We're going to kick things off. We're pleased to have with us today, Kriss Cloninger from Aflac. He serves as President and CFO. I'll keep my comments brief as we get near the end of the day. Kriss joined Aflac in 1992 as the CFO. Since then, he's been recognized by Institutional Investor on a number of occasions as the best CFO in the life insurance industry on several occasions. With that, I'm going to turn it over to Kriss.
Well, thanks to the other Christopher for the introduction, and thank you, and good afternoon. It's a pleasure to join you at this year's Goldman Sachs conference. Let me begin today with a discussion of Aflac's insurance operations. Aflac offers voluntary insurance products in both Japan and the U.S. Our products provide a layer of financial protection against income loss and asset loss, including supplemental medical expenses, by paying fixed cash benefits directly to an insured upon a specified health event or a life situation. Japan's product portfolio has expanded beyond traditional health-related products to better serve Japanese consumers in our growing distribution channels. Our strategy for growth in Japan and the U.S. has remained straightforward and consistent for more than two decades. It's also remained quite effective. Aflac develops relevant products and sells them through expanding distribution channels, which yield new accounts and customers.
In remaining focused and disciplined with this strategy, we have gained greater access to potential customers. I'll begin with Aflac's operations in Japan, which account for about three-quarters of our pre-tax insurance earnings. Today, we insure about one out of four households in Japan, and we're the number one life insurance company in Japan in terms of individual policies in force. Reaching this number one status has required that we fully understand Japan's national healthcare system so we can respond with coverage that meets the needs of consumers. Although Japan's universal healthcare system covers its citizens, it does not cover all its citizens' expenses. In October 1984, the Japanese government introduced a 10% co-payment for most working people, and since then, that co-payment has substantially increased to 30%, a significant cost increase that consumers must bear.
That perspective has led to one of Aflac's many strengths, which is our product line. Aflac Japan's product development area has conducted research to determine the specific financial burdens Japanese customers face and the effect that these expenses have on their family finances. This knowledge has allowed Aflac Japan to develop a product portfolio that responds to the specific needs of Japanese consumers and the distribution channels that sell to them. These products are designed to provide protection against income loss and asset loss from medical and other life events. The foundation of our product portfolio in Japan has been and continues to be our cancer and medical products. This solid platform allows us to leverage our other competitive advantages, such as distribution, branding, and administrative efficiency, to grow our product offerings and to respond to the evolving needs of consumers.
Importantly, we've maintained our position as the number one seller of cancer and medical products, which confirms the continued popularity and demand for our innovative policies. Particularly within these two core categories, Aflac Japan has honed its ability to customize our products to appeal to new market segments by enhancing the benefits of our existing product line. These ongoing enhancements speak to the changing landscape in the cancer and medical treatments and reflect our commitment to maintaining our position as the number one provider of cancer and medical insurance in all Japan. Starting with our cancer insurance in September 2007, we introduced Cancer Forte, the first major product revision we made to our base cancer policy since 2001. Most recently, in March of this year, we introduced Days, our revised base cancer policy. Days will replace Cancer Forte, most notably with enhanced outpatient and anti-cancer medication benefits.
We believe there's also a strong need for Aflac's other pillar product category, which is medical policies. Since we introduced EVER, which is our standalone medical policy in 2002, Aflac Japan has been number one in the medical market, which reflects our ability to appeal to new consumers and remain in step with relevant products. Since then, we've continued to create variations of EVER that have allowed us to tap into new market segments and achieve greater market penetration. This strategy has confirmed the need for medical products and has solidified Aflac's position as the number one seller of medical products in Japan. Aflac Japan has also been enhancing its product portfolio to better meet the evolving needs of banks. WAYS, which is especially popular with banks, was again a key driver to growth in the third quarter.
This unique whole life product can be converted to a fixed annuity, medical coverage, or nursing care benefits when the policyholder reaches a predetermined age. WAYS has been a phenomenal sales growth story, and in the third quarter, generated an increase of 362% compared to the third quarter of 2010. Consumers find WAYS attractive because of the guaranteed principle and the future flexibility of its benefit options. Banks like to sell this product because of the high premium and attractive commissions. Aflac's profit margin on WAYS is more than double the profit margin for child endowment. On top of that, the profit margin is significantly enhanced even further when policyholders elect to pay all of their premiums up front through a discounted advanced premium option. In fact, 90% of customers at banks select this option as their payment method.
As our banking channel becomes a greater contributor to our top-line growth, we expect sales of this flexible product to continue to grow significantly in 2011. With respect to our child endowment product, as anticipated, sales continued to decline for the second consecutive quarter, posting a decrease of 8% for the quarter. For the remainder of the year, we expect child endowment sales to continue declining as our distribution channels remain focused on selling WAYS and our new cancer product, Days. Also, having sold a child endowment product for more than two years, we've already cycled through the major first efforts of selling this product to the most eligible target market, which is families with young children. In Japan, branding is another important Aflac strength. It helps us stand out in what has become a more crowded and competitive market.
Since 2003, when the Aflac duck came on the scene in Japan, Aflac Japan has not only been very prolific, but has also been very successful in capturing the attention of consumers through innovative campaigns, and most importantly, driving sales. In 2009, Aflac Japan linked the popular Aflac duck with a traditional character called the Maneki-Neko to promote NEW EVER, which is our revised medical product. The Maneki-Neko is the cat icon that's very well known throughout Asia. We dressed the Aflac duck as a cat, and this Maneki-Neko duck character and advertising campaign became an overnight sensation, rising to the number one television commercial spot for any company in any industry in Japan at that time. Most importantly, in terms of results, it was successful in helping generate significant sales increases.
Earlier this year, Aflac Japan created the Blue Duck, an Aflac duck character that plays off the bluebird. Blue Duck promotes DAYS, which is the new base cancer policy I mentioned, and this new character is intended to help convey peace and happiness, feelings that are fleeting when someone's fighting cancer. By finding innovative ways to connect the Aflac duck to Aflac products and Japanese culture, Aflac Japan has captured the attention of Japanese citizens. In so doing, we've successfully strengthened our brand, achieving brand awareness around 97% in Japan. Another one of our competitive strengths is our sales network. We believe Aflac's distribution system remains one of the most efficient in Japan, and we're continuing our efforts to develop even more avenues to reach consumers. In regard to distribution, our sales have been significantly influenced by accelerated sales activities within the bank channel.
Bank sales continued a strong growth trend in the third quarter, greatly exceeding our expectation by generating an increase of about 146% over last year's third quarter. Sales through banks accounted for more than 34% of total sales in the third quarter. At the end of September, Aflac Japan was represented by 369 banks, which is more than 90% of the total number of banks in Japan. As we've mentioned, we believe that more banks would step up their efforts in selling Aflac products once other banks experience success, and that's exactly what we've seen happen. While Shinkin and regional banks were the early adopters in terms of selling our products, we've seen our new annualized premiums dramatically increase as the mega banks also started selling our products.
In addition to emerging opportunities through newer distribution channels, we're firmly committed to supporting our traditional sales channels or what we call our agency system. Now the vast number of our agencies are individual or independent corporate agencies that sell to individuals and small businesses. Additionally, Japan's largest companies often have separate insurance agencies called Affiliated Corporate Agencies that primarily sell our products to their employees on a payroll deduction basis. At the end of the third quarter 2011, Aflac Japan was represented by more than 20,000 sales agencies with about 120,000 licensed sales associates. Remaining the low cost producer in Japan is a critical element to our ongoing market success and profitability. We believe we're the most efficient producer of supplemental insurance products in Japan. Our streamlined and low-cost operations are evident through employee productivity.
Aflac Japan's employees administer significantly more policies in force than various large life insurance companies. This is the primary reason we have a lower expense load, which allows us to offer attractively priced products that provide excellent value while paying competitive commissions. Aflac Japan sales were up 22.2% in the third quarter this year and 13.9% for the first nine months. This is especially remarkable considering the enormous challenges following the devastating East Japan earthquake and tsunami. As we look to the remainder of the year, if sales in the fourth quarter are flat in comparison to the fourth quarter of 2010, our expectation would be a sales increase of 10.1% for the year, and we're confident we'll achieve that or better. As we look ahead, we believe that the need for our products will only continue to grow.
With an aging population, Japanese consumers have increasingly understood the need for insurance products to protect their income and assets. As Japan continues to deal with a strained financial system, rising medical expenses, an aging population, and a declining birth rate, it's likely that the already stressed national healthcare system will come under more financial pressure in the future. This is only exacerbated by the fact that there are additional funds needed to rebuild following the natural disasters Japan faced. The upshot is that Japanese citizens, whose medical costs have already increased, will continue to look for solutions to protect their physical and financial wellbeing. We believe that Aflac products can be a large part of that solution. Now let me turn to our U.S. operations.
As you may know, in the U.S., we primarily distribute our voluntary insurance products at the work site on a payroll deduction basis. With products being a tenet of our strategy for growth and one of our competitive strengths, we continually look for ways to meet the diverse needs of employees by offering a variety of affordable voluntary products that provide benefits that consumers want and need. Our U.S. product portfolio includes a variety of voluntary insurance products designed to pay cash directly to the policyholders when a serious medical event presents financial challenges. This allows them to direct cash where it's needed most, and these financial challenges often stem from income loss due to missed work or asset loss due to the many medical and non-medical out-of-pocket expenses. Until recently, our portfolio centered around individual voluntary products that are typically sold to employees of smaller businesses.
These individual products are guaranteed renewable and portable even if the policyholder changes employees. Our 2009 acquisition of CAIC, which is now branded as Aflac Group Insurance, has equipped us with an attractive offering of group products that align well with our individual product line. This acquisition has also given us a scalable platform for customizing group products that appeal to the 100-plus employee case market and the brokers who typically sell to the larger accounts. It's really about leveraging the brand and offering a choice to all the accounts we call on. This is especially important because almost half of the voluntary insurance product sales in the U.S. now come from group products. The second tenet of our growth strategy revolves around expanding our distribution network.
This is also a competitive strength, no one else has been able to establish and develop the kind of field force network that we have at Aflac. Before 2009, we primarily sold our products through an extensive network of commission-based independent agents. To expand our reach and better penetrate the voluntary insurance market, we've broadened our distribution infrastructure to include brokers as well. Although our broker distribution initiative is in the early stages, we're already seeing results, especially with our newer group offerings. On the distribution side of our strategy, we've said many times before that today's recruits are tomorrow's sales. Recruiting conditions have been extremely difficult in recent years. Field force recruiting continued to benefit from our targeted national advertising campaigns in 2011, helping us generate a 10.4% increase in recruits for the third quarter this year, and 11.4% during the first nine months.
We believe improved Aflac US sales reflect our intense focus on supporting our field force with enhanced products, including group products, as well as better resources for advertising and training. These initiatives help our sales force better approach selling under current conditions. Advertising is another significant competitive advantage that has benefited virtually every aspect of our business. Since the Aflac duck arrived on the scene more than a decade ago, he's appeared in 55 television commercials that have catapulted Aflac's name recognition to more than 90% in the United States. In the span of 30 seconds, our commercials seek to convey how the financial protection that Aflac provides is valuable, even when someone is covered by major medical insurance. Our most recent commercial features a family discussing this topic at a park. Different animals, including a pigeon, chime in by rapping how Aflac products help.
We want consumers to know how Aflac products work, at the same time, we want them to be entertained by the persistent and comical duck they've come to know. We design our commercials to accomplish both these objectives. Our strategy and competitive strengths are all designed to improve sales. We're very pleased that Aflac US generated a 5% in new annualized premium in the third quarter, and a 5.7% sales increase for the first nine months. These results have benefited greatly from the addition of group products to our Aflac US product portfolio. Our sales and marketing areas, which are more closely aligned than ever, have synchronized their efforts by creating strategies that continue to benefit our sales results. In the first quarter of this year, we rolled out what we call Smart Launch, which is a coordinated sales and marketing effort.
In these campaigns, we analyze our existing accounts to determine which accounts are most likely to need a particular product. We then align our field force resources to strategically and efficiently target these accounts with that particular product or products. Following the success of the first quarter Smart Launch of our dental product, we rolled out a Smart Launch to promote our Critical Care and Recovery product in the mid second quarter. As a result, sales of the new Critical Care and Recovery product were up almost 12% in the third quarter. We'll maintain this successful initiative to promote more products. We believe our expectation that Aflac US sales growth for 2011 will be up to flat 5%, is reasonable. Given the current economic environment, we still remain somewhat cautious about our sales expectation, our sales and recruiting trends are working in our favor.
It's clear that the addition of the group product platform and our growing broker initiative only serve to enhance our ability to leverage the Aflac brand to reach more companies, both large and small, across the U.S. With our ability to offer both group and individual products at the work site, we think our product line will appeal to a greater number of businesses, especially those employing more than 100 workers. At the same time, our bread and butter remains the small case market. According to data from the Small Business Administration, there are close to 6 million businesses in the U.S. with 500 or fewer employees.
Even though we're the market leader in individually underwritten products, which appeal to employees and workers at small businesses, there are still tens of millions of consumers who don't have our affordable insurance protection and could benefit from these Aflac products. Let me comment a bit on our consolidated financial results, beginning with some balance sheet observations. Our overall portfolio is dominated by fixed maturity securities. We have very limited exposure to residential, commercial, and asset-backed securities. The majority of our total investments is in debt and perpetual securities, which fall into the senior debt category. Percentage of our senior debt holdings increased from 79.5%, the total portfolio, at the end of 2010 to 84.9% at the end of the third quarter this year. The % of subordinated securities, both perpetual and fixed, declined.
Overall, the securities in our portfolio continue to meet the product needs of our operations in terms of currency and duration matching. While our largest exposures are predominantly a legacy issue, we continue to look at ways to reduce some of our larger positions where possible. As a result of our proactive investment de-risking program, we have dramatically reduced our exposure to the peripheral Eurozone, perpetual securities, and financial holdings. At the start of 2008, sovereign and financial investments in peripheral Eurozone companies made up 5.9% of total investments in cash, and that declined to 2.4% by the end of the third quarter this year. At the start of 2008, investments in perpetual securities made up 14.7% of total investments in cash, and that declined to 7.4% by the end of this year's third quarter.
In addition to reducing the peripheral Eurozone and perpetual holdings, we've also reduced our holdings in the financial sector. At the start of 2008, investments in financial securities made up 41.9% of total investments, and that declined to 27.5% by the end of the third quarter this year. Additionally, our unrealized loss position in below investment-grade holdings was $905 million at the end of the third quarter out of our $98 billion investment portfolio. As a result of this proactive investment de-risking program, we now have no direct investment exposure to Greece and only senior indebtedness in Ireland and no exposure to financials and sovereigns in Portugal. As we've stated, this proactive investment de-risking program is largely behind us from an unrealized loss perspective.
We do recognize that our economic environment is continually evolving, and we continue to pay particular attention to investment governance, both through enhanced risk management and our investing policies. We remain focused on assessing the securities we hold, and if we determine they're no longer suitable for our investment portfolio, we'll evaluate the options and take appropriate measures. For the third quarter of 2011, the average yen-dollar exchange rate was 10.2% stronger than the third quarter of 2010. You need to change the slide. This magnified our reported results in dollar terms. We still believe that reviewing our results, excluding the margin from foreign currency, is the most meaningful way to evaluate our real financial performance. On that basis, we're pleased with our results so far this year from a financial perspective.
We believe that an analysis of operating earnings, which is a non-GAAP financial measure, is important to an understanding of Aflac's profitability drivers. Aflac defines operating earnings as the profits derived from operations before realized investment gains and losses from security transactions, the impact from passive derivative activities and hedging, as well as non-recurring items. On an operating basis, we have a long history of producing strong earnings growth. In fact, we've met or exceeded our operating earnings per share objective for more than 20 years now. As you can see, the strong yen significantly benefited our earnings growth in 2008, 2009, 2010, and the first nine months of 2011. Excluding the benefit of the stronger yen, our operating earnings per diluted share still rose 8.1% in the first nine months of this year, which is in line with our 2011 earnings growth objective we communicated to the Street.
We continue to focus on maintaining strong fundamentals in our core business and building on our record of consistent earnings growth. Despite the challenges of the low interest rate environment, especially in Japan, we now have three good quarters under our belt this year. From an operational standpoint, I think we've done a very good job in managing our expenses. As we've conveyed, our fourth quarter earnings will be impacted by somewhat higher expenses that we fell back on, particularly in the marketing and IT areas. That follows the three quarters we've really been managing our spending, particularly in Japan. Taking all these factors into consideration, I want to reaffirm our 2011 objective of growing operating earnings per diluted share at 8%, excluding the impact of the yen.
Looking ahead, we continue to expect the 2012 operating earnings per diluted share will increase at 2%-5% on a currency-neutral basis. We anticipate that this 2012 EPS objective will establish a new baseline for earnings growth. The lower than average 2%-5% range reflects the integration of investment losses and the low interest rates associated with the proactive investment de-risking program as we've reflected on the GAAP financial reporting basis. Remember, we told you we believed this de-risking program was substantially completed in the second quarter, and we continue to believe that today. We're looking to 2013 and beyond, when we expect the rate of earnings growth to improve over 2012. This slide shows how our 2011 earnings might look like, both with and without the impact of currency. Well, let's put up that slide now.
Battery's gone.
Get the with and without currency slide. Our battery's gone. Battery's gone dead. Oh, no. There is a slide there. Despite our expectation for higher spending in the fourth quarter, I'm confident we'll achieve our 2011 operating objective for earnings of 8% earnings growth, excluding the yen. If the yen averages 75-80 for the dollar in the last three months of this year, we'd expect operating earnings per share to come in the $1.42-$1.52 range for the fourth quarter. Under that exchange rate assumption, we'd expect the full year operating earnings to be in the range of $6.30-$6.37 per diluted share. One yen change in the average exchange rate will produce a change of about $0.044 per share in earnings during 2011.
As we've communicated over the last several years, maintaining a strong risk-based capital, our RBC position remains a top priority for us. The strength of our capital position allowed us to pursue our investment de-risking program to further strengthen our balance sheet and enhance shareholder value over the long term. Our RBC ratio at the end of September was 528%, which is an increase in the same ratio of 508% at the end of June. Additionally, we estimate that the solvency margin ratio for Japan to be 567% at the end of the third quarter based on the revised calculation method. That's an improvement from the same margin of 529% at the end of the second quarter. That's especially noteworthy when you consider the significant investment losses we had as a result of that investment de-risking during the third quarter.
We're comfortable with this level, absent a significant change in the market, such as the sudden spike in interest rate that would cause an increase in unrealized losses, we anticipate our solvency margin will continue to improve. We also believe these ratios and our overall financial condition provide solid support for our current A single A credit rating. Additionally, you'll recall that we resumed our share repurchase program in the fourth quarter of 2010. We purchased 1 million shares in the third quarter this year, bringing the shares purchased during the first 9 months this year to 5.1 million. We anticipate we'll close the year at about 6 million for 2011. In 2012, we anticipate that our share repurchase activity will increase. Although we continue to operate in challenging times, we have confidence in Aflac's investment portfolio and our capital position.
At the same time, we're pleased with the strength of our operations and our business model. We don't believe that any other company is more focused on providing voluntary insurance products that respond to the needs of consumers than Aflac is. As we concentrate on providing value to our shareholders, we're fortunate that in the process of so doing, we have the privilege of providing financial protection for more than 50 million people in the United States and Japan. That concludes our formal remarks, and I'll be glad to respond to questions if we have any time.
Unfortunately, we're short on time. Maybe if there's one question from the audience.
Okay.
Thanks so much.
Thank you very much. Appreciate your interest.