Aflac Inc (AFL) — Q1 2024 Earnings Call Transcript

Good morning, and welcome. Thank you for being here a bit earlier than our usual start time. This morning, Dan Amos, Chairman, CEO, and President 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, including Max's quarterly video update. 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 also 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. As I mentioned earlier, the earnings release is available on investors.aflac.com and includes reconciliations of certain non-U.S. GAAP measures. I'll now hand the call over to Dan.

Thank you, David, and good morning. We're glad you joined us at this earlier hour. The first quarter marked a good start for the year in terms of earnings, but it proved to be challenging for sales. Aflac Incorporated delivered another solid earnings result. Net earnings per diluted share for the quarter were $3.25. On an adjusted basis, earnings per diluted share were up 7.1% to $1.66. Beginning with Japan, our latest medical insurance launch in September of 2023, we are encouraged by the success that independent corporate and individual agencies have had in marketing this product, especially to the younger individuals. However, we clearly need to make better progress and plan on doing so. Cancer insurance sales, however, were modestly better year-over-year. We entered the final stage of our new cancer insurance launch in April of 2023 through the Japan Post channel, while we saw a significant and understandable year-over-year increase in cancer insurance sales through the Japan Post channel. We expect to see improvement with the start of the new fiscal year as they cross-sell Aflac cancer insurance along with the new Japan Post life insurance product. Being where customers want to buy insurance remains an important element of our growth strategy in Japan. Our broad network of distribution channels, including agencies, alliance partners, and banks, continually optimizes opportunities to help provide financial protection to Japanese consumers. We will continue to work hard to support each channel. In addition, we are initiating sales campaigns around our 50th anniversary in Japan starting this quarter. Let me be clear, we have not lowered our sales outlook for 2024 and still expect to achieve it. With the launch of the new policy this quarter, Koide-san and his team are working hard to achieve that objective. In addition, we have maintained disciplined underwriting and expense management to continue driving strong pretax profit margins of 32.8%. Turning to the U.S. As you've seen in prior years, the first quarter tends to generate the lowest sales of the year. We have focused on driving more profitable growth by exercising a stronger underwriting discipline. We are deliberately avoiding sales opportunities to certain less profitable accounts. While this appears to have a temporary impact on sales in the first quarter, we are seeing positive results in net earned premium growth, which grew 3.3%. At the same time, we have increased benefits in certain cases to improve value for the policyholders. We believe persistency will continue to improve as customers realize the value of their policies and the related benefits. We are pleased with the 80 basis points improvement in persistency this quarter. I believe that the need for the products we offer is as strong or stronger than it has ever been before in both Japan and the United States. We continue to work to restore our momentum and reinforce our leading position as we aim to exceed $1.8 billion of sales by the end of 2025. We have also continued our disciplined approach to expense management. We are beginning to see progress on our expense ratio in group life and disability, and consumer markets continue to grow in scale. We are continuing to focus on optimizing our dental and vision platform and expect to see stronger second-half sales this year. At the same time, we have maintained a strong pretax margin of 21%. Overall, I'm very pleased with what Virgil and his team are doing to balance profitable growth, enhance the value proposition for our policyholders, and curb the expense ratio. I'd like to end by addressing our ongoing commitment to prudent liquidity and capital management. I'm very pleased with how Max has led the team to take proactive steps in recent years to defend our cash flows and deployable capital against a weakening Yen, as well as the establishment of our reinsurance platform in Bermuda. As an insurance company, our primary responsibility is to fulfill the promises we make to our policyholders while being responsive to the needs of the shareholders. We remain committed to maintaining strong capital ratios on behalf of the policyholders. 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 our tactical share repurchase. We treasure our track record of 41 consecutive years of dividend growth and remain committed to extending it. I am pleased that the Board set us on a path to continue this record when it increased the first quarter 2024 dividend 19% to $0.50 and declared the second quarter dividend of $0.50. We repurchased a record $750 million in shares in the first quarter and intend to continue our balanced and 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 our policyholders when they need us most, just as we promised. This underpins our goal of providing customers with the best value in the supplemental products in the United States and in Japan. In 2024, we celebrated our 50th year of doing business in Japan and our 50th year as a publicly traded company on the New York Stock Exchange. We are reminded that one thing has not changed since our founding in 1955. Families and individuals still seek to protect themselves from financial hardships that not even the best health insurance company covers. Today's complex healthcare environment has produced incredible medical advances that come with incredible costs. It's more important than ever to have a partner. We believe our approach to offering relevant products makes us that partner. We believe in the underlying strengths of our business and our potential for continued growth in Japan and the U.S., 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'd now like to turn the program over to Max to cover more details of the financial results. Max?

Thank you for joining me as I provide a financial update on Aflac Incorporated's results for the first quarter of 2024. For the quarter, adjusted earnings per diluted share increased 7.1% year-over-year to $1.66 with an $0.08 negative impact from FX in the quarter. In this quarter, remeasurement gains totaled $56 million and variable investment income ran $11 million or $0.01 per share below our long-term return expectations. Adjusted book value per share, including foreign currency translation gains and losses, increased 8.7%, and the adjusted ROE was 13.7%, 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 6%. This decline reflects a JPY 6.2 billion negative impact from paid-up policies. In addition, there is a JPY 7 billion negative impact from internal reinsurance transactions and a JPY 1.4 billion positive impact from deferred profit liability. Lapses were somewhat elevated but within our expectations. At the same time, policies in force declined 2.3%. Japan's total benefit ratio came in at 67% for the quarter, flat year-over-year. And the third sector benefit ratio was 57.5%, down approximately 20 basis points year-over-year. We continue to experience favorable actual to expected on our well-priced, large, and mature in-force block. We estimate the impact from remeasurement gains to be 144 basis points favorable to the benefit ratio in Q1 2024. Long-term experience trends, as it relates to the treatment of cancer and hospitalization, continue to be in place, leading to continued favorable underwriting experience. Persistency remained solid with a rate of 93.4%, which was down 50 basis points year-over-year but flat quarter-over-quarter. We tend to experience some elevations in lapses as customers update and refresh their coverage. This change in persistency is not out of line with expectations. Our expense ratio in Japan was 18%, down 170 basis points year-over-year, driven primarily by good expense control and, to some extent, by expense allowances from reinsurance transactions. Adjusted net investment income in yen terms was up 19.3%, mainly due to lower hedge costs and favorable impacts from FX on our U.S. dollar investments in yen terms as well as higher returns on our alternatives portfolio compared to the first quarter of 2023. This was offset by the transfer of assets due to reinsurance in the previous year, leading to a lower asset base and lower floating rate income. The pretax margin for Japan in the quarter was 32.8%, up 460 basis points year-over-year, a very good result. Turning to U.S. results. Net earned premium was up 3.3%. Persistency increased 80 basis points year-over-year to 78.7%. This is a function of a poor persistency quarter falling out of the metric and stabilization across numerous product categories. Our total benefit ratio came in at 46.5%, 90 basis points higher than Q1 2023, driven by product mix and lower remeasurement gains than a year ago. We estimate that the remeasurement gains impacted the benefit ratio by 200 basis points in the quarter. Claims utilization has stabilized, but as we incorporate more recent experience into our reserve models, we have released some reserves. Our expense ratio in the U.S. was 38.7%, down 90 basis points year-over-year, primarily driven by platforms improving scale and lower acquisition expenses. Our growth initiatives, group life and disability, network dental and vision, and direct-to-consumer increased our total expense ratio by 230 basis points. 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 4.6%, mainly driven by higher yields on both our alternatives and fixed-rate portfolios. Profitability in the U.S. segment was solid with a pretax margin of 21%, driven primarily by net earned premiums growth and improved net investment income year-over-year. Our total commercial real estate watchlist remains approximately $1.2 billion, with around $600 million of these in active foreclosure proceedings. As a result of these current low valuation marks, we increased our CECL reserves associated with these loans by $10 million in this quarter. We also moved one property into real estate owned, which resulted in a $3.7 million gain. We continue to believe that the current distressed market does not reflect the true intrinsic economic value of our portfolio, which is why we are confident in our ability to take ownership of these quality assets, manage them through the cycle, and maximize our recoveries. Our portfolio of first lien, senior secured middle market loans continues to perform well with losses well below our expectations for this point in the cycle. In our Corporate segment, we recorded a pretax loss of $3 million. Adjusted net investment income was $43 million higher than last year due to higher volume on the investable assets at Aflac REIT and a lower volume of tax credit investments at Aflac Inc. These tax credit investments negatively impacted a corporate net investment income line for U.S. GAAP purposes by $32 million, with an associated credit to the tax line. The net impact to our bottom line was a positive $4 million in the quarter. To date, these investments are performing well and in line with our expectations. We are continuing to build out our reinsurance platform, and I am pleased with the outcome and performance. Our capital position remains strong and we ended the quarter with an SMR above 1,100% in Japan, and our combined RBC, while not finalized, we estimate it to be greater than 650%. Unencumbered holding company liquidity stood at $3.7 billion, $2 billion above our minimum balance. 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 a release of $3 million. Japan FSA impairments were JPY 3.6 billion or roughly $24 million in Q1. This is well within our expectations and with limited impact on both earnings and capital. Adjusted leverage remains at a comfortable 20.4%, at the low end of our leverage corridor of 20% to 25%. In the quarter, we issued JPY 123.6 billion in multiple tranches with an average coupon of 1.72%. As we hold approximately 60% of our debt denominated in yen, 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. We repurchased $750 million of our own stock and paid dividends of $288 million in Q1, 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, Max. Before we begin, I just want to remind everyone, please mark your calendars for our financial analyst briefing on December 3 at the New York Stock Exchange. We'll have more information coming out.

My first question starts with U.S. sales, which you guys said were weaker than expected in the quarter, but you did reaffirm the longer-term guidance for sales in that business. So can you just give us a sense of how you expect sales in the U.S. to trend from here?

This is Virgil from the U.S. I'd like to provide some additional insights on our Q1 sales performance. As mentioned, sales were slightly weaker this quarter. There are a couple of reasons for this. Firstly, regarding our life, absence, and disability business, it typically sees activity in the latter part of the year. However, last year we had some business occurring in Q1, which affects our comparison this year. This is not a usual occurrence, and I expect strong performance from this sector for the rest of the year. Secondly, the dental and vision business was impacted as we continue to enhance our platform, resulting in softer sales. We have a dental product that we are working on to improve, and I anticipate a stronger second half of the year. Additionally, I want to emphasize our commitment to strong underwriting discipline. We aim to bring in business that ensures long-term profitability, which we believe strengthens the company over time. This approach allows us to fulfill claims, provide shareholder returns, and enhance persistency. We have seen an improvement in persistency of 80 basis points, earned premiums increased by 3.3%, and we achieved a profit margin of 21% this quarter. We believe this is the right strategy for managing the company moving forward.

And then my follow-up, shifting to sales in Japan. The third sector sales went negative this quarter. You guys did highlight some initiatives you have to improve sales in Japan. But just hoping you could provide more color specifically on how you expect the third sector sales to trend over the course of 2024.

Let me let Aflac Japan answer that, but I think the most important thing is we still expect to attain our objective for the full year. So Koide, would you mind taking that or Yoshizumi?

Thank you for the question. This is Yoshizumi, and I'll address your inquiry. Starting in 2024, we expect to surpass our 2023 results for several reasons. First, we plan to enhance our channel sales by increasing the number of sales associates. In 2023, we hired approximately 600 new sales agents and improved their training. We anticipate that these agents will become more productive by the second quarter and achieve success. Additionally, we will continue recruiting agents in 2024 and take steps to ensure their effectiveness. Second, we will promote the sales of Japan Post's new products as well as our cancer product through the Japan Post channel. We expect cancer insurance sales to rise in the second quarter. Third, our Yorisou Cancer Consultation Support, which has received high ratings from customers, differentiates us from competitors. We will utilize TV commercials, web video ads, and other methods to further distinguish ourselves. Fourth, we plan to attract more young and middle-aged customers, as our medical insurance has been well received in these segments, showing significant growth especially in large, nonexclusive agencies. We will also launch a new asset formation product in June, which will include future nursing care coverage aimed at young customers. We expect to sell additional third sector products to these new customers through concurrent and follow-on sales. By implementing these initiatives, we anticipate an increase in second quarter sales and to exceed 2023 results, as we strive for steady sales growth towards our 2026 targets. That's all from me.

Just wanted to circle back on Japan sales. Do you think the issue, as you try and assess it today, is more of an industry issue? Is it Aflac-specific? The reason I ask is I think you mentioned you're deliberately not underwriting certain products in Japan. When I hear that, I think that implies there's some irrational pricing or product features that you don't like. So just a little bit of color on what's going on? Is it medical, where that's happening? And overall, how do you see that playing out?

Let’s have our Japanese team address that, and I will also elaborate on it a little more.

This is Yoshizumi once again. Let me address your questions. In terms of medical insurance sales, we have experienced year-on-year growth, particularly among customers who are under 50 or 40 and younger. Our sales through large nonexclusive agencies have also seen significant year-on-year increases this year, serving as a benchmark for our medical insurance performance. We are planning to implement promotional measures to further boost our sales among young and middle-aged customers, with whom we have had successful engagements. That's all for me.

This is Aflac Japan, Koide. I would like to add a few comments. In Japan right now, third sector sales are becoming increasingly competitive year after year. Our strategy is to maintain strong sales by engaging with customers in this competitive environment through the launch of new products in medical and cancer insurance. We aim to do this promptly while considering customer needs. As Yoshizumi-san mentioned, regarding the increase in sales agents in the associates channel, we are not only growing our headcount but also working to enhance productivity per person per year through training. This approach should help us boost our sales and strengthen our presence in the third sector. Another advantage of Aflac in Japan is our strong partnership with the Japan Post network, which has nationwide coverage to sell our products. While the recovery of Japan Post insurance sales is taking some time, as Yoshizumi-san noted, these sales are on the rise, particularly in terms of activity volume. Therefore, we expect not only an increase in their sales and association activities but also a rise in actual sales of cancer insurance, which is our goal. That's all from us.

Dan, anything you would add? Or should I ask a follow-up?

Yes. Okay. Let me make a couple of comments, and then anything else you want to ask, we'll be glad. First of all, our cancer insurance is doing very well, both through our existing distribution channel and Japan Post. The other thing I would say is that the medical products are more competitive, and we have to continue to watch that. That's really nothing new, but it hasn't slacked up. And then we don't sell the foreign currency products that some of our competitors sell. We just don't think we want to take on that exposure and pass it on to our customers. And so we haven't done that. So I think those are the real differences that are created. Any other questions you had, Tom?

Yes, could you provide some insight into the weaker persistency in Japan? What are you observing from a product perspective? Is this related to cancer and medical products? Do you believe it's mainly due to policy lapses, or do you think customers are switching to other companies?

So Tom, let me address that. One of the main reasons is that we have an aging group of existing policies. Our new sales are lower than the number of policies that are lapsing, which results in a natural aging of the overall group. With this aging, we tend to see more surrenders, lapses, and also increased mortality within the overall group. Therefore, it’s quite usual to have higher lapses when the block is aging. Additionally, over the past five to six years, we have shifted to a slightly shorter product cycle. This means that when we refresh products, we often experience a bit higher structural lapses and reissues throughout the group. These are the two main reasons why we might be seeing lower persistency now compared to five to six years ago.

The first question relates to what has already been discussed, and I believe Virgil touched on this as well. This is also mentioned in your press release, Dan. The concept of disciplined underwriting is not typically associated with Aflac because your products generally have high margins due to the nature of your business. I'm curious about what has changed. The pricing environment seems more favorable now, especially with higher interest rates, which could allow for improved pricing compared to before. Are there external factors that have worsened? Could you elaborate on the U.S. market, where it appears your competitors are becoming more aggressive? What is different now compared to the past? It’s not like you weren’t attempting to be disciplined previously, right? Any insights you can share, particularly regarding the U.S. market, would be appreciated, as you've already mentioned some details about Japan.

Yes. Let me add to that. Again, this is Virgil. I just want to say that what you're seeing is the evolution of our block of business. Our group voluntary benefit business has continued to grow over the past several years. Really, when we talk about that underwriting discipline, that is where you're most going to see that. If there's strong competition out there, fierce competition in the group business, and what we're doing is making sure though that we are able not only to compete, but we want to look at the business that yields profits. So any time you bring in new business on the books, of course, there are acquisition expenses and everything that go into that, we want to make sure that we're getting the right business on the books that has the tendency to persist. So we're able to absolutely make a profit on that business over a couple of years' period.

And if you think about it for a minute, it will make plenty of sense. You take an account that has high lapsation, then you have a low benefit ratio, and you have a high expense ratio and basically no profit. So you actually improve every aspect of the overall business when you just don't write it. And that's what we've been looking at and seeing. And then that allows us by doing that, as we've increased benefits and other policies to move it up and give a better value. So it's a good balance that we think ultimately creates value not only for the policyholder but ultimately for the shareholders as well.

Okay. And then, Max, do you have an update on the Japan ESR and its potential impact on your Bermuda reinsurance or just overall capital management strategy?

Our ESR in Japan continues to perform well. We are currently exceeding 250% on our ESR according to our internal model. We anticipate that the FSA will announce a final calibration soon in the second quarter. I do not foresee this having a significant impact on the difference between the FSA calibration and our current internal model. Therefore, I do not expect any substantial movement in that number. We will evaluate the ESR based on that and provide more details in December. For now, we are tracking a bit above 250% on our internal model.

So Japan continues to see pretty strong remeasurement gains. Can you just talk about the underlying claim trends that you're seeing there? And I guess if this level of favorability of the remeasurement gains persists, should we likely see a bigger unlocking this year or would more experience be needed?

So Joe, the primary factor remains the favorable hospitalization trends that have been present for an extended period, and they have continued to improve. When we conduct our reserving, we aim to align with current experiences, but we do not necessarily expect this improvement to persist in the future. Hence, if hospitalization trends continue to improve from current levels, we could see future remeasurement gains. However, if they stabilize at current levels, then future gains may not be evident.

Okay, makes sense. And then just in Japan, expenses came in very favorable this quarter. How much of that was cost controls that could be sustainable longer-term versus just seasonality or timing?

Yes. There's a significant element of both seasonality and timing in this number. For the full year, we are tracking towards our expense ratio outlook of 19% to 21%.

There's a lot of news out there right now about the Japanese government doing some major intervention to support the yen. What does that mean for the cost of your hedging program?

Josh, volatility can clearly influence the pricing of options. Along with all the usual factors considered in option pricing, this is the main effect we observe. The current level of volatility has a lesser effect on the final cost of put options, so we anticipate minimal impact on option pricing for now. Frankly, despite the trending volatility of the yen, short-term fluctuations have been relatively low recently. Consequently, we do not expect any significant effects. However, I must mention that there has indeed been a notable overall movement in the yen, which has been weakening. This certainly affects all our financial statements and capital ratios. Our approach involves taking an economic perspective to safeguard Aflac Japan's economic value from a holding company standpoint. We believe we are well protected through the three strategies we are employing: holding U.S. dollar assets within the Japanese general account, issuing yen-denominated debt from the holding company, and utilizing FX forwards at the holding company. Our program has been designed with such market shifts in mind, and overall, it is performing very well.

And look, I don't want to lessen the significance of a very large dividend increase as well as a lot of shares bought back in the quarter, but it seems to me that the capital ratios are even higher now at the end of the first quarter than they were at the end of this past year. I've been harassing David a little bit on better color, but can you walk through all the gating factors in your internal model that guide your willingness to return capital to shareholders?

So the overall return on capital to shareholders is really, quite frankly, driven by, number one, satisfy the capital ratios in the subsidiaries, and that means all of the subsidiaries. Then we look at the pool of capital that we have at the holding company, which currently sits at $3.7 billion on an unencumbered basis, which is roughly $2 billion above our minimum liquidity level. We then think about what is the capital generation going forward. That helps us then think about how we can deploy capital, both short-term, i.e., in the next couple of quarters, but also long-term, i.e., thinking about what it's going to look like over the next two, three, five years as well. That helps us sort of guide then also what kind of returns we can expect on dividends, buybacks, etc., when we take these into account what other alternatives we have for that capital. And obviously, we try to deploy the capital in the areas where we think we can get the best IRR.

In the transitional real estate portfolio, Max, I think you mentioned foreclosing on a loan and taking it on balance sheet as real estate owned. Can you just talk about are there other loans that you're monitoring right now? And maybe just give us an update on the size of the overall watchlist there?

Sure. Wes, this is Brad Dyslin. In the quarter, we saw our overall commercial real estate, which is predominantly the transitional real estate, as you've mentioned, the watchlist has been relatively stable. Our overall foreclosure watchlist is about $1.2 billion. Of that, about half is in active workout proceedings where we are fully prepared to foreclose on the property. We did have one, as you mentioned, that we foreclosed in the quarter. We were actually able to book a small gain on that. The accounting rules are such that if the appraised value exceeds our loan value, we're able to book it at the higher value. It's a pretty small number, but it does highlight the value of disciplined underwriting and maintaining a good, solid loan-to-value on the underlying assets. Generally, things were stable in the quarter. We are seeing some very early signs of life in the market. We're seeing headlines about a lot of capital being raised in different outlets focused on commercial real estate. That will certainly help with liquidity. It's a little bit early, but we're optimistic that we could be turning a corner here in the next couple of quarters. Of course, all eyes are on the Fed right now to see the impact that will have. But overall, nothing really significant happened to our watchlist in the quarter.

Thanks, Brad. And just turning to the U.S., could you maybe just talk about agent recruiting? What's the environment like given the strong employment in the U.S.? And are you kind of expecting that to change any in your outlook there?

Yes. So I would say it's definitely a tough environment we're recruiting for commission roles out there. Still, I would tell you, if you look back at Q1 of 2023, it was a strong Q1 quarter for us. So this year, we knew we had a tough comparison. Therefore, I would tell you we expect it to be slightly down. I'm not too concerned about the performance of Q1. I'm expecting us to rebound and continue to recruit, develop, convert, train, and actually build up on average we can produce going forward. Again, knowing the environment is tough, we just have to recruit differently. We're deploying different means to make sure we hit our expected numbers this year.

I wanted to start with Japan sales. It seems like one of the issues, I think, that you're having is the mix of sales between exclusive and nonexclusive channels. So my question is, what percentage of your sales come from these nonexclusive channels? And relatedly, are you behind the industry in terms of the mix from that channel?

Hold on there. Let me check if you can hear me. Did you all hear the question, Koide?

Let me start. This is Koide from Aflac Japan speaking. First, I want to clarify our agency structure and purpose. Since our foundation in Aflac Japan, we have relied on exclusive agency channels as our main channel, alongside nonexclusive agencies that primarily sell our products in cancer and medical insurance. These are the main agencies we work with, which is actually a strength for Aflac Japan. Recently, other companies have entered the agency channel. Since they are newcomers, they cannot establish their own exclusive channels anymore and have opted to focus on the nonexclusive channel, particularly targeting large nonexclusive agencies to boost their sales. While the sales from large nonexclusive agencies constitute a small portion of Aflac’s overall sales, it doesn't indicate that we are falling behind other insurance companies; rather, this is our advantage because we have our own exclusive channels. However, it’s important to note that the market for large nonexclusive agency customers is growing, as these agencies mainly attract young and middle-aged customers. Therefore, to foster Aflac Japan's growth moving forward, we need to broaden our focus beyond exclusive agencies and pay more attention to large nonexclusive agencies, which has been our strategy for the past few years. Last year, we launched a new medical insurance product that has sold well through our large nonexclusive agencies, targeting mainly young and middle-aged customers. We have seen significant growth in our medical insurance sales in the first quarter of this year.

Suneet, let me try to summarize, because I think it's important here. Number one is, in the nonexclusive area, this isn't something new. If you go back and you look, and you've been around a long time, you'll remember that there was this major agency that was independent and other competitors were selling for them, we ended up selling for them. They had been in the cell phone business and transferred over to the insurance business. We found a way to get into that market. We ended up selling a lot with them. They ended up going a different direction. But the point being is, wherever the business is, we'll be there as the leader in the third sector product. And yes, we do have a strategy. And yes, we do plan on winning. But the point that I think Aflac Japan is making is the bread and butter of everything we do are the agencies that we've had since our inception. That along now with Japan Post has made a big difference. Again, Japan Post being only cancer. But all in all, it's what's dominated our business, and we will be ready to handle that. And it's really nothing new. It was going on 15 years ago.

Thank you. I'd like to provide some additional insight. We are currently focused on the large nonexclusive agency channel. However, as Dan pointed out, we have Japan Post, exclusive agencies, nonexclusive agencies, and various business partners and bank channels. This diverse range of channels is how we plan to boost and expand our sales.

So this is Yoshizumi once again. Let me just add a little bit more information to your question. The large nonexclusive agencies primarily sell the first sector product to customers. Aflac focuses on cancer and medical insurance products, and when combined, we hold the top position in overall Japan for these policies. We truly believe that we can boost our sales through various channels. I believe our primary driver will be our exclusive agencies.

Yes. Thank you all very much for joining us this morning. In the coming months, you'll get more information about our financial analyst briefing at the New York Stock Exchange on December 3. If you have any questions that you want to follow up, please reach out to Investor and Rating Agency Relations. We will talk to you again. Have a great day.