Good day, and welcome to the Aflac Incorporated Fourth Quarter 2021 Earnings Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to David Young, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to Aflac Inc.'s fourth quarter earnings call. As always, we have posted our earnings release and financial supplement to investors.aflac.com. This morning, we will be hearing remarks about the quarter related to our operations in Japan and the United States amid the ongoing COVID-19 pandemic. Dan Amos, Chairman and CEO of Aflac Incorporated, will begin with an overview of our operations in both countries. Fred Crawford, President and COO of Aflac Incorporated, will then touch briefly on conditions in the quarter and discuss key initiatives, including how we are navigating the pandemic. Max Broden, Executive Vice President and CFO of Aflac Incorporated will conclude our prepared remarks with a summary of quarterly financial results and current capital and liquidity. Members of our U.S. executive management team joining us for the Q&A segment of the call are Teresa White, President of Aflac U.S.; Virgil Miller, President of Individual and Group Benefits; Eric Kirsch, Global Chief Investment Officer and President of Aflac Global Investments; Brad Dyslin, Deputy Global Chief Investment Officer; Al Riggieri, Global Chief Risk Officer and Chief Actuary; June Howard, Chief Accounting Officer; and Steve Beaver, CFO of Aflac U.S. We are also joined by members of our executive management team at Aflac Life Insurance Japan; Charles Lake, Chairman and Representative Director, President of Aflac International; Masatoshi Koide, President and Representative Director; Todd Daniels, Director and CFO; and Koichiro Yoshizumi, Director, Deputy President and Director of Sales and Marketing. 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. As I mentioned earlier, the earnings release is available at investors.aflac.com and includes reconciliations of certain non-U.S. GAAP measures. I'll now hand the call over to Dan. Dan?

Good morning and thank you for joining us. 2021 was another year of uncertainty with vaccines incrementally gaining some momentum as the year progressed. There were hopes that the severity of COVID-19 would fade and allow us to return to some type of normalcy. Unfortunately, one year in several variants later the normalcy has been yet it did not remain idle. We have worked hard to adapt using virtual technology and seize the opportunity to accelerate investments in our platform. Considering what the global and national business landscape has experienced over the last two years, I think Aflac has been very fortunate with some tailwinds while simultaneously working hard to achieve our objectives and continue our strong earnings performance. While Max will address the quarter in more detail, I'd like to highlight some of the items for the year. Adjusted earnings per diluted share, excluding the impact of foreign currency, increased 21% in 2021. This result was largely supported by the continuation of the low benefit ratios associated with the pandemic conditions and better-than-expected returns on alternative investments. We were pleased with this result, especially when you consider the pandemic pressure on revenues, accelerated investment in our core technology platforms and initiatives to drive future earned premium growth and efficiency. 2021, Aflac Japan generated solid overall financial results with an extremely strong profit margin of 20.2% and solid premium persistency of 94.3%. We continue to navigate Japan's evolving pandemic conditions, including various degrees of COVID-19-related restrictions that created headwinds for our face-to-face sales opportunities. Especially given this backdrop, I am encouraged by Aflac Japan's annual sales increase of 7.7%. This reflected the first quarter introduction of our medical product, EVER Prime, and the September launch of our new nursing care product. Amid evolving pandemic conditions, we continue to enhance and…

Thank you, Dan. I'll reflect briefly on 2021, but we'll focus my comments on growth and efficiency initiatives in 2022. Beginning with Japan, COVID conditions continue to negatively impact our business. We expect sales to build from 2021 levels. However, there are currently 34 prefectures and soon to be 35 prefectures subject to COVID prevention measures that can have the effect of restricting economic activity. There are no restrictions that directly impact the sale of insurance or our operations. However, consumers are naturally more reluctant to engage in face-to-face meetings with prevention measures in place. As we look to 2022, we're focused on the following: first, strengthening of our associates channel through increased policy solicitations at the worksite, marketing new products to existing policyholders and building market share in non-exclusive agencies where we have been historically weaker. The associate channel responds to periodic medical and cancer product refreshment, but we believe these efforts will defend sales in this channel at 2021 levels despite it being a year without a major product refresh. Following on Dan's comments regarding Japan Post, we have seen proposal activity to potential customers grow materially during 2021. We are a long way from recovering to the volumes enjoyed in 2018. However, as part of our organization-wide coordination with Japan Post Group and building on past initiatives, we ran a test pilot initiative during the fourth quarter that provided sales process management tools and practices to Japan Post in support of customer-centric engagement. This initiative was implemented by model post offices and led to increased written proposal activity and ultimately increase sales. Through our strategic alliance framework, the Japan Post companies have agreed to a nationwide campaign to roll out the best practices learned from our fourth quarter initiative. As the campaign will be linked with the…

Thank you, Fred. For the fourth quarter, adjusted earnings per diluted share increased 19.6% to $1.28, with a $0.05 negative impact from FX in the quarter. Full year adjusted earnings per diluted share of $5.94 was 19.8% higher than a year ago. This strong performance for the quarter and full year was largely driven by lower claims utilization due to pandemic conditions. Variable investment income rent $0.13 per share above our long-term return expectations for the quarter and $0.40 per share for the full year, a very good outcome for our growing private equity portfolio. Adjusted book value per share, including foreign currency translation gains and losses grew 7.7% year-over-year. And the adjusted ROE, excluding the foreign currency impact, was 13.6% in Q4 and 16.1% for the full year, a satisfactory result in significant spread to our cost of capital. Starting with our Japan segment. Total net earned premiums for the quarter declined 4.3%. And for the full year, it was down 3.9%. Policy count in force declined 1.8%, which better reflects our overall growth in our business. Low new sales and a slight uptick in lapse rates were the main drivers for earned premium decline. Japan's total benefit ratio came in at 67.3% for the quarter, down 160 basis points year-over-year, and the third sector benefit ratio was 57%, also down 160 basis points year-over-year. For the full year, the benefit ratio was 67.2%, down 270 basis points year-over-year. We experienced a slightly greater than normal IBNR release in our third sector block as experience continues to come in favorable relative to initial reserving. This quarter, it was primarily due to pandemic conditions constraining utilization and a slightly higher lapse rate within our medical block. Adjusting for greater than normal IBNR releases an in-period experience, we estimate our normalized…

Thank you, Max. We are now ready to take questions. But first, let me ask that you please limit yourself to one initial question and a related follow-up to allow other participants an opportunity to ask a question. And with that, Jason, if you will, open up the line to our first caller.

[Operator Instructions] Our first question comes from Nigel Dally from Morgan Stanley. Please go ahead.

I wanted to start on network dental, vision group life and disability. I appreciate the color on sales. I guess how those results compare to your expectations. And as we look to 2022, do you have a number in mind as to what portion of total U.S. sales would come from those platforms?

Nigel, this is Fred. Let me try to address it, but then I'll ask Teresa and Virgil to weigh in with any comments they have. But -- so first of all, with PLADs, extremely pleased, we call it PLADS, premier life and disability and lead management. Not only did they hit the sales expectations that we had when acquiring the property, but they advanced beyond that, particularly with the state of Connecticut contract for leave management which is not an insignificant contract from a revenue standpoint. We don't include it in the traditional measure of sales only because it's not linked with an actual life and disability contract, but it's a meaningful business and one that certainly wasn't expected when we made the acquisition. So we couldn't be more pleased. The other thing I would note is that we successfully renewed 100% of our contracts this year with a 4% average pricing increase across the board. And that was very good news. Our team -- our PLADs team very careful attention to the quality of service and quality metrics as they lead into renewal period, and that proved to really benefit us on the renewal side. I say that because the earned premium, which is as important as the sales, is tracking on or better than our expectations as well. So both sales and retention are very good. Again, as we peel the onion back on that property, having acquired it and folded it in over the last year, the news just gets better on that property, very good platform, very pleased. Dental and Vision, of course, we had -- remember, we bought a TPA, but really needed to build from scratch the actual dental and vision product, along with the network. And so we very much have been in…

Brett you actually covered most of what we would cover. So, I do agree in 2022, this is Teresa. We will see about 13% to 15% of our buy to bill as a percentage of U.S. sales. And we're actually just expecting as we continue to move out by 2025, about 20% of sales, U.S. sales will be by the bill property.

That is great. And just as a follow-up, I just want to stick on the U.S. career agency recruiting, broker recruits were up meaningfully Creating was under pressure. Is that a reflection of the labor markets and should we be thinking about that as a headwind for 2022 or are there other initiatives to try to accelerate that from here?

Virgil, you take that, but let me just make sure I'm very clear on something that I just listening to Teresa, I want to make sure it's clear. Nigel, when you asked the question, you asked specifically to our life and disability business and our dental and vision. When we say 13% to 15%, we consider our buy-to-build properties to be those two properties plus the build of our direct-to-consumer platform. So just note that we consider those three businesses when we quote you 13% to 15%, just to make sure we're clear on that. Sorry, Virgil, why don't you or Teresa take the recruiting question?

I'll let, Virgil, take that question.

Okay. Well, thank you for the question, Nigel. Actually, we're very pleased with where we're sitting with the recruiting. I think you noticed, as you indicated your question that we achieved about 17.5% growth but we changed our focus. If you think about it, there were some headwinds with the labor market. So instead of just relying on new recruits, which we were able to recruit over 10,000, we did pivot our -- and evolve our model to focus on the small brokers. We activated over 5,000, and we're starting to see them perform going into the second half of last year. So, we're very pleased, as you can see, contributed to our overall increase in productivity. So -- as I look going into 2022, I expect to see more of the same. It's going to be a combination of new recruits, but we will continue our focus still though in that small broker space also.

The next question comes from Jimmy Bhullar from JPMorgan. Please go ahead.

So, a question just on sales in Japan. And obviously, it seems like sales have bottomed and they recovered a little bit, obviously, still depressed versus historical levels. But is it possible that in the early part of 2022, you actually take a step back given some of the restrictions that the government imposed in Japan and you don't see the ongoing improvement that we've seen recently.

Okay. This is Yoshizumi of Japan. Thank you for the question. So it is true that the quality emergency measures for 34 prefectures, and today, I think it will be 35 prefectures. So, it is true that there are some impact to our sales. However, as we promoted online sales of virtual sales last year, actively, we are also enhancing that these virtual sales began this year. And this virtual sales plus the wheel or the physical sales have been established as like hybrid sales, and we will be promoting this method.

Yes. I think one thing I would add is just then this is Fred. Again, to remind you, there are various grades, if you will, of level of severity that the government will put in place prefigure by prefecture, the most severe being the state of emergency. When we talk about 35 prefectures being under prevention measures, that is one step below the state of emergency level. And it's important to note that the government of Japan is really trying to balance containing, of course, the virus without dampening economic activity, and they're trying to play that balancing act. And so even state of emergencies have been a little less restrictive than in the early days of COVID. And these cautionary practices and the prefectures in of themselves don't really restrict our activity and our ability to sell and meet with potential clients and so forth. The issue that's hard to measure is if you are a citizen of Japan, and you live in a prefectur that is in a -- where there is a prevention measures that are being put in place, do you feel less comfortable meeting face in conducting business in a normal way. And that's very difficult to measure, but we see it in our results. And so there's no question there's a bit of a headwind as we head into 2022 but it's certainly not as severe state of emergency, and it's definitely not as severe as the early days of COVID.

Okay. And then just on Japan as well, can you just talk about what's going on with the Post? And what's your expectation of longer term being able to potentially expand that relationship beyond cancer?

I'll let the Japan team fill in some of the blanks and talk about it. But as I mentioned in my comments, first of all, there is no specific plan to expand products. However, again, remember, we consider our cancer business in Japan Post to be a line of business. And so for example, when we upgrade cancer products or add riders or feature to cancer products, we do that within the Japan Post system. As you may know from some of our comments at the investor conference, what we're really excited about is, we're starting to introduce concierge non-insurance services to support our cancer business. This involves a cancer policyholder being able to call into a concierge line and be tapped into non-insurance services that support their needs, whether they are going on claim or preventions or detection needs, care needs, even oncologist recommendations these types of services. So all of that product capability that we house within a company we called Hatch Healthcare. All of that will be available to Japan Post policyholders and will help with both retention and growth. So no new product lines, but the cancer line continues to expand and develop within the Japan Post system. And I'll let my colleagues in Japan talk about the momentum coming off our fourth quarter pilot exercise and looking at 2022.

So, this is Yoshizumi once again. And in specific, what we refer to by pilot is to take examples of branches and sales offices that are doing well and not doing well. And especially those that are doing well is taken as the model for all the other new offices and outlets. So what we normally do is to reflect the successful sales offices practices to other sales offices. And the three particular initiatives that we are planning to do is to give guidance to those sales professionals, conduct training and then also enhance proposal capabilities. And by going through the PDCA cycle, we will be improving each of these initiatives. And then as we have conducted a pilot in the fourth quarter, we were successful and since we have seen some success in the fourth quarter, we are going to be promoting our sales in 2022 by using similar measures.

Yes. And I might add just to put a little bit of numbers behind it because I know there's sort of a question, what do you mean by improved? But just to give you an idea, when looking at those model offices and our results in this test pilot program in the fourth quarter, when we moved from third quarter results to fourth quarter results, we had over a 50% increase from third quarter to fourth quarter, both in the number of proposals put forward and the resulting sales. And so it was clearly successful. And so what the executive teams and sales teams are doing between our team and Japan Post as they're sitting down, analyzing those results and now looking at more of a national spread of that platform, but it was a very tangible increase and gets us excited about some increased momentum in 2022.

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

My question, it seems like when we enter each new quarter, the expectation is for claims normalization to occur over the future quarter that hadn't occurred over the last 1.5 years. But can you maybe talk about how claims utilization, especially in the U.S., but also in Japan, has trended as the Omicron variant has emerged and probably COVID fatigue sets in?

Thank you, John, and thank you for pointing out that my prediction about claims utilization has been wrong for the last year. Throughout the year of 2021, and I'll start by talking to the U.S. We did see a gradual increase in claims utilization each quarter with very, very low claims utilization in the first quarter, and then we saw a little bit of a -- and that continued quite frankly, throughout the second quarter and then we started to see a normalization in the third quarter and then into the fourth quarter as well. We're not fully back to normal. But I would say when I look at, for example, paid claims data for the fourth quarter, then November was higher than October and December was higher than November. And we are getting back very close to what I would be sort of normal claims utilization starting the year of 2022 for the U.S. So that means that I do think that we are fairly close to normal claims utilization going forward. It's also the fact that the -- we did have a correlation between infection rates in the society and claims utilization and what Omicron has done is that, that correlation has pretty much broken down. And I think that is due to people who are living in a much more normal life. You see mobility coming back to more normal levels. And with that, people are getting into accidents. They are going for physical checkups, et cetera, and that is sort of driving a more normal claims pattern and behavior among our policyholder base in the U.S. So that is why I do believe that we are going to come back to sort of a more normal claims utilization pattern for 2022. And we do expect that our benefit ratio in the U.S. will fall within the sort of normalized range. So, we do expect that we will be within the 48% to 52% benefit ratio in the U.S. for 2022. When you go to Japan, you have a somewhat of a similar pattern, but it has lagged the U.S. You don't see the reactions as quick as you do and the changes as quick as you do in the U.S. and you don't see the ups and downs as much as we have seen in the U.S. So you have a much more flatter and more prolonged pattern of claims utilization in Japan. In Japan, we are trending a little bit below but not significantly below what we would deem to be sort of our sort of normalized claims utilization. I hope that helps.

It does. And then my follow-up, as you think about pet insurance for '22, how meaningful a contributor do you think that will be?

So, a couple of things about the pet insurance products, so as I mentioned in my comments, later in the quarter, we expect to launch taking a very targeted approach and that is we're launching and what we characterize internally as our premier broker platform. These are some of the largest brokers in the country that deal, particularly with typically larger companies, think of it as 1,000 employees and larger, that's also where a lot of the employee benefit based demand is for pet insurance. And we expect there's a lot of pent-up expectation for the product. There's a lot of momentum around pet insurance in the work site. So we do believe there's going to be a lot of interest. Now remember, in terms of our results, recognize that we don't book any earned premium, if you will, or sales on that product. That earned premium and sales is booked by Trupanion. Our rationale for putting our brand on it powered by Trupanion is that it creates -- it first, it checks a box in terms of having a pet insurance product, which many of the brokers and their clients like to see and have interest in. But also it creates an opportunity to have a more unique conversation and broader capability when we're in finalist presentations on voluntary benefits overall. So, it really helps create more energy around our broader voluntary products and once again, looking for that halo effect. So that's our expectation. We don't have really specific sales expectations other than its going to be gradual, because we want to get it right. And when you come into the premier broker world with a new product, you don't have too many chances to get it right. You need to get it right out of the gate. You need to measure three times and cut once. And the reason is because if it doesn't get off to a good and controlled start, it can be problematic in that community of brokers and we don't want that to happen. But it's a very unique product. Those of you who are familiar with Trupanion and I'm sure you've read the news recently that they were excited to announce an alliance with Chewy, which is really bonified their unique value proposition. We think this is a different type of a product. We think this is not simply a check-the-box pet insurance product. We think the special value proposition, veterinarian-driven type product set is a unique differentiator. And we've coupled it even with benefits where you as an employee can purchase a rider that pays you your out-of-pocket costs, if your pet is sick and you need to take off work and experience some of the same out-of-pocket cost come with human health conditions. So, we really have built a unique value proposition. We think it's a differentiator, and we think it will create more fulsome conversations when selling our broader voluntary platform.

The next question comes from Humphrey Lee from Dowling & Partners. Please go ahead.

My first question is regarding the Japan Post employee kind of transferring 10,000 of them to Japan Post Insurance. How should we think about the required time for them to ramp up? And how should we think about the potential impact on kind of the sales outlook?

I think it's best for our Japan colleagues to address that. So Yoshizumi, the transfer of postal sales people to Japan Post Insurance and how that flows through? And is there any ramp-up period?

This is Koide of Aflac Japan. As you mentioned, there will be 10,000 people or salespeople moving from Japan Post Company to Japan Post Insurance in April, and this is being planned. And what is very important about this is that, after these people are transferred to Japan Post Insurance, they will only be selling Japan Post insurance product and Aflac cancer products. And since their people's moves are in April and preparation is going extremely well towards April. However, right after their move in April, there may not be a significant impact. However, once they get used to it, there will be a gradual increase in the momentum of sales. So what we are expecting is that after this transfer occurs, and then perhaps in the second half of this year, there will be some more momentum in sales. And let me just add a little bit more information that these 10,000 salespeople that are currently working for Japan Post Company is already -- are already selling our cancer insurance. Therefore, they do have the experience and the knowledge of cancer insurance. That's all from me.

That's helpful. Just staying on Japan. So you talked about some of the counter measures for COVID is not really restrictive and one of the bigger question would be how kind of the consumers will react given the current environment. I think I read somewhere that the lawmakers are looking at potentially more restrictive countermeasures for COVID and also the consumer confidence has been dropping in Japan. I was just wondering if you can elaborate a little more if there are more restrictive measures to put in place and the consumer confidence is continue to drop, like should we see -- could we see a more dampened sales outlook for 2022?

This is Dan. Let me -- I want to make a couple of comments. Number one is it hadn't been stated, but they have they have 90% of the people have been vaccinated in Japan. And so, the -- as we've seen with the new variants the death rate is much lower and there's improvement. I don't think we have any specific answers at this time. I'll let them answer in terms of what the government will require. But I think it's -- you're going to see the death rate and the issues trend down instead of up because we're seeing everybody vaccinated compared to the United States. Now some states, of course, are higher than others, but there is a movement in that direction. You also may have saw the Johns Hopkins report last week that a lot of these things that they're doing in regard to trying to control the variant has not worked very well. And so, I think you're going to see more movement back to normal. We certainly, as a corporation, both in Japan and the United States are moving in a gradual, but for example, we had a meeting of 1,000 people of our salespeople. We tested them all before they came. Some didn't want to come, but over 800 showed up after it was all said and done, we had about 15 cases of COVID in the United States for that particular meeting, which was really, if you took 1,000 people at random, that would be a relatively low number. So, I think you're seeing things move back in Japan. We're back to over 50% of the employees are at work, what they'll have to give you the exact number, but it's over 50%. So, I see things moving back more to normal. Koide, would you take that question, please, and talk a little bit about it.

This is Koide once again. And it is true that even in Japan, the number of new cases that are on the increase. However, as Fred mentioned earlier, the current infection prevention measures that are being issued is much milder than the state of emergency that the government has issued a long time ago. And the government of Japan is aiming to strike a balance between prevention of the infection. At the same time, promote economic measures and activities. And therefore, the government is extra careful about whether to issue even severe or like emergency measures. So as a result, we are not -- there is no plan of Japan issuing very severe measures such as lockdown or any severe measures, then the state of emergency that the government of Japan has issued a while ago. So, there is no change -- no plan for the change in loss either. That's all for me.

Yes, one thing, not to pile on. This is Fred. But one thing I would say, just in terms of the basis of your question, as you always want to be careful about the correlation of economic activity in Japan and the sale or demand for our products. Right now, really, what we're talking about is the practical implications of meeting face-to-face and having a naturally higher close rate meeting face-to-face. But it is after all a pandemic. And so you would imagine that supplemental medical disability product, even elderly care and cancer product, that there will be a natural level of elevated and awareness for these types of products given pandemic conditions. So, it's really more a practical execution issue than it is a demand and economic issue in my view.

Thank you, Humphrey. And Jason, I believe that was our last call, we've gone past the top of the hour. For anyone that has any follow-up questions, though, I'm pleased to ask you to contact Investor and Rating Agency Relations. We'll be happy to help you. Thank you all for your time today and look forward to speaking to you soon. Thank you.

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