Aflac Incorporated · NYSE:AFL
Aflac — Investor Day (November 2021)
74 slides from Aflac's investor day presentation, Nov 16, 2021
Slide 1: 2021 Financial Analysts Briefing
2021 Financial Analysts Briefing November 16, 2021
Slide 2: Welcome and Introduction
Welcome and Introduction David Young Vice President, Investor & Rating Agency Relations and ESG Aflac Incorporated Financial Analysts Briefing │November 16, 2021 2
Slide 3: Agenda
Agenda David Young 8:00 Welcome and Introduction Vice President, Investor and Rating Agency Relations and ESG; Aflac Incorporated Daniel P. Amos Strategic Overview Chairman and CEO, Aflac Incorporated Frederick J. Crawford Strategic Execution President & COO, Aflac Incorporated Virgil Miller Teresa
Slide 4: Forward-Looking Statements and Non-GAAP Financial Measures
Forward-Looking Statements and Non-GAAP Financial Measures 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 meani
Slide 5: Strategic Overview
Strategic Overview Daniel P. Amos Chairman and CEO; Aflac Incorporated Financial Analysts Briefing │November 16, 2021 5
Slide 6: The Right People in the Right Places
The Right People in the Right Places • Fred Crawford – COO • Eric Kirsch and Brad Dyslin – Aflac Global Investments ‒ Platform and product growth; efficiency; longer term ‒ Refreshed strategic asset allocation; responsible investing strategy and strategic alliances • Teresa White and Virgil Miller –
Slide 7: Tactical Capital Deployment
Tactical Capital Deployment $1.80 Annual Cash Dividend per Share $1.60 1 $1.60 Over 21% increase in quarterly dividend payable in 1Q22 $1.40 2021 marked the 39th consecutive year of increasing the dividend $1.20 Repurchased more than $1.6 billion in 2021 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 1983 1988
Slide 8: Financial Focus
Financial Focus • High-quality, diversified portfolio • Strong capital and liquidity • Tactical capital deployment • Reduce expenses in the long run • Stay true to our core • Continue to do the right thing – The Aflac Way Be there for our policyholders when they need us most 8
Slide 9: Strategic Execution
Strategic Execution Fredrick J. Crawford President and COO; Aflac Incorporated Financial Analysts Briefing │November 16, 2021 9
Slide 10: Strategic Focus Across Three Horizons
Strategic Focus Across Three Horizons Horizon One Navigating a Global Pandemic Horizon Two Building – Business Line Extension & Platform Automation Horizon Three Creating Options - Future Market Opportunities The pandemic has only reinforced the urgency of our strategic path 10
Slide 11: Our Progress in 2021....
Our Progress in 2021.... 2021 has been a year of launch, learn, and adjust on build investments while navigating pandemic conditions and keeping our eye on ecosystem developments U.S. Network Dental & Vision: Acquisition capital: ~$90 million 5-year build Investment: $50 - 75 million U.S. Group Life
Slide 12: Insurance Businesses Looking Forward...
Insurance Businesses Looking Forward... Japan Recovery & Stability U.S. Growth & Productivity 2022 Focus 2022 Focus • Recover: Post pandemic sales and Japan Post alliance • Recover: Small business agent franchise • Development: Nursing care and product refresh • Development: Buy-to-build and group p
Slide 13: Aflac U.S. Strategic Overview
Aflac U.S. Strategic Overview Teresa White President; Aflac U.S. Financial Analysts Briefing │November 16, 2021 13
Slide 14: U.S. Marketplace Trends
U.S. Marketplace Trends People connect with People care about People need help with Digital Purpose Medical Debt 14
Slide 15: U.S. Industry Trends
U.S. Industry Trends Brokers Differentiated Online and E-Comm are embracing Supplemental product bundles, seamless end-to-end enrollment, benefit administration, sales experiences 15
Slide 16: Aflac U.S. | Highlights of Strategic Plan
Aflac U.S. | Highlights of Strategic Plan Our strategy and vision are aligned to support our ability to keep our promise: to be there for our policyholders in their time of need. Increased access A world where people are better prepared for the expected – and unexpected – with Strategic Vision I
Slide 17: Aflac U.S. Growth and Operations
Aflac U.S. Growth and Operations Virgil Miller EVP, President, Group & Individual Benefits Divisions Financial Analysts Briefing │November 16, 2021 17
Slide 18: Aflac U.S. Growth | Strategy Overview
Aflac U.S. Growth | Strategy Overview Maximize the Core Advance the Model Stabilize Career Channel Value Proposition Expansion Increase Average Weekly Producers Network Dental & Vision Group Life, Absence Management & Disability Consumer Markets Optimize Group Voluntary Benefits Continue to grow and
Slide 19: Aflac U.S. Growth | Key Growth Initiatives
Aflac U.S. Growth | Key Growth Initiatives Network Dental & Vision Group Life, Absence There are 127 million workers in the U.S. that do not have access to our remains the 2nd most requested Management and Disability products by employees, behind health brings Aflac closer to the front page with pro
Slide 20: One Digital Aflac | 2022 & Beyond
One Digital Aflac | 2022 & Beyond Create a seamless & unified Driving sales growth & Increase operational experience between sales & service, retention through improved producer efficiencies by focusing on digital enabling digital from day one and employer experiences and additional adoption, additi
Slide 21: Aflac U.S. | Balanced Strategy
Aflac U.S. | Balanced Strategy Driving Incremental Growth Owning the Customer Experience Being the Low-Cost Provider 21
Slide 22: Aflac Japan Strategic Overview
Aflac Japan Strategic Overview Masatoshi Koide President and Representative Director; Aflac Life Insurance Japan Financial Analysts Briefing │November 16, 2021
Slide 23: Market Dynamics and Increasing Awareness Support Growth
Market Dynamics and Increasing Awareness Support Growth Market dynamics support expansion of COVID-19 has significantly heightened the third sector market: awareness of financial and health care burdens Aging population • The public continues to Macroeconomic focus on financial security changes and
Slide 24: Japan's Growing Third Sector
Japan’s Growing Third Sector Stand-alone Cancer and Medical Policies Policies in Millions 70 Market more than doubled in 15 years 65 60 55 50 45 40 35 30 25 20 15 10 5 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 As of March 31 Source: Life In
Slide 25: Market Penetration
Market Penetration Insurance Product Penetration, Insurance Market Size 100.0% Individual Basis (Number of policies in force) 45 (in millions) 40 80.0% 35 74.0% 72.1% 73.1% 30 60.0% 25 42.6% 37.3% 37.8% 20 40.0% 15 20.0% 10 12.3% 9.0% 9.9% 5 0.0% 0 2013 2016 2019 2017 2018 2019 Medical Cancer Nursin
Slide 26: Aflac Japan's VISION 2024
Aflac Japan’s VISION 2024 Aflac Japan’s “VISION 2024” was developed to position Aflac Japan as the leading company that supports “Creating Living in Your Own Way” By working to realize “VISION 2024,” Aflac Japan will: • Strengthen its position as the leading company in the third sector • Expand into
Slide 27: Medium-term Management Strategy
Medium-term Management Strategy 2020 – 2022 Strengthen Core Business: Growth & Innovation Strategic Alliance New Product and Virtual Sales with Japan Post Group Digital Transformation (DX) Agile Way of Working Human Capital Management System 27
Slide 28: Next Medium-term Management Strategy
Next Medium-term Management Strategy 2022 – 2024 To realize Aflac VISION 2024, Aflac Japan will continue to build on its accomplishments, leveraging key strategies for future growth, including: Digital Finance & benefit Robust Ecosystem Human capital transformation realization governance and strateg
Slide 29: Aflac Japan Sales Strategy
Aflac Japan Sales Strategy Koichiro Yoshizumi Director; Deputy President; Director of Sales and Marketing, Aflac Life Insurance Japan Financial Analysts Briefing │November 16, 2021 29
Slide 30: Impact of COVID-19 on Sales Activities
Impact of COVID-19 on Sales Activities • Due to intermittent state of emergency declarations in 2021, COVID-19 continued to impact sales through Q3 • With the nationwide lifting of the state of emergency on October 1st, we are aiming to gradually recover sales performance from the fourth quarter onw
Slide 31: Enhancing Protection-type Product Lineup
Enhancing Protection-type Product Lineup Income Support Cancer Insurance Medical Insurance Nursing Care Insurance Insurance • Maintaining the dominant • Launch of a new product • A market with great • SME employees’ growing market leader position with enhanced coverage in potential in Japan, where n
Slide 32: Enhancing Protection: Nursing Care Insurance
Enhancing Protection: Nursing Care Insurance U.S. Insurers’ Long-Term Care (LTC) Aflac Japan’s Nursing Care Policies of the Past Supplemental • Benefits not designed to be triggered consistent with a government • Must meet government definitions of care vs Non- definition Supplemental • Payment amou
Slide 33: Strengthening Distribution Channels
Strengthening Distribution Channels Sales Agency Channel Japan Post Channel • Aflac Japan’s main sales channel • High potential with 20,000 postal outlets • Increase the number of agents, improve throughout Japan productivity, and strengthen the management • Support for full-scale recovery of cancer
Slide 34: Q&A
Q&A 34
Slide 35: Aflac Global Investments
Aflac Global Investments Eric M. Kirsch Executive Vice President and Global CIO; President, Aflac Global Investments Financial Analysts Briefing │November 16, 2021 35
Slide 36: 2021 Investment Themes
2021 Investment Themes Resilient and diversified high-quality global portfolio Well-Positioned Portfolio Diversified New Money Allocation Book Value, as of 3Q21 Consolidated Portfolio1 As of 3Q21 YTD New Money Book Yield: 2.88% Alts / JGBs Average Yield: 3.4% JGBs Average Quality: A- Equity Yield: 0
Slide 37: Strategic Asset Allocation Outlook
Strategic Asset Allocation Outlook Continued expansion into private assets to defend NII in challenged rate environment while maintaining high-quality risk profile Expanding Asset Allocation Outlook As of 3Q21 Upper SAA Range 50% Current Allocation 45% • Refreshed strategic asset allocation targets
Slide 38: Alternatives Portfolio
Alternatives Portfolio Growing deployment and strong performance driving Variable Income of $283 million in 2021 YTD As of 3Q21 Growing Deployment Strategy Diversification Variable Net Investment Income Cumulative Program Commit1 By Type2 By Strategy2 Cumulative Paid-in Capital $millions +34% 73% +2
Slide 39: Currency Hedging Strategies
Currency Hedging Strategies Diversified hedging program providing capital and cost efficiency Aflac Japan: Currency Hedging Strategy Forwards Market Pricing: 3-month and 1-year Market Value1, 3.0% 3m Rate 12m Rate as of 3Q21 $32bn 2.5% 2.0% Lower by ~20 bps Forwards • Creates synthetic yen asset: 1.
Slide 40: ESG and Responsible Investing
ESG and Responsible Investing Committed ~$3 billion of new ESG-oriented investments in 2021 Historically Prioritized 2021 Initiatives Outlook Responsible Investing • Generate positive environmental and social Committed ~$3 billion to new ESG investments • Continue to advance our responsible investin
Slide 41: Aflac Global Investments Strategic Plan
Aflac Global Investments Strategic Plan Invest in specialized asset managers that complement our complex balance sheet, diversify our revenue streams and have potential for growth in equity value Strategy Execution • Grow NII with enhanced access to specialized private • Invested $60 million of capi
Slide 42: Well-Positioned for Continued Growth
Well-Positioned for Continued Growth Expanding and Diversifying Driving Significant Contribution to Opportunity Set Shareholder Value • Grow private credit and alternatives portfolios with refreshed strategic asset allocation targets • Defend and grow NII • Bolster ESG investments and capabilities •
Slide 43: Financial Focus & Outlook
Financial Focus & Outlook Max K. Brodén Executive Vice President; CFO, Aflac Incorporated Financial Analysts Briefing │November 16, 2021 43
Slide 44: Long-Duration Targeted Improvements (LDTI)
Long-Duration Targeted Improvements (LDTI)1 No Economic Impact on Aflac’s Unique Japanese Business Model Key Takeaways • No economic impact to Aflac’s financial profile • LDTI does not impact regulatory results in Japan, statutory results in U.S., cash flows, subsidiaries’ dividend capacity, debt co
Slide 45: LDTI: Financial Impact Analysis
LDTI: Financial Impact Analysis No Change in Our Approach Aflac Japan Aflac U.S. LDTI Expected Impact LDTI Expected Impact Benefit Ratio Slightly Slightly Expense Ratio Modestly Slightly Pretax Profit Margin Slightly Insignificant • No change to near-term ratio guidance, absent “unlocking”
Slide 46: LDTI … Where is the Change? … AOCI
LDTI … Where is the Change? … “AOCI” Accelerating unrealized interest rate losses without associated unrealized morbidity gains … $70 “The AOCI Walk” at Transition Date 1 AOCI Sensitivities (in $ billions) $60 +50 bps shift = +$2 billion $50 HTM MTM HTM MTM -50 bps shift = - $3 billion $4.7 $4.7 $40
Slide 47: Aflac Japan Strength in Core Margins
Aflac Japan Strength in Core Margins Excluding LDTI 2020 9M 2021 2022e – 2023e 2022 Estimated Range Benefit Ratio1 69.9% 67.1% 67.0 69.0% Expense Ratio2 21.2% 21.2% 20.5 22.5% Pretax Profit Margin 21.2% 25.3% 22.5 24.5% Revenue CAGR -4.0 to -3.0% Benefit ratio reflects: • Increasing third sector mix
Slide 48: Aflac U.S. Margins Reflect Growth Investments
Aflac U.S. Margins Reflect Growth Investments Excluding LDTI 2020 9M 2021 2022e – 2023e Benefit Ratio1 48.0% 42.6% 48.0 52.0% 2022 Estimated Range Expense Ratio2 38.6% 38.1% 38.0 41.0% Pretax Profit Margin 19.3% 25.0% 16.0 19.0% Revenue CAGR +1.0 to +4.0% Benefit ratio reflects: • Gradual upward pre
Slide 49: Strong Capital and FSA Earnings
Strong Capital and FSA Earnings Aflac Japan Solvency Margin Ratio Economic Solvency Ratio (Fiscal year ending March 31, %) (Fiscal year ending March 31, %) 1,200 250 200 84 86 800 961 917 86 881 150 Points from UFR 134 144 100 ESR 400 Regulatory 116 Minimum 50 200 0 0 2019 2020 2021 2022e 2019 2020
Slide 50: Strong Capital and Statutory Earnings
Strong Capital and Statutory Earnings1 Aflac U.S. Aflac Risk-Based Capital Ratio U.S. Statutory Earnings Projection (Fiscal year ending December 31, %) (Fiscal year ending December 31, $ in millions) 600 1,200 500 560 539 1,000 508 400 800 864 872 791 300 600 200 400 100 200 0 0 2018 2019 2020 2021e
Slide 51: Equity ex-AOCI (Adjusted Book Value)
Value Creation1 As of September 30, 2021 18% AROE COE Value Created $2,000 $30,000 Equity ex-AOCI (Adjusted Book Value) Adjusted Book Value $25,000 $1,500 Value Created ($mm) 14 $20,000 ($mm) $1,000 $15,000 10 $10,000 $500 $5,000 6 $0 $0 2016 2017 2018 2019 2020 9M21 2015 2016 2017 2018 2019 2020 9M
Slide 52: Capital Deployment Under Stable Conditions
Capital Deployment Under Stable Conditions Tactical Deployment 2021-2023e Deployment ($ billions) ~$8.5 - $9.5 billion $ 4.0 3.0 Dividends 2.0 Repurchase 1.0 Opportunistic 0.0 2018 2019 2020 2021e Considerations • Expected run-rate annualized insurance subsidiary dividends of $2.6 billion to $3.0 bi
Slide 53: Financial Overview
Financial Overview Strategic Outlook • Margins – near-term margins compressed by investments in growth and efficiency • Growth – revenue and earnings turn the corner in the 2023-2025 timeframe • Capital Deployment – tactical repurchase supports stability in earnings per share • Value – growth in eco
Slide 54: Q&A
Q&A 54
Slide 55: Speakers and Panelists
Speakers and Panelists 55
Slide 56: Speakers
Speakers Dan Amos joined Aflac as a sales associate while in his teens. He served as state manager of Aflac’s Alabama/ West Florida Territory for 10 years. Under his leadership, his sales territory was the number-one-producing area in 1981 and 1982. He was elected president of Aflac in 1983 and chie
Slide 57: Speakers
Speakers Teresa White joined Aflac in 1998 as second vice president, Client Services; was promoted to vice president of Client Services in 2000; to senior vice president, director of Sales Support and Administration in October 2004; to deputy chief administrative officer in March 2007; and to execut
Slide 58: Speakers
Speakers Masatoshi Koide originally joined Aflac in November 1998 and stayed with Aflac until March 2006. He worked for Nikko Asset Management before he joined Aflac again in December 2008 as vice president. He was promoted to senior vice president in January 2012 and to first senior vice president
Slide 59: Speakers
Speakers Eric Kirsch joined Aflac in November 2011 as first senior vice president; global chief investment officer and was promoted to executive vice president in July 2012. In January 2018, Eric’s role was expanded, and he was named president of Aflac Global Investments, the asset management subsid
Slide 60: Speakers
Speakers Max Brodén joined Aflac as senior vice president and treasurer in April 2017. He was promoted to deputy chief financial officer in May of 2019 and to chief financial officer in January of 2020, where he is responsible for leading enterprise-wide corporate development, investor and rating ag
Slide 61: Panelists – Aflac Japan
Panelists – Aflac Japan Charles Lake joined Aflac International in February 1999 and Aflac Japan in June 1999. He became Aflac Japan deputy president in 2001, president in 2003, vice chairman in 2005, and chairman in 2008. In 2014, he also assumed the position of president, Aflac International. Befo
Slide 62: Panelist – Aflac U.S.
Panelist – Aflac U.S. Steven K. Beaver joined Aflac in October 2012 as vice president of Corporate Tax, responsible for Aflac’s corporate tax function with oversight of federal, foreign, state and local tax reporting. In January 2015, he was promoted to deputy chief accounting officer, responsible f
Slide 63: Panelists - Corporate
Panelists - Corporate June Howard joined Aflac in June 2009 as vice president and assumed the role of senior vice president and chief accounting officer in November 2010. June is responsible for financial reporting, investment accounting, corporate tax, corporate financial planning and analysis, acc
Slide 64: Appendix
Appendix 64
Slide 65: Glossary of Non-U.S. GAAP Measures
Glossary of Non-U.S. GAAP Measures The company defines the non-U.S. GAAP financial measures as follows: •Adjusted earnings are adjusted revenues less benefits and adjusted expenses. Adjusted earnings per share (basic or diluted) are the adjusted earnings for the period divided by the weighted averag
Slide 66: Reconciliation of U.S. GAAP Return of Equity (ROE) to Adjusted ROE
Reconciliation of U.S. GAAP Return of Equity (ROE) to Adjusted ROE 2021 (YTD September 30, 2021) 2020 2019 2018 2017 U.S. GAAP ROE1 13.1 % 15.3 % 12.6 % 12.2 % 20.4 % Impact of excluding unrealized foreign currency translation gains (losses) (0.7)% (0.9)% (1.0)% (1.0)% (2.0)% Impact of excluding unr
Slide 67: Reconciliation of U.S. GAAP Equity to Adjusted Book Value
Reconciliation of U.S. GAAP Equity to Adjusted Book Value1 2021 (YTD September 30, 2021) 2020 2019 2018 2017 U.S. GAAP Equity1 33,552 33,559 28,959 23,462 24,598 Accumulated other comprehensive income(AOCI) (7,662) (8,934) (6,615) (2,151) (4,028) U.S. GAAP Equity - less AOCI (Adjusted BV) 25,890 24,
Slide 68: External Management Platform Overview
External Management Platform Overview • Access specialized asset classes to achieve SAA goals and objectives Objectives • Leverage best-in-class asset managers across broad range of asset classes • Enhance overall performance of global portfolio with diverse sources of NII Size and Composition of Ex
Slide 69: Aflac Japan Portfolio Asset Allocation
Aflac Japan Portfolio Asset Allocation Based on U.S. GAAP Book Value Portfolio Asset Allocation1 New Money Asset Allocation ¥717 billion New Money 2% 6% 8% Equity/Alts. 7% 1% High Yield 4% 18% 18% IG Corporates 17% 48% 3Q 2020 49% 3Q 2021 5% CLOs 3% 5% TRE 17% 74% $ 20% 20% 2 3 4 5 JGBs Yen Private
Slide 70: Aflac U.S. Portfolio Asset Allocation
Aflac U.S. Portfolio Asset Allocation1 Based on U.S. GAAP Book Value Portfolio Asset Allocation2 New Money Asset Allocation $1,375 million New Money 1% 2% 3% 9% 9% Equity/Alts. 7% CMLs 12% 8% Infra Debt 2% 7% 7% Private ABS 10% 3Q 2020 3Q 2021 CLOs 4% MML 10% 76% 74% TRE 18% 3 4 5 6 IG Corporates Mu
Slide 71: MML Portfolio Benefits from Disciplined Underwriting
MML Portfolio Benefits from Disciplined Underwriting Well diversified, 100% first lien, low leverage portfolio Middle Market Loan (MML) Portfolio Statistics As of 3Q21 Sector Diversification Amortized Cost Net of Reserves $4.4 billion Healthcare 14% Unique Issuers 338 Financial Other 11% Average Loa
Slide 72: Commercial Real Estate Portfolio is Well Diversified
Commercial Real Estate Portfolio is Well Diversified Conservative underwriting discipline Portfolio Statistics Transitional Commercial (as of 3Q21) Real Estate Mortgages Commercial Real Estate Property Type Amortized Cost Net of Reserves $5.2 billion $1.8 billion % of CRE Portfolio % of CRE Portfoli
Slide 73: Acronyms Used Throughout Presentations
Acronyms Used Throughout Presentations ALM – asset liability management JGB – Japanese government bond AOCI – accumulated other comprehensive income LDTI – long duration targeted improvements AROE – adjusted return on equity MML – middle market loan AUM – assets under management MTM – marked-to-mark
Slide 74: Aflac Incorporated
Afiac. Incorporated