Aflac Inc (AFL) — Q2 2024 Earnings Call Transcript

Good morning, and welcome. Thank you for joining us for Aflac Incorporated Second quarter earnings call. While I have your attention I also want you to mark your calendars to join us for our Financial Analyst Briefing at the New York Stock Exchange on December 3rd. Now 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 updates which also includes information about the outlook for 2024. We also posted under Financials, on the same site, updated slides of investment details related to our commercial real-estate and middle-market loans. For Q&A today, we are also joined by Virgil Miller, President of Aflac US; 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-US GAAP measures. I'll now hand the call over to Dan.

Thank you, David, and good morning, and we're glad you joined us. Aflac Incorporated delivered another quarter and six months of very solid earnings results. Net earnings per diluted share were $3.10 for the quarter and $4.64 for the first six months. On an adjusted basis, earnings per diluted share for the quarter were up 15.8% to $1.83 and for the first six months, we were up 11.5% to $3.49. From a broad operational perspective, we've generated profitable growth in the United States and Japan with new products and distribution strategies. We believe our strategy will continue to create long-term value for the shareholders, and at the same time, we believe that the need for our products is as strong or stronger than it has ever been before in both the United States and Japan. Beginning with Japan, we have continued to focus on third sector products like our cancer insurance product called the WINGS; as the new fiscal year began in Japan, we saw continued improvement in cancer insurance through the Japan Post Channel. We have continued our strategy of introducing life insurance products including Tsumitasu, which we launched on June 2nd. This product offers policyholders a hazard formation component with a nursing care option. It was designed to attract new, younger customers while also introducing opportunities to sell them our core third sector products. While still very early, we are pleased with how our agencies have sold this product, which drove a 4.5% sales increase for the second quarter. Being where consumers want to buy insurance remains an important element of the growth strategy in Japan. Our broad network of distribution channels including agencies, alliance partners, and banks continually optimize our opportunities to help provide financial protection to the Japanese consumers. We will continue to work hard to support each channel. Overall, Koide-san and his team have done a great job of turning around sales in Japan and delivering record profit margins for the quarter. I am very pleased with their efforts. Turning to the US, we achieved a 2% sales growth for the quarter benefiting from good growth in Group Life Absence Management and Disability and individual voluntary benefits. This is welcome news as we enter the second half of the year that tends to be the heaviest enrollment period. At the same time, we continue to focus on more profitable growth by exercising a stronger underwriting discipline. Additionally, we've increased benefits in certain policies to improve the value for the policyholder. We believe persistency will remain strong as customers realize the value of their policies and the related benefits. We have also continued our disciplined approach to expense management, which Max will address. As we enter the second half of the year, we are continuing to focus on optimizing our Dental and Vision platform. Overall, I'm pleased with what Virgil and his team are doing to balance profitable growth, enhance the value proposition for the policyholders, and curb the expense ratios. Their efforts contributed to the very strong pre-tax profit margin of 22.7% for the second quarter. Now, turning to our ongoing commitment to prudent liquidity and capital management. Max has done a great job leading his team to take proactive steps in recent years to defend our cash flow and deployable capital against a weakening yen, as well as establishing a reinsurance platform in Bermuda. We have been very pleased with our investment portfolio's performance as it continues to produce strong net investment income with minimal losses and impairments. It is our responsibility to fulfill the promises we make to our policyholders while being responsive to the needs of our 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 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 by 19% to $0.50 and declared the second and third quarter dividends of $0.50. We repurchased a record $800 million in shares during the quarter and intend to continue our balanced, tactical approach of investing in growth and driving long-term operating efficiencies. Our management team, employees, and sales distribution continue to be dedicated stewards of our business, being there for the policyholders when they need us most just as we promised. This underpins our goal of providing customers with the best value in the supplemental insurance products in the United States and Japan. In November, we celebrate our 50th year of doing business in Japan. Additionally, in June, we celebrated our 50th year as a publicly traded company on the New York Stock Exchange. We are reminded that one thing has not changed since the founding in 1955: families and individuals still seek to protect themselves from financial hardships that not even the best health insurance covers. Today’s complex healthcare environment has produced incredible medical advances that come with incredible costs. It’s more important than ever to have that 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 United States, two of the largest life insurance markets in the world. Aflac is well-positioned as we work toward achieving our long-term growth while also ensuring we deliver on our promise to our policyholders. I'll now turn the program over to Max to cover in more detail the financial results.

Thank you, Dan, and thank you for joining me as I’ll provide a financial update on Aflac Incorporated’s results for the second quarter of 2024. For the quarter, adjusted earnings per diluted share increased 15.8% year-over-year to $1.83, with a $0.07 negative impact from foreign exchange in the quarter. In this quarter, reinvestment gains on reserves totaled $51 million, and variable investment income ran $1 million above our long-term return expectations. We also received a make-whole payment adding approximately $20 million or $0.03 per share to our adjusted earnings. Adjusted book value per share, including foreign currency translation and the gains and losses, increased 9.4% and the adjusted ROE was 14.3%, 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 5.7%. This decline reflects a 7.4 billion yen negative impact from internal reinsurance transaction executed in the fourth quarter of 2023 and a 4.8 billion yen negative impact from paid-up policies. In addition, there was a 1.2 billion yen positive impact from deferred profit liability. Lapses were somewhat elevated but within our expectations. At the same time, policies in force declined 2.4%. Japan's total benefit ratio came in at 66.9% for the quarter, up 120 basis points year-over-year, and the third sector benefit ratio was 57.8%, which is up approximately 160 basis points year-over-year. We estimate the impact from reinvestment gains to be 140 basis points favorable to the benefit ratio in Q2 2024. Long-term experience trends as it relates to treatment of cancer and hospitalization continue to lead to the continued favorable underwriting experience. Persistency remains solid with a rate of 93.3%, which was down 50 basis points year-over-year. This change in persistency is in line with our expectations. Our expense ratio in Japan was 17.8%, down 170 basis points year-over-year, driven primarily by the expense allowance from reinsurance transactions and continued disciplined expense management. Adjusted net investment income in yen terms was up 28.4%, mainly due to the favorable impact from foreign exchange on US dollar investments in yen terms, lower hedge costs, higher return on our alternatives portfolio compared to the second quarter of 2023, and call income. The pre-tax margin for Japan in the quarter was 35.3%, up 490 basis points year-over-year, a very good result. Turning to US results, net earned premium was up 2.1%, persistency increased 50 basis points year-over-year to 78.7%. We are encouraged by early signs from our persistency efforts and we will remain focused on driving profitable growth. Our total benefit ratio came in at 46.7%, which was 140 basis points higher than Q2 2023 driven by product mix and lower reinvestment gains than a year ago. We estimate that reinvestment gains impacted the benefit ratio by 170 basis points in the quarter. Claims utilization has rebounded from depressed levels during the pandemic and is now more in line with our long-term expectations. Our expense ratio in the US was 36.9%, down 210 basis points year-over-year, primarily driven by platforms improving scale and strong expense management. We tend to benefit from seasonality in the first half and would expect higher expenses in the second half. Our growth initiatives, Group Life and Disability, network, dental and vision, and the direct-to-consumer, increased our total expense ratio by 230 basis points. This is in line with our expectations, and we would expect this impact to decrease going forward as these businesses grow to scale and improve their profitability. In just the net investment income, in the US was up 7.4%, mainly driven by higher yields on both our alternatives and fixed-rate portfolios. Profitability in the US segment was solid with a pre-tax margin of 22.7%, also a very good result. Our total commercial real estate loan watch list stands at approximately $1 billion, with less than $300 million in process of foreclosures currently. As a result of these current low valuation marks, we increased our seasonal reserves associated with these loans by $14 million in this quarter net of charge-offs. We had six loan foreclosures and moved nine properties into real estate owned. We continue to believe that the currently 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 assets, manage them through this cycle, and maximize our recoveries. Our portfolio of first-lien senior secured middle-market loans continues to perform well with losses below our expectations for this point in the cycle. In our Corporate segment, we recorded a pre-tax gain of $23 million. Adjusted net investment income was $39 million higher than last year due to the lower volume of tax credit investments at Aflac Inc. and higher volume of investable assets at Aflac REIT. These tax credit investments impacted the corporate net investment income line for US GAAP purposes negatively by $30 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 expectations. We're continuing to build up our reinsurance platform and I'm pleased with the outcome and performance. Our capital position remains strong, and we ended the quarter with an SMR above 1100% in Japan, while combined RBC, although not finalized, we estimate to be greater than 650%. Unencumbered holding company liquidity stood at $4.1 billion, $2.3 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. US statutory impairments were released of $7 million and Japan FSA impairments were 10.4 billion yen or roughly $67 million in the quarter. This is well within our expectations and with limited impact to both earnings and capital. Adjusted leverage is 19.5% and below our leverage corridor of 20% to 25%. As we hold approximately 60% of our debt denominated in the 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 US dollar terms. We repurchased $800 million of our own stock and paid dividends of $283 million in Q2, 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. I will now turn the call over to David.

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

Hey, good morning. So the new product launch in Japan that happened in June had very strong sales. I guess, can you just talk about the target return on that first sector product and how it compares to the third sector product? And then what do you see as the cross-sell opportunity there?

Max might just take that for chat.

Yeah, let me start on the product profitability. So, when we look at this product through a GAAP lens, it has at or higher GAAP margins than our core third sector business. And on an IR basis, this is obviously lower than our third sector business because of the very significant new business strain associated with the high reserves, but we have lined up reinsurance that we then expect on a post-reinsurance basis to bring us very, very attractive returns, as well. And not too different from our core first sector business.

Okay, and the cross-sell opportunity there with the third sector products?

I think we'll evolve over time where obviously this product targets a younger clientele that gives us the opportunity to build that relationship, and as we travel with that customer through their lifetime, we have an opportunity to then cross-sell both medical and cancer, as well. So over time, I think there's a good opportunity for us to both get the Tsumitasu product to the younger clients but also over the lifetime cross-sell cancer and medical to those new clients.

Yeah, I think Aflac team nicely explained that. It's important that I say it, remember it with the Tsumitasu product we are targeting a younger group with less disposable income than does an older set of potential policyholders. And so whereas with the older, we might offer the Tsumitasu product or another product along with our supplemental third sector product. With this group, we start by putting in one product, which would be the Tsumitasu product and then a year or so later follow-up and add more. So it's different as we're building that policyholder base, which of course is one of the things we promised you we would work toward doing, and Aflac Japan we believe is doing the right thing here for us.

Okay. First question just on the expense ratio in both the Japan and the US businesses, I think it's the best it’s been in the past several years. So wondering how much of that is sustainable and driven by expense savings or other actions versus maybe just being timing-driven by the timing of discretionary spending in advertising?

Thank you, Jimmy. Let me start with Japan. Obviously, 17.8% in a quarter is a very low number. We have a guidance range of 19% to 21%, and long-term I think that is the range that we will operate within for the Japan segment. We tend to have some seasonality in Japan with the second half having a slightly higher overall spend, and I would specifically call out that Aflac Japan turns 50 this year. So, we will have some promotional spend associated with that including advertising and a lot of sales activities around that. Therefore, for the full year, I would expect us to end up in the lower end of that 19% to 21% range. For the US, we also have had very good expense control especially in the first half. There are timing differences where I would expect our spend to increase in the second half, and I would also caution you to please keep in mind that the fourth quarter, every year has the highest level of sales activity, and with that comes expenses spending, as well as our expense ratio in the fourth quarter tends to be the highest. Over time, the US still has a number of businesses that are not at scale. And therefore, we are running those businesses with expenses overruns right now. This includes our Group Life and Disability business, our dental and vision business, and our direct-to-consumer business and to some extent also our group platform. As those businesses really reach that scale, then they come down in expense ratio and we will no longer have that expense overrun. So that means there is downward pressure over time on our US expense ratio. But we're very pleased with the expense management and expense control for the first half and in particular into the second quarter. But I would caution you when you think about the full year; I still would expect us to be inside of the range of 38% to 40% for the expense ratio in the US.

Okay. And then, just maybe for Dan or the Japanese team, you talked a lot about competition in Japan on the last call. And it seems like as rates gone up in Japan, some of the companies have cut prices to adjust for that. But what are you seeing in the competitive environment? And is it any different than what you've seen in the last few months or over the past few years?

Yoshizumi, would you like to take that?

Thank you for the question. Good morning, everyone. I'm Yoshizumi, responsible for sales in Japan. As you mentioned, our competitors have entered the third sector market, which has significantly changed compared to five or ten years ago. Some competitors are launching very reasonably priced products. However, at Aflac, our approach is to introduce and sell products that offer value to our customers, rather than merely reducing prices. As we celebrate our 50th anniversary this year at Aflac Japan, we rely on the history and trust we have built with our customers by providing suitable insurance policies that adapt to changing illnesses and treatment methods. Recently, data released from April 2022 to March 2023 shows that Aflac is the number one company for policy sales in Japan's third sector products. Our goal is to continue offering our customers the most appropriate products to maintain our leading position.

Good morning. Thank you for the opportunity. My first question is on the distribution of the new first sector product in Japan. The closest customers and existing customers and one that doesn’t have that product, I know the product was introduced in early June. Have you identified how much of the existing customer base is the target for this new product? Thank you.

They're translating, give us one second. And Koide or Yoshizumi, please?

We have a large number of existing customers. Our target customers are young and middle-aged individuals. The reason I mention this target group is that the Japanese government is actively encouraging citizens to pursue asset accumulation products and is providing various systems to support this. Consequently, the demand for asset formation is increasing significantly in Japan. We have launched a new product to address these asset accumulation needs. This product is well-received in the market, leading to a rise in our sales. The appeal of this product lies in the various options available to customers after they have paid their premiums. For instance, once they complete their premium payments, the policy can be converted to a death benefit, nursing care benefits, or the customer can receive cash value that can be utilized for asset accumulation. As we engage in these conversations with our customers, there will be more interactions and opportunities for our sales team to discuss third sector products. We have already established this sales pattern and trained our agents accordingly. Our goal is to boost our third sector sales by leveraging this new product, Tsumitasu, as a focal point, because we aim to increase sales by focusing on third sector product offerings.

Thank you for that. Very helpful. My follow-up on distribution is the 50th anniversary plans mainly related to this product or is it broader? Could you talk about that? Thank you.

As I just mentioned, it's not only about Tsumitasu since we mainly sell third sector products. For instance, for the 50th anniversary, we will focus on boosting cancer insurance sales and increasing our touch points with customers through campaigns that offer gifts. We also have a unique conservative service that no other competitor possesses. Therefore, we aim to promote this service in line with our 50th anniversary via our website, TV commercials, and video services. We have a significant number of sales agents and agencies that exclusively sell Aflac and have been with us for the past 50 years. These agents and agencies are very pleased to celebrate the anniversary. There is a strong momentum among these sales agents and agencies to sell a substantial amount of third sector products. We, as a sales team, want to support these agencies to the best of our ability.

Good morning. A couple of follow-up questions on the Tsumitasu product in Japan. In response to John's question, I just want to be clear: I'm assuming you're not selling this product, the Tsumitasu product, to existing customers that already have third sector Aflac products. This would be all brand new Aflac customers. Is that correct?

Correct. Our thrust is to write new customers, but if someone wants to buy, we certainly will sell it to them because as was mentioned by Max, the profit margin is very acceptable on this product. So, yes, we'll take anyone that wants to buy. But it is not our push. We want the younger customers is what we're working toward.

And Dan, do you have a - are you keeping track of that to make sure this doesn't become a situation where the sales force kind of monetizes the in-force customer base and does a lot of selling there because then obviously that would limit the cross-sell opportunity?

Absolutely, we are. Now they can call more about it. I just was cutting through the translation and Max can cover that a little bit more too.

Tom, we track that closely. So we know what those numbers are. We will not necessarily publish those publicly, but it's an important factor that we keep track of.

Hey, thanks. Good morning. Just wanted to touch on the US a bit. I know sales came in a little late in the quarter relative to the full year guidance. I just wanted to get your overall thoughts there on the confidence of hitting something in the guidance for the year?

Yeah, good morning. This is Virgil from the US. Let me say that, I think the big takeaway is it was a very strong quarter for the US, because of the balanced approach. You heard yourself from Herc and Max earlier. What we saw was an increase not just in sales of 2%, but we had an increase of 50 basis points in our premium persistency. We drove a higher benefit ratio that was intentional, some intentional actions to put more value into the hands of our customers. We lowered our expense ratio, and that led to one of the highest pre-tax margins we've had in the US in some years of 50 basis points and 22.7%. My point on that is that we knew going into the quarter we came out negative in Q1. In the second quarter, I mentioned earlier that we have made a lot of changes to go to a more profitable business. That was really focused on our group with VB business, formerly the Continent American business that we bought. We wanted to make sure that we were only bringing business that has higher benefits where people are actually filing claims and with less churn. So we knew that would have an impact. So this 2% is actually right on target for what I expected. But I am expecting a stronger push in the second half of the year. A lot of that is seasonality, but it is also what Max mentioned earlier: some scale, we will see from buy-to-bills. We're going to see a stronger performance with the new files we bought with Life and Disability that we call PLATS. We're also going to see better performance in the second half from our Dental and Vision property. I mentioned before that we're making huge investments to stabilize that platform. We also announced a partnership with SKYGEN that’s bringing some operational excellence to the table with us to help manage that property. So, all in, we're expecting higher sales on the dental property, a stronger push with PLATS, and continued good performance from our veteran agents and our broker partnerships.

And I just want to make a comment. I think that we've seen one of the best years and certainly one of the best quarters in the U.S. in terms of we've got a lot of balls in the air. And to realize that they brought up the loss ratio. They brought down the expense ratio. They had switched business, and our business is more complicated as we go into other products. They're training their people better. I just have kudos to Virgil and the team for the hard work they're doing. I think long-term our US operation is going to be a much stronger company because we're doing all the right things to prepare us for the future. So, I'm extremely pleased with the sales. Yes, I want more than 2%. But I promise you that the 2% we had is much bigger than a normal 2%, because it's cleaner business, it's more profitable, and it should compound as we move forward.

That's helpful. Thanks. I guess, sticking with the US can you just touch on recruiting trends there? I know you said you still have a bit of a way to go to get back to pre-pandemic levels. So it would be just good to get your thoughts on the recovery there.

Yeah, in the first quarter, we came up with negative on recruiting, but in the second quarter though very strong with I think we were over a 10% increase. I see us continuing on that trend going forward to the second half. But when I mentioned if you kind of go back and look pre-pandemic and look where we are today, we're focusing on quality recruiting. We're going for a better conversion rate. And then, that is leading to higher productivity. You continue to see better productivity from what we're seeing with our agents. That is really the bigger factor for us. Last year, we recruited over 10,000; I would expect the same this year. We've got some national recruiting efforts going on right now across the country. What we really do is leverage support from headquarters to drive our message and then we leverage when we call on a nomination process to get the local agents and local brokers going out, telling people about the Aflac career path, and bringing people in to listen to that story. Then we actually convert them to recruits and ultimately try to get them to be average weaker producers. I am very pleased with what we did in the second quarter. Some of those efforts will definitely continue in the third or fourth quarters also.

Hey, thanks for taking my follow-up. Just a Tsumitasu product follow-up question. Can you talk a little bit about how you think this rollout is going to go? Clearly, the June rollout seems to have been a big success. Would you expect this to become a much larger percentage of sales as you think about the rollout over the next couple of quarters here? How do you think third sector sales are going to hang in there? Because I think it's being sold through the same distribution as your third sector. So, I'm just wondering while this gets rolled out, are we going to see a slowdown in third sector? How do you see that all playing out, I guess, over the near term next couple of quarters? Thanks.

Let me kick it off and then I'll hand it over to Yoshizumi for some more details. We do not have an explicit cap on this product, and the reason why is because it's producing very good returns for us, both from a profit margins standpoint and also from a total IRR standpoint, i.e., with a significant spread to our cost of capital. So we actually do want to sell quite a bit of all this product. That being said, this product is very much about how it can lift our third sector franchise. We still believe that we are a third sector company, and we want to make sure that we keep our exceptionally strong position in that marketplace as the number one third sector player in Japan. So, that provides the context for this product. Yoshizumi can help give you some more details in terms of the timing of the full rollout of the product.

Thank you. This is Yoshizumi. I would like to answer your question. First of all, this product was launched on June 2nd, and we have seen very successful initial sales. The reason for these strong sales at launch is that our distribution channel was thoroughly prepared, understanding where and how to sell the product, which we have been focusing on since the beginning of the second quarter. This preparation was necessary for our agents, as they needed to practice selling Tsumitasu to new customers. Consequently, our agents approached customers they felt comfortable talking to, which contributed to significant sales success. Through our preparations for the June launch, we do not anticipate maintaining the same level of sales from July onwards, but we expect the product to achieve a particular volume. We are confident this product will fulfill that role. Its primary function will be to facilitate the cross-selling of third sector products. Once our sales agents discuss Tsumitasu with customers, it will become easier to also introduce third sector products. This is where Tsumitasu stands out from other first sector products, as it possesses unique features that enable sales agents to discuss third sector offerings more readily. Our expectation is for Tsumitasu to generate a specific sales volume independently while also contributing to the sales of third sector products.

This is Dan. I want to make a couple of comments. Number one, we normally don't show the first month; we show a quarter of whatever new product is. It is not unusual to have a spike. What I've always said is when we introduce a new product, you have a spike and then it levels off. We're in the spike period, and we've seen that with others. But it will come down as he said, and we expect that. So, just keep that in mind the other thing is that the numbers are small in the past. So that also, as a percentage, makes it look bigger than it normally is. But there's nothing here that makes me think that is any different from other new products other than it's doing very well as few of our products have. We're excited about that and pleased that we were able to find the way to get the profit margins to acceptable levels so we could do this. We've been wanting to do it, but we haven't been able to do it, and given Max his credit, he was able to find a way to help do this, and we appreciate that very much on his part.

Tom, I want to address a question that you did not ask, but I think you wanted to ask, and that is, how is this different from the past sales that we had in the years 2012 through 2014? I would characterize three main differences. The first one is that we will do much more frequent repricing of new business for this product. That’s very important because this is a more interest-rate sensitive product than our core third sector business. The other one is that we will have a much more diligent management of the distribution channels, and the third piece is that we are not utilizing reinsurance to make sure that we can relieve some of that new business strain and get the IRRs higher. Taking all of that together is what makes this different from the past sales that were very significant back in that time frame.

Hey, thanks for taking the follow-up. I just wanted to touch on net investment income in Japan, and particularly, the US dollar portfolio unified just for the make-whole and the slightly favorable variable investment income. It seems to have a pretty sizeable step up in yield from the first quarter. Is there any color on what drove that and do you think that the normalized net investment income level implied in Q2 is sustainable?

Yeah, hi, Joel, this is Brad Dyslin. Thank you for the question. We did have a very solid second quarter, as you pointed out, and there were several things that drove that that we do think are sustainable into the back half of the year. Besides the adjustments that you’ve highlighted, short rates remain very attractive even with the Fed likely to cut sometime this fall. Short rates remain very, very attractive compared to historical levels. That benefits us in a few ways including our significant floating rate portfolio. We also took some actions early in the year, some tactical things we did with the portfolio. We moved a few bonds around in our public portfolio to capture some yield opportunities. It was a sizable switch trade. We also took advantage of some attractive spreads and accelerated deployment in our structured private credit portfolio. So we think the things that have carried us in the second quarter – these tailwinds are going to continue through the second half of the year. Now there are risks of course, but we think we're pretty well positioned and should have a good second half.

Great. Helpful. And then just, I had one on US persistency. So Max, you mentioned in your prepared remarks that you're encouraged by the early signs from some of the initiatives that you guys put in place. I guess, just what are you seeing and how much improvement do you guys think you can drive in persistency in the US?

I'm not going to put an exact number on that, but I would say that anything, if you get even something like a hundred basis points is meaningful when the overtime translates that into the economic impact that would have from additional net earned premium. So, it's something that we will continue to drive over time. The other thing I want you to be aware of is that persistency will jump around somewhat driven by the mix of business. So our in-force in the US, it is gradually changing. So you are going to see more Group Life and Disability business as a proportion of our in-force, which clearly has a much, much higher persistence rate than our average. The same thing applies over time with our Dental and Vision businesses, as well some improved persistency. So we will over time drive that business by business improvement in persistency and then obviously the mix impact as well. We will over time sort of call that out and give you some more colors on that, as well.

I got it. Thank you.

Thank you, Betsy, and thank you all for joining us this morning. I hope you'll be able to join us on the morning of December 3rd at the New York Stock Exchange or on our webcast for our Financial Analysts Briefing. If you have any additional follow-ups, please reach out to the Investor and Rating Agency Relations team. We look forward to hearing from you. Thank you.