Aflac Incorporated · NYSE:AFL
Aflac — Investor Day (September 2019)
51 slides from Aflac's investor day presentation, Sep 25, 2019
Slide 1: Presentation Notes for the Aflac 2019 Financial Analysts Briefing
Presentation Notes for the Aflac 2019 Financial Analysts Briefing September 25, 2019 For more information contact: Investor and Rating Agency Relations 706.596.3264 800.235.2667 Aflacir@Aflac.com aflac.com Aflac Worldwide Headquarters 1932 Wynnton Road Columbus, GA 31999
Slide 2: Forward-Looking Information
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 ide
Slide 3: Strategic Overview of Aflac Incorporated
Strategic Overview of Aflac Incorporated Dan Amos Chairman and Chief Executive Officer, Aflac and Aflac Incorporated 2 1
Slide 4: The Need for Aflac's Products
The Need for Aflac’s Products Rising health care costs in both the U.S. and Japan, continue to drive greater out-of-pocket expenses Financial Focus • Strong and stable pretax margins • Robust capital position • High-quality, diversified investments • Leading return on capital paired with an extremel
Slide 5: Generating Growth With a Measured Approach
Generating Growth With a Measured Approach Defending the Core Product Development – Distribution Productivity – Digitizing Platforms Expanding the Core Tactical Development Evolving the Core Innovating – Venturing – Incubating Leverage core with a measured approach 3
Slide 6: My Special Aflac Duck
My Special Aflac Duck a “The smartest toy of all” ‘THE VERGE "More meaningful than all, The feel-good aaa other tech combined" 2018;needed 2 “One of the best gadgets” et "New hope thanks to the Aflac Duck" Sve Ube id aw NOaTH 2 c AMERICA LJ v Al CES) VNC) Ee (..-N f °
Slide 7: Overview of Aflac Japan
Overview of Aflac Japan Masatoshi Koide President and Representative Director, Aflac Life Insurance Japan Ltd. 9 Roadmap I. Japan Insurance Market: Third Sector II. Aflac Japan’s Competitive Advantages III. Aflac Japan’s Vision and Strategy for Growth 10 5
Slide 8: Market Catalysts: Opportunities for the Growing Third Sector
Market Catalysts Third sector market dynamics support further expansion, including: Aging Population and Low Birthrate Projected Social Security Benefits Changing Consumer Needs 11 Opportunities for the Growing Third Sector (Cancer & Medical, FSA Basis, Stand-alone, Life Industry Only) Policies in M
Slide 9: Cancer Insurance Market Penetration; Aflac Japan VISION 2024
Cancer Insurance Market Penetration (Product Penetration, Individual Basis, Three-year Interval Data) 100 % 79.9 79.2 81.5 81.0 77.7 77.9 80 73.0 72.3 74.0 72.1 69.3 71.3 60 37.3 37.8 40 33.1 31.2 25.3 21.2 20 0 2001 2004 2007 2010 2013 2016 Life insurance Medical insurance Cancer insurance Life ins
Slide 10: Leveraging Our Strengths as a Market Leader
Leveraging Our Strengths as a Market Leader As the pioneer of cancer insurance in Japan with 44+ years of experience, Aflac has developed scale, efficiencies and deep expertise Innovative Broad Trusted Brand Products Distribution Aflac Japan is the leading company for cancer and medical insurance in
Slide 11: Competitive Advantage: Broad Distribution; Trusted Brand
Competitive Advantage: Broad Distribution Core Traditional Channel Affiliated Corporate 1,300+ agencies, including 200+ Aflac-exclusive agencies Agencies Independent Corporate 4,000+ agencies, including 1,000+ Aflac-exclusive agencies Individual 3,900+ agencies, including 3,500+ Aflac-exclusiv
Slide 12: Business Development Flexibility Following Conversion
Business Development Flexibility Following Conversion Group structure • Aflac Payment Services Co., Ltd. Aflac Japan • Aflac Insurance Services Co., Ltd. subsidiaries • Aflac Heartful Services Co., Ltd. • Tsusan Co., Ltd. Governance – Business operations • Agile-style business processes introduced t
Slide 13: Innovation for a Cancer Ecosystem; Digital Innovation
Innovation for a Cancer Ecosystem Cancer Ecosystem Prevention Early intervention Treatment optimization Living with cancer Identify risk Select doctor/ and Screening Diagnosis Treatment Recovery Final stage treatment improve Cancer Insurance insurance Genetic Early screening Medical check Doctor Can
Slide 14: Aflac Japan Adjusted Expense Ratio Outlook
Aflac Japan Adjusted Expense Ratio Outlook Expense Ratio Outlook Adjusted Target Expenses to Total Revenue 23% 22.3% 22.4% 22.5% 22.2% 22.2% • Earned premium normalized for paid-up third and first sector policies 21% 20.3% 20.3% 20.4% 20.5% 20.2% 20.2% • Efficiencies focused on procurement, space ut
Slide 15: Aflac Japan Growth Strategies
Aflac Japan Growth Strategies Koji Ariyoshi Director, Executive Vice President; Director of Sales and Marketing, Aflac Life Insurance Japan Ltd. Outlook for Earned Premium Growth: All Third Sector and First Sector Protection – Includes the Impact of Paid-up Policies （In billions） ¥ 1,200 1,100 1,000
Slide 16: Competitive Cancer and Medical Insurance Market
Competitive Cancer and Medical Insurance Market Cancer and Medical Insurance Market Share (as % of new policies) Aflac Company A Company B Company C Company D Others 100% 25% 25% 24% 25% 26% 80% 10% 9% 9% 9% 8% Top 5 60% 12% 10% 8% 8% 12% 6% 7% 7% 7% 7% 6% 7% 6% 6% 6% 40% 20% 42% 44% 45% 46% 40% 0%
Slide 17: Aflac's Growth Opportunities Unrivaled by Competitors
Aflac’s Growth Opportunities Unrivaled by Competitors Market of over 21 million 15.6 million cancer policies 5.9 million medical policies existing policies • 9 million+ policies without • 3 million+ policies without the latest coverage the latest coverage Corporate group market built on employee App
Slide 18: Channel Strategy
Channel Strategy Channel Strategy ¥904.6 Billion of Third Sector Annualized Premium In Force by Channel • Better penetration of existing policyholders and As of March 31, 2019 corporate group markets • Enhance support measures for strengthening Agencies management foundations and business frameworks
Slide 19: Overview of Aflac U.S.
Overview of Aflac U.S. Teresa L. White President, Aflac U.S. 34 17
Slide 20: The U.S. Workforce is Changing
The U.S. Workforce is Changing 35 We Continue to Execute Our Strategic Playbook Successfully Increase Improve Enhance the GROWTH EFFICIENCY EXPERIENCE Distribution Digital system Leveraging expansion transformation technology to focus on positive customer Product experience innovation Risk & Reg
Slide 21: Aflac U.S. Strategic Investments: One Digital Aflac
Improving and Driving Technology Expanding Product for Sales & Service Distribution Innovation Solutions Aflac U.S. Strategic Investments: One Digital Aflac Customers Digital Makes Distribution it Easier Employees Promise Fully Digital Analytics Driven Automated Omni-Channel Payment Options Buy anyt
Slide 22: Aflac U.S. Adjusted Expense Ratio Outlook
Aflac U.S. Adjusted Expense Ratio Outlook Expense Ratio Outlook Adjusted Target • Reflects investment in technology, One Digital Expense to Revenue 39% Aflac and distribution 37% 37% 36% 36% 35% 36% 36% 36% 35% 35% 33% 34% 34% • Expect our expense ratio to peak in year 2020 in the range of 36 to 37%
Slide 23: Help with expenses health insurance doesn't cover
Help with expenses health insurance doesn’t cover Not Auto Not Home Not Health 21
Slide 24: The Campus Tour Commercial
The Aflac Duck Coach Nick Saban 5-Star Recruits The Campus Tour Commercial 22
Slide 25: The Comeback, Supplemented by Aflac; Our Approach to Growth
The Comeback, Supplemented by Aflac… The Comeback is supplemented by Aflac, who helps you tackle the bills health insurance doesn’t cover. Our Approach to Growth Growth Strategy Framework Levers to Capitalize on Market Opportunities 23
Slide 26: Aflac U.S. Growth Strategies
Outlook for Earned Premium1 Growth Focus on Access, Participation and Retention (In Millions) $ 6,500 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2016 2017 2018 2019e 2020e 2021e Maintain stable persistency and generate steady earned premium growth of 2.0% to 2.5% 1Earned premium calculated on net bas
Slide 27: Cost of Health Care Continues to Rise; Aflac's U.S. Growth Opportunity
Cost of Health Care Continues to Rise Worksite Health Coverage $25,000 Employee Employer 20,000 Health Premiums Employer/Employee Contribution (family coverage) Average Health Premiums 15,000 10,000 5,000 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Average employee contribution for
Slide 28: Aflac U.S. Strategic Growth Focus; Distribution Mix
Aflac U.S. Strategic Growth Focus SMALL BROKERAGE BUSINESS EXISTING CONSUMER ACCOUNTS MARKETS Aflac U.S. Distribution Mix (New AP in Millions) Agency CAGR -1.5% $1,800 Broker CAGR +10.0% Agent Broker Expansion 2% 1,600 2% 1% 1% 1% 1% 1% 1% 1,400 25% 20% 22% 25% 30% 32% 33% 35% 37% 1,200 1,000 800 60
Slide 29: Broker Sales Trends
Broker Sales Trends Client Expectations Enrollment Solutions Increasing Competition Broker Technology Solutions Product Innovation Producer Trends Average Weekly Producer Equivalents CAGR -2.2% Productivity CAGR 5.2% 9,600 200,000 180,000 9,400 160,000 9,200 Number of AWP Equivalents 140,000 9,000 1
Slide 30: Enhancing Distribution Through Portfolio Expansion; Argus Acquisition
Enhancing Distribution Through Portfolio Expansion Dental Industry View Aflac Strategic Rationale $25.9 billion in-force Market expansion opportunity $2.9 billion new sales 3-Year 6% PPO CAGR Deepen existing account penetration 64% small business penetration Recruit and retain agents 5-8% PPO profit
Slide 31: Increasing Access Through Distribution Expansion
Increasing Access Through Distribution Expansion 126.6 million without access to Aflac 101.8 35% of consumers prefer to purchase online, carrier direct million 47.3 million 39% of consumers prefer alternative channels 24.8 million Aflac is not offered to employee Access to Aflac at the worksite Self
Slide 32: Aflac Global Investments Update
Aflac Global Investments Update Eric M. Kirsch President, Aflac Global Investments Executive Vice President Global Chief Investment Officer Aflac Incorporated 30
Slide 33: 2019 Investment Themes
2019 Investment Themes Theme Strategy Result Strong Performance: NMY1, NII Disciplined Investment Process SAA ∙ TAA ∙ ALM Low losses and impairments Minimize JGB investments Navigating Low Yen Yields Defend NII Favor higher yielding yen credit assets Stable hedge costs Hedging Strategies Hedged USD
Slide 34: Navigating Japan's Low Interest Rate Environment; Hedging Strategies
Navigating Japan’s Low Interest Rate Environment JGB Yields and Yen Credit Yields(%) 2019 Aflac Japan New Money Full-Year Forecast 30yr JGB 10yr JGB ~¥950 billion JGBs Avg. Book Yield 7% 1.6 6% Yen Credit New Purchases Yen Public Credit 29% ¥ 16% Private Placements 1.2 USD Fixed 1 31% MML 71% $ 16%
Slide 35: Alternatives Portfolio Growing
Alternatives Portfolio Growing Alternatives Portfolio Build ($ millions) Private Equity Investing Cycle Cum. Program Commit Commitment to Underlying Cum. Paid-In Capital 1,500 • Systematic annual program commitments 1,000 • Selective manager additions 500 • 3-7 year average call cycle 0 2Q17 3Q17 4Q
Slide 36: Private Floating Rate Loan Portfolios
Private Floating Rate Loan Portfolios As of June 30, 2019 Disciplined credit underwriting focused on senior secured first lien loans Middle Market Loans BV ($mm) by Industry EBITDA at Close by BV ($mm) Sr. Leverage at Close by BV ($mm) Book Value Outstanding ($mm) $1,900 <3.0x, Unique Issuers 198 10
Slide 37: Global Investments Growth Strategies
Global Investments Growth Strategies Our strategy is to identify and invest in specialized asset managers that complement our balance sheet, diversify our revenue streams and have equity growth potential 1 Aflac Global Investments established a world class investment platform • Successful 8 year tra
Slide 38: Aflac Japan Portfolio Asset Allocation
Appendix Aflac Japan Portfolio Asset Allocation Based on U.S. GAAP Book Value Portfolio Asset Allocation New Money Asset Allocation 6/30/2018 6/30/2019 ¥547 billion 5% 6% 1% CMLs 3% 3% 20% 1% 1% 19% High Yield 14% 50% 50% Growth Assets 4% 14% 4% $ MMLs (Floating) 20% 19% TRE (Floating) 28% 1 2 3 4 I
Slide 39: Aflac U.S. Portfolio Asset Allocation
Aflac U.S. Portfolio Asset Allocation1 Based on U.S. GAAP Book Value Portfolio Asset Allocation New Money Asset Allocation 6/30/2018 6/30/2019 $1,250 billion 5% 8% 4% 6% 3% 8% 1% Growth 4% 1% 8% 6% 6% MML (Floating) 11% CMLs 11% 77% 81% Infra Debt 3 4 5 IG Corporates Munis 2 Other USD Fixed Rate USD
Slide 40: Financial Outlook and Capital Management; Aflac Japan Core Margins
Financial Outlook and Capital Management Max K. Brodén Senior Vice President; Deputy Chief Financial Officer and Treasurer; Head of Corporate Development, Aflac Incorporated Aflac Japan: Strength in Core Margins1 Aflac Japan 1H 2019 2019e 2019e – 2021e Total Total Total Benefit Ratio2 69.0% ~69.0 -
Slide 41: Aflac U.S. Stable Profit Margins; Aflac Japan Capital and FSA Earnings
Aflac U.S.: Stable Profit Margins1 Aflac U.S.2 1H 2019 2019e 2019e – 2021e Total Total Total Benefit Ratio3 49.7% ~50% 49 - 51% Expense Ratio4 35.6% ~36.5% 35 - 37% Pretax Profit Margin 20.2% ~19% 19 - 21% Revenue CAGR ~ 2% Considerations • Business mix • IT and digital investments • Excess capital
Slide 42: Aflac U.S. Capital and Statutory Earnings; Expected Impacts of LDTI
Aflac U.S. Capital and Statutory Earnings Aflac Risk-Based Capital Ratio1 U.S. Statutory Earnings Projection2 (Fiscal year ending December 31, %) (Fiscal year ending December 31, $ in millions) 600 1,000 560 900 500 800 400 791 700 300 600 200 500 400 100 300 0 200 2018 0 2019e 2020e 2021e 2018 2019
Slide 43: Value Creation; Lowering Enterprise Exposure to Currency
Value Creation1 18% AROE COE $2,000 Value Created Equity ex-AOCI $24,000 $1,500 $18,000 Equity ex-AOCI ($mm) 14 Value Created ($mm) $1,000 $12,000 10 $500 $6,000 6 $0 $0 2015 2016 2017 2018 1H19 2015 2016 2017 2018 1H19 • Stable differential between adjusted return on equity • Building equity and cr
Slide 44: Aflac Incorporated Strong Capital & Liquidity
Aflac Incorporated Strong Capital & Liquidity Capital Structure and Liquidity Objectives Aflac Incorporated Liquidity • Maintain strong capital ratios and investment grade ratings $mm 2017 2018 2019e • Support nimble investment in our strategic growth objectives Operating Cash1 $2,683 $2,765 $3,664
Slide 45: Growth Investments & Capital Allocation
Growth Investments & Capital Allocation Frederick J. Crawford Executive Vice President; Chief Financial Officer, Aflac Incorporated 43
Slide 46: Capital Deployment Under Stable Conditions; Opportunistic Capital Deployment
Capital Deployment Under Stable Conditions 2016-2018 2019-2021 $6.4 billion ~$7.0 - $8.0 billion Dividends Repurchase Opportunistic Considerations • Run-rate annualized insurance subsidiary dividends of $2.0 billion to $2.5 billion1 • Deployable capital defined as excess capital after reinvestment i
Slide 47: Corporate Development – Buy to Build; New Business Incubation
Corporate Development – “Buy to Build” 2009 2015 2019 (Pending) Purchase Price: $100 million Purchase Price: $40 million Purchase Price: $96 million1 Strategic Rationale: Strategic Rationale: Strategic Rationale: Entry into the supplemental group Tech platform supporting small Entry into the network
Slide 48: Aflac Venture Fund - $250 million; Global Ventures
Aflac Venture Fund - $250 million 2% 5% 19% 10% 28% 29% Allocation 35% Allocation Total Fund 7% by Stage $250 million by Sector $69.8 million $69.8 million 23% 60% 14% 35% 33% Direct Investment $49.9M 19% Seed $1.5M 2% Customer Support $3.5M 5% Fund Investment $19.9M 7% Early Stage $24.3M 35% Benefi
Slide 49: Financial Overview: Strategic Outlook
Financial Overview Strategic Outlook • Investments: De-risking while defending net investment income • Margins: Stable profit margins while funding growth and digital initiatives • Tactical: Building opportunistic capital and reducing enterprise FX exposure • Accounting: LDTI adoption, rating agency
Slide 50: Glossary of Non-U.S. GAAP Measures
Appendix Glossary of Non-U.S. GAAP Measures The Company defines adjusted earnings (a non-U.S. GAAP financial measure) as the profits derived from operations. The most comparable U.S. GAAP measure is net earnings. Adjusted earnings are adjusted revenues less benefits and adjusted expenses. The adjust
Slide 51: Reconciliation of U.S. GAAP Net Earnings to Adjusted Earnings
Reconciliation of U.S. GAAP Net Earnings to Adjusted Earnings In Millions Per Diluted Share 2019 2019 (YTD June 2018 2017 2016 2015 (YTD June 2018 2017 2016 2015 30, 2019) 30, 2019) Net earnings $1,745 $2,920 $4,604 $2,659 $2,533 $2.32 $3.77 $5.77 $3.21 5.85 Items impacting net earnings: Realized in