This is the Bank of America 2024 Financial Services Conference. If you're in this session, it's the Aflac section, and you're in the right place. So we're very pleased, pleased to have both Dan Amos and David Young here from Aflac. Thank you, gentlemen, for being here. I've said this, I think, two years ago, and I'll say it again. Dan is the second longest-serving CEO in the S&P 500 companies. There's a guy who lives in Omaha who is the longest-serving CEO. But an interesting fact, of course, is that, given over that guy's tenure and Dan's tenure, Dan has had the better returns. And so, that's—he's pretty hard to beat. But all that, I think, is secondary.
The last time I looked, the Aflac Foundation, which has been the heart of something that Dan has worked on for a very long time, has donated, over its course of existence since 1995, $173 million to help children with cancer and sickle cell anemia, and it's a great testament to a great organization. We're very lucky to have Dan here. I'm gonna let him make some prepared remarks, and then we'll get to some Q&A, and you're welcome to ask him questions. But please welcome Dan Amos.
Thank you. Well, thank you, Josh, and good afternoon, everyone. It's my pleasure to be here with you. I'd like to make a brief presentation addressing both our U.S. operation and our Japanese operation, and then I'll hand off to David to conclude with some consolidated EPS and liquidity and capital management. But before we open for questions, Josh will then take whatever he has or whatever questions that you might have. Before I begin, I'll be making some forward-looking statements which could be affected by the risk factors listed here and in our 10-K. I will refer to the non-GAAP measures, which can be found along with the reconciliations in the appendix of the presentation and our fourth quarter and EP earnings release.
So now let me get to the business at hand. Aflac Incorporated, through its subsidiaries, operates in two of the largest life insurance markets in the world today: the United States and in Japan. Our policies have helped provide financial protection and peace of mind for more than 68 years to millions of policyholders and customers. In the U.S., Aflac is the number one provider of supplemental health insurance in the U.S., and in Japan, Aflac Life Insurance Japan is the leading provider of cancer and medical insurance in terms of policies in force. This year, in 2024, we celebrate our 50th year of doing business in Japan as we pioneered cancer insurance. Our core business focuses on developing supplemental health policies that consumers need.
These policies help offset rising out-of-pocket expenses not covered by major medical insurance in the U.S. and national healthcare insurance in Japan. For many years, Aflac's strategy in Japan and the U.S. has remained straightforward and consistent in nature. Our policies are designed to pay fixed cash benefits directly to the insureds, regardless of any other insurance that they might have. Because the benefits are fixed in nature at policy assurance rather than open-ended, and the liabilities are not subject to inflation. As time passes, individuals also find the need and to update or enhance our policies or coverage to keep up with inflation in medical treatments or trends not covered by major medical insurance or the current coverage they might have. We also offer voluntary health and life insurance products that complement our core operations, excuse me, and fit the needs of the customers.
Equally important, we want to be where the customer wants to purchase the insurance that they are offered. As a result, we sell policies through multiple distribution channels: our associates, our brokers, other financial services companies with whom we partner. We also sell our policies directly in some cases. Ultimately, this strengthens our field and ultimately, new accounts, sales, and customers. As a supplemental insurer, we sell a promise on a piece of paper, and to the policyholder, we want to be there when they need us most. That's why it's so important that people trust the Aflac brand. That's also why we take pride in being recognized as one of the world's most ethical companies by Ethisphere since its inception 17 years ago. This kind of reputation and recognition highlights our strong, trusted brand, which is the integral part of our strategy that we leverage.
For 24 years in the U.S. and 21 years in Japan, the Aflac Duck has played an important part in building our brand and connecting with consumers and businesses. Today, we continue to leverage our strong brand and the popular Aflac Duck through advertising that educates the audience on the gaps or the financial risks that they face when medical events occur. We believe that the consumers better understands our products, and they'll appreciate the value that we provide to them. This is especially true in the U.S., where people tend to spend less on understanding what their medical insurance actually covers. We also believe people would rather work and do business with companies that have good corporate reputations or good corporate citizens.
In 1995, we established the Aflac Cancer and Blood Disorders Center at Children's Healthcare of Atlanta, that Josh mentioned, and we are the leading provider of cancer insurance in the United States, so we felt like that was a natural fit for us. Since then, the Aflac Duck has also come to represent our fight against childhood cancer by supporting treatment and research. The sales associates, employees, and Aflac families, that Josh mentioned, that we've given $173 million to, to the Aflac Cancer and Blood Disorders Center, which is now the largest pediatric cancer center in America. What is important, though, is of that money that was given, over half of it was donated from our field force on a commission basis, so they too are committed to Aflac and the brand.
In 2001, we established our first Parents House in Japan, specifically in Tokyo, that serves as a home away from home for pediatric patients and their families who are undergoing some type of treatment for cancer or other specific diseases. We then opened a second house in Tokyo, and a third one we opened in Osaka in 2010. Over that time, these three Parents House locations have supported more than 150,000 patients and their families. In 2018, we took our commitment to helping 15,000 children in the U.S. who are diagnosed with cancer each year as a step further, where we introduced what is called My Special Aflac Duck, which we have donated those throughout the United States.
My Special Aflac Duck is not just a comforting, animatronic companion. It helps the young patients feel less alone during their time of treatment. In fact, it won the award for Best in Show at the Consumer Electronics Show in Las Vegas. We have delivered more than 27,000 of these animatronic ducks to children throughout the United States, and it has built a relationship with every major pediatric cancer center in the U.S. Efforts like this, we believe, reinforces the power of the brand and our commitment and purpose as a company, which we take very seriously. Now let me turn to more of the business and talk specifically about Aflac Japan, which celebrates its 50th anniversary and accounts for 60% of Aflac Incorporated's adjusted revenues and 80% of its assets.
As I mentioned earlier, we pioneered cancer insurance in Japan and quickly became the leader. Following deregulation of Japan's insurance industry, we launched a standalone medical product in 2002 and rose to become the number one seller of medical insurance within a year. Today, we are the leading cancer and medical insurance company in Japan, and these third sector products remain the core of Aflac Japan's. Over the last five decades, rising healthcare costs, an aging population, and a declining birth rate have placed an increasing financial strain on both Japan's national healthcare system and its citizens. Because of the rapidly aging population and the higher co-pays and medical expense, the market for the third sector products has steadily grown, and the trend is expected to continue.
To that end, we will continue to refine our product portfolio to introduce innovative new products that our policyholders want and need, and we will sell them to the customers that want to purchase them to maintain the leadership that we have continued to have in the third sector. In August of 2022, Aflac Japan initiated a staged launch of the new cancer product called Wings through our associates. The final stage of the product rollout was last April through Japan Post and Japan Post Insurance, and led to a 25% increase in overall cancer sales last year. This significant contribution to the 10.9% increase in Aflac Japan's overall sales in 2023. Our latest medical insurance is deemed to appeal to younger policyholders' basic needs, and older and existing policyholders who want additional and updated coverage.
While our medical insurance sales were off for the year, they increased 6.6% year-over-year in the fourth quarter, following the introduction of our new medical insurance product in mid-September. While focusing on third sector, Aflac Japan also aims to have a full product lineup to meet the customers' needs during any lifestyle stage. For instance, income support and work leave insurance aim to protect younger policyholders who have to miss work due to serious illness or accident, or short-term hospitalization. Nursing care insurance offers protection to those who are planning ahead for care as they get older. We also offer first sector products like WAYS product and child endowment policies to address the asset-building needs of the young and middle-aged customers in Japan.
Converting younger people to Aflac customers early in life sets up an easier introduction to our third sector products when the need arises. Since the launch of a refreshed WAYS product through the end of 2023, approximately 80% of the sales were to younger people below the age of 50, and the level of non-current third sector sales remain above 50%. While acquiring younger customers is critical to our success, so is being where they want to be to buy insurance. We are continually looking for opportunities to optimize our broad distribution channels of agencies, alliance partners, and banks to help provide financial protection to the Japanese consumers. At the same time, we're working hard to support each channel. More specifically, Aflac Japan is strengthening sales promotion with exclusive and Aflac preferred agencies, which are the mainstay of our business in Japan.
We plan to increase the number of sales representatives, improve productivity, and provide further support and management of large agencies. This includes enhanced training and sharing best practices to strengthen agents' retention, and increase sales. Aflac Japan also is taking steps to expand the market share through large, non-exclusive agencies by strengthening our relationship with these agencies and introducing new products like the revised medical product. As part of the strategic alliance with Japan Post, we continue to offer Japan Post and Japan Post Insurance broad sales support and share best practices. Looking ahead, we expect our product and distribution strategy in Japan to achieve JPY 67 billion-JPY 73 billion of sales by the end of 2026. Let me now highlight Aflac Japan's 2023 performance. As you see, third sector policies made up more than 80% of Aflac Japan's net earned premiums.
In 2023, total adjusted revenues declined 3.6% to nearly JPY 1.5 trillion, largely reflecting the impact of reinsurance and paid up policies. But this was largely offset by a 7.3% decrease in total benefits and adjusted expenses. Pre-tax adjusted earnings increased 6% to nearly 45 billion, excuse me, JPY 457 billion for the year. As a result, Aflac Japan produced an extremely strong profit margin of 30.5%. One of the consistent key contributors to Aflac Japan's strong financial results is its premium persistency, which was 93.4% in 2023. Now, let me turn to the U.S. operation. In the U.S., we enjoyed the number one position in worksite, selling our core supplemental health insurance products. That help protect individuals from the rising out-of-pocket costs that major medical insurance does not cover.
Our individual and group supplemental health insurance products provide employers with more comprehensive benefits solutions to offer their employees. At the same time, these supplemental health insurance products provide policyholders with cash fast when they need it most. This is so important because despite changes in the healthcare environment, no major medical plan, not even the best, is designed to cover all the out-of-pocket expenses that can occur. In fact, half of American workers would not be able to pay more than $1,000 out-of-pocket expenses associated with an unexpected medical cost, according to research. I believe that demonstrates ultimately, that we need the products we offer are as strong or stronger than they have ever been before. Our product portfolio consists largely of critical care, accident and insurance, disability, and hospital indemnity products, such as cancer, that allow us to meet the consumer's needs.
However, Aflac U.S. further strengthened and diversified its product portfolio with Aflac Group Life, Absence Management and Disability, and Aflac Network Dental and Vision Insurance. While these products currently contribute a relatively small part of the sales, we are leveraging these voluntary products to further penetrate accounts, grow revenues, and open opportunities to sell our core supplemental health insurance products. As we communicate the value of our products, we know that the strong brand alone is not enough. We must paint a better picture of how our products help and continue to deliver value to our customers, both employers and employees. I often say that our products are not sold, but bought. Aflac U.S. built its leading position in supplemental health insurance by marketing individual products through agents, primarily at the worksite of small employers, those between three and 100 employees.
We also know that the employment market, consumer habits, and buying preferences happen to evolve over time. As a part of our strategy to be where the customers want to purchase our coverage, Aflac has expanded its reach to larger cases with the addition of 2008, what is now called the Aflac Group. Aflac Group products allow brokers to service larger employers with 100 or more employees who may be located in multi-state areas. In addition, we have direct and digital channels that provide access to Aflac products as buying behavior changes, and to improve access to Aflac. In the U.S., working population is over 159 million people, but only 22% have access to Aflac at the work site. Of those with access to Aflac, 7.2 million actually have an Aflac policy.
With a market-leading position and a 29% market share of the supplemental health insurance market in the work site, we see great growth opportunities for Aflac U.S. We are working with our strategic partners and sales force to increase penetration of the current accounts and provide access to more people at the work site. In addition, our direct and digital distribution gives access to 16.6 million people who are self-employed and 106 million people who do not have access to Aflac today. We continue to execute on the growth strategy to increase penetration and to drive future growth in multi-channel sales force, enabled by the best-in-class customer experience model that you can have. Aflac U.S. also generates solid overall financial results in 2023. Total adjusted revenues increased 2.1% to $6.6 billion.
Decline in total net benefits and claims was slightly offset by the increase in adjusted expenses. Pre-tax adjusted earnings increased 10.4% to an all-time high of $1.5 billion for the year. As a result, Aflac U.S. produced an extremely strong profit margin of 22.7%. As you know, we have focused on increasing persistency to grow profitable earned premium. As a part of this effort, we have been updating our products to ensure our policyholders continue to realize the values that our products provide. We introduced our new Cancer Protection Assurance policy in the second quarter of 2023, and since that time, our cancer insurance sales in the U.S. have increased nearly 25%. We know that when people experience the value of our products, it increases persistency, which benefits our policyholders and ultimately lowers our expenses.
In 2023, Aflac U.S. sales increased 5% to $2,023 million, which was at the lower end of our expected range. I believe that the need for the products and the solutions that we offer is as strong or stronger today than it's ever been in our history. We are confident that the successful execution of our strategy will lead to sales of at least $1.8 billion in the U.S. at the end of 2025. I'd now like to turn the program over to David, who will cover the results about our liquidity, our capital management. David?
Thank you, Dan. So when we consolidate the results of Aflac U.S., Aflac Japan, and our corporate and other segments, Aflac Incorporated delivered very strong earnings for the year. Net earnings per diluted share for 2023 were $7.78. Adjusted earnings per diluted share of $6.23 were the best in company history, despite a weakening yen and the impact of a reinsurance retrocession late in the fourth quarter. We believe that viewing our results, excluding the impact of foreign currency, is the most meaningful way to assess our financial performance, whether the yen has helped or hurt us. We also believe that an analysis of adjusted earnings, a non-GAAP financial measure, is important to understanding Aflac's underlying profitability drivers. And so when adjusting for the impact of the yen, adjusted earnings per diluted share increased 13.4% to $6.43.
For the full year, the average yen-dollar exchange rate was 140.57 versus 130.17 a year ago. Before wrapping up, I'd like to address our ongoing commitment to prudent liquidity and capital management. We have taken proactive steps in recent years to defend our cash flow and deployable capital against a weakening yen. We're pleased with what we've done to hedge our economics exposure to the yen by holding $25.5 billion of unhedged U.S. dollar assets in the Japan General Account, approximately $2.6 billion in foreign currency forwards at the holding company, and $3.7 billion in yen debt. At the end of 2023, we had nearly $2.8 billion at the holding company in liquidity, which was $1 billion over our minimum balance.
As an insurance company, our primary responsibility is to fulfill the promises we make to our policyholders while being responsive to the needs of our shareholders. Our capital position remains strong, and we ended the year with an SMR above 1,100% in Japan, and our combined RBC in the U.S. was above 650%. Our capital ratios demonstrate our commitment to maintaining financial strength on behalf of our policyholders, shareholders, and bondholders, and we intend to continue prudently managing our liquidity and capital to preserve the strength of our capital and cash flows. 2023 also marked 41 consecutive years of dividend increases. We treasure our track record of dividend growth and remain committed to extending it. Last quarter, the board put us on a path to continue this record when it increased the first quarter 2024 dividend 19% to $0.50.
We also remained in the market, repurchasing shares throughout 2023 at the historically high level of $700 million per quarter. We have remained tactical in our approach to share repurchase, deploying that $2.8 billion in capital over the course of the year to repurchase 39 million shares in 2023. Combined with dividends, this means we delivered over $3.8 billion back to shareholders, while also investing in the growth of our business. At the same time, we have maintained our position among companies with the highest return on capital and lowest cost of capital in the industry, and we believe in the underlying strengths of our business and our potential for continued growth in Japan and the U.S. We are well-positioned as we work toward achieving long-term growth, while also ensuring we deliver on our promise to policyholders.
We are proud of what we have accomplished in terms of both our social purpose and financial results, which we have ultimately translated into strong long-term shareholder return. In summary, our objective is to maintain our strong capital position while producing stable earnings and strong cash flows. We believe that in both Japan and the U.S., our market-leading position, powerful brand, strong distribution, and innovative products will provide support toward this objective. As we work toward our objectives and goals, we have confidence in our business model, the fundamental need for our products, and most importantly, the future success of Aflac. Thank you, and we'll now be glad to take questions, Josh.
I'm going to ask questions at the end of your presentation, David. And Dan, you 650% RBC ratio, over 1,000 solvency margin in Japan. I'm gonna add one more, 20% debt to capital leverage. When people, how do you defend your critics who say, "This is a company that's radically overcapitalized?" And I'm not trying to say that in a bad way, but you guys have tons of capital, given your business.
Well, we do.
Why are those the right numbers, and why, why, why such capital adequacy levels?
Well, we've said that we're willing to go down to 400%, but there are so many issues between U.S. and Japan, that we like to have a higher amount of capital to protect us for whatever, because we also have to meet the rules and regulations that fall under the financial services of Japan, and theirs can be sometimes more restrictive. So that's the ultimate reason. But I think if you look, you'll see how fast we've been moving, like the 19% increase in the dividend and the others. We're trying to find ways to move the capital in that position. But you know, you go back and you look at some of the issues that we've had over a period of time, and because we're bringing it from one to the other, that's the reason.
Yeah, and I, I would add to that, Josh, that, working that combined RBC down to 400% is really going to be, driven by growth of the new business in the U.S. It's not, looking to extract capital out. So really, you know, as we grow dental and vision, as we grow group life and disability, along with the supplemental core products that we offer, that's what that's going to be driven by. And remember, too, we're preparing for a new ESR in Japan, so, we'll be working on that transition for, 2025.
That's a good pivot, given the growth. New premium sales were up 5% in the U.S. and 11% in Japan this year. I mean, there's some rebasing coming out of the pandemic, I realize that's driving b ut it's obviously much stronger than it's been in the past. Maybe cancer sales in the U.S. are possibly driving that. What's driving the growth, and what's the outlook that investors should think about, given the strong growth in 2023?
Well, in Japan, I think our number was JPY 67 billion-JPY 73 billion is what we look to produce in, in 20, let's see, it would be,
26
2026. And the one thing about that is we set that number in 2021 of JPY 80 billion, and we backed off of it a little bit because at the time we had no idea, because we were in that early rounds of the pandemic, how long it would last, but people were pushing us, and so we felt obligated to go out. In Japan, actually, the pandemic lasted one year longer, and so it affected us more. In the United States, what we said is we would do $1.8 billion by the end of 2025, and that's about a 5% increase per year, to give you an idea.
Switching gears to another issue. There's been, you know, some rumblings in Washington, D.C. about wanting to shorten the maximum duration of short-term disability contracts and whatnot. It may or may not affect the products that Aflac sells. I haven't heard so much about it in the last six months, but maybe there is some progress from Washington, D.C., we call it progress. What's the risks, and you've been to this rodeo a few times.
Yeah
I suppose, so what would you have to think about there?
You should always think in terms of Washington, D.C., that there's a group there that wants to constantly disrupt or change business. I had an opportunity to meet with the Secretary of Labor about four weeks ago concerning this issue, and they were very interested in our comments, and I think we're well positioned in that. On Friday night, I'm sorry, Sunday night, just a few nights ago, I had a party and fundraiser for our congressman, who is on the Democratic side, and, as they call him, the leader of the House of Representatives, Jeffries, Congressman Jeffries was there, and we had an opportunity to talk to him.
We also, because of being in South Carolina, Jim Clyburn, so on the Democratic side, which this is really coming as a regulation, not as a law, we feel like we've got to contact people through the Democratic side in doing that, and we think we're getting our point across. Both Congressman Clyburn and many others have written letters on our behalf expressing an understanding of why. What they're trying to do is there's some policies that are being sold that we agree with or are at issue to where they try to look like major medical insurance, and they're not. We say we're supplemental. We point out these things, and we don't have a problem, but the point is well taken.
There's always somebody trying to do something in Washington, D.C. that you have to be very careful. So that's very important to me and one of the things I do a lot of.
This would be going through the executive channel, not through the legislative channel, if that everything happens?
What? Yes, that's correct.
Okay. And in terms of, you know, competitors, one, you know, you can decline to speak, but one of your competitors has announced to sell their health and benefits business that goes through small businesses, Allstate. Does that asset in the hands of a competitor compete with you in a way that it's not currently in the market? Do you see that competition? Is that a competition for Aflac?
Everybody's a competitor that's gonna be in the business, you know, and what I would tell you is, if you go back to 2001, a lot of people thought in Japan we were gonna be put out of business when deregulation occurred. Instead of being put out of business, we became the number one seller of not only cancer, but we took over the medical market. So with change comes opportunity, and so how you change and what you do is very important. And so, you know, what will happen with this company? I have no idea. Do I think that Allstate's a good competitor? Yes, I think they are.
Mm.
So I don't worry any more so than anyone else. But there different things will happen, and we'll just have to look at it, as it goes along and watch it accordingly.
Well, we have hit the time limit. I really appreciate both Dave and Dan. Thank you for being here. Everyone, give them a hand, and they are available for meetings if you have a meeting with them later today, and it's been really a pleasure.
Oh, well, listen.
Thank you.
Thank you.
Thanks.
Thank you.