Chairman and CEO of Aflac. When it comes to long-term track records, it's hard to match Aflac, Dan's actually been the second longest tenured CEO in the Fortune 200. That's a long-term track record. Aflac's been one of the most recognizable brand names in the U.S. In fact, just this morning, my TV was on mute, CNBC, I looked up, there was a duck doing yoga, and it was your duck. In Japan, the company insures one out of every four households, great position there as well. The company announced fourth quarter results earlier this month. This is a great chance for us to hear from Dan.
Well, thank you. Good morning, everyone. It's a pleasure to be here. Today, I'd like to tell you about Aflac's strategy, our operations, our most recent performance, and how we plan to return capital to the shareholders. Before I begin, let me remind you that some of the statements in this presentation are forward-looking within the meaning of the federal securities law. Although we believe these statements are reasonable, we can give no assurance that they will prove to be accurate because they're prospective in nature. Please look at the annual report or the Form 10-K for some of the risk factors that could cause actual results to differ materially from those that we discuss today. Our fourth quarter 2018 earnings release is available on the investor page at aflac.com and also includes a reconciliation of certain non-GAAP measures.
We also encourage you to look at the appendix at the end of the presentation, which will likewise be posted on the investor page of aflac.com for more on the non-GAAP and forward-looking information. Let me talk about Aflac a little bit. Aflac operates in two of the largest insurance markets in the world, Japan and the United States. Our policies cover more than 50 million people. Our strategies in Japan and the United States has remained straightforward and consistent for many years. Aflac develops insurance products that consumers want and need and sells them through expanded distribution channels that yield new accounts and new customers. Aflac's products provide a layer of financial protection against loss of income and asset based on qualifying health events. Aflac products pays benefits directly into the insured regardless of any other insurance that they might have.
Because the benefits are fixed rather than open-ended, they are not subject to inflation. Aflac's operations in Japan account for about three-quarters of the pre-tax insurance earnings. Today, we insure one out of four households in Japan and are the leading provider of medical and cancer insurance there. Aflac has been operating in Japan since 1974, we are the pioneer of cancer insurance in Japan. Ever since then, the foundation of our product portfolio has been, and continues to be, the third sector products. The third sector product category primarily includes the pioneering of cancer insurance, medical insurance, and most recently, Income Support Insurance. These products help our policyholders with out-of-pocket expenses that are not covered by the National Health Insurance system. To remain in step with consumers' wants and needs, Aflac Japan has established a history of developing and revising innovative products.
These products help relieve the burden related to the changes in Japan's National Health Insurance system. To build on this history while we're also delivering sustainable growth, we will continue to introduce new and updated products to the third sector insurance market. A recent example of Aflac Japan's most recent products is in February of 2017, we introduced a revised EVER Medical product, which responded to what consumers were telling us that they needed. Under the revised EVER product, policyholders receive a one-time payment for hospitalization in addition to their per-day payments. The new EVER also introduced a rider for surgical procedures for women, and it strengthened its outpatient coverage as we're seeing it used more and more. Another example was the introduction of our Income Support Insurance in July of 2016, which advanced the development of a new market in the third sector.
Income Support Insurance provides a fixed benefit in the event the policyholder becomes unable to work due to significant injury or illness. This product was developed to supplement the disability coverage provided by Japan's Social Security system. This product targets young to middle-aged consumers ranging in the age from 20 to 40, a segment of the population which we believe is under-penetrated. By focusing on our efforts on this demographic, we believe that we're building relationships that lay the groundwork for the sale of cancer and medical insurance later in life. We believe this product has the potential to gradually develop into a new pillar of a product for us for the long term. We also offer first sector products, including life insurance. Our group first sector product into two specific categories, savings type products and protection type products.
Savings type products, such as WAYS and Child Endowment, are products that primarily offer income benefits and cash surrender values. Protection type products, like term life, are more similar to the third sector products, such as our cancer and our medical insurance, and are the type of first sector products we mainly want to focus on. They provide a layer of protection rather than income benefit. At Aflac Japan, we have enhanced and expanded our distribution network to provide more opportunities to be where the customer wants to purchase insurance products. Our traditional channels, which include approximately 12,000 agencies, has been and will continue to play a key part of our success. Additionally, our strategic alliance with the Japan Post Group, Dai-ichi Life, and Daido Life continue to strengthen and evolve.
For example, more than 20,000 post offices sell Aflac's cancer insurance nationwide, and Japan Post Insurance offers our cancer products through the 76 branches that they have. Additionally, we have nearly 40,000 Dai-ichi Life sales representatives who offer cancer insurance products. Banks also allow Aflac Japan additional avenues to reach consumers and offer products in the place consumers want to buy them. At the end of 2017, Aflac Japan was represented by 372 banks, which is nearly 90% of the banks in Japan. These banks offer a broad range of financial services, including selling Aflac's protection type insurance, such as cancer, medical, and Income Support products. To support our presence in Japan, Aflac has established a powerful and trusted brand. We continually seek opportunities to leverage that strong brand and a highly regarded reputation through innovative advertising campaigns in an effort to drive sales.
In 2003, Aflac Japan began using the Aflac Duck, and its popularity continues to connect with consumers today. On an ongoing basis, Aflac Japan has seized opportunities to create separate and unique offshoot characters that interact with the Aflac Duck to market specific products and help drive sales. It is hard for us as Americans to relate to some of the silly advertising, but let me tell you, it works and it works big. In 2016, we launched a commercial that promotes our new Income Support Insurance by pairing two Japanese celebrities, a male actor and a female comedian, and they are both very popular with consumers in their 20s and 30s, the group that we're trying to reach. Additionally, to promote cancer insurance products to younger demographics, we introduced a series of claimant commercials in 2017.
These commercials tell a story of a 35-year-old long distance runner who is also a claimant and a cancer survivor. His message is very moving, and he thanks Aflac for allowing him to focus on his recovery rather than his financial worries. By leveraging the popularity of the Aflac Duck and different characters over the years, about nine out of 10 Japanese now recognize the Aflac brand. Now let me update you on Aflac Japan's outlook and performance. Our sales target is aligned with our focus on Aflac Japan's third sector products. We were pleased that our third sector sales increased by 4.1% in 2017. As I mentioned earlier, sales benefited through the year from the introduction of the revised EVER medical product last February.
Looking ahead, Aflac Japan's focus will remain on selling third sector products along with the first sector protection products, both of which are less interest rate sensitive and have strong and stable profit margins. As I mentioned during the outlook call, we expect the third sector sales to be down in the first half of the year. This is especially true in the first quarter, recognizing we introduced our EVER product in the first quarter of 2017, driving sales up 7.6%. As we prepare for the Japan conversion and a delayed product introduction until the second quarter, we believe that the third sector sales could be down in the high single digit for the first quarter of this year. However, we expect strong recovery in sales as the year proceeds consistent with our December outlook call guidance that we gave you.
Aflac Japan's 2017 premium income, net of reinsurance, was slightly down for the year. The third sector increase was more than offset by the anticipated reduction in the first sector premium due to the savings products that reached paid-up status. Operating revenues were stable. The benefit ratio declined during the business mix, but was within the range we provided on the outlook call. As anticipated, the expense ratio was elevated due in part to lower premium income and reflecting our investment back into the business. The pre-tax profit margins improved slightly. While Japan's population is recovered by National Health Insurance, citizens still have significant out-of-pocket costs associated with healthcare. As such, we believe this provides a natural catalyst for future growth. Over the last four decades, Japan's consumers have seen their healthcare costs increase amid an aging population and a declining birth rate.
This has put the National Health Insurance system under increasing financial strain. Consumers have been required to pay more out-of-pocket expenses than ever before. The increase in the medical expenses is projected to significantly outpace the GNP growth in Japan. Because of the rapidly aging population and the higher co-payments for medical expenses, the market for third sector products has been steadily growing, a trend that we expect to continue. Now let me turn to the U.S. operations. Aflac is the number one provider of voluntary insurance in the work site in the United States, where about 97% of the products are sold on a payroll deduction basis. Our portfolio of individual and group insurance products provide consumers with outstanding value. We offer businesses of all sizes the opportunity to provide employees a more valuable and comprehensive selection of benefit solutions.
Employers have continued to shift the cost to the workers in the form of higher premiums, deductibles, and cost sharing. In fact, according to the 2017 Kaiser Annual Survey of Employer-Sponsored Health Benefits, as companies have sought to keep premiums in check, deductibles have nearly doubled since 2010. In addition to the actions taken by the employers, it's important to understand that Americans challenged to meet the increasing burden of the healthcare cost. According to the 2017 research conducted by Lighthouse, employees continue to face challenges related to rising healthcare costs and general feelings of financial insecurity. In fact, nearly half of the employees are not prepared to pay out-of-pocket expenses in the event of an unexpected illness or accident today.
Furthermore, 65%, or roughly two-thirds of those surveyed, responded that they have less than $1,000 to pay out-of-pocket expenses associated with an unexpected serious illness or accident that could occur today. Most worrisome is that they also report that they're avoiding going to doctors because of the high medical cost. It is within this landscape that we believe consumers and employers will increasingly see the need for the financial protection that Aflac's products offer. Despite changes in the healthcare environment, one constant continues to be the need for our products. One reason is that there is no major medical plan, not even the best, that is designed to pay all of the out-of-pocket expenses. Aflac has a sales agency force that drives 63% of Aflac's U.S. annualized premium sales.
Although brokers have more than doubled since 2009, the broker channel still represents only about 35% of our total U.S. sales in 2017. This dynamic is very unique to the market, as many of our competitors have an inverse relationship between brokers and agents, some more than 70% selling through the broker relationship. While our broker sales are keeping pace with or are slightly ahead of the market, our distribution mix is the greatest asset on the long term for us. We are optimistic based on the indicators that we like to see a consistent performance before declaring any new trends on this. As in Japan, the Aflac brand is an important aspect of our strategy. About nine out of people in the U.S. recognize the name. Aflac's established brand has served as an effective door-opener and as a catalyst for many consumers and payroll deduction accounts.
You may have caught a glimpse of the Aflac Duck in many of his adventures throughout the U.S., and you're going to be seeing him more. With our feathered friend continuing to find himself in new situations, we think that we'll do a great job of drawing attention to the need for Aflac's products. He also has a compassionate side as a spokesperson for the Aflac Cancer Center at Children's Healthcare of Atlanta. Additionally, our groundbreaking initiative of One Day Pay further enhances our brand and highlights Aflac's commitment to paying claims fast. Through One Day Pay, we actually process, approve, and pay an eligible claim in just one day. We estimate that approximately 80% of the policyholders can use One Day Pay for their claims. In 2017, 100% of approximately 2.1 million claims submitted in One Day Pay were paid in one day.
Most importantly, over 90% of our policyholders that used One Day Pay said they are likely to refer other people to Aflac, and I believe that is certainly something that we should look to that will help sales as we move forward. Looking ahead, we will continue to leverage our market leading initiative like One Day Pay that are designed to own the customer experience and further enhance customer satisfaction. We believe this will continue to boost our strong brand and set us apart from the competition. Turning to the U.S. operation, we are pleased with the sales results, the financial performance, and the strong profitability of Aflac U.S. in 2017. Our sales results reflect our focus on growth strategy we implemented in both our sales agents and our broker channel.
As we look ahead, we anticipate growth in earned premium to be around 2%-3% and new annualized sales growth to be in the 3%-5% range. As you can see, both net premium and operating revenues were up this year over last year. The benefit ratio improved, and we anticipate our expense ratio was elevated, reflecting on our investment back into our business. The profit margin improved slightly, but essentially was flat. As shifts in demographics occur, Aflac is shifting as well. Our primary focus has been on the worksite, specifically in the private sector. We now view it a bit differently as we look toward the future. As we look at the top line of this chart, which represents the entire U.S. workforce population, 171 million workers, we must consider the opportunity in the self-employed, the public, and the private sectors.
We see our growth coming from a few areas of opportunities. Increasing access and penetration in the public and private sector employer groups, many who already offer Aflac. Reaching the non-traditional workforce, which represents about 24 million entrepreneurs and it's growing. Continuing programs to retain our existing business. When you consider that a little over 7 million individuals have Aflac's coverage out of the 47.5 million who have access to it through the workplace or the employer, that represents a tremendous opportunity for us at Aflac. Despite the ongoing discussions of changes to the healthcare legislation, we believe that Aflac U.S. has the opportunity to emerge better positioned from the ever-evolving healthcare environment. Like National Health Insurance in Japan, we believe that the trend toward more uniform coverage will initiate a better understanding of and an appreciation for Aflac's products.
Our traditional focus has been on payroll accounts with fewer than 100 employees, and our individual sales agents are best positioned to serve that segment. We also believe the strategy for working with local, regional, and national brokers will better position Aflac in the businesses with 100 and more employees. I will spend the last portion of my discussion updating you on the consolidated financial performance and our capital management activities. Aflac Incorporated has a long history of developing strong financial performance in the face of fluctuating yen. Due to the significant contributions of Aflac Japan's operations overall earnings, a weaker yen suppresses Aflac Incorporated's results as reported in dollars, while a stronger yen magnifies its results. Aflac's currency exposure is primarily translation related as opposed to transaction currency related.
We believe that viewing our results excluding the impact of foreign currency is the best and most meaningful way to assess our financial performance, whether it helps us with the yen or hurts us with the yen. Our continued focus on capital ratios demonstrates our commitment to maintaining financial strength, flexibility on behalf of our policyholders, shareholders, and bondholders. Represented here are two capital adequacy ratios required by regulators, RBC in the U.S. and SMR in Japan. We estimate that the risk-based capital, or RBC, at the end of 2017 remains high at approximately 850. Additionally, our capital and liquidity positions in Japan remain strong. We estimate that the solvency margin ratio, or SMR, was around 1,000 at the end of 2017.
We believe that an analysis of operating earnings on a non-GAAP financial measure is important to the understanding of Aflac's underlying profitability drivers. Aflac defines operating earnings as the profits derived from operations, including cash flows associated with notes payable, but before realized investment gains and losses from security transactions, impairments, and derivative and foreign currency activities, as well as other non-recurring items. In addition, we exclude from our definition cost associated with our announced Japan branch to a subsidiary conversion project, which is expected to conclude as early as April 2nd, 2018, the first day of business in Japan for the fiscal year. On an operating basis, we have a long history of producing solid earnings growth. You probably saw that on Tuesday, Aflac Incorporated board of directors approved a two-for-one stock split facilitated through the stock dividend on Tuesday. I am pleased with the board's decision.
As you will recall, the split follows a year of strong share price performance and is on top of our announcement of the board's actions to approve an increase in the first quarter cash dividend by 15.6%. This is the ninth split of the company's common stock since listing on the New York Stock Exchange in 1974 and the first split in 17 years. Excluding the impact of the items I mentioned previously and reflecting on the stock split, 2017 earnings per share increase is 6.3%, driven by solid overall margins in both the United States and in Japan. Now, I know the importance you place on capital deployment and financial soundness, so I will provide some details. As we have communicated, we have been and will continue to be very disciplined in evaluating capital deployment within the sound risk framework.
We view our primary capital deployment options as dividends, share repurchase, and enhancing organic growth, including dividends, share repurchase, and returning more than $2 billion to the shareholders in 2017. It goes without saying that we treasure our 35-year record of dividend growth. I am pleased that the board decided to increase the dividend by 15.6% effective the first quarter of 2018. This after a traditional increase in the fourth quarter. While the board reserves the right to look at the dividend on a quarterly basis, we plan to shift the dividend increase to the first quarter cycle. With tax reform driving an increased level of earnings and cash flow, our dividend reset is primarily driven by, one, the overall capital position, the outlook for stable earnings growth, and the balanced approach of returning capital back to the shareholders.
We will continue to strike the right balance of investing in growth, repurchasing our stock, and continuing our long record of dividend growth. We expect to deploy in capital in the range of $1.9 billion-$2.2 billion of shares in 2018. This includes $1.1 billion-$1.4 billion of share repurchase, of course. This assumes share repurchase remains optimal use of excess deployment capital in driving long-term shareholder value. Our focus remains on maintaining the solid fundamentals in our core business and building on our record of earnings growth. For 2018, our objective on a split adjusted basis is to produce operating earnings on a diluted basis of $3.72-$3.88, assuming an average yen of 112.16. This slide shows how 2018 earnings might look at various currency scenarios.
We estimate that for every one yen move in the average annual exchange rate will have an impact between $0.015-$0.02 per share on earnings. Objective in 2018 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, our powerful brand, our strong distribution, and our innovative products will provide support toward this objective. As we work toward our objective 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 now I'll be glad to take any questions you might have.
Dan, I'll throw out a couple for you.
All right.
The first is in Japan. Can you talk about the competitive environment in the third sector products?
Sure. I'll be glad to. As you said, I go way back, I can remember in 2001 when we were the only one in the cancer insurance market, all the big life insurance companies were going to get in the business in the third sector. Everyone thought, "They're going to put us out of business." That was the word on the street. Of course, we had all of them get in it, Nippon Life, some of the others. We happened to cut a deal with Dai-ichi Life, others did get in it, they found it wasn't as easy as they thought. Our operating expense ratio was lower. It was very hard for others to get in, basically they all pulled back. Today, we own the cancer insurance market in one way or another.
Others do sell some of it is really not their product. The shocker with deregulation was no one ever dreamed that Aflac would come forward and be the leader in medical insurance, which we took over. Medical insurance is a much more competitive market, we do run into a lot of competition with that, we are still the leader in medical insurance in Japan today. I think what it shows is that we as a company have to constantly be on top of products constantly revise our products. Don't forget, we have to revise products because there's nothing in there for inflation. The good news is, because our products are indemnity in nature, they're set, you revise products periodically to give higher benefits, we don't have rate increases that are required. It makes a real difference for us.
Staying on top of the game is very important for us. The answer is, we have always had competition since 2001, we think that our track record has shown that we're continuing to grow the business. We don't take any competitor for granted. We always understand. Excuse me. The regulators in Japan are very focused on making sure all companies are solvent. They're much more concerned about the solvency than they are the products, because they want to make sure those products are profitable enough because they had an issue a few years ago, well, now it's been 10 years ago, where companies were in major trouble. That's another thing. Whereas the U.S., that's not as big a concern, and you see that a little bit more with people being very aggressive.
They tend to be a little bit more conservative. I feel good about our position. I don't take it for granted. I think the key is continued expansion of the distribution channels as we've done, and continue to work with our agents, and grow that business, and I expect to have a good year, especially second half of 2018.
You guess that market's always competitive. There's no big change. You guys obviously still have that leadership position.
That's correct.
Just about a minute left. Why don't we end it here? I know you've got a long day.
Okay.
Everyone, join me in thanking Dan, please.