Good day, and welcome to the Aflac Incorporated Third Quarter 2024 Earnings Call. All participants will be in listen only mode. After today's remarks, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to David Young, Vice President of Capital Markets. Please go ahead.

Good morning and welcome. Thank you for joining us for Aflac Incorporated third quarter earnings call. I hope you will also join us for our Financial Analyst Briefing on December 3rd at the New York Stock Exchange. Registration reminders for this event will go out over the next few weeks. This morning, Dan Amos, Chairman and CEO of Aflac Incorporated will provide an overview of our results and operations in Japan and the United States. Then, Max Broden, Executive Vice President and CFO of Aflac Incorporated will provide an update on our financial results and current capital and liquidity. These topics are also addressed in the materials we posted with our earnings release and financial supplement on investors.aflac.com. In addition, Max provided his quarterly video update, which also includes information about the outlook for 2024. We also posted under Financials, on the same site, updated slides of investment details related to our commercial real estate and middle-market loans. For Q&A today, we are joined by Virgil Miller, President of Aflac U.S.; Charles Lake, Chairman and Representative Director, President of Aflac International; Masatoshi Koide, President and Representative Director, Aflac Life Insurance Japan; and Brad Dyslin, Global Chief Investment Officer, President of Aflac Global Investments. Before we begin, some statements in this teleconference are forward-looking within the meaning of federal securities laws. Although we believe these statements are reasonable, we can give no assurance that they will prove to be accurate because they are prospective in nature. Actual results could differ materially from those we discuss today. We encourage you to look at our Annual Report on Form 10-K for some of the various Risk Factors that could materially impact our results.

Thank you, David, and good morning. We're glad you joined us. As you saw, Aflac Incorporated reported a loss of $0.17 per diluted share on a U.S. GAAP basis for the quarter, primarily due to increased foreign exchange-related losses from the yen and the strengthening of 12.9% during the quarter. However, adjusted earnings per diluted share for the quarter increased 17.4% to $2.16. Year-to-date, earnings per diluted share were $6.23 and adjusted earnings per share on a diluted basis rose 13.5% to $5.64. Beginning with Japan, we drove a 12.3% year-over-year increase in sales in the third quarter, maintaining the initial momentum from the June launch of Tsumitasu. As you'll recall, Tsumitasu combines asset formation with a nursing care option. It is part of our strategy to attract new and younger customers while also introducing them to our third sector policies. Tsumitasu also played an important role in the sales growth at the agencies. I'm also very pleased with the continued improvement in cancer insurance sales through Japan Post Channel, especially considering that WINGS has been in the market for over two years. On November 15, we'll be celebrating 50 years in Japan. Our marketing efforts will focus on creating additional touch points with customers around their needs and our products. Overall, Koide San and his team have done a great job of driving sales in Japan and even more so of delivering record profit margins for the quarter. Turning to the U.S., we achieved 5.5% sales growth for the quarter. These sales results reflect strong growth in Group Life, absent management and disability, which is encouraging as we continue to scale up that platform. In addition, it's good to see a continued increase in cancer insurance sales given our efforts to enhance the value proposition to our cancer policyholders. As we enter the fourth quarter and what tends to be our heaviest enrollment period, we will continue to focus on profitable growth, disciplined expense management, and optimizing our Dental and Vision platform. Overall, Virgil and his team are doing a good job balancing profitable growth, enhancing the value proposition of our policyholders, and curbing the expense ratios. Their efforts contributed to the strong 20.8% pre-tax profit margin for the quarter. Max has done a great job leading the team to proactively defend our cash flows and deployable capital against a weakening yen, as well as establish our reinsurance platform in Bermuda. Over the course of this year, Virgil and Max as well as Audrey Tillman have taken on additional responsibilities. The Board and I are thrilled to recognize the tremendous contributions these executive leaders have made with their promotion announcements yesterday. You've probably heard me say many times that in conjunction with the Board, one of my key responsibilities is succession planning for key roles and I look forward to continuing to work with them and prepare them for the future. Turning to investments, we have been very pleased with our investment portfolio's performance as it continues to produce strong net investment income with minimal losses and impairments. As an insurance company, our primary responsibility is to fulfill the promises we make to our policyholders while being responsive to the needs of our shareholders. Our solid portfolio supports our promise to our policyholders as does our commitment to maintaining strong capital ratios. We balance this financial strength with tactical capital deployment. We intend to continue prudently managing our liquidity and capital to preserve the strength of our capital and cash flows. This supports both our dividend track record and tactical share repurchase. We treasure our track record of what is now 42 consecutive years of dividend growth with the Board of Directors' declaration of the fourth quarter dividend of $0.50. We repurchased $500 million in shares during the quarter and intend to continue our balanced tactical approach of investing in growth and driving long-term operating efficiencies. Our management team, employees, and sales distribution continue to be dedicated stewards of our business, being there for the policyholders when they need us most just as we promised. This exemplifies our goal of providing customers with the best value in the supplemental insurance products in the United States and Japan. We believe in the underlying strengths of our business and our potential for continued growth in Japan and the United States, two of the largest life insurance markets in the world. Aflac is well-positioned as we work toward achieving long-term growth while also ensuring we deliver on our promise to our policyholders. I'll now turn the program over to Max to cover more details of the financial results.

Thank you, Dan. Thank you for joining me as I provide a financial update on Aflac Incorporated's results for the third quarter of 2024. For the quarter, adjusted earnings per diluted share increased 17.4% year-over-year to $2.16 with a $0.03 negative impact from FX in the quarter. In the quarter, remeasurement gains on reserves totaled $408 million, reducing benefits while an offsetting unlock of the deferred profit liability in Japan reduced earned premium by $75 million. Variable investment income ran $27 million below our long-term return expectations. Adjusted book value per share, including foreign currency translation gains and losses, increased 7.3% and the adjusted ROE was 16.7%, an acceptable spread to our cost of capital. Overall, we view these results in the quarter as solid. Starting with our Japan segment, net earned premiums for the quarter declined 10.5%. This decline reflects a ¥7.3 billion negative impact from an internal cancer reinsurance transaction executed in the fourth quarter of 2023 and a ¥4.6 billion negative impact from paid-up policies. In addition, there is a ¥13.3 billion negative impact from deferred profit liability, the majority of which is a one-time impact from unlocking of LDTI assumptions. At the same time, policies in force declined 2.3%. Japan's total benefit ratio came in at 49.2% for the quarter down 15.9 percentage points year-over-year and the third sector benefit ratio was 41.8% down approximately 13 percentage points year-over-year. We estimate the impact from remeasurement gains to be approximately 18 percentage points favorable to the benefit ratio in Q3 2024. Long-term experience trends as it relates to treatments of cancer and hospitalization continue to be in place, leading to continued favorable underwriting experience. Given the impact from unlocking, we now expect the full year benefit ratio to end up in the range of 62% to 63%. Persistency remained solid with a rate of 93.3%, which was down 20 basis points year-over-year. This change in persistency is in line with our expectations. Our expense ratio in Japan was 20% up 100 basis points year-over-year driven primarily by decline in revenues. Adjusted net investment income in yen terms was up 0.1% as the benefits from lower hedge costs and favorable impact from foreign currency on U.S. dollar investments in yen terms were largely offset by lower floating rate income and lower volume as we have continued to shift assets from Aflac Japan to Aflac Re Bermuda. The pre-tax margin for Japan in the quarter was 44.7%, up 11.9 percentage points year-over-year, a very good result. For the full year, we now expect the pre-tax margin to be in the range of 35% to 36%. Turning to U.S. results, net earned premium was up 2.8%, persistency increased 20 basis points year-over-year to 78.9%. Considering our year-to-date results, we now expect full year net earned premium to be toward the lower end of our guidance range of 3% to 5%. Our total benefit ratio came in at 47.6%, 11.7 percentage points higher than Q3 2023 driven by lower remeasurement gains than a year ago. We estimate that the remeasurement gains impacted the benefit ratio by approximately 120 basis points in the quarter. Claims utilization has rebounded from depressed levels during the pandemic and are now more in line with our long-term expectations. For the full year, we would expect the benefit ratio to be towards the higher end of our guidance range of 45% to 47%. Our expense ratio in the U.S. was 38% down 260 basis points year-over-year, primarily driven by platforms improving scale and strong expense management. Given business seasonality, we would expect an uptick in expense ratio for Q4 but to remain within our guidance range of 38% to 40% for the full year. Our growth initiatives, Group Life and Disability, Network Dental Vision, and direct-to-consumer increased our total expense ratio by 100 basis points. This is in line with our expectations and we would expect this impact to decrease going forward as these businesses grow to scale and improve their profitability. Adjusted net investment income in the U.S. was up 0.5% mainly driven by higher fixed rate income. Profitability in the U.S. segment was solid with a pre-tax margin of 20.8%, also a good result. Our total commercial real estate loan watchlist remains approximately $1 billion with less than $250 million in process of foreclosure currently. As a result of these current low valuation marks, we increased our CECL reserves associated with these loans by $3 million in this quarter, net of charge-offs. We've had one foreclosure moved into real estate-owned. We continue to believe that the current distressed market does not reflect the true intrinsic value of our portfolio, which is why we are confident in our ability to take ownership of these assets, manage them through this cycle, and maximize our recoveries. Our portfolio of first lien senior secured middle market loans continued to perform well with losses below our expectations for this point in the cycle. In our Corporate segment, we recorded a pre-tax gain of $15 million. Adjusted net investment income was $37 million higher than last year due to a combination of higher rates and asset balances, which included the impact of reinsurance transactions in Q4 of 2023, as well as continued lower volume of tax credit investments. These tax credit investments impacted the corporate net investment income line for U.S. GAAP purposes negatively by $57 million in the quarter with an associated credit to the tax line. The net impact to our bottom line was a positive $5 million in the quarter. To-date, these investments are performing well and in line with our expectations. We are continuing to build out our internal reinsurance platform, and I'm pleased with the outcome and performance. In the fourth quarter, we intend to execute another tranche with similar structure and economics in yen terms to our October 2023 transaction. Our capital position remained strong, and we ended the quarter with an SMR about 1,100% and our combined RBC, while not finalized, we estimate to be greater than 650%. These are strong capital ratios, which we actively monitor, stress, and manage to withstand credit cycles as well as external shocks. U.S. statutory impairments were $58 million, and there were no additional Japan FSA impairments in Q3. This is well within our expectations and with limited impact to both earnings and capital. As we hold approximately 60% of our debt in yen, our leverage increased to 21% as a result of the move in the yen-dollar exchange rate, well within our target range of 20% to 25%. Our leverage will fluctuate with movements in the yen-dollar rate. This is intentional and part of our enterprise hedging program protecting the economic value of Aflac Japan in U.S. dollar terms. Unencumbered holding company liquidity stood at $3.9 billion, $2.1 billion above our minimum balance. We repurchased $500 million of our own stock and paid dividends of $280 million in Q3, offering good relative IRR on these capital deployments. We will continue to be flexible and tactical in how we manage the balance sheet and deploy capital in order to drive strong risk-adjusted ROE with a meaningful spread to our cost of capital. Thank you. And I will now hand over to David to begin Q&A.

Thank you, Max. Before we begin our Q&A, we ask that you please limit yourself to one initial question and a related follow-up. You may then rejoin the queue. We'll now take the first question.

We'll now begin the question-and-answer session. And our first question comes from Joel Hurwitz from Dowling & Partners. Please go ahead.

Hi, good morning. I wanted to start on Japan sales. So third sector sales continue to be a bit challenged. Can you just talk about plans for both cancer and medical? And what are you expecting from sales promotions related to the 50th anniversary?

This is Yoshizumi, responsible for Sales and Marketing in Japan. Let me begin by discussing our success. The key factor is the launch of a new asset formation product that includes nursing care coverage. This product features a conversion option to medical, nursing care, or death benefits once it is fully paid. Tsumitasu was created to address the asset formation needs of young and middle-aged customers and to boost third sector sales. Significant sales preparations from June through the third quarter resulted in a 12.3% growth rate, revitalizing the sales activities of our associates. Consequently, we anticipate that our third sector sales will increase with Tsumitasu. For cancer insurance, we are leveraging our 50th anniversary as a strong promotional hook. Our cancer insurance product, introduced two years ago, includes a unique concierge service known as the Yoriso cancer consultation support service. We are promoting the value of this offering through television commercials and online ads, and we are also planning to launch a new product next spring. We expect our cancer sales to rise. In terms of medical insurance, we have rebranded our product name, which has generated significant market interest. We expect medical sales to gradually recover alongside Tsumitasu. Overall, we foresee a recovery and increase in third sector product sales. Additionally, we have successfully recruited sales agents for the third sector and are enhancing our sales force.

The next question comes from Tom Gallagher from Evercore ISI. Please go ahead.

Good morning. First question just on capital allocation, and I'll just have a quick follow-up on sales. Can you talk a bit about broader capital allocation, how you're thinking about it? I know the buyback was a bit lower this quarter, but you have the strong level of excess capital accumulating. Any thoughts on a special dividend, M&A, as you think about how you would proceed if the stock continues to trade at strong levels?

Thank you, Tom. You're right in acknowledging that our capital ratios are strong. We are also generating significant capital both organically throughout our operations and what we are doing around reinsurance, freeing up additional levels of capital. So we are very strong on that front. We consider all of those opportunities that you mentioned, and I would not exclude any option. We evaluate where we can get the best returns currently, but more importantly, over the long-term. When we evaluate our business, we think about it over the next 1, 2, 3, 5, 10, 15, and 20 years, focusing on what will generate the highest return on capital for us over that time period. Especially when considering strategic areas like M&A, you have to take that into account. These are all factors that inform our capital allocation considerations, including how much we have, how we see capital generation coming to us, and the returns that we can get.

Okay. Thanks for that, Max. Just a follow-up on sales. Can you give a sense of the split between new customers versus existing customers that are buying first sector products?

If you're inquiring about the new customer ratio for first sector product sales, sales to existing customers exceed those to new customers, which is typical during the launch of a new product. As we look to attract young and middle-aged customers using Tsumitasu, we are strategically focusing on acquiring new customers while also addressing our current customer base.

Yes. I'd like to make a comment about that. I would say the numbers are aligning with our expectations. We anticipated that new customer ratios would be over 20% and hoped it would be closer to 25%. It started at about 20% and has moved up to 25%. So that's within the range of what we anticipated, and we're very pleased with Tsumitasu and its ability to attract new customers.

Next question comes from Wes Carmichael from Autonomous Research. Please go ahead.

Hey, thanks. Good morning. From Yoshizumi-san's remarks, it sounds like the sales force is really leaning into Tsumitasu. Does this imply a future change where we should see a greater contribution from first sector sales? And Max, you mentioned returns after reinsurance are similar to third sector products. I want to understand strategically if we should expect a more balanced mix moving forward between first sector and third sector.

Given what Japan is experiencing, I would expect that. Yoshizumi-san can outline our strategy; we are indeed attempting to secure profits and revenue through our first sector offerings while also utilizing Tsumitasu to bring in new third sector customers.

Our strategy is twofold: to ensure profitability through reinsurance and to attract new third sector customers with Tsumitasu.

Tsumitasu is significant for many parts of our business. As Japan's society ages, the need for retirement funding increases, making retirement products more important for both the financial industry and us. I expect that retirement products will become a more meaningful tool going forward. While we will remain predominantly a third sector company, the first sector savings business will increasingly contribute to our total sales moving forward.

The next question comes from Ryan Krueger from KBW. Please go ahead.

Hey, thanks. Good morning. I had a question on the Japan benefit ratio. I think coming into the year, your guidance was 66% to 68%. Given the assumptions unlocking and year-to-date experience, would you expect that to improve from original expectations going forward? It looks like your guidance for the full year implies something closer to 65% to 67% in the fourth quarter.

Yes. The impact from this unlock is that we have lowered the future net premium ratio by roughly 100 basis points. So all other factors being equal, we would expect our benefit ratio going forward for our in-force business to be roughly 100 basis points lower than what we previously expected before the unlock. This impact extends into 2025 as well.

Thanks. Can you provide your run rate earnings expectations for the Corporate segment at this point, assuming there is no tax credit impact?

In this quarter, we had a $15 million pre-tax profit, with tax credit investments lowering that number by roughly $57 million on a pre-tax basis. If you exclude the tax impact, the run rate remains solid. We are sensitive to short-term yields but expect to continue to be profitable in that segment in the near term.

The next question comes from John Barnidge from Piper Sandler. Please go ahead.

Good morning. Thanks for the opportunity. My question is about the 100 basis points of future benefit ratio. Do you take into account long-term experience? Would short-term experience that continues to be favorable be incremental to that 100 basis points?

When we conduct our deep dive study, we incorporate all the experience that we've had to date, including past trends in our future assumptions. If future experience deviates from those trends, it could lead to either further releases or increases related to that. I do want to emphasize that future trends are incorporated in these unlocks.

Thank you, Max. Yes, we included our future trends in this year's unlock. We believe we've reflected all our current experience and expectations. We review assumptions annually for new trends, but all of that is reflected in this unlock.

Thank you for that. Following an 18-point benefit from the unlock, do you see that increasing the total addressable market for liabilities that could potentially go to Bermuda?

I view those as somewhat unrelated. This unlock is a U.S. GAAP unlock only, without impact on our U.S. statutory results or FSA reserves. I would not draw that link.

Our next question comes from Jimmy Bhullar from J.P. Morgan. Please go ahead.

First, I had a question on your expectations for Tsumitasu sales. Should we assume that they will continue to grow from here? Or is there a pent-up demand phenomenon where sales may begin to fade over the next few quarters?

Thank you for the questions. This is Yoshizumi once again. Tsumitasu was launched in June as a new product, and we saw significant sales that month due to thorough preparations prior to the launch. Since July, Tsumitasu sales have been successful and meeting our expectations. The product is well-known and popular among young customers as it fulfills their needs. We anticipate stable sales from Tsumitasu through the end of the year and into the next quarter.

Thanks. On the U.S. business, it seems like incurred claims are running much higher this year than in recent years. Is that a mix issue, or are usage rates in some products increasing, or are there other driving factors?

Hi, good morning. This is Virgil from the U.S. Some of it is indeed our intent to ensure that policyholders can access the benefits they deserve, but we don't want to overextend ourselves. This year, we've increased benefits on select lines of business at no extra cost. We've also encouraged consumers to file for benefits, addressing potential problems before they escalate into long-term issues. The mix does matter as we push on cancer business as a separate line, successfully achieving sales growth of approximately 9%. We are working diligently to improve persistency with stronger underwriting discipline, aiming to bring in business with higher turnover, ensuring long-term viability. All these factors influence the benefit ratio, which we are carefully monitoring to remain within our tolerance.

Additionally, an important mixed impact is tied to our growth in Group Life and Disability businesses. As this becomes a larger part of our in-force, it will naturally drive up the benefit ratio for the U.S. segment. We expect this sector to operate at a low 80s benefit ratio, contributing to the overall trend.

The next question comes from Wilma Burdis from Raymond James. Please go ahead.

Hey, good morning. Given Dan's recent promotions, could you discuss what you're most focused on from a development and succession perspective over the next couple of years?

My plans remain unchanged. I serve at the pleasure of the Board and enjoy my role. They ultimately decide what happens next, but I feel a responsibility to ensure there's a succession plan without disruption. I believe we have the right people in place with opportunities. I suggested to the Board to consider individuals for potential future roles, notably Virgil. The U.S. has transformed into a stronger company over the past five years, on the back of group business and leveraging established distribution channels. I'm pleased with the developments from our leadership team.

Thank you, and congrats to Virgil, Max, and Audrey as well. Virgil, could you discuss any macro or employment environment impacts that you're observing in the U.S. affecting sales or recruiting?

Thank you for the question and for the congratulations. We began the year slower than expected in sales, facing a negative quarter initially, but rebounded in the second quarter. Our growth continued with a 5.5% increase this quarter, gathering momentum from strong product performance in the jumbo market. We are also focusing on our career field force channel. Our recruiting efforts initially lagged but rebounded with 10% growth. Overall, while some dynamics are affecting our recruitment, we remain committed to strengthening our field and converting recruits into productive agents.

The next question comes from Nick Annitto from Wells Fargo. Please go ahead.

Hey, good morning. Thanks. On the U.S. business, can you elaborate on persistency and what is driving the strength there? Is it a mix issue?

Hi, yes. As Max indicated earlier, mix plays a role. As we scale our Life and Disability business, it influences the overall persistency. Additionally, we are focusing on products with higher persistency. While cancer insurance remains critically important, we continue efforts to enhance wellness benefits, increasing payouts for various policy types. Demonstrating the value of products will lead to customer loyalty, which is critical for persistency.

The next question comes from Alex Scott from Barclays. Please go ahead.

Good morning. This is Jack Ellison on behalf of Alex. I appreciate the insights on sales initiatives in Japan. Can you discuss the competitive environment you're experiencing there, specifically for third sector products?

In the third sector, such as medical insurance, competition is fierce. When one company introduces a product, others tend to follow suit, and this trend hasn't changed. To succeed in this competitive landscape, we need to offer unique, customer-focused flexibility and straightforward features. Aflac has recently launched a new medical feature called monthly coverage, which has been well-received in the market. We believe we can enhance our competitive advantage by boosting sales through our sales channels. Aflac also has a long-standing reputation in cancer insurance, backed by a strong network and experience, which positions us favorably for future growth in both cancer and medical insurance.

This concludes our question-and-answer session. I would like to turn the conference back over to David Young for any closing remarks.

Thank you all for joining us today. We hope you'll join us on December 3rd at our Financial Analyst Briefing. If you have any questions, please follow up with Investor and Rating Agency Relations. We appreciate it. Have a good day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.