roadmap to as Aflac Japan, as shown on the simplified organization chart on this slide. The conversion occurred on schedule and within budget, and it has enhanced Aflac Japan’s I. Post-Conversion Governance business development flexibility and aligned us more closely with widely accepted global regulatory frameworks II. Japan’s Macro Environment and corporate structures. In addition, the conversion led to greater transparency around cash flows and has impacted capital management for the group, which Fred and Max III. Japan’s Political Outlook and Economic Policy address in their presentations.
I will provide an update on Japan’s macroeconomic, At the same time, the conversion preserved Aflac political, and public policy issues relevant to Aflac Incorporated’s global group governance and formalized Japan to reaffirm that we continue to leverage our deep the pre-existing governance framework at Aflac Japan. understanding of these matters in developing business This global group governance framework supports and opportunities for the Company to ensure long-term growth enhances Aflac Incorporated’s ability to manage the for shareholder value. This presentation will provide the business soundly and prudently while allowing flexibility at background and context for Koide-san’s discussion of the entity level for consideration of local culture, business Aflac Japan’s strategy. circumstances1 and regulatory requirements. Before concluding, let me emphasize one important Post-conversion Structure and Governance point. Based on my experience serving on numerous Japanese boards, including the Tokyo Stock Exchange, I Maintaining Governance Best Practice at the Group and Subsidiary Levels am very pleased to note that Aflac Japan has successfully adopted best practices in governance that empower Aflac Aflac Incorporated Japan executives with business development flexibility while providing appropriate oversight in the context of Aflac Holdings LLC* global group governance. Continental Aflac Life American Family American Insurance Life Assurance Insurance Aflac Asset Aflac Japan Ltd. Company of Company Management* International Japan’s Aging Population (Aflac Japan)* Columbus (Aflac Group) and Low Birthrate American Family Aflac Asset Life Assurance (In Millions) U.S. Japan Management Company of K.K.* New York 140 Actual Estimate • Maintained existing global group governance framework: Aflac Incorporated Board and correlated internal management 120 committees, namely the Global Executive Management, Global 100 Risk, Global Capital, Global Investment committees. • Maintained boards and governance for pre-existing subsidiaries 80 and established the same at new subsidiaries. 2 60 • Formalized pre-existing governance at Aflac Japan with the 40 formation of a board of directors and statutory auditors, which is aligned with nearly 80% of first section-listed companies on 20 Tokyo Stock Exchange. 0 * New entities formed as part of the Aflac Japan branch conversion 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
Juvenile (0-14) Productive (15-64) Retirement (65+)
Before I cover Japan’s political economy, let me provide Source: National Institute of Population and Social Security Research, a brief comment on Aflac’s global group governance. Future Estimated Population of Japan 4 As you will recall, on April 2nd of this year, Aflac successfully converted its Japan branch to a local I will now provide a brief overview on Japan’s macro This copy belongs with the previous slide, beneath the blue/green chart. subsidiary, Aflac Life Insurance Japan Ltd., which we refer environment.3
25 A low birthrate and aging population continue to be Ruling Coalition Maintains Large among the most difficult challenges that Japan faces on Advantage over Opposition Parties the path to sustained growth. Japan’s birthrate has long been well below the 2.1 per woman needed to sustain House of Representatives (Lower House)* growth and currently stands at 1.43 per woman. Today, one in four Japanese citizens is over age 65, and by 2050, Liberal Democratic Party nearly 40% of Japan’s population will be aged 65 and over. Komeito
At the same time, the percentage of working-age people Constitutional Democratic Party of has fallen. DPFP Japan 39 Democratic Party for the People LDP Group of Independents These changes will affect every aspect of Japanese CDP 283 society and place growing pressure on Japan’s finances 55 Japanese Communist Party and social security system. Komeito Nippon Ishin 29 Liberal Party
Projected Social Security Benefits Social Democratic Party (In Trillions) *As of May 9, 2018 Party of Hope
Independents Other Child-raising Elderly Care Medical Pension House of Councillors (Upper House)** ¥ 240 ¥215.8 Liberal Democratic Party and 6 200 Party for Japanese Kokoro Komeito
160 ¥150.8 Democratic Party for the People and Shin-Ryokufukai Constitutional Democratic ¥120.4 ¥121.3 Party of Japan and Minyukai 120 CDP LDP / PJK Japanese Communist Party 23 125 Nippon Ishin 80 DPFP-SR Hope Coalition 40 24 Party of Hope Komeito Independents Club 0 25 FY 2017 FY 2018 FY 2025 FY 2040 Okinawa Whirlwind 5 Source: Ministry of Health, Labor and Welfare Voice of the People **As of August 5, 2018 Independents
As society ages, spending on health care and public pensions is placing an increasing burden on the Japanese Next, I will address Japan’s political outlook and 7 government’s fiscal outlook. economic policy.
For fiscal 2018, the projected cost of social security As Japan confronts difficult challenges arising from its benefits totals over 121 trillion yen. Government low birth rate and aging population, Japan has enjoyed a expenditures, on medical costs and elderly care in prolonged period of political stability. Nearly six years after particular, are projected to grow as the country’s returning to power, Prime Minister Shinzo Abe’s ruling population continues to age. coalition enjoys comfortable majorities in both houses of the Diet. The public continues to have significant concerns about the long-term viability of Japan’s universal health care On September 20 of this year, Prime Minister Abe was system. re-elected to a third consecutive term as president of the Liberal Democratic Party, or LDP. In the near-term, This concern over the public health care system leads to Prime Minister Abe will likely reshuffle his cabinet to ensure opportunity for Aflac as we aim to create shared value by continued and effective policy priority implementation. providing products to meet the changing insurance needs This re-election positions Prime Minister Abe to become in of consumers. November 2019 the longest serving Prime Minister since the Meiji Restoration of 1868. Aflac’s trusted brand and relevant products provide options for the millions who struggle to bear the financial burden of higher medical expenses.
26 Enhanced Abenomics Strategy a data-driven society. The Future Investment Strategy includes 143 pages of policy measures and 147 pages of implementation plans with measures to establish a Abenomics “Three Arrow Strategy” Enhanced growth strategies next-generation health care system, promote FinTech and a cashless society, use of regulatory sandboxes, and Arrow One: promote overall innovation in financial services. Bold Monetary Policy New Economic Policy Package Later, Koide-san will cover some of the ways in which Aflac Japan, with its innovation-driven corporate culture Arrow Two: Flexible Fiscal Policy and digital strategy, is acting on the business opportunities Future Investment created by the Government of Japan’s reforms measures. Strategy Arrow Three: Growth Strategy Japan in the Center of Global Free Trade Zone
8 Total GDP: With respect to economic policy, Prime Minister $22.18 trillion Abe continues to implement and enhance his vision Total GDP: Japan GDP: for economic reform, dubbed Abenomics. The Prime $22.18Japan trillion- $4.87 trillion EU EPA Japan GDP: Minister’s three arrow Abenomics strategy was designed Japan- $4.87 trillion U.S. GDP: EU EPA $19.39 trillion to enhance Japan’s economic competitiveness and U.S. GDP: includes “bold monetary policy,” “flexible fiscal policy,” and $19.39 trillion “structural reforms or growth strategy.” TPP 11 TPP 11 Since implementation began in 2013, the three arrow Total GDP: strategy has helped Japan achieve record highs in both Total GDP: $10.62 trillion nominal GDP and corporate profits. In an effort to support Source:Source: Ministry Ministry of Foreign of Foreign Affairs, Affairs,IMF WEO IMF WEO$10.62 trillion the growth trajectory, Prime Minister Abe’s Cabinet approved two respective economic reform plans – the New NegotiationsNegotiations underway: underway: Economic Policy Package approved in December 2017; • •RegionalRegional Comprehensive Comprehensive Economic Economic Partnershi Partnership p and the Future Investment Strategy 2018 approved in June (RCEP,(RCEP, 16 members) 16 members) • Japan-China-Republic of Korea FTA 10 of this year. These two economic reform plans are spin-offs • Japan-China-Republic of Korea FTA 10 from the original Abenomics third arrow growth strategy. I will elaborate. Even as it is pursuing domestic economic reform Japan’s Enhanced measures, the Government of Japan is also continuing to Growth Strategy Measures seek deeper economic integration with Asia and Europe through free trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, ü Focused investment period through 2020 or TPP-11, and the Japan-EU Economic Partnership New Economic ü Agreement. These two major agreements will go into effect Policy Package Implement tax, budget and regulatory reform measures in 2019, putting Japan at the center of the world’s largest free trade area representing a combined GDP of roughly $28 trillion, or nearly 35 percent of global GDP, and more Robust economic policy plan with than 1 billion consumers. These developments, as well as measures to: other trade deals under negotiation, can be expected to • Establish next-generation contribute to Japan’s economic growth, strengthening its Future healthcare system Investment attractiveness as a destination for foreign investment and • Promote FinTech and a cashless Strategy products and services, providing new avenues for Japan- society based firms to access foreign markets, and helping to • Utilize regulatory sandboxes generate a positive cycle of pro-growth reforms. • And more FSA’s New Regulatory Policy: Source: Cabinet Office, Government of Japan Balancing Regulation with Growth 9 The New Economic Policy Package released last December is a medium-term economic reform plan Key components include: designed to enhance productivity with a near-term three- • Shift from a rules-based to a principles-based year period for intense and focused investment in tax, approach to supervision budget, and regulatory reform. This period will go through 2020 and reflects the Government’s commitment to • Abolish FSA’s inspection manual economic reform. • Promote customer-centric business practices The Future Investment Strategy, on the other hand, is a • Encourage financial innovation through FinTech longer-term economic plan through 2025 and is focused on the digital revolution. The plan lays out longer-term • Further promote corporate governance reforms economic policies towards realizing a Society 5.0, or 27
11 Another important component of Japan’s structural Integrated Tax, Social Security reform and economic growth strategy is the transformation and Health Care Reform of its financial regulatory regime. Japan’s single financial regulator, the Financial Services Agency, or FSA, has spent the last three years preparing a comprehensive reform plan that emphasizes balancing regulation with economic The Abe Administration aims growth. to enhance Japan’s fiscal position
Key components of the FSA’s transformation efforts Key measures include: include shifting from a heavily rules-based approach to a • Healthcare system reform principles-based approach to supervision, abolishing FSA’s • Improving productivity inspection manual, promoting customer-centric business • Social Security reform practices, encouraging financial innovation through » Optimizing/streamlining medical/care FinTech, and further promoting corporate governance services delivery system reforms. » Optimizing benefits/burdens • Consumption tax hike to 10% in October 2019 From Financial “Sanctions” Agency to Financial “Promotion” Agency Recognizing that stronger economic growth and fiscal 13 New FSA Structure consolidation measures will be necessary to achieve its (Effective July 2018) fiscal goals, the Government of Japan has delayed its FSA Minister Major Objectives: target to achieve a primary balance surplus from 2020 to • Enhance strategy 2025 while staying on plan to implement the consumption Commissioner development capabilities tax hike to 10% in October 2019. Strategy Development and • Deepen financial Management Bureau administration expertise In this regard, the Japanese government continues to Policy and Markets Bureau implement measures as part of a program of integrated • Develop regulatory framework social security, health care, and tax reform, designed to Supervision Bureau in line with technological control the natural increase in social security costs. This innovations reform program includes measures to enhance efficiency Securities and Exchange Surveillance Commission • Develop seamless off-site and in medical and care services delivery systems, improve on-site monitoring (abolish productivity, and optimize benefits and burdens. These the Inspection Bureau) efforts are making it very clear to consumers that they must look to private sector supplemental cancer and To ensure effective implementation of these policy medical products to help bear the financial burden of measures, in July 2018, the FSA completed its first major 12 higher medical expenses. structural reorganization since it was founded in 2000. In conclusion, I am pleased to note that Aflac Japan is The FSA believes that this reorganization will allow well positioned to take advantage of business opportunities it to enhance strategy development across financial that will be created by the emerging economic services, respond in a timely manner to changes in financial developments and public policy and regulatory changes in markets, develop a regulatory framework in line with Japan. technological innovation, and conduct more effective and efficient supervision through seamless off-site and on-site Just as we have anticipated change in the past and monitoring. FSA leadership has even noted that the agency formulated proactive strategies, we are ready to leverage will now become the Financial “Promotion” Agency instead new opportunities in the coming years, maintain our of an agency known as the Financial “Sanctions” Agency. leadership position, and continue to grow, especially with the post-conversion structure and governance. Aflac Japan has enjoyed a positive and constructive relationship with the FSA and is well positioned, especially with the post-conversion subsidiary structure, to leverage the new regulatory environment to implement innovative business initiatives. Koide-san covers this further in his presentation.
28 Overview of Aflac Japan Masatoshi Koide President and Representative Director, Aflac Life Insurance Japan
Aflac Japan was established 44 years ago as the company in Japan’s third sector market by leveraging our first company to offer cancer insurance in Japan. In the attractive products, broad distribution, and trusted brand. decades since, Japan has undergone significant change – social, economic, regulatory, and governmental – but Aflac Cancer Insurance Market Penetration Japan has stayed true to its core values and endeavored (Product Penetration, Individual Basis, Three-year Interval Data) to create new value for its stakeholders, including policyholders, shareholders, and society as a whole. 100% 81.5 77.7 77.9 79.9 79.2 81.0 This presentation provides an update on Japan’s third 80 sector insurance market and addresses Aflac Japan’s 73.0 71.3 72.3 74.0 72.1 standing in the market and our strategy moving forward. 60 69.3
37.3 37.8 40 31.2 33.1 Roadmap 25.3 21.2 20
I. Japan Insurance Market: The Growing Third Sector 0 2001 2004 2007 2010 2013 2016
II. Aflac Japan’s Competitive Advantages Life insurance Medical insurance Cancer insurance
Life insurance does not include annuity insurance or child endowment Source: Japan Institute of Life Insurance III. Aflac Japan’s Vision and Strategy for Growth 3
According to industry data, in 2016, 81% of Japanese Opportunity for Growth: citizens were covered by some form of life insurance Third Sector Policies product. (Cancer & Medical, FSA Basis, Stand-alone, Life Industry Only) The market penetration for cancer insurance, which 1Aflac pioneered, has risen more than 6.6 % over the last Policies in Millions 10 years and currently stands at 37.8%. Given that cancer 65 Market more than doubled in 15 years is a leading cause of death in Japan, we expect product 60 Medical Cancer 55 demand and the upward trend in cancer insurance product 50 penetration to continue to rise. At the same time, efforts 45 by the government at both the national and local level 40 35 to promote cancer awareness will similarly contribute to 30 increased consumer demand for cancer insurance. 25 20 15 Medical insurance market penetration stands at 72.1%. 10 Although this number is much higher than cancer, we 5 0 continue to see opportunities for growth as consumers 3/02 3/03 3/04 3/05 3/06 3/07 3/08 3/09 3/10 3/11 3/12 3/13 3/14 3/15 3/16 3/17 3/18 seek third sector insurance products to supplement Source: Life Insurance Association of Japan Japan’s strained social security system. 2 Japan’s life insurance market is one of the largest in Leader in a Growing Market: the world along with the United States. The third sector Cancer Insurance Policies includes cancer, medical, and income support insurance. (FSA Basis, Stand-alone, Life Industry Only) It is a significant growing segment in Japan’s life insurance industry, and Aflac Japan is the leading company in Policies in Japan’s third sector. Millions 30 Aflac Others
Japan’s low birthrate and aging population are 25 putting increasing pressure on Japan’s national health insurance system. This pressure, combined with medical 20 advancements and diversifying consumer needs, including greater cancer awareness, is resulting in a growing third 15 sector insurance market in Japan. For example, the third 10 sector has more than doubled in size in the past fifteen years and, as you can see, the total number of in-force 5 policies of stand-alone cancer and medical products was 0 over 60 million at the end of March 2018. Many companies 3/02 3/03 3/04 3/05 3/06 3/07 3/08 3/09 3/10 3/11 3/12 3/13 3/14 3/15 3/16 3/17 3/18 see growth opportunities in this market. That said, Aflac Source: Life Insurance Association of Japan Japan plans to further expand its position as the leading 4 29 The stand-alone cancer insurance market in Japan is Market Catalysts growing. The number of stand-alone cancer insurance policies in force has increased to 24.5 million policies as of March 2018. Aflac has maintained its leading position Third sector market dynamics support in Japan’s cancer insurance market, and today holds a further expansion, including: 62.9% share of the stand-alone cancer insurance market. Aging Population This dominant position facilitates Aflac’s cost-effective approach to product development in which cancer product revisions are released every three to four years. These Financial Tightening of revisions enable Aflac to continue offering products that National Health Insurance System meet changing consumer needs and support Aflac Japan’s leading role as the market continues to grow. Diversifying Consumer Needs We expect to maintain, and even strengthen, this position in large part through Aflac Japan’s broad distribution channels and strategic partnerships. Looking ahead, various factors are converging to help 6 Leader in a Growing Market: create a growth market for Aflac Japan’s core products Medical Insurance Policies and capabilities. The Japanese population is living longer, (FSA Basis, Standalone, Life Industry Only) healthier lives. When combined with the low birthrate, Japan’s population will continue to age and shrink in numbers. Against this backdrop, financial pressure on Policies in Millions Japan’s national health insurance system will continue 40 Aflac Others to rise and diversifying consumer needs will continue 35 to evolve with medical advancements and other social change. 30 25 Leveraging Our Strengths 20 as a Market Leader 15
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5 Attractive Products 0 Aflac Japan is the 3/02 3/03 3/04 3/05 3/06 3/07 3/08 3/09 3/10 3/11 3/12 3/13 3/14 3/15 3/16 3/17 3/18 leading company for Source: Life Insurance Association of Japan Broad Distribution cancer and medical 5 insurance in Japan Trusted Brand
Let me now turn to Aflac Japan’s market share and the overall market growth for stand-alone medical insurance in terms of policies in force. The total number of policies in Aflac Japan’s attractive products, broad distribution, force for stand-alone medical insurance products in Japan and trusted brand are key sources of competitive has grown year-over-year. As of March 2018, there were advantage. Furthermore, Aflac Japan’s scale, efficiencies, 36.8 million policies in force, representing a 4.2% increase and expertise due to our focus on the third sector, 7 when compared to the end of March 2017. especially cancer insurance, for more than 40 years will enable Aflac Japan to continue to grow and thrive asthe Aflac Japan’s total market share in terms of policies in leading company for cancer and medical insurance in force was 16.1% as of the end of March 2018. Aflac Japan Japan. was not the first to enter the medical insurance market; however, Aflac was the first to introduce a stand-alone medical insurance product that offered long-term coverage for low premiums. In doing so, Aflac created a new market, which today is increasingly competitive. We expect to maintain and even strengthen this position in large part through Aflac Japan’s broad distribution channels and strategic partnerships.
30 Competitive Advantage: Competitive Advantage: Broad Distribution Attractive Products Category Channel Details
Traditional • Vital for Aflac Japan sales, with Core Channel approximately 11,000 agencies Days 1 - Cancer insurance Cancer for daily living • More than 20,000 post offices nationwide Days 1 Plus selling Aflac cancer insurance products Japan Post • Kampo (Japan Post Insurance Co., Ltd.) offers Aflac cancer insurance products through its 76 branches Medical EVER • Nearly 40,000 Dai-Ichi Life sales Dai-ichi representatives offer Aflac cancer insurance Strategic Life Partners products
Income • Selling cancer insurance products in SME Daido Life Support Income Support Insurance association market Insurance • Aflac Japan was represented at 372 banks, Banks nearly 90% of the total banks in Japan as of March 2018 First Prepare Smart Whole-Life Sector Insurance 9 In addition to maintaining an attractive product portfolio, 8Aflac Japan also aims to lead the industry in distribution Aflac Japan has a history of developing innovative channel diversity and reach. Aflac Japan has enhanced products to help relieve financial burdens and address and expanded its distribution network to provide more consumer wants and needs. opportunities to be where the customer wants to purchase insurance products. Our traditional channel – which On April 2, for example, Aflac Japan launched two new includes approximately 11,000 agencies – has been a key cancer products. “Days 1- Cancer insurance for daily to our success. We are also strengthening non-traditional living” provides more comprehensive coverage to cope distribution channels, such as walk-in shops and visits with medical advances and other factors, which Ariyoshi- by sales persons – primarily in urban areas – to further san’s presentation covers. “Days 1 Plus” targets existing enhance sales. policyholders seeking to upgrade their cancer insurance for more up-to-date protection. Strategic alliances through partners such as Japan Post Group, Dai-ichi Life, and Daido Life continue to strengthen Regarding medical insurance, Aflac was the first to and evolve. As you know, Japan Post sells our cancer introduce a stand-alone medial insurance product in Japan insurance through more than 20,000 post offices and 76 that provided long-term coverage for low premiums. That Kampo offices throughout Japan. To further enhance this product, EVER, enabled Aflac to pioneer the stand-alone strategic partnership, we have established close relations medical insurance product market. with Japan Post at every level, from executive management to the sales frontline. Aflac Japan continues to implement In July 2016, Aflac Japan launched Income Support education and training programs to ensure Japan Post Insurance. Although the market for this product remains sales representatives are even more knowledgeable about immature in terms of sales volume compared to the cancer cancer and Aflac Japan’s cancer insurance. and medical insurance, Aflac Japan is taking a long-term view. We will continue to increase awareness of income These alliances ultimately improve Aflac Japan’s market support and focus on those concerned about disability and access, increase our touch points with existing and home ownership. potential customers, and allow the company to associate with other trusted brands. Regarding first sector sales, we are continuing to offer profitable protection-type products, such as our recently Banks also allow Aflac Japan additional avenues launched product, Prepare Smart Whole-Life Insurance. to reach consumers and offer products in the places This product provides beneficiaries, typically family consumers want to buy them. As of March 2018, Aflac members, with a pre-determined benefit payment upon the Japan was represented at 372 banks, nearly 90% of the death of the insured. This product enables Aflac Japan to banks in Japan. These banks, in addition to local shinkin provide agents with a full range of product offerings. banks, offer a broad range of financial services including selling Aflac’s third sector insurance.
31 Competitive Advantage: Trusted Brand A first step in realizing VISION 2024 was the conversion of Aflac’s Japan branch operations into a local subsidiary.
Aflac’s brand recognition is over 91% Following our conversion on April 2 of this year, we Aflac’s widely-recognized brand: have been working to further strengthen our ties with Aflac Japan’s 15 million policyholders and business partners. • Attractive to business partners • Communicates high-quality products and services The conversion was a complicated undertaking, and its for “insurance for daily living” success is a testament to the coordination and hard work of many, including one of our directors, Ms. Yoko Kijima, who oversaw the process for the Japan side.
Aflac Japan’s post-conversion governance framework provides the Japan executive management team with greater business development flexibility, and we are cultivating an innovation-driven corporate culture. Against that backdrop, there are three themes I would like to Aflac’s brand has more than 91% recognition in Japan. highlight for you. This broad recognition is attractive to our partners and helps us reach customers who aspire to have high-quality 10 First is to further strengthen Aflac Japan’s third sector products and services for “insurance for daily living.” insurance business. Second, is exploring new business opportunities Aflac Japan VISION 2024 consistent with Aflac’s core capabilities and values.
And third, is cultivating our innovation-driven corporate culture to make it possible to respond to customers’ Being the leading company Vision “Creating Living in Your Own Way” diversified needs under changing circumstances in a timely and appropriate manner. Through VISION 2024 Aflac Japan will: • Strengthen Aflac’s position as the leading Further Strengthen Third Sector Business company in the third sector • Expand business into new frontiers consistent Secure third sector new annualized premium (AP) with our core capabilities and values by focusing on priority areas: • Cultivate an innovation-driven corporate culture Expanding new AP for cancer and medical insurance
As we have shared in previous briefings, Aflac Japan’s Growing Income Support Insurance Driving to develop new third sector markets third sector mid- to long-term strategy, called “VISION 2024,” provides business 11 (i.e., in addition to cancer and medical) direction through Aflac Japan’s 50th anniversary as Aflac growth Japan aims to strengthen its position as the leading Strategically enhance protection-type company in the third sector and expand business into new first sector products frontiers consistent with our core capabilities and values. to strengthen third sector sales
Japan Branch Conversion to Subsidiary We plan to strengthen third sector insurance business by focusing on three priority areas: first, expanding new 13 annualized premium for cancer and medical insurance; Strategic benefits of conversion second, growing income support insurance to develop new third sector markets alongside cancer and medical products; and third, strategically enhancing protection-type Greater business development flexibility first sector products to strengthen third sector sales.
Enhanced capital flows transparency With respect to first sector products, in the context of Japan’s low interest rate environment, we have reduced sales of savings-type products and instead focused on
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32 protection-type products, such as Prepare Smart. That Digital Innovation and Customer said, we are strategically continuing sales of protection- Experience Enhancements type products to associates that offer comprehensive consulting sales to their customers. Such products continue to provide meaningful profitability and are aimed Improving policy application process at driving third sector business growth. Interactive platform for insurance product Digimo 2.1 Explore Growth-Oriented selection to streamline application process New Business Opportunities Leveraging open innovation to enhance customer experience Aflac Japan’s Health Promotion Medical Insurance Straight- Enabling instant claims payments through Through biometrics and leveraging Mitsubishi UFJ online Payments banking service for real-time bank transfer
Cash Providing cash remittances through Seven Bank Remittance ATMs and 7-11 cash registers – an industry first Service
Digital Health
Platform 15 Consistent with the Government of Japan’s focus on growth, and specifically the data revolution, Aflac Japan is further diversifying its sales channels and enhancing the customer experience by leveraging digital innovation Hospital Online Referral Healthcare Online to enable the company to even more effectively engage Consulting Health Checkup consumers in the places and ways they prefer. Here are a Activity Digital Reservation few examples. Program Medical Dictionary
14 Last April, in conjunction with the launch of Days 1, Aflac Japan introduced a new online system, Digimo 2.1, to support customers through the process of selecting Aflac Japan is continually exploring new business and applying for insurance products. Digimo 2.1 offers opportunities with the goal of providing customer- customers instant underwriting results and allows them to centric new products and services to maximize the value choose multiple insurance products simultaneously. Aflac proposition of “insurance for daily living.” To achieve this Japan is broadening the ways customers receive their goal, Aflac Japan is leveraging its competitive strengths, insurance benefits and utilizing open innovation to enhance scale, efficiencies and extensive experience to identify new customer experience. third-sector fields and explore new business opportunities. In December 2018, we will begin phasing in a straight- On September 19, for example, Aflac Japan announced through payment system to simplify claims evaluations. the release of a new health promotion medical insurance Straight-through payment will utilize biometrics and product that will encourage policyholders to maintain a leverage Mitsubishi UFJ’s online banking services for real- healthy lifestyle by rewarding them with premium refunds if time bank transfer. The system will be supported by new the policyholder’s health age is lower than his or her actual technologies, and modification to existing systems will age. This new product will target younger consumers and reduce manual checks and improve the accuracy and feature several characteristics that make it unique to the speed of assessment and payment operations. industry, including an online application portal, primarily available on smartphone. Beginning in November 2018, policyholders will be able to receive cash remittances at Seven Bank ATMs. Aflac Aflac Japan developed a digital health platform for Japan currently offers policyholders the option of receiving this new product and we have incorporated value-added cash remittances through bank account or postal transfer. services from partners including Medical Note, MRSO, This new option will further expand convenience, and we and more. As you may recall from last year’s briefing, will start with insurance fee refunds at roll-out. Medical Note is a provider of online and tele-medical advice services, and MRSO is a digital health venture that These initiatives and others like it are part of Aflac provides online health checkup reservation services. We Japan’s strategy to not only improve the customer intend to further expand this platform in the future. experience but drive further expense efficiencies in our platform.
33 Aflac Innovation Lab One of my priorities as Aflac Japan’s President has been to ensure that the Company has a strong talent pool. In part, we are investing in our talent through existing Leading Aflac Japan’s new business development initiatives initiatives to foster an innovation-driven corporate culture Promoting an Innovation-driven Corporate Culture through diversity promotion and Work SMART initiatives to bring in new perspectives and enhance efficiency.
We are also enhancing our investment in employee development because their personal growth will ultimately contribute to Aflac Japan’s sustainable growth. In this context, we are introducing a broad talent development program to strengthen future leadership and managerial abilities. Such initiatives include next generation executive development, U.S. training, and other programs. These efforts are being overseen by Riko Kubo, who is also a member of Aflac Japan’s Board of Directors. In August, Aflac Japan launched the Aflac Innovation 16 Lab in Minami Aoyama, a hub of innovation in Tokyo’s I would like to emphasize that just as Aflac Japan has Shibuya ward, to serve as our base for new business anticipated change in the past and formulated proactive development initiatives. We plan to use the facility to strategies, we are ready to leverage new opportunities in encourage out-of-the-box thinking, create an ecosystem the coming years, maintain our leadership position, and with startups, and promote an innovative corporate culture. continue to grow, especially with the post-conversion subsidiary structure. Aflac Japan has the right people and the right strategy to continue leading the third-sector Cultivate an Innovation-Driven insurance market while pushing into new business frontiers. Corporate Culture
Innovation-driven Corporate Culture
Diversity Promotion Work SMART
Talent Development: Leader Training
Next Generation Executive U.S. Training Program Development Program
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34 Aflac Japan Sales and Marketing Overview Koji Ariyoshi Director; Executive Vice President; Director of Sales and Marketing, Aflac Life Insurance Japan td.L
This presentation provides an overview of Aflac Japan’s Moreover, depending on the type and stage of cancer, sales and marketing. as well as the timing of detection, treatments may vary in terms of method, frequency and duration. These factors Review of Results: Third Sector New AP lead to differences in financial burden among customers. (Yen in billions) Cancer patients also tend to have more treatment options today, which can also affect the financial burden, ¥100 87.4 depending on the selected treatment. 6.3% CAGR 80 To cope with these changes, our new cancer insurance 64.4 products are designed to allow customers to obtain 60 the latest coverage that matches the changing medical environment and corresponds to their financial burden, 40 which could significantly vary due to the advancement of diagnostic technology and more treatment options. 20 No other company provides such coverage, and our 0 unique cancer insurance leverages the expertise Aflac has 2012 2013 2014 2015 2016 2017 2018e accumulated over many years as the pioneer and leader in cancer insurance. This also helps explain why these Aflac Japan’s third sector new annualized premium (or products have been so successful and appealing to our AP) has increased continually since 2012. New AP for the customers. third sector products has grown from 64.4 billion yen in 2012 to 87.4 billion yen in 2017, which means that our Successful Launch of New Cancer new business has grown at a 6.3% CAGR over the past 5 Insurance: Key Initiatives in Two Channels years. We have also secured 4.1% year-over-year growth for the first half of 2018. We will achieve growth for six years running if we end 2018 with positive growth, which • Rolled out TV commercials targeting existing should increase third sector premium income, too. policyholders and direct mail campaign linked to the commercials • Focused on inviting customers to face-to-face Agency Cancer Insurance: Evolving Coverage meetings after sending out direct mail • Introduced a digital platform for navigating customers towards the most appropriate coverage
• First new product release since expanding to 20,000 post offices offering Aflac’s cancer Japan Post insurance • Front-loaded sales efforts to second quarter Coverage that matches the changing medical environment and leverages Aflac Japan’s 40+ years of expertise and experience With the launch of our new cancer insurance products, the largest contributors to the successful growth of cancer sales were the Agency Channel and Japan Post. Let me Looking at second quarter 2018 third sector sales, Aflac explain the major initiatives we have undertaken for these Japan achieved significant year-over-year growth of 16%, channels. which was driven by the new cancer insurance products released in April 2018. The Agency Channel manages a large portion of Aflac Japan’s 15 million in-force cancer policies. For more than 40 years since Aflac introduced Japan’s first cancer insurance in 1974, we have revised our cancer Many among this group of policyholders have the insurance products to match the changing medical propensity to update and/or increase their insurance environment, the potential financial burden that serious coverage, so as part of our new product launch, we rolled illness can bring and the advancement of health care and out TV commercials targeting not only new customers but medical technology. existing policyholders as well. In addition, we carried out our biggest direct mail campaign to date targeting existing With the rise of new diagnostic technologies, we have policyholders. witnessed earlier detection of cancer, which was essentially undetectable in the past. More advanced diagnostic After sending out direct mail to existing policyholders, capabilities suggests that there will be more cases of early we made follow-up calls to invite them to face-to-face detected cancer. meetings. We also worked to guide them toward the 35 most appropriate coverage by offering recommendations current treatment recommendations, hence the potential through a new digital application form. for adding benefits or revising into the latest coverage.
The successful results in the agency channel serve as By taking these changes as growth opportunities, we an excellent reminder that there is still potential in Aflac will strengthen both the products and channels that cater Japan’s existing policy market. to customer needs, primarily in the third sector. Japan Post also significantly contributed to the second Product Strategy quarter’s sales growth.
Japan Post results can be attributed to the recent new product release, which is our first new product release 1 Offer enhanced products for one’s stage of life since expanding to 20,000 post offices offering Aflac’s cancer insurance. Another factor is Aflac Japan providing additional specific premium waivers, which had long been 2 Offer enhanced coverage to match healthcare requested by Japan Post. and medical technology advancements
Japan Post also frontloaded sales efforts to the Provide the latest coverage with more flexibility in coverage second quarter, and all of these led to a dramatic sales design to meet customer needs at each stage of life increase. Thanks to these channel-specific initiatives, we Income First sector successfully increased sales of our new products, leading Cancer Medical to higher results in the 2nd quarter than originally expected. support protection Growth Potential in the Third Sector
Environment Customer need
As for our product strategy, we will strengthen our products by focusing on two key points. The first is Longevity and an To prepare for old age, including aging population disease, injury, nursing care, etc. “enhancing product offering according to one’s stage of life.” The coverage that customers need depends on their stage of life. Young and single people mainly prepare coverage for themselves. But once they start forming their Healthcare and medical To add or revise own households, they look for coverage for their families technology coverage to match the as well. When they grow old, they need coverage to live advancements current medical environment comfortably after retirement. We would like to enhance the areas where we can efficiently and effectively provide coverage options best suited to consumers’ various stages of life. For example, we are looking to enhance Under the low interest rate environment, competitors the area where we can offer protection-type first sector have reduced their sales of savings-type products and coverage while simultaneously recommending third sector focused instead on protection-type products, mainly in the coverage options such as income support or lump sum third sector. As a result, competition in the third sector is and supplemental nursing care coverage. intensifying with the increase in the number of competing products. However, Aflac Japan’s third sector new AP is The second is enhancing coverage according still growing sustainably, and it can continue growing in the to medical technology advancement. As covered, the future as well. new cancer insurance product offers comprehensive coverage, including protection, based on the current The first growth factor is increased longevity and the medical environment, as well as coverage for expenses aging population. With advancements in medicine and associated with changes in appearance due to side effects greater attention to wellness, people are living longer. In of treatment, etc. In addition, by enhancing product plans addition, Japan’s population is aging. As people age, the and infrastructure for existing policyholders, we also came risk of cancer and other serious diseases, injuries and need up with a product design that allows policyholders to for nursing care increases. Therefore, we expect the need update their policy to the latest coverage to better meet for third sector products to increase accordingly. their needs. By leveraging these features, Aflac Japan will expand its business with existing policyholders in addition The second factor is advancements in medicine and to acquiring new customers. medical technology, through which the forms and methods of treatment are also changing. For cancer and medical Aflac Japan has a large number of existing policyholders insurance, coverage that is better aligned to the current primarily consisting of cancer and medical insurance treatment environment is becoming a necessity. policies.
In the cancer sector, treatments are expected to We have reinforced our approach to this market through advance and evolve even further. With medical insurance, the comprehensive marketing campaign I covered earlier the focus of treatment is shifting from long-term and accomplished successful results, which we believe hospitalization to outpatient treatment. As a result, there has brought us a new way of approaching the market. are cases where a customer’s coverage does not meet the The outcome of the initiative shows that there is a strong 36 potential for additional purchase and review of coverage in 2013, the number of post offices selling Aflac’s cancer not only for cancer insurance, but also for medical insurance has increased steadily. As you know, Aflac’s insurance. cancer insurance is offered at approximately 20,000 post offices and by approximately 100,000 agents. Channel Strategy As I covered, Japan Post contributed significantly to Channel category Initiatives sales in the second quarter of 2018, partly because the new cancer insurance products were the first products • Further explore the existing policy launched since the number of post offices offering our market products reached 20,000. The individual post office Agency • Increase involvement in the production rate is increasing, and we are aiming for stable management of each agency to Approx.11,000 results by continually providing support to Japan Post help establish robust management agencies base and business structure agents through education and training. Major nationwide channels • Establish an infrastructure for (with large more efficient sales activities Outlook for Earned Premium Growth: share of sales) Protection EP Strategic • Promote sales at Japan Post’s Partner community-based sales network In billions across Japan 1,400 Approx. 20,000 ¥ post offices • Provide continuous support for 1.5% to 2.5% 1,200 nationwide Japan Post agent activities
1,000
Aflac Japan has established a variety of channels and 800 expanded its sales network to provide customers with 600 choices in insurance application methods. Let me highlight the future initiatives for our largest channels, the Agency 400
Channel and Japan Post. 200
For the Agency Channel, we will further explore the 0 existing policy market while building on the success of the 2015 2016 2017 2018e 2020e new product initiatives I covered previously.
In order to maximize the potential of the markets I would like to end my presentation by explaining what owned by our agencies throughout the country, we have this means in terms of long-term premium growth. dispatched personnel to sales offices according to the characteristics of each agency and established a sales Going forward, we are looking to promote our first office structure that can provide effective support. Through sector protection products, which are less interest rate these efforts, we are providing extensive support that sensitive and more profitable than first sector savings matches the characteristics of each agency. products. We expect it to contribute to growth in earned premium, though it has a comparatively lower volume than Going forward, Aflac Japan will increase its involvement third sector products. in the management of each agency to further help establish a robust management base and business structure. For Longer term, we expect earned premium for the third example, we will help improve the retention of agents and sector product and the protection-type first sector product provide a framework for managing activities. to increase steadily in a range of 1.5% to 2.5% backed by growth of new business. In addition, we will strengthen efforts to establish an infrastructure for ensuring efficient and effective sales Aflac Japan’s recent conversion to a subsidiary earlier activities, and concentrate on the market of existing in 2018 reinforces our commitment to Japan. As a result, policies to spur the growth of the Agency Channel. Aflac Japan will continue to be a company that can be relied on by Japanese policyholders just as it has for more Japan Post has a community-based network across the than 40 years. country. Since entering into partnership with Japan Post
37 Aflac Japan’s Product Line (as of 09/01/18, except Aflac Health Promotion Medical Insurance as of 10/22/18) DAYS 1 Cancer Insurance (No CSV) Benefits: Sample Monthly Direct Premium (Whole Life Payment): First occurrence ¥ 500,000 $ 5,000 30-year-old male ¥ 2,760 $ 27.60 Specific Occurrence* 500,000 5,000 40-year-old male 4,080 40.80 Hospitalization/day 10,000 100 50-year-old male 6,500 65.00 Surgical 200,000 2,000 Outpatient/day 10,000 100 Radiation therapy 200,000 2,000 Anticancer drug treatment per month 50,000 or 100,000 500 or 1,000 *The “specific occurrence” benefit will be paid when the policyholder undergoes 30 days of treatment or more on a combined basis of hospitalization and/or outpatient treatment within a two-year period of the first occurrence diagnosis. For those who did not meet the aforementioned conditions, the “specific occurrence” benefit will be paid if the policyholder has cancer and undergoes hospitalization or outpatient treatment for at least one day after two years or more passed since the first occurrence diagnosis.
DAYS Cancer Insurance for Cancer Survivors Benefits: Sample Monthly Direct Premium (Whole Life Payment): Hospitalization/day ¥ 10,000 $ 100 30-year-old male ¥ 7,280 $ 72.80 Surgical 200,000 2,000 40-year-old male 8,190 81.90 Outpatient/day 10,000 100 50-year-old male 10,330 103.30 Radiation therapy 200,000 2,000 Anticancer drug treatment per month 50,000 or 100,000 500 or 1,000
EVER (Standard Whole Life Medical Insurance) Benefits: Sample Monthly Direct Premium (Whole Life Payment): Sickness or accident hospitalization/day* ¥ 10,000 $ 100 30-year-old male ¥ 3,750 $ 37.50 Surgical 50,000/100,000/400,000 500/1,000/4,000 40-year-old male 4,910 49.10 Radiation therapy 100,000 1,000 50-year-old male 7,470 74.70 Outpatient benefit 10,000 100 *Maximum days per hospital stay is 60. Maximum lifetime days is 1,095. When hospitalization stay is 5 days or shorter, ¥50,000 will be paid uniformly.
New Gentle EVER (Nonstandard Whole Life Medical Insurance) Benefits*: Sample Monthly Direct Premium (Whole Life Payment): Sickness or accident hospitalization/day** ¥ 10,000 $ 100 30-year-old male ¥ 7,530 $ 75.30 Surgical 50,000/100,000 500/1,000 40-year-old male 8,416 84.16 Radiation therapy 100,000 1,000 50-year-old male 10,016 100.16 Sickness or accident outpatient/day 6,000 60 *Cut in half for occurrences within one year after issue date. **Maximum days per hospital stay is 60. Maximum lifetime days is 1,095.
Aflac Health Promotion Medical Insurance Benefits*: Sample Monthly Direct Premium (Whole Life Payment): Sickness or accident hospitalization/day ¥ 10,000 $ 100 30-year-old male ¥ 2,379 $ 23.79 Surgical 50,000 500 40-year-old male 3,309 33.09 Radiation therapy 50,000 500 50-year-old male 4,849 48.49 Health refund determined by health age* Health Refund* (per annum): 30-year-old male ¥ 2,300 $ 23.00 40-year-old male 3,400 34.00 50-year-old male 4,400 44.00 *A portion of premiums will be refunded if the policyholder’s “health age,” measured by health check items of BMI, blood pressure, HbA1c blood testing, and yGTP or GOT blood testing, is lower than his/her actual age. Note: This is the first health promotion medical insurance in the industry in Japan to be offered and purchased online.
Income Support Insurance Benefits: Sample Monthly Direct Premium (Maturity at age 65): Short-term recovery support benefit ¥ 100,000 $ 1,000 30-year-old male ¥ 5,360 $ 53.60 Long-term care support benefit 200,000 2,000 40-year-old male 6,160 61.60 50-year-old male 7,420 74.20
GIFT Benefits: Sample Monthly Direct Premium (Payment through age 60): Death of policyholder ¥ 200,000* $ 2,000 20-year-old male ¥ 7,100 $ 71.00 30-year-old male 7,100 71.00 40-year-old male 7,760 77.60 *Paid monthly to the beneficiary until the end of payment period
Prepare Smart Whole Life Insurance (Low CSV) Benefits: Sample Monthly Direct Premium (Whole Life Payment): Death of insured/insured being seriously disabled ¥ 3,000,000 $ 30,000 50-year-old male ¥ 8,559 $ 85.59 60-year-old male 12,411 124.11 70-year-old male 20,328 203.28
38 Aflac Japan’s Product Line (con’t)
WAYS* Benefits: Sample Monthly Direct Premium (Payment through age 60): Sum insured ¥ 5,000,000 $ 50,000 30-year-old male ¥ 12,180 $ 121.80 40-year-old male 20,725 207.25 50-year-old male 43,885 438.85 *Whole life policy that can be converted to: fixed annuity, medical coverage, nursing care
Child Endowment Benefits: Sample Monthly Direct Premium**: Lump-sum education ¥ 500,000 $ 5,000 30-year-old male ¥ 14,430 $ 144.30 Education annuities* 2,500,000 25,000 40-year-old male 14,630 146.30 50-year-old male 15,100 151.00 *Paid over four years **Payment through age 18 of the child
Note: Amount in dollars reflects exchange rate of ¥100=$1.
39 Corporations Supporting Aflac Japan (as of 09/01/18) Construction Iron & Steel # Marubeni Corporation # Taisei Corporation # Nippon Steel & Sumitomo Metal Corporation # Toyota Tsusho Corporation # Kajima Corporation # JFE Holdings, Inc. # Sumitomo Corporation s # Takenaka Corporation # Kobe Steel, Ltd. # Mitsubishi Corporation * Shimizu Corporation # Isetan Mitsukoshi Holdings Ltd. # Obayashi Corporation Non-ferrous Metals # J.Front Retailing Co., Ltd. # Tokyu Construction Co. Ltd. # Mitsubishi Materials Corporation # Seven & i Holdings Co., Ltd. # AEON Co., Ltd. Foods Machinery # Takashimaya Company, Limited # Sapporo Holdings, Ltd. # Komatsu Ltd. s # Tokyu Department Store Co., Ltd. # Sumitomo Heavy Industries, Ltd. # Kirin Holdings Company, Limited s # Kubota Corporation # Coca-Cola Japan Company, Ltd. Banks # Tsubakimoto Chain Co. * Shinsei Bank, Limited # Ajinomoto Co., Inc. # Ebara Corporation # Nissin Foods Holdings Co., Ltd. # Mizuho Financial Group, Inc. # Brother Industries, Ltd. # Mitsubishi UFJ Financial Group, Inc. # Megmilk Snow Brand Co., Ltd. # Sumitomo Mitsui Financial Group, Inc. * Asahi Group Holdings, Ltd. Electric Appliances # Resona Holdings, Inc. * Nichirei Corporation # Hitachi, Ltd. # Yamazaki Baking Co., Ltd. # Toshiba Corporation Securities, Non-life Insurance # Fujiya Co., Ltd. # Mitsubishi Electric Corporation # Daiwa Securities Group Inc. * Kikkoman Corporation # Fuji Electric Co., Ltd. s # SMBC Nikko Securities Inc. # Fujitsu Limited # Nomura Holdings, Inc. Textiles # Panasonic Corporation # MS&AD Insurance Group Holdings, Inc. # Toyobo Co., Ltd. # Sharp Corporation # Sompo Holdings, Inc. # Renown Incorporated # Sony Corporation # The Japan Wool Textile Co., Ltd. # Pioneer Corporation Transportation # Wacoal Holdings Corporation # JVC KENWOOD Corporation # Nippon Yusen Kabushiki Kaisha (NYK LINE) # Teijin Limited # NEC Corporation # Japan Airlines Co., Ltd. # Kuraray Co., Ltd. * Ikegami Tsushinki Co., Ltd. # ANA Holdings Inc. s # IBM Japan Ltd. # Tobu Railway Co., Ltd. Paper & Pulp * TDK Corporation # Tokyu Corporation # Oji Holdings Corporation # East Japan Railway Company # Nippon Paper Industries Co., Ltd. Transport Equipment # Odakyu Electric Railway Co., Ltd. # Mitsubishi Paper Mills Limited # Denso Corporation # Seibu Holdings, Inc. # Mitsui E&S Holdings Co., Ltd. Chemicals # Hitachi Zosen Corporation Communications # Mitsui Chemicals Inc. # Mitsubishi Heavy Industries, Ltd. s # Nikkei Inc. s # Showa Denko K.K. # Kawasaki Heavy Industries, Ltd. # The Asahi Shimbun Company # Sumitomo Chemical Company, Limited # IHI Corporation # Dentsu Inc. # Ube Industries, Ltd. # Nissan Motor Co., Ltd. # Hakuhodo DY Holdings Inc. # Toyota Motor Corporation s # The Yomiuri Shimbun Holdings
* Kao Corporation s # Daiichi Sankyo Company, Limited # Mazda Motor Corporation # The Mainichi Newspapers Co., Ltd # Takeda Pharmaceutical Company, Limited # Yamaha Motor Co., Ltd. # Nippon Telegraph and Telephone Corporation # Shionogi & Co., Ltd. * Honda Motor Co., Ltd. # Isuzu Motors Limited Electricity & Gas * Astellas Pharma Inc. # Tokyo Electric Power Company Holdings, Inc. # Shiseido Company, Limited # The Kansai Electric Power Company, Incorporated # Otsuka Holdings Co., Ltd. Precision Machinery # Canon, Inc. # CHUBU Electric Power Co., Inc. # Mitsubishi Chemical Holdings Corporation # Konica Minolta, Inc. # Daicel Corporation # Nikon Corporation Life Insurance # Sekisui Chemical Co., Ltd. # Citizen Watch Co., Ltd. # Dai-ichi Life Holdings, Inc. # Asahi Kasei Corporation s # Nippon Life Insurance Company
* Seiko Holdings Corporation s # Ricoh Company Ltd. * Asahi Mutual Life Insurance Co. Oil & Coal Products # Cosmo Energy Holdings Co., Ltd. Miscellaneous Mfg. # JXTG Holdings, Inc. # Yamaha Corporation # Showa Shell Sekiyu K.K. # Dai Nippon Printing Co., Ltd. # Toppan Printing Co., Ltd. Rubber Goods * ASICS Corporation # Bridgestone Corporation # YKK Corporation s Glass & Chemicals Commerce # AGC Inc. # Mitsui & Co., Ltd. # Nippon Sheet Glass Co., Ltd. # ITOCHU Corporation
Legend # Corporate agent and payroll group * Payroll group s Not listed on Tokyo Stock Exchange
40 Section III Aflac U.S. Overview of Aflac U.S. Teresa L. White President, Aflac U.S.
Our vision for Aflac U.S. is to be the number one shifting costs to their employees through high-deductible distributor of benefits solutions supporting the U.S. health plans (HDHPs) and reduced benefits. In addition, workforce. Aflac is executing on a solid strategy to many employers fund health savings accounts (HSAs) or accomplish this vision, and I’m looking forward to sharing health reimbursement accounts (HRAs); however, only the our progress to date. largest employers can typically afford to do so. Smaller employers simply are not able to increase their contribution The bulk of my presentation will focus on market trends to these accounts for employees. and how Aflac U.S. is responding to those trends to drive growth, efficiency and customer experience. Let’s begin According to the 2017 Aflac Workforces Report, many with a brief look at our market trends and landscape. workers in the U.S. are not financially prepared to handle this steady increase in health care expenses and cost Cost of Health Coverage Continues to Rise sharing. In fact, 46% are not prepared for the out-of- pocket expenses associated with an unexpected illness or accident, and 65% have less than $1,000 for such Worksite Health Coverage expenses. Because of these out-of-pocket costs, more than one in five employees have had difficulty paying $25,000 Health Premiums a medical bill, delayed a medical procedure, or most Employer/Employee Contribution Employee Employer 20,000 (family coverage) alarmingly, avoided the doctor all together. This means many consumers are left financially unequipped to weather 15,000 those catastrophic health situations.
10,000 With this as a backdrop, it’s no surprise that the voluntary benefits market as a whole is projected to grow Average Health Premiums 5,000 at a rate of about 7% compounded annually from 2018 to 2022, with sales through broker distribution growing at a 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 slightly faster pace. • Average employee contribution for family coverage has increased 32% since 2012, while workers’ wages increased only 11.8%. Aflac U.S. is Well Positioned in the Market
Source: Kaiser Family Foundation Survey of Employer-Sponsored Health Benefits, 2017, and Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2017 Brand Recognition Distribution Reach Simple Solutions… to complex benefit challenges
Aflac named #1 Voluntary Benefit Carrier by Employee Benefit Advisor in 2017 Although the macroeconomic environment has shown 13 million policies in force marked improvement, the overall cost of health coverage has continued to rise. According to an annual Kaiser Family Foundation survey, family coverage premiums have increased 55% since 2007 and 19% since 2012. A family policy that cost about $15,700 in 2012 cost about $18,700 • 460,000 businesses trust Aflac • 9 out of 10 consumers are aware in 2017. of Aflac
Additionally, the average employee contribution for family coverage has increased 32% since 2012, while 8,500 Average Weekly Producers workers’ wages increased only 11.8%. So, while the general economy shows improvement, these trends continue to limit the spending power of many American Aflac U.S. is well-positioned in the market. Aflac workers. Looking at it from the standpoint of deductibles, insurance is offered to more than 460,000 payroll accounts the Kaiser Family Foundation calculates that deductibles through our independent sales force of 8,500+ average have risen more than six times faster than workers’ weekly producers, and our growing network of regional earnings since 2010. and national insurance brokers.
Meanwhile, in addition to shifting some of those With about 13 million policies in force, our market share premiums over, we’ve seen a number of companies also is around 19%. We continue building on our strength 41 as industry leader by delivering innovative solutions that the opportunity to increase access to the 24.3 million protect our policyholders and their families. entrepreneurs, independent professionals and contractors who make up the gig economy. Incidentally, this segment Aflac’s Strong Consumer Brand of workers is the fastest growing segment in the U.S. Aflac U.S. Strategic Objectives
For decades, Aflac has focused on creating a Growth Efficiency Experience Powerful and Respected Brand that has become an integral part of our success.
More than nine out of ten Continue to Invest in Continue to people in the U.S. recognize innovate products technology and leverage the Aflac brand. and solutions that our administrative technology and customers want capability to better understanding of Our feathered friend has and need service customers the customers’ served as an effective door Expand and drive down needs to drive opener and catalyst to distribution - be expense ratios positive brand connect with thousands of where the experience and consumers and payroll customer wants customer accounts. to purchase satisfaction insurance
*Source: December 2017 Aflac segmentation study Risk and Regulatory
Of course, our brand is at the heart of our success. It is a direct reflection of our core philosophy and desire to So what is our plan to leverage this opportunity? We’re help people. The beloved Aflac Duck has been our symbol executing on our strategic playbook, and we know that we representing the promise that “no matter what unexpected must develop new and innovative products and services things life throws your way, Aflac is always there in your that respond to the emerging needs of the consumer. time of need.” We must strengthen our core distribution and build new distribution methods to meet the needs of an evolving Thanks in large part to the Aflac Duck, nine out of marketplace. We must take advantage of technology ten people in the U.S. recognize the Aflac brand. Our advancements to drive efficiency and positive customer feathered friend has served as an effective door opener experiences. Finally, we must connect with the new and catalyst to connect Aflac with thousands of consumers generation of consumers. This is exactly what Aflac U.S. is and employers. focused on delivering. Aflac’s Tremendous Growth Opportunity We are balancing profitable growth, operational efficiency (value creation) and the customer experience. As I mentioned earlier, Rich Williams’ presentation provides U.S. Working Population 171 million additional perspective on Aflac U.S. growth drivers, to Private Sector 124.1 million include distribution expansion programs that respond Self-employed Public Sector Small Employers Medium Employers Large Employers 24.3 million 22.1 million (1-99) (100-999) (1,000+) to the changing market trends. Additionally, Rich’s 41.4 million 24.2 million 58.5 million presentation provides insight and perspective on how Aflac Penetration is responding with products and solutions to match the needs of this new generation of consumer.
Solving for: Self-employed - no Aflac access Don’t have With that, I will focus the balance of my presentation on 98.6 million Aflac: Access 40.1 million how innovation and transformation are playing a key role Aflac is not Participation offered by 47.6 in supporting our core strategic objectives. We know that employer million Retention automation and digitalization will reduce or eliminate some Access to Aflac Have Aflac: 24.3 7.5 million1 known risks, merely by reducing manual work. Aflac U.S. million is responding to market trends by making key investments in digital properties and tools. These tools enable 1 Aflac policy and certificate holders as of Dec. 31, 2017 Source: 2015 U.S. Census Bureau; Bureau of Labor Statistics mobile claims filing and tracking, robotics automation, chat capabilities and a number of key group platforms. When you consider that there are about 171 million Ultimately, these investments will improve efficiency and people in the U.S. workforce, but only a little more than 7.5 customer experience. As we transform to more digital million are covered by Aflac, this represents a tremendous properties, we also understand that digitalization can opportunity. To capitalize on this opportunity, we’ve introduce new risks to our business model, particularly in adjusted our vision from being the number one distributor the area of cyber security. Aflac U.S. continues to make of voluntary products in the U.S. worksite, to being the investments in our U.S. cyber program. number one distributor of benefits solutions supporting the U.S. workforce. We have adopted the National Institute of Standards and Technology Cybersecurity Framework (NIST) for With that, in addition to increasing access and our global security program. Additionally, we have been penetration or participation at the worksite, we have maturing our security posture over the last four years. 42 We see cyber security as a business imperative and an our older, less-agile system platforms as we adjust our extension of our pledge to protect our customers and be business models to prepare for our future state. there when they need us most. As I’ve mentioned in my previous remarks, I expect to Enterprise Efficiency Project Activities Will see a slightly elevated expense ratio in the short term as we position ourselves to drive down our expense ratios Decrease our Expense Ratio Over Time over the longer term and continue to reinvest our expense savings back into our overall U.S. IT roadmap. Fred’s Aflac Group’s expense ratio has improved presentation also covers this topic. eight percentage points since 2015 Innovation to Enhance Transformation Plan Customer Experience
Simplification ∙ Automation ∙ Robotics
Everwell Strategic and ü 9% improvement in agent productivity 1 Venture Investments
Customer Relationship Management ü Delivered Broker CRM (Sales Pipeline) ü Delivered Sales Talent Manager (Recruiting) ü Delivered Sales Proposal System Aflac One Day Pay Aflac SmartClaim Mobile App ü Delivered Career CRM • Paid 2.2 million • 60% Aflac Group End-to-End One Day Pay SmartClaim ü Delivered 5+ new core systems in Q1 2018 claims in 2017 adoption • 90% policyholders • 220,000 mobile 1 Everwell agent productivity for 12 months measured on a one-quarter lag, ending March 31, 2018. who use One Day downloads Pay say they are likely to refer other people to Aflac
Now, as I turn to efficiency, digitalization provides the opportunity to minimize the expenses associated with running our day-to-day operations. The investments in our platform are a direct response to the needs of the new consumer, and they are paying off. At our 2016 Financial Analysts Briefing, we shared with This new consumer is more digitally capable, on the move you our expectation to invest a total of $50 million from and places a growing importance on social purpose and 2016 to 2018 as part of our strategy to drive efficiencies, flexible working environments. Our new tools allow usto with a portion of that spend being capitalized. Our create services that help this new generation of consumer investment has primarily been focused in transforming to interact with Aflac with the ease, choice, and simplicity our Aflac group operation, which represents a very small that they expect and demand. percentage of our financials, but presents the largest opportunity for growth and efficiency improvement. One example is One Day PaySM. For eligible claims, Aflac This transformation not only allowed us to focus on key U.S. can process, approve and electronically send funds customer pain points, but it also allowed me, as President, to claimants for quick access to cash in just one business to assess our team’s ability to execute on a large scale day. initiative. We recently enhanced our claims services to create a We’ve invested around $60 million thus far, but we mobile app that allows claimants to file and track claims via have generated enhancements and a projected annual their mobile device. We have already seen over 220,000 increase in earned premium of over $110 million in 2018 downloads of this new app, and expect to see over as compared to 2015. Additionally, we have observed 340,000 by year end, which demonstrates the importance an eight percentage point improvement in Aflac Group’s of having a digital platform. expense ratio over that same timeframe. Everwell is another example of how Aflac is responding We have made Investments in digital enrollment, to the changing needs and preferences of the market. As customer relationship management, more importantly, a you recall, Everwell is Aflac’s proprietary platform designed new end-to-end group administration system. to address the needs of small businesses. Everwell provides consumers a shopping experience and allows At this point, we are focused on three areas: continuing Aflac to offer partner products and value added services, to drive utilization of our new group systems, increasing alongside Aflac coverages. This further enhances the value digital capabilities for our customers, and conducting an proposition and integrates the communication, which assessment of our individual product platform. improves the overall productivity of our independent sales distribution. With workforce dynamics continuing to evolve, we are preparing to meet workers when, where and how they As we continue to drive adoption of these new tools want to do business with Aflac. We believe these plans and capabilities, we are also taking advantage of the will increase our overall operational efficiency and enhance opportunity to leverage relationships with Aflac’s strategic our speed to market. Our long-term objective is to retire and venture investments. Our equity investments at Aflac
43 Ventures provide a great opportunity for us to understand And one of the key measures that demonstrates that and leverage new digital platforms that bring new ways to our strategy is working is premium persistency. Our 2017 deliver value to our clients. When we screen these equity premium persistency hit an all-time high of 78.4%. We investments, one of the most important factors is whether believe that our transformation investment and digital it can benefit our core business. innovation have contributed to these results and will do so in the future. Again, these are strong results and I am I would like to share one example of a venture capital proud of the progress we have made in this area. company we partnered with, to bring a unique solution to the table for our clients: Wellthie. Wellthie is a decision Aflac U.S. Growth Outlook: support tool for employers. This solution provides comparison shopping for major medical plans in their Access, Participation and Retention areas, and how to couple those plans with Aflac benefits to provide the best financial solution for the employer, and the Net Earned Premium1 (In Millions) best coverage for the employees. $6,500 CAGR 2% to 3% 5,750 Our strategic and venture investments are aligned with our broader enrollment strategy and enhance the Aflac 5,000 value proposition by enabling us to bring key capabilities to 4,250 our clients. We are excited about the potential we see with these relationships and believe this will continue to boost 3,500 our strong brand and set Aflac apart from its competitors. 2,750
2,000 Premium Persistency Reflects Our Success 2015 2016 2017 2018e 2020e Maintain strong persistency and generate steady earned premium (EP) growth of 2% to 3% 1 12-Month Rolling Persistency 1Note: Earned premium (EP) calculated on net basis; i.e., after reinsurance. 79.0% 78.3% 78.4% 77.3% 76.5% 76.0 I believe the Aflac U.S. transformation and digital investments will drive access, participation and retention. 73.0 As we continue to execute on our strategic playbook, we anticipate stable premium persistency with earned We promise to be there 70.0 premium results in line with our long term goal of 2-3% in their time of need. 12/14 12/15 12/16 12/17 CAGR. 2017 Record-setting Aflac U.S. Premium Persistency: 78.4%
1 The premium persistency rate from 2015 forward have been adjusted to reflect the inclusion of reinstatements.
44 Aflac U.S. Growth Strategy: Capitalizing on Market Opportunity Through Increasing Access and Penetration Richard L. Williams Jr. Executive Vice President; Chief Distribution Officer
This presentation covers our strategic approach to When you combine valuable coverage and broad growth in the U.S., which aligns with the significant market distribution with the powerful brand we have, it’s easy opportunities that exist. As you will recall, Aflac’s vision to see why we have a strong competitive advantage to is to be the number one distributor of benefits solutions capitalize on the market opportunity. supporting the U.S. workforce. As Teresa’s presentation stated previously, our vision has expanded because Aflac U.S. Profitable Growth Opportunities the market is changing, and access to the workforce is evolving. There continues to be a significant need for our benefits solutions in the traditional workplace, and we are • 5.8 million small businesses • 400,000+ brokerage firms and their 41 million in U.S.2 well positioned to capitalize on this growth opportunity. employees1 • 57% of brokerage firms At the same time, employees are no longer just at the • Less than 10% penetration actively sell voluntary SMALL 3 with employers who offer BROKERAGE benefits worksite, but mobile and often times have multiple jobs. BUSINESS Aflac solutions Employees and employers need benefits solutions, not just • Brokerage firms are • Requires deep and broad local/regional in nature product sets, through a variety of access points. Reaching distribution reach • Accelerated growth rate for the U.S. workforce where they are and how they want • Not price sensitive broker influenced sales to be engaged is a key theme for the forward-looking • By 2020, more than 40% of approach to growth. • 460,000+ existing the U.S. workforce will be accounts engaged in “gig” work4
The majority of my presentation focuses on three things: • Number of existing GIG • Contingent workers EXISTING accounts is flat over the ACCOUNTS ECONOMY represent the fastest key market opportunities; how our distribution approaches last 5 years growing population are strategically aligned to capitalize on these market • Only 29% of accounts Gig-economy workforce nd • convert to 2 year currently doesn’t have easy opportunities; and how we are preparing for the next premium generation of growth opportunities. access to voluntary benefits 1U.S. Census Bureau; Bureau of Labor Statistics, 2015 2IBISWorld: U.S. Industry Market Research Report: Insurance Brokers & Agencies in the U.S., July 2018 3Eastbridge Spotlight Report: Brokers and Voluntary Benefits – The Competition Intensifies, May 2018 Aflac U.S. Distribution: 4Intuit 2020 Report: Twenty Trends That Will Shape the Next Decade A Unique Model in the Industry (New AP in millions) To begin, there are about 5.8 million small businesses
$1,600 Agent Broker Alliances 2% across the U.S., and they need our solutions. To attract 1% 1% 1% 1% 1% 1% and retain employees, small business owners need to 1,400 14% 35% differentiate themselves from competitors and provide 20% 22% 25% 25% 30% 32% 33% 1,200 additional incentives to their employees and their families
1,000 to help mitigate rising healthcare costs. As Teresa stated previously, family coverage premiums have increased 55% 800 2% 2% since 2007 and deductibles have increased six times faster 600 29 32 than workers’ earnings since 2010. With the strength of the % % U.S. economy, small business owners have an opportunity 400
86% 80% 77% 74% 74% 69% 67% 66% 63% 69% 66% to protect their employees through the value of voluntary 200 benefits without feeling a financial impact.
0 2009 2010 2011 2012 2013 2014 2015 2016 2017 1H17 1H18 Aflac, which has a 19% market share according to $ in Millions 1,453 1,382 1,476 1,488 1,424 1,433 1,487 1,482 1,552 689 705 Eastbridge Consulting Group’s 2017 Worksite/Voluntary (6.4) % Δ YoY (4.9) 6.8 0.8 (4.3) 0.7 3.7 (0.3) 4.7 2.1 2.3 report, is the leading provider to small businesses, yet at the same time, Aflac’s overall penetration in small Before I address the market opportunities for Aflac, businesses market is low, with less than 10% of small I want to address something about our distribution businesses offering voluntary insurance. We see this composition which is unique in comparison to our as a significant opportunity to meet the needs of small competitors and helps frame how our growth rates differ business owners and grow our market share even further. from our competitors. Our distribution is unique in that Capitalizing on this market opportunity requires broad our sales have historically been agent driven, unlike distribution, and by recruiting 16,000 plus agents a year, competitors who have had largely broker driven sales. The we are well positioned to continue to be the leader in this voluntary insurance market as a whole is growing at a rate space. of about six to eight percent, which is driven by broker growth between eight and nine percent. Aflac broker sales Turning to the brokerage market, Aflac has strong are growing at a higher rate than the industry and have relationships and sales momentum with the national more than doubled since 2009. At the end of 2017, broker brokerage firms who typically serve larger clients. At the sales represented more than one third of Aflac U.S. sales, same time, there are more than 400,000 brokerage firms which stands in contrast to our competitors where about across the U.S., many of which are local and regional in 70% of market sales come from brokers and only 25-30% nature, and they’re being asked by their clients to provide are from an agency approach. voluntary benefits for the first time. Many of these clients 45 served by these local/regional brokers are in the mid- continue to invest in this distribution approach and provide market, which is key to our strategy. We are investing in the field force with more tools and opportunities to sell our tools and capabilities to assist our core agency distribution solutions and enjoy a long-term, fulfilling career with Aflac. in supporting these brokers to accelerate our broker sales growth. Our broker sales approach leverages our strong brand that appeals to both national broker partners and local With Aflac being the leader in voluntary benefits for and regional brokers alike. We have a seasoned team decades, we have built a very large client base. Aflac has of talented broker sales professionals, who are Aflac more than 460,000 accounts, and this is a market of its employees leveraging their expertise and relationships own. As Teresa mentioned, Aflac has not fully leveraged to build our broker business and service our broker what it has to offer to existing accounts, and we are partners. In addition, we are tapping into the many talented always pushing to increase our participation rate. By better members of our independent career sales agent team engaging and connecting with our existing clients, we are who also work with brokers. The combination of both simply living out our brand promise in servicing them. The distribution approaches allows Aflac to reach clients residual effect will be meaningful growth. For example, by through brokers in both large and mid-market clients. increasing policyholder persistency by 2%, we estimate that this would grow our earned premium by $55 million We are also aligned to service our existing customers to $60 million. So, you can see our rationale and our and deliver on Aflac’s brand promise. The account excitement for focusing on leveraging business with our management team is dedicated to supporting our existing existing clients. accounts by leveraging our independent career agent field force and broker teams to offer an automated seamless Lastly, we have focused our growth strategy upon the service process for all account segments. contingent workforce, which makes up the “gig” economy, and I will use these two terms interchangeably. As the The digital distribution team is responsible for workplace and the workforce are changing rapidly, Aflac expanding Aflac’s distribution methodologies and is changing with them. This contingent workforce, which reaching the contingent workforce in many ways that is the fastest growing population of workers, does not Aflac is not reaching them today. This team actively have easy access to voluntary benefits. As a result, we are pursues partnership opportunities, technology-driven looking to different approaches such as digital distribution lead generation and other approaches that expand our to meet this growing need. distribution reach. Leveraging Distribution: These are our four strategic approaches, but I want to point out one important feature of this alignment. Product Increasing Access and Penetration solutions is the foundation for all of the methods listed above. This is because it spans all distribution approaches. Agency Broker So, let’s go into a little more detail of our product solutions. Aflac U.S. Product Solutions: Addressing Evolving Customer Needs
CONTINGENT Account Partnerships / PORTFOLIO PORTFOLIO WORKFORCE Management Digital INNOVATION EXPANSION SOLUTIONS Expand our product Deliver solutions Deliver best-in-class portfolio by offering for the growing Individual and Group new lines of contingent workforce products through business to enable who do not have regular refresh growth within our access to traditional cycles U.S. distribution benefits at the Product Solutions channels workplace
We will continue to drive first-to-market concepts and innovation via: • Benefit designs that reward positive outcomes and healthy Now that we have covered our four specific growth behaviors opportunities, let’s discuss how we are strategically aligned • Flexible products that adapt to consumers’ life stage and need to capitalize on this opportunity: independent career • Delivering value on day 1 to the customer through value added agents; brokers; account management; and partnerships services and digital. • Responsive product packaging that helps to cover risk in new ways • Supporting business model evolution to address consumer experiences and demands, demographic shifts in the workforce, In order to capture the small business market emerging technology, and ever-changing market boundaries opportunity, we will continue to leverage our career sales team, which is comprised of our independent career agents. These agents are primarily responsible for Our initiatives for product are centered on providing increasing our national footprint through the recruiting product solutions to address the evolving customer needs. and training of our field force to successfully offer Aflac’s We are focused on delivering product enhancements value proposition to small businesses. There will always be to our current portfolio, developing new-to-the-market a need for a field force to have these one-on-one selling products and offering innovative services to differentiate opportunities with small businesses, and we are going to Aflac in the market. 46 It is important for us to continue leading the market As I shared previously, the contingent workforce is by innovating product solutions through periodic product the fastest growing workforce segment and the number enhancements. Further, as we continually listen to clients of employees without access to voluntary benefits will and brokers, we glean ways to strategically broaden only increase. Clearly, this growing part of the workforce our portfolio by expanding to products that meet a key needs solutions and ways to access that we do not need. Over the past year, we have added true group broadly provide. As a result, we have created Aflac’s digital life and disability insurance as a vital need of our clients distribution team to assess product and delivery solutions and brokers. Lastly, we are actively researching new-to- to meet this growing need. This creates an opportunity for market products to anticipate the needs of the changing growth creation as well as growth optimization which will workforce. This approach allows Aflac to continue being lead to an incremental sales lift. the number one distributor of benefits solutions supporting the U.S. workforce by being the first provider to know what Our approach to capitalizing on the market opportunity next generation solutions customers need and deliver on will involve building, buying, and partnering to get the that understanding of the market. different components necessary to succeed. The key components include three things: customer-centric In addition to new-to-the-market solutions and products, processes, and technology; technology to enhancements, we are expanding our product solutions increase consumer access points; and customer analytics. to include more innovative services such as value added services, because it provides customers with day-one, We will certainly take a measured approach to pilot tangible value, even if the Aflac customer never files a and test distribution approaches and solutions for 18-24 claim. These services are a great complement to our core months to ensure a full understanding of the market and value proposition, and when value added services are profitability before accelerating any such approaches. offered in our accounts, we see an increase in employee participation of about 10% within our core product Successful execution of this strategy will allow us to offerings. This increase in employee participation is driven engage customers through different mediums and to by the change in workforce versus worksite solutions that connect with or access customers where they want to be. Teresa and I have mentioned: Employee and employer This increased access to an evolving workforce will allow needs are changing rapidly and offering value added for acceleration of incremental sales growth for Aflac U.S. services within our products allows Aflac to solve for greater needs, and consumers recognize this. In closing, I reminded everyone in the beginning that our vision is to be the number one distributor of Aflac will continue to lead by researching and benefits solutions supporting the U.S. workforce. We are understanding market trends to find innovative ways to very confident and believe the strategy outlined in this provide the valued protection our customers need. presentation aligns well with the market opportunity and Aflac’s vision to grow profitably. Digital Distribution: Access for the U.S. Contingent Workforce
Growth Strategy • Create consumer centric products, processes and technology • Improve and develop technology to create more consumer access points • Improve customer targeting, analytics and lifecycle journey • Distribute direct products through current producers, partnerships and e-commerce
Implications • Greater access to an evolving workforce (i.e., contingent workers) • Acceleration of incremental sales
Next Steps • Stand up a new, cloud-based platform for deploying end-to-end direct products • Establish a stand-alone direct-to-consumer team • Source an end-to-end direct policy administration platform • Engage with consumer-directed agencies
47 Aflac U.S. Payroll Product Line (as of 09/01/18) Benefit Amounts Monthly Premium Rates (Payroll) Individual/Family Accident Advantage* $12.87 - $69.94 Accident Treatment Benefit $50 - $200 Accident hospitalization $500 - $2,500/period of hospital confinement/year Accidental death $5,000 - $200,000 ($5,000 - $30,000 for dependent children) Accident specific-sum injuries $20 - $13,000 Accident hospital confinement $150 - $300/day Rehabilitation unit $75 - $200/day (up to 30 days/period of hospital confinement / up to a calendar year maximum of 60 days) Intensive care unit confinement $300 - $500/day (up to 15 days per covered accident) Wellness $60/calendar year Major diagnostic exams $100 - $250/year Accident follow-up treatment $25 - $40/day (maximum of 6 treatments per accident) Therapy $25 - $40/treatment/day (up to 10 treatments per accident) Appliances $25 to $350 as listed Prosthesis $375 - $1,000/accident Blood/plasma/platelets $100 - $300/accident Ambulance $120 - $250 ground / $800 - $1,875 air Transportation $200 - $700 round trip (50+ miles / up to 3 times per year per covered person) Family lodging $75 - $150/night (50+ miles / one motel/hotel room / up to 30 days per accident) Accidental-dismemberment $450 - $50,000 ($200 - $15,000 for dependent children) (depending upon loss) Prosthesis repair or replacement $375 - $1,000/person/lifetime Organized sporting activity Additional 25% of benefits payable, limited to $1,000/policy/year Home modification $1,000 - $4,000/accident/person Family support $20/day up to 30 days/accident Four levels available that determine the benefit amount.
Lump Sum Critical Illness* $4.42 - $127.40 Covers: heart attack, stroke, end-stage renal failure, coma, paralysis, major human organ transplant Major critical illness event $10,000 - $30,000 (payable once per covered person, per lifetime) Subsequent critical illness event $5,000 Coronary artery bypass graft surgery $3,000 (payable once per covered person, per lifetime) Sudden cardiac arrest $10,000 (payable once per covered person, per lifetime) HSA (Health Savings Account) option available Benefits are paid for a covered spouse and dependent children at 50% of the primary insured’s benefit amount. All benefits reduce by 50% for losses incurred on or after a covered person’sth 75 birthday.
Cancer Protection Assurance $16.59 - $80.86 Wellness benefit $25 - $100/year Prophylatic Surgery (Due to positive genetic test result) $125 - $350 Initial diagnosis benefit $1,000 - $6,000 ($2,000 - $12,000 for dependent children) Additional Opinion Benefit $150 - $400/once per covered person/lifetime Hospital confinement 30 days or less $100 - $300/($125 - $375 for dependent children) Hospital Confinement 31 days or more $200 - $600 ($250 - $750 child) Nonsurgical Treatment Benefit (chemotherapy, immunotherapy, Radiation, experimental) $100 - $400 self-administered/month; $600 - $1,500 physician administered/month Hormonal oral chemotherapy $15 - $40/month, self-administered Topical chemotherapy $100 - $200/month Anti-nausea $50 - $150/month Stem cell transplantation benefit $3,500 - $10,000/covered person; $50 - $150 donor Nursing services $50 -$150/day Surgery and anesthesia $50 - $5,000 anesthesia is 25% of surgery amount Outpatient hospital surgical room $100 - $300 Skin cancer surgery $20 - $600 Surgical prosthesis $1,000 - $3,000 Prophylactic Surgery (w/correlating internal cancer diagnosis) $125 - $350 Prosthesis nonsurgical $90 - $250 Reconstructive surgery $50 - $3,000 anesthesia is 25% of surgery amount Blood and plasma $50 - $75/day Ambulance $250 ground, $2,000 air Transportation $0.35 - $0.50/mile Lodging $50 - $80/day Bone marrow transplant $3,500 - $10,000, donor $500 - $1,000 Extended-care facility $75 - $150/day, 30 days per calendar year Hospice $1,000 day one, $50/day thereafter max, $12,000 per person Home health care $50 - $150/day Egg harvesting and storage $500 - $1,500/oocytes extracted; $100 - $200 storage Annual Care Benefit $100 - $300 /lifetime maximum 5 years Waiver of Premium Benefit
48 Aflac U.S. Payroll Product Line (con’t) (as of 09/01/18) Benefit Amounts Monthly Premium Rates (Payroll) Individual/Family Lump Sum Cancer $7.54 - $164.58 Internal cancer $10,000 - $30,000 (same for children) Carcinoma in situ $2,000 Cancer related death $5,000 Benefits above are payable once per person, per lifetime
Specified Health Event $9.36 - $106.34 Covers: heart attack, stroke, coronary artery bypass graft surgery, coma, paralysis, major third-degree burns, end-stage renal failure, major human organ transplant, persistent vegetative state, sudden cardiac arrest First occurrence $7,500 ($10,000 children) (payable once per person, per lifetime) Subsequent specified health event $3,500 Hospital confinement benefit $300/day Hospital intensive care unit benefit $800 per day 1-7 days (Option 2 & Option 3) $1,300 per day 8-15 days (Option 2 & Option 3) Step-down intensive care unit benefit $500 per day 1-15 days (Option 2 & Option 3) Continuing care $125/day Ambulance $250 ground, $2,000 air Lodging $75/day Transportation $.50/mile up to $1,500 per occurrence Subsequent tier one specified heart surgery $1,000 (Option 3) Specified heart surgery tier one $4,000 (Option 3) (payable once per person, per lifetime) Heart valve surgery Surgical treatment of abdominal aortic aneurysm Specified heart surgery tier two $2,000 (Option 3) (payable once per person, per lifetime) Coronary angioplasty Transmyocardial revascularization (TMR) Atherectomy Coronary stent implantation Cardiac catheterization Automatic implantable cardioverter defibrillator (AICD) placement Pacemaker placement
Hospital Choice $16.77 - $86.97 Hospital confinement $500 - $2,000 once/confinement per covered person Rehabilitation $100 15 days/confinement 30 days/year Hospital emergency room $100 2/year/policy Hospital short-stay $100 2/year/policy Physician visit $25/visit (3 visits/year individual or 6 visits/year family) Medical diagnostic imaging $150/exam/person per year Ambulance $200 ground/$2,000 air Laboratory Test and X-Ray $35 2/year/covered person Initial assistance $100/year/rider Surgical $50 - $1,000 (based on surgical schedule) Invasive diagnostic exams $100/person/day Daily hospital confinement $100/day Hospital intensive care unit confinement $500/day Second Surgical Opinion $50/year/covered person Health Savings Accounts (HSAs) compatible plan design is also available Certain benefits available through rider options Dental* Dental wellness (preventive) $25 - $75/year $24.05 - Individual (Essentials) Scheduled benefits $10 - $1,110 $164.32 - Two-parent family (Level 3) Annual maximum building benefit Up to $500 per covered person Annual maximums $1,200, $1,400, $1,600, $1,800
Vision $13.90 - $49.90 Vision correction materials $80 - $270 Refractive error correction $130 - $480 Eye exam $45 Permanent visual impairment Up to $20,000 Specific eye diseases/disorders $1,000 Eye surgery $50 - $1,500
Short-Term Disability* $5.20 - $561.60 Disability benefits for sickness and off-the-job injury $500 - $6,000 Elimination periods 0-180 days. Benefit periods 3-24 months Range is for the minimum of five units of coverage and a maximum of 60 units.
Aflac Value Rider $10.92 Aflac will pay $1,000 less any claims paid At the end of every consecutive 5 year period Up to $1,000 every 5 years Available only with purchase of disability product
49 Aflac U.S. Payroll Product Line (con’t) (as of 09/01/18) Benefit Amounts Monthly Premium Rates (Payroll) Individual/Family Life* $6.96 - $58.00 Whole-life face amounts $10,000 - $500,000 10-, 20-, and 30-year term face amounts $20,000 - $500,000 Accelerated death benefit Optional waiver of premium rider Optional accidental death benefit rider Spouse and dependent coverage available Simplified-issue, Guaranteed-issue (proposed insured only), rates guaranteed 10-year term-based policy only. Rates based on: age 25 - $20,000 and $500,000 face amounts; male/non-tobacco
Specified Event Rider (Aflac Plus) $3.12 - $24.70 (Can be added to Accident, Hospital, Short-Term Disability or Cancer Insurance Products. Availability varies by state.) Tier 1 covers: heart attack, stroke, Type 1 diabetes, advanced Alzheimer’s Disease, and advanced Parkinson’s Disease, coma, paralysis, traumatic brain injury, amyotrophic lateral sclerosis (ALS), loss of independence, sustained multiple sclerosis, permanent loss of sight, hearing or speech, sudden cardiac arrest $5,000 (payable once per covered person, per lifetime) Subsequent Tier 1 critical illness benefit $2,500 Tier 2 covers: critical illness benefit: encephalitis, bacterial meningitis, lyme disease, sickle cell anemia, cerebral palsy, necrotizing fasciitis osteomyelitis, systemic lupus, cystic fibrosis $1,250 Coronary artery bypass graft surgery $1,250 (payable once per covered person, per lifetime)
BenExtend** $14.58 - $61.75 Hospital admission benefit $250 - $750 Hospital confinement benefit $50 - $300/day Initial treatment $75 - $150 Ambulance $200 - $300 Major diagnostic testing $200 - $400 Lacerations $75 - $100 Appliances $10 - $300 Fractures Up to $2,500 Major critical illness event $2,000 - $5,000 *Also available on a group platform. Benefits of group and individual products may vary. **Only available on a group platform.
50 Section IV Other Information Appendix Definitions of Non-U.S. GAAP Financial Measures • Aflac defines adjusted earnings (a non-U.S. GAAP financial measure) as the profits derived from operations. Adjusted earnings are adjusted revenues less benefits and adjusted expenses. The adjustments to both revenues and expenses account for certain items that cannot be predicted or that are outside management’s control. Adjusted revenues are U.S. GAAP total revenues excluding realized investment gains and losses, except for amortized hedge costs related to foreign currency denominated investments. Adjusted expenses are U.S. GAAP total acquisition and operating expenses including the impact of interest cash flows from derivatives associated with notes payable but excluding any nonrecurring or other items not associated with the normal course of the Company’s insurance operations and that do not reflect Aflac’s underlying business performance.
• Amortized hedge costs represent costs incurred in using foreign currency forward contracts to hedge the foreign exchange risk of a portion of the U.S. dollar-denominated assets in the Company’s Japan segment investment portfolio. These amortized hedge costs are derived from the difference between the foreign currency spot rate at time of trade inception and the contractual foreign currency forward rate, recognized on a straight line basis over the term of the hedge. There is no comparable U.S. GAAP financial measure for amortized hedge costs.
51 Aflac’s Historical Highlights in the United States
1955 • American Family Life Insurance Company of 1991 • Changed name of the corporation to Aflac Columbus founded and incorporated Incorporated reflecting the insurance company’s usage of the acronym “Aflac”
1956 • Granted a license to sell insurance • Launched its first national advertising campaign to increase Aflac’s name recognition • Began selling life, accident and health insurance door-to-door in Georgia and Alabama 1995 • Focused its national philanthropic efforts on the treatment and cure of childhood cancer, pledging 1958 • Pioneered introduction of cancer insurance $3 million to the Aflac Cancer Center at Egleston Children’s Hospital. Since that time, Aflac, the company, sales associates, and employees have 1964 • Began using “cluster selling” to groups of contributed over $127 million to what is now employees at their places of work known as the Aflac Cancer and Blood Disorders Center of Children’s Healthcare of Atlanta • American Family Life Insurance Company of Columbus became American Family Life 1996 • Introduced SmartApp® technology, an online Assurance Company of Columbus enrollment system
1970 • Expanded from 11 to 42 states 1999 • Introduced personal short-term disability, payroll life, group short-term disability and specific event 1973 • American Family Corporation formed for the critical illness products purpose of holding all of the capital stock of American Family Life Assurance Company of 2000 • Launched the Aflac Duck campaign Columbus
2008 • Became the first publicly owned Company in the 1974 • American Family Corporation (AFL) listed on the United States to give shareholders a “Say on Pay” New York Stock Exchange advisory vote on compensation
1987 • Aflac Incorporated (AFL) listed on the Tokyo Stock 2009 • Acquired Continental American Insurance Exchange Company (CAIC), now branded as Aflac Group Insurance, as a subsidiary of Aflac Incorporated 1990 • Added hospital indemnity to product line
52 Aflac’s Historical Highlights in Japan
1974 • Aflac received license to sell life insurance in • Japanese government raised copayment for all Japan; became second non-Japanese life covered medical expenses for salaried workers insurance company to gain direct access to under age 70 from 20% to 30% Japan’s insurance market; pioneered sales of cancer insurance in Japan 2004 • Aflac Japan opened second Parents House in Tokyo 1982 • First competitor entered cancer insurance market 2006 • Aflac Japan introduced WAYS, a unique hybrid 1984 • Japanese government introduced 10% whole-life insurance product copayment for all covered medical expenses for salaried workers under age 70 2007 • Japanese government liberalized bank channel sales; banks permitted to sell third sector 1989 • Japanese government introduced 3% insurance products to their customers consumption tax 2008 • Banks began selling Aflac’s WAYS product 1996 • Non-life insurance companies allowed to create subsidiaries for selling life insurance products • Aflac Japan established partnership with Japan Post Co., Ltd. to sell Aflac cancer insurance; sales • Life insurance companies allowed to create began through 300 postal outlets subsidiaries for selling non-life insurance products 2009 • Aflac’s cancer insurance products available 1997 • Japanese government raised copayment for all through 1,000 postal outlets covered medical expenses for salaried workers under age 70 from 10% to 20% 2010 • Aflac Japan opened third Parents House, located in Osaka 2000 • Aflac Japan entered into strategic marketing alliance with Dai-ichi Mutual Life Insurance 2013 • Aflac Japan signed new alliance agreement Company to sell Aflac’s cancer insurance and for with Japan Post Holdings to expand number of Aflac to sell Dai-ichi life insurance outlets selling cancer insurance eventually through 20,000 postal outlets 2001 • Aflac Japan established first Aflac Parents House in Tokyo, where pediatric patients and their • Aflac Japan formed business partnership with families can stay together at a “home away from Daido Life Insurance Company to sell Aflac’s home” while receiving treatment for cancer or cancer insurance products other serious illness
• Aflac’s cancer insurance products available • Japanese government deregulated Japan’s through 1,500 postal outlets insurance market; large Japanese domestic insurance companies allowed to sell third sector insurance products 2014 • Aflac’s cancer insurance products available through 10,000 postal outlets 2002 • Aflac Japan introduced stand-alone, whole-life medical product EVER 2015 • Aflac’s cancer insurance products available through 20,000 postal outlets 2003 • Aflac introduced Aflac Duck in Japan 2018 • Aflac’s Japan branch successfully converted to a subsidiary 53 2018 Aflac Executive Speakers
Daniel P. Amos Charles D. Lake II Chairman; CEO, Aflac; President, Aflac International; Chairman Aflac Incorporated and Representative Director, Aflac Life Insurance Japan Dan Amos, 67, joined Aflac as a sales associate while in his teens. He served Charles Lake, 56, joined Aflac as state manager of Aflac’s Alabama/ International in February 1999 and Aflac West Florida Territory for 10 years. Under his leadership, Japan in June 1999. He became Aflac Japan deputy his sales territory was the number-one-producing area president in 2001, president in 2003, vice chairman in in 1981 and 1982. He was elected president of Aflac 2005, and chairman in 2008. In 2014, he also assumed in 1983 and chief operating officer of Aflac in 1987. He the position of president, Aflac International. Before became chief executive officer in 1990 and was named joining Aflac, Charles practiced law in Washington, D.C. chairman in 2001. Dan was named by the Harvard and served as director of Japan affairs and special Business Review as one of the 100 Best Performing counsel at the office of the U.S. Trade Representative in CEOs in the World in 2015, 2016 and 2017. He is a the Executive Office of the President. He currently serves member of the board of trustees of the House of Mercy as an independent outside director on the boards of of Columbus. He is a past recipient of the Dr. Martin Japan Post Holdings Co. Ltd. and Tokyo Electron Ltd. Luther King Jr. Unity Award and the Anti-Defamation Charles served ten years as an outside director on the League’s Torch of Liberty Award, and he has been board of the Tokyo Stock Exchange and is president named by CNN as CEO of the Week. He has appeared emeritus of the American Chamber of Commerce in five times on Institutional Investor magazine’s lists Japan (ACCJ). He also serves as a director on the board of America’s Best CEOs for the insurance category. of the Peterson Institute for International Economics and Under Dan’s leadership, Aflac has been named to the the U.S.-Japan Business Council. Charles received a Ethisphere Institute’s annual list of World’s Most Ethical bachelor’s degree in Asian studies and political science Companies for 12 consecutive years. Dan is a former from the University of Hawaii at Manoa and a Juris member of the board of trustees of Children’s Healthcare Doctor from the George Washington University School of of Atlanta and former chairman of the boards of The Law. Japan-America Society of Georgia and the University of Georgia Foundation. Dan graduated from the University of Georgia with a bachelor’s degree in insurance and risk Masatoshi Koide management. President and Representative Director, Aflac Life Insurance Japan
Frederick J. Crawford Masatoshi Koide, 58, originally joined Executive Vice President; Chief Financial Aflac in November 1998 and stayed Officer, Aflac Incorporated with Aflac until March 2006. He worked for Nikko Asset Management before he joined Aflac Fred Crawford, 55, joined Aflac in June again in December 2008 as vice president. He was 2015 as chief financial officer of Aflac promoted to senior vice president in January 2012 and Incorporated, responsible for overseeing to first senior vice president in July 2013. In January the financial management of company operations. He 2015, he was promoted to executive vice president, brings more than two decades of financial and leadership Planning, Government Affairs and Research, Corporate experience to Aflac. Most recently, he served as executive Communications, Legal, Risk Management, Investment, vice president and chief financial officer of CNO Financial Compliance, Customer Services, and General Affairs. Group since 2012. Prior to that, he spent more than a In July 2016, he was promoted to deputy president, decade at the Lincoln Financial Group serving in roles Aflac Japan. He assumed the role of president and of progressive responsibility, including as executive vice chief operating officer of Aflac Japan in July 2017. He president and chief financial officer as well as leading graduated from Tokyo University in 1984 and from Corporate Development and Investments. Before joining Cornell Law School in 1989. He is a member of the New Lincoln Financial Group, he also held leadership positions York State Bar. at Bank One Corporation. Fred received a Bachelor of Arts from Indiana State University and a Master of Business Administration from the University of Iowa, where he currently serves on the Tippie College of Business Advisory Board.
54 Teresa L. White Richard L. Williams Jr. President, Aflac U.S. Executive Vice President; Chief Distribution Officer Teresa White, 51, joined Aflac in 1998 as second vice president, Client Services; Rich Williams, 46, joined Aflac in 2017 was promoted to vice president of as executive vice president and chief Client Services in 2000; to senior vice distribution officer, responsible for president, director of Sales Support and Administration leading the fully aligned distribution team of independent in October 2004; to deputy chief administrative officer career agents and brokerage professionals. He focuses in March 2007; and to executive vice president, Internal on the alignment and strategic growth of current Operations; chief administrative officer in March 2008. In distributions, including product development, enrollment October 2012, she assumed the additional responsibility and account management for Aflac U.S., as well as of the IT Division, and in July 2013 she was also further distribution and expansion. Prior to joining Aflac, named chief operating officer of Aflac Columbus. In he was senior vice president and general manager, Stop September 2014, Teresa was named president of Aflac Loss, at Unum, U.S. Prior to that, he was senior vice U.S., where she leads both the Aflac Group and Aflac president, Growth Markets at Colonial Life and Accident Columbus operations. In this role, she is responsible for Insurance Company. He also held various positions creating the vision for Aflac U.S. and driving execution of increasing responsibility with Strategic Resource of the long-term strategy while strengthening the growth Company (an Aetna company). Rich began his career as and value proposition for Aflac U.S. Teresa earned a an actuary in 1998 with William M. Mercer Inc. He earned bachelor’s degree in business administration from the a Bachelor of Science from Wofford College and a Master University of Texas at Arlington and a master’s degree in of Arts from Wake Forest University. He also earned management from Troy State University. She is a Fellow a Doctor of Philosophy from the University of South of the Life Management Institute (FLMI) and an alumna of Carolina. He is also a Fellow of the Society of Actuaries Leadership Columbus, and she also serves on the board and a member of the American Academy of Actuaries. of directors of America’s Health Insurance Plans (AHIP). Koji Ariyoshi Eric M. Kirsch Director, Executive Vice President; Executive Vice President; Director of Sales and Marketing, Global Chief Investment Officer Aflac Life Insurance Japan President, Aflac Global Investments Koji Ariyoshi, 65, joined Aflac as senior Eric Kirsch, 58, joined Aflac in November vice president, responsible for sales 2011 as first senior vice president; global planning in October 2008. From January through chief investment officer and was promoted to executive March 2009, he was directly in charge of the Retail vice president in July 2012. He was named president Marketing, Alliance Management and Hojinkai Promotion of Aflac Global Investments, the asset management Departments. From April through December 2009, subsidiary of Aflac Incorporated, in January 2018 and he oversaw all the marketing and sales departments is responsible for overseeing the company’s investment as deputy director of Sales and Marketing. He was efforts, including Aflac’s investment portfolio and its promoted to first senior vice president and director of investment teams based in New York and Tokyo. Prior Sales and Marketing in January 2010. He was promoted to joining Aflac, he served as managing director and to his current role in January 2012. Before joining Aflac, global head of insurance asset management at Goldman he worked for Alico Japan as vice president and AXA Life Sachs Asset Management. Prior to that, he spent 27 Insurance as senior vice president. He graduated from combined years at Deutsche Asset Management (DeAM) Ritsumeikan University in 1978. and Bankers Trust Company, most recently serving as managing director and global head of insurance asset management. Prior to this, he served as managing director and head of North America Fixed Income. He also previously served as vice president and stable value portfolio manager at Bankers Trust Company. Eric received a Bachelor of Business Administration from Baruch College, and a Master of Business Administration from Pace University. He earned his CFA designation in 1990. Eric also serves as a trustee of the Jersey Shore University Medical Center Foundation and for the Baruch College Fund.
55 Max K. Brodén Senior Vice President; Treasurer; Head of Corporate Development
Max Brodén, 40, joined Aflac as senior vice president and treasurer in April 2017. In his current role, he is responsible for leading Aflac’s Corporate Finance, Treasury, and Investor and Rating Agency Relations departments, in addition to oversight of enterprise-wide corporate development activities and initiatives. Max oversees the company’s efforts to engage investors and rating agencies on a range of issues including the company’s financial performance and corporate governance activities, as well as strategic partnerships and planning. Prior to joining Aflac, he served as senior portfolio manager for Norges Bank, managing an equity portfolio of diversified global financial and insurance stocks. He also worked for several years at DnB Nor Asset Management in Stockholm and New York and Skandia Asset Management in Stockholm. Max holds a Master of Science in both accounting and finance from Stockholm School of Economics. He is also a CFA charterholder.
2018 Aflac Executive Panelists
J. Todd Daniels Virgil R. Miller Director; Executive Vice President; Executive Vice President; Chief Principal Financial Officer, Operating Officer, Aflac U.S. Aflac Life Insurance Japan President, Aflac Group
Todd Daniels, 47, is responsible for Virgil Miller, 50, joined Aflac in 2004 overseeing the financial, actuarial and in the Policy Service Department after risk management practices of Aflac Life Insurance Japan. working in leadership in the property and casualty Todd joined Aflac in 2002 as an actuarial assistant and industry. He was promoted to positions of increasing held positions of increasing responsibility within the responsibility including second vice president of Client Actuarial Department, including second vice president; Services, Policy Service and the Customer Service associate actuary. He was promoted to vice president, Center and vice president of Client Services, Customer Financial Planning and Analysis in 2011, where he Assurance and Aflac’s Transformation Office. In 2015, assumed responsibility for Aflac’s financial planning and Virgil was promoted to senior vice president of Internal corporate modeling. In 2012, he was promoted to senior Operations and later named chief administrative officer, vice president; deputy corporate actuary. He assumed head of Aflac Group. He was promoted to his current the responsibilities of global chief risk officer in January position in January 2018 and is responsible for the 2014 and the additional role of chief actuary in December strategic leadership and overall direction of operations 2015. In May 2016, he was promoted to executive vice at Aflac Group as well as operations for Aflac U.S. president; global chief risk officer and chief actuary. Prior Virgil served as a U.S. Marine and is a veteran of to joining Aflac, Todd served as an actuarial associate Operation Desert Storm. He holds a bachelor’s degree for Liberty National Life. He holds a bachelor’s degree in accounting from Georgia College and a master’s in applied mathematics from Auburn University. He is degree in business management from Wesleyan a fellow of the Society of Actuaries and member of the College. He serves on the board of trustees for Claflin American Academy of Actuaries. University, the Palmetto Business Forum, the Palmetto Health Foundation Board of Trustees and the Columbia Urban League. He was recently selected to serve as the co-chair of the 2019 SEUS-Japan Association.
56 John A. Moorefield Albert A. Riggieri Director, Executive Vice President and Senior Vice President; Global Chief Risk Chief Transformation Officer; IT, Policy Officer and Chief Actuary Services, Information Security, Aflac Life Insurance Japan Al Riggieri, 62, joined Aflac in December 2016 as senior vice president, John Moorefield, 56, joined Aflac in 2005 corporate actuary. In his current role, and has since served in several key positions, including he is responsible for global enterprise risk management chief information officer of Aflac Japan. John also served and corporate actuarial functions, as well as leading as first senior vice president, strategic management, for the development and implementation of global risk Aflac International, where he oversaw various strategic programs and strategic actuarial initiatives. Prior initiatives. He was promoted to his current role in January to joining Aflac, he held various actuarial positions of 2017 to oversee Aflac’s Policy Services, IT, Information increasing responsibility over his 36-year career at Unum Security and transformation initiatives in Japan. Prior to Group. Most recently, he served as Group Chief Actuary joining Aflac, John served as a principal in ApproxiCom with a leadership role in the financial management of LLC and held executive leadership positions at Cap the company, where he held broad responsibilities Gemini Ernst and Young LLP, Fidelity Investments and for actuarial matters pertaining to pricing, valuation, NationsBank. He earned a bachelor’s and master’s reinsurance, investments, and capital management. Over degree from North Carolina State University. his career he has been involved with and made various contributions to industry actuarial committees, and has presided over the development of an industry-leading June P. Howard, actuarial development program at Unum. Al received CPA, CFA, CGMA his Bachelor of Science degree in mathematics from Senior Vice President, Financial Services; Worcester Polytechnic Institute and served as an adjunct Chief Accounting Officer professor there teaching actuarial exam preparation courses. He is a Fellow of the Society of Actuaries and June Howard, 52, joined Aflac in June member of the American Academy of Actuaries. 2009 as vice president and assumed the role of senior vice president and chief accounting officer in November 2010. June is responsible for Yoko Kijima shared services, investment accounting, corporate tax, Director, First Senior Vice President; accounting policy and investment advisory. Before joining Chief Administrative Officer; Diversity Aflac, June held financial reporting positions of increasing Promotion, Aflac Life Insurance Japan responsibility at ING and The Hartford. Additionally, she worked as an auditor with Ernst & Young for nearly 10 Yoko Kijima, 55, joined Aflac in 1986, years. June graduated from the University of Alabama engaging in insurance premium billing in Huntsville with a bachelor’s degree in business and collecting operations in the Premium Accounting administration. She is a member of the American Institute Department. In 1995, she was involved in setting up of Certified Public Accountants, the Alabama Society of the call center and later was engaged in companywide Certified Public Accountants, the CFA Institute and the customer satisfaction promotion operations before Atlanta Society of Financial Analysts. being promoted to manager in 2001. She was promoted to general manager of the Administration Planning Department in 2006 and was appointed vice president, serving as general manager of the Policy Administration Planning Department in January 2012. She was engaged in insurance policy administration operations from the time she joined Aflac until the end of 2014. In January 2015, she was appointed compliance officer with responsibility for the Corporate Division. She was promoted to senior vice president in January 2017 and to first senior vice president in July 2018. She graduated from Jissen Women’s University in 1986.
57 Hideto Yamamoto Senior Vice President and Chief Investment Officer, Aflac Life Insurance Japan; President and Representative Director, Aflac Asset Management Japan
Hideto Yamamoto, 55, joined Aflac in 2015 as senior vice president, chief investment officer of Aflac Japan, the predecessor of Aflac Life Insurance Japan, where he chairs the Japan Investment Committee and is responsible for leading and managing a team of investment professionals, while having oversight responsibility for ensuring execution of globally approved investment strategy of the Aflac Life Insurance Japan portfolio. He is also a member of the Global Investment Committee and the Global Risk Committee. In 2018, he was named President and Representative Director of Aflac Asset Management Japan. Prior to joining Aflac, he served in roles of increasing responsibility at DIAM International, most recently serving as chief executive officer and chief investment officer in the company’s London office. Prior to joining DIAM, he spent 15 years serving in roles of progressive responsibility at the Industrial Bank of Japan, which included portfolio management and economic research. He received his Bachelor of Arts in economics from Keio University in Tokyo.
2018 Aflac Investor and Rating Agency Relations Management
David A. Young Delia H. Moore Vice President, Investor and Rating Director, Investor and Rating Agency Agency Relations Relations
David Young, 44, joined Aflac in 2005 Delia Moore, 48, joined Aflac in 2003 as an investment consultant in the in the Policy Service department and Investments Department where he was promoted to manager of Investor assumed primary responsibility for covering banks, Relations in 2005, where she was primarily responsible financial companies and insurers. David was promoted to for managing communications and relationships with senior investment consultant and second vice president retail investors. In November 2011, she was promoted in 2009 and 2012, respectively. David joined Investor to director of Investor and Rating Agency Relations. In and Rating Agency Relations in September 2013 and her current role, Delia manages and oversees global was promoted to vice president in January 2016. communications and relationships with rating agencies David is responsible for investor relations, including to ensure they remain fully informed and up to date the engagement of investors on matters related to the on the company’s activities, financial performance company’s performance and corporate governance. and strategies for growth. She also advises senior and Prior to Aflac, David cultivated his investment executive management on the possible implications experience at Morgan Stanley and an institutional asset strategic decisions and company developments may management subsidiary of SunTrust Bank. He earned have on corporate ratings, in addition to keeping a Bachelor of Arts degree in political science from management informed of the potential impact the Sewanee – The University of the South and a Master of latest ratings criteria and developments may have on Business Administration with a concentration in finance the company’s overall ratings. Prior to joining Aflac, from Georgia State University – J. Mack Robinson Delia held various financial management and leadership College of Business. positions of increasing responsibility at major Fortune 500 companies including AT&T and Citibank. Delia graduated from Columbus State University with a Bachelor of Business Administration in accounting. Additionally, she holds a master’s degree in accounting from Auburn University. Delia serves on the board of the Aflac Childhood Cancer Foundation.
58 Daniel A. Bellware, Yoshihiro Aoyama CPA, CGMA Manager, Investor Relations Support Senior Manager, Investor and Rating Office, Aflac Life Insurance Japan Agency Relations Yoshihiro Aoyama, 55, joined Aflac Daniel Bellware, 56, joined Aflac in Japan as head of the Investor Relations 1998, and held various roles in Financial Support Office in November 2017. Prior Reporting and Financial Compliance prior to joining to joining Aflac, he worked at Japan Shareholder Service Investor and Rating Agency Relations in July 2013. as chief consultant, specializing in investor relations for As senior manager of Investor and Rating Agency Japanese companies. Before that, he worked as an Relations, Daniel partners with various divisions investor relations representative for a total of 13 years at to ensure that an overall view of corporate activity is Jupiter Telecommunications, the leading multiple system coordinated, analyzed and integrated into the Investor operator in Japan, where he served as general manager Relations communications and strategy. In addition, of its Investor Relations Department, and at Yamanouchi he is responsible for overseeing retail investor relations Pharmaceutical, currently Astellas Pharma. He received activities for Aflac, including educating the individual, a bachelor of economics degree from Kwansei Gakuin broker and financial advisor investment community University. on Aflac’s financial performance. Prior to joining Aflac, Daniel held management positions in several smaller life insurance companies. He holds a bachelor’s degree in accountancy and a master’s degree in business administration from the University of Central Florida. Daniel is also a member of the American Institute of Certified Public Accountants.
59 60 Institutional investors with questions about the company may contact:
IN THE UNITED STATES: IN JAPAN:
David A. Young Aflac Japan Vice President Shinjuku Mitsui Building Investor and Rating Agency Relations 2-1-1, Nishishinjuku, tel: 706.596.3264 or 800.235.2667 Shinjuku-ku, Tokyo [email protected] 163-0456, Japan tel: 011.81.3.3344.0481
Rating agencies with questions about the company may contact:
Delia H. Moore Director Investor and Rating Agency Relations tel: 706.596.3264 or 800.235.2667 [email protected]
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