We'll go ahead and get started here. We're very excited to have Aflac's CFO, Fred Crawford, with us today. Aflac is a supplemental in health and life insurance provider operating in both the U.S. and Japan. Part of the appeal of Aflac is a strong return on equity profile over a multi-year period, and the steady nature of its earnings during that time. There are also some moving pieces right now as it relates to the business mix, investment strategy, corporate structure, and some of the capital allocation. We're very happy to have Fred here. First, I'd like to say thanks.
Thank you, Alex. Thank you.
Maybe we could start with the business mix shift that's occurring in Japan, just given the rate situation there and some of the choices to pull back in first sector products. Can you just discuss some of the plans, I guess, around what you described as the Vision 2024 at the financial analyst briefing, and particularly some of the areas in third sector accident and health where you'd expect expansion?
Sure. First, stepping back a bit, it's a very straightforward, I think, and somewhat logical, I hope you'd find logical strategy, that is, in Japan, we have occupied obviously significant market share and leading market share on the third sector side, which is predominantly cancer and medical insurance. Then the first sector side really should be looked at as 2 different types of product sets. One being savings-oriented products, where it's a life insurance type product but has a savings orientation to it. Those products can be very sensitive to the interest rate environment and your investment strategy playing out as you anticipate.
The other portion of that first sector marketplace is really what we characterize as first sector protection products, which are different in that they're good old-fashioned, largely mortality-driven products, they're not insensitive to rates and investments. They're far less sensitive. The other dynamic that has taken place on first sector savings products in Japan, savings products is along with the interest rate environment, the reserving requirements on those products as interest rates move lower are quite substantial. What happens is when it comes time to looking at really allocating your capital and growing your business, the internal rates of return, if you will, on first sector savings products in JPY are not attractive. They're not attractive to us as a company. They're not attractive, obviously, to our shareholders.
Interestingly enough, not surprisingly, when you reprice them, they're not particularly attractive to the consumer in Japan either. We made the decision to pull back on those dramatically. In doing so, that's not particularly GAAP friendly, I would tell you. Meaning you obviously have a bit of a pullback in revenue on a GAAP basis. You've got to work through your expenses and so forth and work through a period of what effectively is a quasi runoff or rundown of that business over time. There's benefits to it, and that is it drives more cash flow over time. You'll start to see increased cash flow as you're allocating less capital to that type of a business, both commission-wise as well as reserve-wise.
I say this because it then leads into this Vision 2024 and your third sector question, because in many respects what we're doing is quite simple, and that is we are reallocating our capital away from poor returning and higher risk profile savings products, particularly when you sell these products through mega banks, where you're spreadsheeted on top of everything else, towards third sector, where we've got the scale, the dominant position, and most importantly, a great risk-adjusted return on the product. Shifting our weight back into the heavy focus on third sector, of course, we're a leading cancer and medical insurance provider in Japan. The real mission there is continue to freshen your products. You'll see us typically in an every other year type pattern that's not automatic. You'll see us freshen the third sector products. That's a big deal.
That actually is a fairly good investment to redesign and keep your products fresh, particularly when you're a market leader. I get asked from time to time, what does that mean, keeping your products fresh? What it means is keeping pace with advancements in medical technology treatment, particularly related to, say, outpatient treatment. As you all know, both here in the U.S. and in Japan, there's been significant advances in medical treatment around cancer in particular, where we're the dominant player. We want our coverages to keep pace with that. Different forms of therapy now that are applied to cancer patients, early detection, and insurance that covers certain early detection type services for your policyholders. These would be examples of how you freshen your products periodically. With that, we continue to maintain our leading position.
Beyond that, though, you need to think about the broadening of your third sector portfolio. You asked me about new areas. Most recently, we've moved into an income benefit product, which shouldn't be confused with what you may be used to hearing on the annuity side with income benefits. This is really more of a supplemental disability product in Japan. The key word there is the notion of supplemental. Okay. It should not be confused with traditional disability type products in the U.S. This is really something that layers on top of the government's disability program through their Social Security system, and it simply offers a GAAP insurance product. That's very important because the risk profile of the product and the sensitivity of the product to morbidity dynamics and work-related issues or back-to-work related issues is far different than in the U.S.
Some of that having to do with the culture of Japan, where the culture of Japan is such that there's a heavy desire to get back to work as soon as possible. In fact, the bigger risk in Japan is people who go back to work too early before they're fully healthy, and move off a disability too early. Different risk profile, and we're hoping to grow that business. We do look at other forms of coverage, but the one common denominator to always keep in mind is they're typically playing off of what already is offered by the government, if you will, and the government health system.
That's important because you end up entering the situation with a whole lot of data on loss experience and policyholder experience just through the Ministry of Health, and various amounts of data that are out there, and that helps us keep the risk profile good.
Interesting. In terms of the distribution in Japan, and in particular, some of the investment that's being made around alternative distribution and digital, next, can you just talk about how you'd expect that to evolve between sort of the strategic partnerships versus some of those avenues?
Sure. Distribution in Japan, this is where it's actually quite different than where we're currently situated in the U.S., and that is we have quite a broad and varied level of distribution outlets in Japan. We sell through traditional agencies, both exclusive agencies and non-exclusive agencies in Japan, and that's a big portion of what we do. We sell through banks. You tend to think of the mega banks, the very large banks in Japan, such as Mizuho and others. The vast majority of banks that we sell through are called Shinkin banks or small neighborhood banks. In fact, we have roughly 380-390 banking relationships in Japan.
You would say to yourself, "Are there 380, 390 banks in Japan?" There are, but the vast majority of them are very small neighborhood banks that serve a very close radius, and they do business with really what I would call middle-market Japan consumers. We have oftentimes exclusive relationships selling through those types of banks, which is very important because they're interested in protection type products, health-related products, not so much in any sort of wealth-related sale of a product, and that fits us very nicely. Then we of course have alliances, to your point. The most prominent alliance, as you all are aware of, or many of you are aware of, is Japan Post, where we sell cancer insurance through upwards of 20,000 post offices throughout Japan, and that's been a very successful alliance.
We also have a very strong alliance with Dai-ichi, selling once again cancer product through their system. Alliances are always part of our playbook. I would tell you, we periodically have opportunities to discuss alliances of various forms, as a company, and we always weigh in and try to understand whether it's in our best interest or not. Our analysis is very simple, and that is, we want to understand that there's a balance between what the partner receives in the way of the alliance and of course what we expect to achieve. We also want to be very careful and controlling of our brand identity, and our reputation in Japan. Reputation and brand identity in Japan is table stakes for any financial services company.
When you choose to enter into an alliance, you do it very carefully and you do it with very strong players, good examples being Japan Post and Dai-ichi. On the digital side, the digital side is really more of the newer frontier for us. First of all, understand that direct sale insurance in Japan is not at the moment, particularly in the third sector space, is not at the moment a big portion of the marketplace. I think it's low single digits is the market share. We expect, as you would imagine, we'd expect it to grow and build over time. As a leader in that market, we've got to be out in front of it and really driving the direct or digital base sale of product.
Essentially what we like about that is not just this notion of either mobile or online paperless delivery of a medical product. What we actually really like about it is that it brings into play a different demographic. We don't have what I would call an old demographic, but we have an older demographic because, naturally, cancer insurance, medical insurance for you and your family starts to become much more of an issue or attractive product as you get older, build a family, and are looking to protect your savings, your wealth, et cetera. That we think has opportunity for two things. One, the actual sale itself, of course, of a product. This would be a medical product that also potentially adjusts, for example, with your health conditions and remaining in good health and exercising and so forth.
Also it acts as lead generation because these are the same consumers that are going to graduate or mature into your other products. Preferably, we'd like to take a Japanese consumer through their life cycle all the way up to even supplemental nursing care type products, which are in the marketplace and are available. We're not a player in that. You want to kind of measure three times and cut one on products like that due to the potential risk. Once again, as I said, even those types of products are supplemental and should not be confused with the traditional risk you might see in other types of conventional longer term care type products. They don't really relate to each other. Very different risk profile. If we can carry the consumer through the life cycle, that's a big deal.
Digital is lead generation as much as it is sales.
Maybe you mentioned cash flow briefly. Can we just go back to that and thinking about some of the reserve redundancy that's maybe more prevalent in Japan than in other jurisdictions on some of these products and some of the runoff for first sector, the shift to-
third sector, maybe even five pay WAYS kind of reaching paid-up status, releasing some of the reserve redundancy. At what point do we kind of hit an inflection or start to see more acceleration and kind of cash flow as a percentage of GAAP operating earnings?
Yeah. What I would say first and foremost is, as we look at the potential pattern, because you do some of this work as part of your natural gross premium valuation and cash flow testing work. You've got an idea of a forward pattern on how these reserves get released eventually and how you see lift in your cash flow. It doesn't come in through what I would call an inflection point. Here's a few things. The general lift you'll see is in what we would call your FSA earnings. You can think of it, the U.S. terminology, it would be your statutory earnings, and that is substantially similar to the cash flow generation capability of the company. In fact, we bring back cash flow from Japan based on a percentage of FSA earnings. We tend to repatriate about 80% of our FSA earnings.
The lift we're seeing in FSA earnings from pulling back in first sector savings product is in the, essentially low and progressing towards the mid-single-digit % increase, a 3%-5% type increase in FSA earnings. You have to hold all else equal because there's certain elements of volatility that can come into play with those FSA earnings. Most of that volatility related to our investment strategy, where we have a U.S. dollar portfolio, some of which is hedged, some of which is unhedged. While yielding better returns, it could also introduce some volatility into your FSA earnings. We obviously try to calm that down, and we calm that down through hedging. Nevertheless, setting that aside, you'll see some lift in it. The paid-up policy issue is a bit of a different matter. That is a policy that's on our books. It reaches paid-up status for claims.
It hurts your revenue or your earned premium because that premium then falls off. You'll see a decline in revenue. It isn't necessarily the case, in fact, it isn't the case, that at that time, you're all of a sudden releasing reserves and generating capital. Don't confuse the paid-up policy, which is an inflection point that will slow down over the next two years, with this notion of ongoing capital release, which is much more of a smooth and growing dynamic.
Okay, thanks. Could you discuss the margin in Japan and sort of the strategy around investing in U.S. dollar-denominated assets, and how you think about sort of the amount of capital you have to hold against that versus the benefit you get from investing in USD?
Yeah. The basic concept of maintaining a portion of your investment portfolio in Japan in U.S. dollars is first, even after hedging it, so with hedge costs included, it is a much better long-term return than current JGB or yen-based investment, whether it be JGBs, yen corporates. There is a mortgage-backed market in Japan. All of them, and even the private market that we used to be in in a bigger way, but still do some privates that are essentially denominated in yen, all of these are very low-yielding securities. They serve a very important purpose in that they're in yen. They back your liabilities and capital needs to the degree you need that in yen, which of course you do. There's ALM and capital benefits associated with having yen.
The U.S. dollar portfolio provides a way, even after hedged, to enhance that return over the long term. We do that. Once you have a U.S. dollar portfolio, you have a decision to make, and that is how much of it do you want to hedge? What ends up being the basis of that decision is in theory or in, frankly, in actuarial estimates, there's a portion of the equity and frankly, the surplus that is in Japan that you could argue should and could remain in dollars, and dollars indefinitely because that is ultimately owned, if you will, by the parent company and its shareholders who deal in dollars. It comes back to us, in fact, over time, potentially in dollars, at least in part, as you move money out of or move excess capital out of Japan.
That requires a lot of science and requires heavy stress testing. You would never be able to size it without first stress testing it. We made a decision to find the right balance between hedging the U.S. dollars for lowering volatility, safety, and security of our SMR and capital ratios, and making sure we're on the same page with the regulatory community in Japan, the FSA, who, of course, wants to see us have ample yen for policyholders. This economic notion under stress conditions of having the ability to hold dollars and hold dollars indefinitely. If we, for example, hedge a U.S. dollar only to find later on 10, 20, 30 years, we could have or should have had that as a dollar, you then have had hedge costs and hedge variability without not necessarily needing it, right?
We make those balancing decisions, and it's an optimization model. There's no free lunch. If you unhedge more dollars, that requires more capital to support it. Why? Because of the volatility to your SMR ratio. What we did here coming into this next year is we made a fundamental highest and best use of our excess capital decision. That decision was to essentially park, if you will, JPY 60 billion, or roughly, let's say, $550 million of additional capital in Japan, and therefore lowering or allowing us to lower our hedge ratio on the U.S. dollar portfolio by approximately 10%, moving it from roughly a 50% hedge ratio to 40%. That's a return on capital decision and to some degree, a risk management decision, right?
Again, if that dollar doesn't ultimately need to be in JPY, I don't want to necessarily be taking the risk of gains and losses on hedging. Okay? It's a risk management and a return on capital decision that we think makes sense, and we're trying to strike that right balance.
Thanks. Maybe shifting to the branch conversion that you guys have talked about, and you've discussed some of the excess in the U.S. that's released by that, I think there's also been some commentary that as you settle into the new structure, there can be potential opportunities for optimization of capital structure, cash flow. Just wondering if you could provide your updated thinking on some of that.
Yeah. I was in a day of meetings yesterday here in our converted hotel room with investors throughout the day. I would say probably one of the most common questions I received was, do you really need to run your U.S. company at 500% RBC? The reason I get that question is for a very good reason, and that is, I believe those who follow Aflac and understand what our U.S.-only business looks like, it's actually you'd be very hard-pressed to find a U.S.-based insurance company that has a lower risk profile than Aflac U.S. Very simply, you have never seen, or at least you haven't in 40 years, seen something called Aflac U.S. for statutory purposes. Why? Because our Japan operation has been a branch of that U.S. legal entity. Therefore, our U.S.
operations owned one of the world's largest financial service branches located in Japan. Now that we do the branch conversion to subsidiary, you end up unstacking those legal entities, and you now for the first time in 40 years see a clean and pure statutory Blue Book in Japan with an actual risk-based capital and statutory earnings that is about our U.S.-only business. Okay? When you do that, we have an ability to bring the risk-based capital in the U.S., believe it or not, that has traveled as high as 1,000% or higher down to around 500%, and we're doing that over a three-year period. A question I've received, or two questions. One, why are you taking three years to do that? Two, why 500%?
On the first question, the why three years to do it is because this is not an insignificant amount of capital to walk into your regulator or rating agency and talk about. In fact, we are fundamentally moving $1.7 billion, not quite, but almost half the capital in our U.S.-only business out and up to the holding company for better usage, right? Either shifting some of that capital to Japan to lower a hedge ratio or finding ways to economically return that capital back to our shareholders or invest it at attractive returns. That's a lot of capital to move. In fact, two of the years we move that excess capital, we're actually needing an extraordinary dividend from the Nebraska Department of Insurance to move that capital.
You want to be very cautious, very careful when you're having those conversations, and do it in a very prudent way so that your regulators are comfortable, and we're comfortable. Same goes with the rating agencies. The second question. Yes, I believe when we're done and we run our company and we post what's called a Blue Book, i.e., the statutory financials of the company, that we'll be able to then really prove and show very clearly the stability and strength of the business model and therefore have opportunity to run lower. We'll have to be very careful that we do this in a way that's acceptable from a ratings perspective because we maintain among the highest ratings in the insurance industry.
Those ratings, by the way, become as important as the duck when you start to move into the brokerage community and go upsizing into jumbo cases, larger companies, and broadening your product line. We do want to be careful about preserving our strong ratings. At the same time, we know we have opportunity there.
All right. Maybe sticking with the U.S. for a minute. The fourth quarter, pretty important quarter for sales. Can you just provide an update on some of what you're seeing so far and the success of the strategy to gain deeper penetration into some of your existing groups?
In the U.S., unlike the conversation I had with you in Japan about distribution, we are a bit more narrow channel-wise in the U.S. We have a very unique army, really, unique to this industry in what we call our field force, the very powerful and really the same field force that originated Aflac in the U.S. These are some 9,000-plus producing agents that are all over the country calling largely on small businesses, medium-sized businesses, and brokers who cater to small businesses. That field force is a very challenging channel, frankly, for any company these days to grow that channel.
What we have seen here in the last couple of years is it started to stabilize, and in fact this year really stabilized and it's seen some modest lift in sales, and that's enormously helpful because it's still the dominant piece of the franchise in the U.S. Realize we have upwards of 440,000 businesses that we do business with where Aflac is on their shelf here in the U.S. This is not a small army of individuals that are calling on companies. Separate and apart from that is our second major channel, which is the brokerage channel. Included in that brokerage channel is going upmarket into larger companies and often with a group type chassis product.
There has been where most of the lift has come this year, and it's for a very fundamental reason. That is we really didn't have that model well-designed on serving the broker's needs. In serving the broker's needs, these are very large brokers in particular, like an Aon, for example. Then in that, also serving the needs of larger case companies. Think of a larger case as 1,000 employees or more. That required technology investment, better coordination, and better communication, really also clearing up any inconsistencies in the marketplace between a field force that is calling on parts of the company and then a broker-driven sale at the headquarters. We had to really get clarity around the marketplace and how we go and then make significant investments in what we call model brokerage offices or how we actually face off with these brokers technology-wise.
We've done that, and I can just tell you, and I know this very personally because I've been in meetings where we've received feedback from this brokerage community through councils we formed, that our service, our quality, and now our reputation with those brokers, those large brokers and large case brokers, has improved significantly. If you respond to that marketplace, you'll see it come back in sales. If you offer better technology, better service, more competitive product offering, broaden your product offering, which we've been doing through product partnering, if you respond to their needs, you will see more RFP, you will be making more finalist presentations than you did before, and your conversion rates will go up significantly. That's really what has happened so far this year, and that's clearly what we tend to continue as we go forward. That is the mission.
There's several other strategic issues that are at play related to broadening our product set, improving, again, technology and so forth. Right now, the big mover is we've dialed in that brokerage community the right way, and our field force is holding their own and growing, which is very difficult to do. That's a tough channel to continue to grow at the size we're at. You got to realize we're more than double the premium of our next largest competitor. This is a big battleship to move. When we experience 3%-5% growth, that's not a small number. Over a four or five-year period of time, that's almost a top seven, top 10 competitor to us. This is a big operation we've got, but we're back growing again and feeling good about it.
In the U.S., just on margins, I think the benefit ratios, and this probably isn't unique necessarily to Aflac, but for the entire industry, have been running a bit favorable relative to pricing. Just wondering what your thoughts are on how long that'll persist and just how favorable it's been.
Both in Japan and in the U.S., we generally have seen an in-force block of business running favorable to our assumptions. This is particularly around claims cost assumptions, loss ratio assumptions. There are always certain assumptions that move unfavorable to you. This is less the case in the U.S. In Japan, it's what you would expect. Interest rates haven't necessarily been cooperative with some of the products over the years. In the U.S., we have seen that pattern. Something that's very important is the company has had a long history, and I want to say this, Kriss Cloninger has been the long-time CFO and really fundamentally chief actuary in many respects for the company for many, many years and always had a practice of being very careful on the assumptions associated with particularly products where realize it's not so much that it's a new type of risk we're covering.
Oftentimes, Aflac, both in Japan and the U.S., was literally the pioneer of the risk that was being underwritten. By definition, you would want some provisions for adverse deviation, some comfort in your assumptions, and if they didn't play out right, you'd react very quickly and very sharply in repricing and restructuring the product. That long history of discipline has built up an in-force block of business that, as we sit here today, is performing better than those original expectations.
What happens, though, is we do what you would expect, and that is as we see more data, more experience, particularly experience that we know better than anybody else in the market, cancer and medical in Japan and of course, our voluntary supplemental health products in the U.S., we'll start to price in, if you will, that experience, and that has allowed us to be that much more competitive over time. Eventually over time, you'll see your benefit ratios and your loss ratios kind of migrate towards your pricing expectations as you move forward, we continue to enjoy some margin on the in-force business, and it's really for straightforward reasons.
It's largely to do with hospitalization rates and a pickup of outpatient services, and the length of stay in hospitals is far shorter over the years for reasons you all know here in the U.S., but similarly also in Japan. There's other advances that have helped out, particularly in Japan. I would say I'm not really in a position to quantify it. I would tell you in terms of our U.S. product set, there are some products that stand out more in that regard than others. On balance, because the profit profile of our products in the U.S. are very homogenous-like, we've been running better than pricing for quite a long time.
Okay, thanks. I'll open it up to questions in just a moment from the audience, we can't finish this conversation without hitting on tax reform, of course.
Yeah.
You guys have already provided some disclosure around this with the outlook call last Friday. Any updated thoughts from what you saw in the Senate bill? I guess at a high level, does tax reform change anything about the way you think about capital allocation, expanding into different geographies, et cetera?
I'll answer the second part of your question first. Tax reform in and of itself, first of all, we don't see anything that is acutely related to our business model. First and foremost, when it comes to the tax dynamics associated with individuals, which is not talked about a lot, we don't necessarily see shifts, dynamics, issues, challenges, and so forth related to tax reform as it relates to our core businesses here in the U.S. Tax reform in and of itself, more particularly territorial tax, I think is probably where you're going, doesn't cause us to think about expanding into additional countries and so forth. That's a holistically different conversation to have. I would tell you that it's very difficult for us to make the case financially to move into an additional country.
One, you need to have the moon and stars align themselves in a very unique way in a country related to healthcare system, regulatory, and so forth to have it make sense. Secondly, to give you an idea, those 440,000 businesses that we cater to here in the U.S., they employ nearly 50 million people. Today, we have roughly 8 million of them as customers. Before I go wandering off into an additional country, I've got massive opportunity here in the U.S. if I can simply increase the penetration rate from the current number of employees who accept our product as compared to the number of employees who have it available to them in the businesses we serve. That's what I would want to go after to increase market share before I necessarily take on the risk of additional country.
On tax reform itself, I don't know that I have anything of a particular level of insight to add beyond what you've heard already at this conference. We're interested in roughly the same things the other parts of the industry are interested in. We're watching reserve treatment very carefully. We're watching DAC treatment. That has a lot to do with sort of cash tax dynamics. More recently, over the last few days, to your point, we've seen AMT come into play and what does that mean. I would say, just remember a couple of things about Aflac that are very true. One is we don't have a big difference between our effective tax rate and the statutory rate. The current 35% corporate tax rate, our effective tax rate, if you look at our financials, we most years travel somewhere in the 34% range.
There's not a lot of unusual items that provide us a much lower effective tax rate than we have in the way of the statutory tax rate. The other unique nature, of course, is the corporate tax rate in Japan is 29%, and upwards of 75% to 80% of our earnings are in Japan. If the corporate tax rate, and we're a U.S. taxpayer, very importantly, we're a U.S. taxpayer, and Japan is a branch for tax purposes, even though we're going through a conversion on the legal side. As a result, even if you lower the corporate tax rate to 20%, our tax rate is going to effectively be something in the neighborhood of 25% to 27%. We've been saying 26%, just to give a number out there. I know even today, I've gotten emails overnight. Today is a very important day.
They're moving into caucus type discussions. There's a lot of moving parts. People are not ruling out some of those moving parts being more than just reconciliation. They may introduce some concepts. We don't know. It's very fluid, and we got to be careful about point estimates on impact.
Got it. With that, are there any questions from the audience?
You already hit upon the penetration opportunity. Can you talk about what's being done there and what progress you're seeing? By penetration, you're talking about U.S. penetration? U.S. penetration in the individually underwritten business.
Yeah. It's a great question because if in fact, Fred, that is, asking myself the question, the big opportunity for you, what are you doing about it? What we're doing about it is the following. Number one, while you all know our brand very well, do not underestimate the power of that brand once we're in a company. What you'll hear over and over again is while we have a good relationship with the head of HR and the business leader, we have an even better relationship with their employees. They love the brand. They love the service.
Things like One Day Pay, which we introduced, is an enormous uplift, we hope, over time, to penetration. It's slow to build, but as more and more employees have an accident over the weekend and see money in their account by the end of Monday, that starts to increase penetration as they talk amongst themselves and see the benefit of the product. One Day Pay is an important component of it. Continuing to support the brand is important. Also Everwell, which is our small business enrollment tool, that is helpful in terms of both persistency and penetration. Essentially, as a small business owner, you now are using our tool, our software to do your annual enrollments. We load it with other ancillary products, some of which are other Aflac products, some of which are other products manufactured by other producers, including non-insurance products or so-called value-added products.
By being in the company with that enrollment tool, we also increase the penetration. More recently, we've done product partnering, where we're partnering with other reinsurers and other companies to provide true group life, universal life, whole life, and then short and long-term disability are yet to come here in 2018. What happens there is those product partnering, it's not so much that that drives big economics for us on those products, because we've basically shifted most of the economics, the risk, the returns, and the administration onto partners. It's really more the halo effect, and that is those products penetrate more employees. When you sign up for your benefits every year, what's on the first page? Your major medical, life insurance, vision, dental, disability.
By the time you get to products that are supplemental in nature, we're on the second page, and we're competing nowadays against things like pet insurance and other types of dynamics. What we need to do is get our products from the second page, which is why we have 8 million of 50 million employees, closer to the first page so that we can lift that up. Things like One Day Pay, branding, product partnering, having an enrollment tool, they're all designed to get us closer to that first page and access to more employees.
I think we have time for one more quick one.
Fred.
This is just a clarification. Fred, when you talked about lowering the hedge ratio from 50% to 40% recently, you said that you had to allocate more capital. How much was that?
Yeah.
Did that impact the recent stock buyback announcement that you guys made at your Investor Day?
It did not impact stock buyback because it was a shift of excess capital that was being held in our U.S. business. Part of that capital we're moving out. We simply shifted it from being held in the U.S. business to in the Japan operation, it was JPY 60 billion. Depending on your conversion rate, say, $550 million.
Okay.
All right. We'll leave it there. Thank you, Fred.
Okay. Thank you, Alex. Yep.