Hi, good afternoon everyone. We'll kick off the next presentation. My name is Armando Lopez. I'm with Citi Global Financial Conference 2013. Thanks everyone for coming. I have the pleasure of introducing Aflac. From Aflac we have Kriss Cloninger who's the President and Chief Financial Officer. Kriss joined Aflac in 1992 as a Senior Vice President and Chief Financial Officer and was promoted to President in 2001. He's been voted the best CFO by II Magazine for financial companies three times. We also have Robin Wilkey, who is the Senior Vice President of Investor Relations with us. With that, I'll turn it over to Kriss.
Kriss, thank you.
Okay.
Well, thank you and good afternoon to all of you. It's a pleasure to join you at this year's Citi Global Financial Conference 2013.
2013 Citi Global Financial Conference.
Before we start, let me remind you that some of the statements in my presentation are forward-looking within the meaning of federal securities laws. Although we believe these statements are reasonable, we can give no assurance they'll prove to be accurate because they're prospective in nature. Please review our annual report on our Form 10-K for some of the risk factors that could cause actual results to differ materially from those we discuss today. Aflac does business in the two largest insurance markets in the world, Japan and the United States.
Our policies cover more than 50 million people in those countries. Our products provide a layer of financial protection against loss of income or assets by paying fixed cash benefits directly to an insured based on a health event.
Our strategy for growth in Japan and the United States has remained straightforward and consistent for many years.
Aflac develops relevant voluntary insurance products and sells them through expanded distribution channels, which yield new accounts and customers. Aflac's operations in Japan account for about 3/4 of our pretax insurance earnings. Today we insure about one out of four households in Japan, and we're the number 1 life insurance company in terms of individual policies in force. Our third sector, medical and cancer products, have been and continue to be our pillar products and the foundation of our portfolio. For 2013, we are refocusing our sales efforts on our traditional cancer and medical products.
In fact, we introduced a new medical product in August that was designed to appeal to consumers in the 20s through 40s age group, which is an area where we're currently underpenetrated. This new product was very well received. In the short time it's been out, we expect it will continue to be popular with consumers for some time to come.
Aflac Japan was represented by more than 16,900 sales agencies at the end of the third quarter, equating to more than 127,000 licensed sales associates employed by those agencies.
With continued distribution expansion in mind, we're very pleased with the new alliance agreement Aflac Japan signed with Japan Post in July. As Dan Amos, our CEO, has indicated, we believe this alliance is a game changer. Japan Post intends to gradually expand the number of post offices that offer Aflac's cancer product from 1,000 today to over 20,000 postal outlets that they have.
Pending regulatory approval, Japan Post Insurance, or Kampo, will enter into an agency contract with Aflac Japan to begin distributing Aflac Japan's cancer insurance product at all of Kampo's 79 sales offices.
In consultation with Japan Post Holdings, Aflac Japan will consider developing an exclusive cancer product to be sold through Japan Post and Kampo.
We believe Japan Post can and will become a meaningful contributor to our sales in Japan.
Let me update you on Aflac Japan's performance for the first three quarters of this year.
Overall sales for the first nine months of the year were down 27.8% to JPY 116.5 billion.
For the first three quarters of the year in JPY terms, premium income increased 8.3% and revenues grew by 9.1%.
Pretax earnings were JPY 268 billion, which was up 12.6%. Keep in mind that in the fourth quarter, we anticipate stepping up our spending on advertising and promotional type expenditures as well as projects that will improve our business over the long run.
I also want to remind you that for this year, our sales target is based on Aflac Japan's third sector products, which include cancer insurance and medical insurance. Remaining the leader of the third sector products is important to us and continues to be the foundation of our product portfolio. Achieving this target is a top priority for our entire management team in the U.S. and Japan. Taking into account the launch of the new medical product, we believe our 2013 objective of a flat to 5% increase in third sector sales is both reasonable and achievable. We have experienced a tremendous amount of success leveraging our strong brand in our efforts to drive sales.
For example, to promote our new medical product in August, we launched a new advertising campaign featuring the Black Swan, a dark new character that represents the arch nemesis of the Aflac Duck.
The Black Swan's goal is to tempt consumers to make bad decisions about life, health, and insurance matters.
The Aflac Duck saves the day by reminding consumers to make sound, positive, and healthy choices in life, including the decision to purchase medical insurance.
By leveraging the popularity of the Aflac Duck through different characters over the years, nine out of 10 people recognize the Aflac brand.
We will continue to look for new ways to connect with consumers through innovative marketing campaigns for our product lines.
Japan's population is covered by universal healthcare system, but their citizens still have significant out-of-pocket costs associated with healthcare. As such, we believe the need for Aflac products will only continue to grow.
Given Japan's aging population and declining birth rate, this national healthcare system has been under great financial strain.
Copayments for salaried workers under age 70 have increased to about 30% of the cost of medical treatments. However, as fiscal resources are tight in all areas, including medical, nursing care, and pension benefits, it's clear that the difficult fiscal situation will persist in Japan. As you can see, the growth of medical expenses is significantly outpacing GDP growth. Because of the rapidly aging population and higher copayments for medical expenses, the market for medical products has been steadily increasing, and this trend is expected to continue. We believe we can expand our leading position as the medical market continues its growth in the future.
Now let me turn to Aflac's U.S. operations.
As you may know, we primarily distribute our voluntary insurance products at the worksite on a payroll deduction basis in the U.S. The Aflac U.S. product portfolio includes a variety of voluntary insurance products designed to pay cash directly to policyholders when a serious medical event presents financial challenges. These payments are made regardless of any other insurance policyholders may have. Our group products align well with our individual product line and give us the ability to customize our product offerings for the brokers who typically sell to larger accounts.
This is especially relevant because now more than half of voluntary insurance products sold in the U.S. come from group policies.
Aflac's strong brand and market-leading status only broadens the appeal of our products to consumers throughout the U.S. Our diverse yet focused product line is sold through a broad distribution network of almost 76,000 commissioned sales associates. We believe our distribution network is a competitive strength that no other company has been able to duplicate. Our job is to be where consumers want to purchase Aflac products. We're currently focused on our proprietary Aflac Exchange as a means to help solidify our leading position in the small business market, which represents our core market. We are continuing to work with brokers on a local, regional, and national basis to give us better access to the large case market. We're already represented on about 60 enrollment platforms with various brokers.
As we work at enhancing relationship with the larger brokers, we will also pursue private exchange opportunities with those brokers. We continue to seek opportunities to leverage our strong brand and relevant product portfolio in the evolving healthcare environment. Our strategy and competitive strengths are all designed to leverage the Aflac brand while providing valuable products to consumers.
For the first nine months of this year, the total new annualized premium sales declined 1.7%.
We believe that the market for our products has been impacted to some extent by uncertainty and confusion caused by the pending implementation of the Affordable Care Act. While the unemployment rate has shown some signs of improvement in the U.S., hiring remains weak, especially in smaller employers where 90% of our business is written. However, I'd note that premium income did increase 3.5%, primarily reflecting strong policy persistency. While we're busy laying the groundwork for future growth, we're still working hard to achieve our annual sales target. Our goal is for Aflac US sales for 2013 through our traditional and broker channels to be flat to up 5%. With our strong brand, consumers are more receptive to hear how Aflac products can help them.
This opens up greater possibilities for our traditional sales force and the broker channel alike.
We continue to believe that the U.S. represents a vast opportunity for growth, and we're building our business with that potential in mind. This next slide shows the most recent data from the U.S.
Small Business Administration. The U.S. has more than 5.7 million businesses with fewer than 500 workers, and that these small businesses employ about 55 million people.
Although our traditional focus has been on smaller-sized payroll accounts, we believe our strategy for reaching large brokers will better position Aflac in the large case market as well. Our portfolio of group and individual products provides consumers with outstanding value while giving employers the choices they demand. We believe our strong brand will be even more important in this period of transition as businesses and consumers look to do business with companies that have a solid reputation. With our trusted and well-recognized brand, we believe we can be there to protect those we insure against income and asset loss when a health event causes financial challenges. We also believe the coming years will provide great opportunity for growth in the U.S. Now let me turn to our investment portfolio.
As we have stated for many years, our greatest investment challenge has been to invest Aflac Japan's significant cash flows in suitable investments that provide investment returns that meet or exceed our pricing and reserving assumptions.
Foremost on our mind is to invest in a way that takes our policy liabilities into consideration.
Following four years of significant portfolio de-risking after the financial crisis started, we have considerably reduced our exposure to perpetual securities, peripheral eurozone countries, and financials, especially in Europe. We're pleased with our progress, and our focus remains on liquidity flexibility and diversification. Our below investment grade securities have been reduced to 4.5% from 6.9% in 2009. Let me remind you of how successful we've been in enhancing the quality of our investment portfolio between January 2008 and the end of the third quarter of this year.
Over that period, we've dramatically cut our holdings of sovereign and financial investments in peripheral eurozone countries from 5.9% to 0.9% of our total portfolio. We've also lowered our investments in perpetual securities from 14.7% of the total to 3.1%. Additionally, our investments in financial exposures have been meaningfully reduced. From about 42% of the total portfolio to 15.6% today. Finally, we've also lowered our investments in European holdings from 35.1% to 18.2%. Our investment strategies have evolved since the financial crisis, and we manage each portfolio with specific objectives.
Almost 12% of our portfolio is made up of liquid U.S. corporate bonds with the principal hedged into yen. Next year, we expect to enhance our diversification by including other asset classes. Overall, we're pleased that the balance sheet has improved in quality, liquidity, return profile, and diversification. Our objective is to have a portfolio that's diversified by geography and industry while focused on high quality. The vast majority of our investments in Japan are in JGBs that provide both a measure of liquidity and stability.
Our ability to continue to implement new strategies is based on the evolving capabilities of the Aflac Global Investment Division.
We have defined our investment objective as maximizing risk-adjusted performance subject to our liability profile and capital requirements. We're pleased that our Japan new money yield for the first nine months of this year was 2.87%, which is considerably higher than our new money yield of 2.27% in the first three quarters of 2012. In light of the financial market volatility, both in the U.S. and Japan during the second quarter, our investment team has been carefully analyzing our asset allocation as well as strategies to help mitigate interest rate risk.
As such, we allocated the majority of third quarter cash flows to JGBs.
We remain committed to further building out our investment functions and capabilities to enable us to respond to a changing economic environment. I'll spend the last part of my discussion today updating you on the consolidated financial performance and our capital management activities. Aflac Incorporated has a long history of delivering strong financial performance. Although that performance has been periodically distorted by changes in the foreign exchange market.
While the yen was little changed from 2011 through 2012, it has weakened dramatically in 2013.
Due to the significant contribution of Aflac Japan's operation to our overall earnings, a weaker yen suppresses our results as reported in dollars.
Aflac's currency exposure is mostly translational related as opposed to transaction related in actual exchanging one currency for the other.
We still believe that viewing our results excluding the impact of foreign currency is the most meaningful way to evaluate our financial performance. We remain very focused on our capital ratios, which demonstrates our commitment to maintaining financial strength on behalf of our policyholders, shareholders, and bondholders. Through strong surplus growth, an improved portfolio risk profile, and a weaker yen, our capital ratios improved significantly in 2012.
Our estimated risk-based capital ratio at September 30th is around 769%, which is significantly higher than our 2012 year-end ratio of 630%. Additionally, Aflac Japan's solvency margin ratio, or SMR, is approximately 730% at the end of September compared with 585% at the end of June of this year.
The increase in the SMR was primarily due to the execution of a reinsurance agreement in Japan.
As we think about capital levels and how they tie to profit repatriation, our first consideration is protection of our policyholders as measured by the SMR.
Next, we give consideration to the needs of the parent company and consult with Japan management in making a determination.
In July, we repatriated JPY 76.8 billion.
You'll recall that we entered into hedging transactions for the vast majority of our anticipated repatriation at a weighted average exchange rate of JPY 96.4 to the USD. We believe that an analysis of operating earnings, which is a non-GAAP financial measure, is important to an understanding of Aflac's underlying profitability drivers.
Aflac defines operating earnings as the profits derived from operations before realized investment gains and losses from security transactions and before the impact from derivative activities and hedging as well as any nonrecurring items. On an operating basis, we have a long history of producing strong earnings growth.
As this chart shows, growth in operating earnings per diluted share was held back by the weakening of the JPY to the USD for the first three quarters of 2013.
Excluding that currency impact, growth in earnings per share was strong. As we have said for many years, when it comes to deploying excess capital, we still believe that growing the cash dividend to shareholders and repurchasing our shares are the most attractive means, those are the avenues we will continue to pursue.
Our objective remains to grow the dividend at a rate that's in line with operating earnings per share.
growth before the impact of the yen. Aflac repurchased approximately $18 million or about 308,000 shares of its common stock in the third quarter.
For the first three quarters of the year, the company purchased $298 million or 5.6 million of its shares.
We have a lot of flexibility at the parent company in terms of liquidity. It's our intention to increase our fourth quarter repurchase to $500 million, which will bring total share repurchase in 2013 to $800 million worth of our shares for the full year.
We anticipate our 2014 share repurchase to be in the range of $800 million worth to about $1 billion worth of our shares. We continue to focus on maintaining strong fundamentals in our core business and building on our record of earnings growth.
Our objective for 2013 is to increase operating earnings per diluted share by 4%-7%, excluding the impact of the yen.
We're near the low end of that range for the first nine months of the year. We still expect operating earnings to increase approximately 5% for the full year before the impact of currency. If the yen averages 95 to 100 to the dollar during the fourth quarter of 2013 and for the full year 2014, we would expect to achieve an EPS growth rate of approximately 2%-5% per diluted share on a currency-neutral basis for the full year in 2014.
This slide shows how 2013 EPS might look with and without the impact of currency. On a constant currency basis, our expectation of a 5% increase equates to operating earnings per diluted share of about $6.93. We estimate that a 1 yen change on the annual average exchange rate will equal about $0.043 in per-share earnings during 2013.
If the yen averages 100 for the full year, we would expect operating earnings to come in at about $6.06 per diluted share. We remain focused on our vision to be the leading provider of voluntary insurance in the U.S. and the number one provider of supplemental insurance in Japan. We have confidence in our business model, the fundamental need for our products, and most importantly, the future success of Aflac.
Thank you.
That concludes my formal remarks, and now I'll be glad to respond to any questions if we have time.
Thank you.
Thanks, Kriss. If there's a question, just raise your hand and someone will come around with the mic. I guess why don't I kick it off. Maybe if you could talk a little bit more about how you see the long-term growth and return potentials in Japan. Then I guess part 2 of that question would be if you could talk a little bit more about Japan Post and when you would expect to see that become a material, I mean, have a material impact on sales.
Okay.
Well, the first portion of the question relates to what we see kind of the long-term potential being in Japan. I think it's fair to say that with respect to our core product offerings, the third sector medical and cancer products that we would expect overall consumer expenditures on healthcare for the treatment of major illnesses and the like to continue to grow as the population ages. You saw a chart in there with some projected numbers on growth in national healthcare expenditures in Japan.
Our job is to insure individuals against the risk of incurring those healthcare expenditures based on those types of significant illness. We think that our business, our third sector business, the core business, ought to grow roughly in proportion with national healthcare expenditures if we're maintaining our market share. It ought to grow faster than that if we're increasing our market share.
That's sort of how I think about the potential is in relationship to the need, which I think is primarily related to those healthcare expenditures. The second part of the question was, a little more detail, I guess, about the Japan Post rollout. I think I said that through the end of September, we had a relationship with the Japan Post that allowed our cancer products to be distributed through about 1,000 post offices. We had had that relationship for Well, since late 2007, I believe.
Basically Japan Post had been treating our program as kind of a test program.
There's been a change in leadership at Japan Post, and I think they're more focused on expanding their insurance distribution opportunities as well as to demonstrate the fact that Japan Post has created a level playing field for certain insurance competitors, including Aflac.
We expect that the new agreement between Aflac and Japan Post will expand significantly in terms of the number of post offices we're distributing through in 2014, and that expansion will continue to ramp up for some time in the future.
As I mentioned, Japan Post has about 20,000 postal outlets. Obviously, there's a number of small ones in that number, and we won't sell much insurance through the small ones, but there's a lot of big ones in those numbers too. As we ramp up the percent of total Japan postal outlets we're able to distribute through, we would expect to see our third sector sales growth increase. I'll say significantly.
I'm not allowed to give you numbers yet, but I think it'll.
You'll see a significant impact on our third sector sales over the next 3 years as we gradually ramp that up.
I think I'll stop there and see if that was responsive to the question.
Okay.
Also as it relates to Japan, could you maybe talk a little bit about the regulatory environment there and what you see happening from a regulatory perspective? I guess along those lines, you know, is there any talk of potentially changing the law allowing foreign subsidiaries to be set up as branches of a U.S. company? What would the implications of that be for Aflac?
Okay, first of all, changes in the regulatory environment I haven't really seen major changes in the regulatory environment as it relates to Aflac. We continue to be regulated by the FSA in Japan the same as we have been for many years now, or ever since the FSA was created to take over from the Ministry of Finance. We have good relationships with the FSA, and we have an ongoing dialogue with them regarding various aspects of our activities, including product development, investments, and consumer relations and the like, but just in the normal course of business. As it relates to the question about branches versus subsidiary status, we recognize that we're the largest remaining branch in Japan that's a branch of a foreign insurance company.
Before MetLife acquired Aflac, AIG ran Aflac as a branch, but in conjunction with the acquisition of Aflac by MetLife, Aflac was converted to a subsidiary status. We have had a dialogue with the FSA about that. The FSA has had some discussions. The FSA, interestingly enough, allows foreign companies to have branches, branch organization status for banks. In Japan, they continue to maintain that. Their primary concern is governance. Do you have the proper governance in place to make sure that a branch organization is appropriate from a regulatory and governance perspective? They the management involvement of the parent company to be proactive and the like. We believe that Aflac satisfies all the concerns that the FSA has regarding governance and organization. We don't anticipate any change in our status.
The only negative effect, if the status were to change, would be potential tax consequences associated with the change in status. That wouldn't benefit the policyholders in Japan or anybody else. It would just benefit the Japan Treasury.
Okay.
Any questions from the
Thanks.
There's been quite a lot of excitement about the prospects of immunotherapy, the beginning of the end of cancer. Do you have any views on the subject? You obviously are a leading underwriter of cancer.
Well, I'm not a physician and I don't really know much about that particular issue. We do receive questions from time to time about, you know, what would happen if cancer
if there were a cure for cancer and the like.
You know, we responded that we would find other needs of consumers to respond to. We would have a big profit if all of our cancer policies were terminated. Actually, I'd love to see, you know, a solution or a cure for cancer found. Benefit mankind greatly and I would welcome that event. From a business perspective, we are a distribution company in many respects and we've broadened our product offerings both within Aflac Japan and Aflac U.S. over the years. I think cancer is maybe 25% of our sales these days in Japan. About the same in the U.S., something like that. You can find it in our statistic.
It's not important enough to me where I actually remember those numbers, though.
I'll just say that we believe that we would find new needs for consumers that could be addressed through our distribution system.
Thanks.
If I can, I'll ask a very different question. Congratulations on your II award, not once, but twice, but three times. What do you think underpins what are the core tenets that you believe in that you think has sort of led to that success?
Well, our company Aflac gets a lot of awards for various things.
One of the awards were most.
pleased with is recognition as one of the world's most ethical companies by a magazine called Ethisphere.
We've been on that list for a number of years.
I don't remember the exact number, the company gets a lot of awards for transparency, honesty, integrity, and I would like to think that the personal recognition that I received when I did get those awards was motivated by the same principles. Also, the company was doing well at the time. The stock was doing well. You tend to get awards when all things are going right. Back pre-financial crisis, we were really doing great. Along with everybody else, things changed for a while. Now we're back on the road of doing great again, I think. That's about it.
You clearly placed a big emphasis on the brand. I think it was mentioned 6 or 7 times throughout the presentation. You mentioned 9 out of 10 consumers recognize the Aflac brand. Which is super high, I think probably unique for a financial services company. I have two questions related to that. Does that high brand recognition translate to the flow-through to the bottom line? Do you see how good is the conversion from recognition to buying the product? Second, how do you protect that brand through the sales network of sales associates and that being quite devolved and disparate? How do you keep the integrity of the brand through that connection to the customers?
That's a very good question.
First of all, let me say that when the Aflac Duck was first created and we introduced the Aflac Duck to the world on December 31st, 1999 as the millennium changed, CNN, the Cable News Network, Aflac does a program every year when the new year comes into place and it goes around and sees the New Year celebrations in New Zealand and then it moves on to Japan and Australia and China. December 31st, 1999 was a unique time because we had Y2K going on and everybody wondered if the world's computers were all going to collapse. Or at least I did, because as CFO, I was hoping things would continue unchanged in Japan, the lights would stay on, the electricity would work, computers would continue to go. We introduced the Aflac Duck on CNN on that date.
In the U.S., in the three years following the introduction of the Aflac Duck, our sales increased in the high 20% range. It was like 27% the first year, 29% the second year, and it fell off to an 18% increase in the third year. That's part of how you translate it into profitability. About three years later, we took the Aflac Duck to Japan. We previously had pretty good name recognition in Japan. Let me say that when we first did the Aflac Duck, we had about a 30%-35% name recognition in the U.S., and then it went up to over 90%. It's in line with major brands like Nike and McDonald's and Coca-Cola, which is pretty incredible for a financial institution. I think we changed the advertising world for financial institutions.
Institutions.
In Japan, we had pretty good name recognition, it went up to over 90% there.
We already had pretty strong market presence in Japan with respect to cancer insurance, I think what the brand allowed us to do was to expand the distribution some.
It helped protect us.
As we, you know, protected our distribution system from the admission or the allowance of letting the large domestic companies in Japan come into our market, a lot of people were concerned that we were going to lose distribution to the big domestic companies.
A lot of them were concerned that the large domestic companies would start writing a lot of cancer insurance and take away our market.
Instead, we not only protected that market, we entered the medical market in 2002 and wrote our first standalone medical product in Japan in 2002 and became the number one writer of medical insurance from that year on. We haven't given up that lead yet. To me, you know, it's sort of an intangible in a way how you translate advertising into tangible, you know, monetary values. I'd say we've protected distribution. We remain the number one writer of both medical insurance and cancer insurance in Japan.
We're the number one writer of individual voluntary insurance in the U.S.
It's not like people haven't been trying to challenge us. I think the benefit of the branding and the advertising is that we're defending our turf as, you know, the number one person on the mountain, and that's part of it. Now, we also, you know, talk about how we leverage the brand in terms of the constant recruiting and the like that you have to do when you've got a sales force of independent agents.
Your second question was, how do you control independent agents? You do it primarily, I think, through moral suasion.
You try to talk to them about the need to protect the brand and that protecting the Aflac brand will help protect their business.
Anything that deters from the Aflac brand is going to negatively impact their own personal business.
That's the message we try to give them. It's in their best interest to try to help protect the brand. We've been fairly successful in doing that. We've had very few incidents that we've had to do any damage control over either in the U.S. or Japan.
I just had a couple questions about the Japan Post arrangement. From my understanding, Japan Post gets to decide where they roll out the insurance. They'll probably want to do it in the big cities and the big offices where you already have a pretty good penetration. You'd probably want to do it in the rural areas. Secondly, I think you have to pay the training costs. That means either you have to hire staff or you take staff from the banks and the banks won't like that and they may think that you're getting taking business from them. How do you work all of this out so that you actually do get some decent business?
Well, let me say that the Japan Post will do what they deem to be in their best interest to develop their expansion of cancer insurance sales in Japan.
Quite frankly, whatever is in their best interest is probably going to be in our best interest from the point of view of generating new sales.
They have to initiate and to buy into and to stay enthusiastic about producing cancer insurance business underwritten by Aflac. It behooves us for them to be happy. Whatever they want to do is okay with us. All we want to do is see them sell more business. I think that the leadership at Japan Post is very interested and showing progress in insurance sales and the like. That's one of the reasons they chose to have a business relationship with Aflac. We recognize that we aren't in charge, that they're in charge. We're going to try to help them. We're going to try to train the people they want to have sell through whatever subset of postal outlets they choose to sell the business through. Our job will be supportive and cooperative.
that's what we'll do.
Now, it's true what you said that as far as helping train Japan Post people, we'll allocate some of our existing training resources. You postulated that the banks wouldn't like it. Well, we pretty much trained the bank people already.
We've got relationships with over 90% of the banks in Japan, you know, about 400 banks out of, I don't know, 460 or something like that.
I don't remember the exact numbers.
I used to know them.
We think we'll continue to have good relationships with the banks.
We think the banks will continue. They're expanding their distribution of the third sector products.
They've cut back on the distribution of the insurance products, the WAYS product that we have sold through banks in significant volumes over the last three years. They're cutting back on that some. That's not all bad for us in an era of low interest rates, really low interest rates. We think we'll be able to allocate enough resources to bank training to support their continued expansion of third sector product sales.
We don't think their demands will be as large as they have been in the past to support first sector sales.
We don't expect a great increase in the overall resources we have to allocate to training to accommodate the do all of them in Japan Post-sales. That's it.
How do you think about on a longer-term basis, capital repatriation from Japan increasing or growing?
Well, the repatriation of profits from Japan is keyed to the operating earnings are the net income we're able to generate on a regulatory financial reporting basis in Japan. It's both the operating earnings and its net realized gains and losses on securities transactions and any derivative and hedging type financial consequences. Historically, we have repatriated approximately 80% of our Japan regulatory basis net income. Leaving 20% in Japan allows for growth of business and growth in regulatory capital and the like. You know, that's proven to be sort of a reasonably pragmatic number over the years. I don't see that we'll change that a lot.
We have reduced repatriation in some years when we were either wanting to enhance our solvency margin ratio, and we've repatriated 100% of our net income in some years when we didn't need to build the capital, when the solvency margin was already high enough in our.
estimation.
I think I see the future of Japan repatriation will be related to, you know, a substantial percentage, just use the 80% number, of the net income we're able to generate in Japan going forward. Obviously, you have to look at it kind of a long-term basis.
We look at it year to year, but we also look at the trend over, you know, a three-year period and things like that.
We want to protect the policyholders, but we don't want to retain sterile capital that's not working to the benefit of all of our stakeholders.
Okay, great.
Well, with that, we're almost out of time. Kriss, Robin, thank you.
Okay.