Get started here. I'm Mike Kovak, the life insurance analyst at Goldman Sachs. It's my pleasure to introduce Kriss Cloninger, President and CFO of Aflac, one of the most recognizable brands in the insurance industry. Kriss joined Aflac as CFO in 1992, since then has been recognized numerous times as one of the best CFOs in the insurance space. With that, I'll turn it over to Kriss for a presentation, then we'll have some Q&A.
Okay. Thank you, and good morning, everyone. It's a pleasure to join you at this year's Goldman Sachs U.S. Financial Services Conference. Before we start, let me remind you that some statements in this presentation are forward-looking within the meaning of federal securities laws. Although we believe these statements are reasonable, we can give no assurance that they will prove to be accurate because they're prospective in nature. Please look at our annual report on 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 worldwide. Aflac products provide a layer of financial protection against loss of income and assets by paying fixed cash benefits directly to the insured based on a health event.
Our strategy for growth in the U.S. and Japan 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 operation in Japan accounts for about three-quarters of our pre-tax insurance earnings. Today, we're the number one life insurance company in Japan in terms of individual policies in force. While Aflac sells first sector products, including life and annuity, the foundation of the Aflac Japan product portfolio has been and continues to be our third sector, cancer and medical products. Beginning in 2013 and continuing in 2014, we've refocused our sales efforts on our third sector, cancer and medical products. In September, we introduced a new cancer insurance product available for sale through all of our distribution channels.
This new cancer product provides enhanced coverage, including additional outpatient benefits and treatments and multiple cancer recurrence benefits, while offering better pricing at many age groups. Additionally, on October 1st, Aflac Japan introduced a cancer insurance product for sale exclusively through Japan Post and Kampo, which is Japan Post Insurance Company. The new cancer product was designed to provide essential cancer-related benefits. It also complements the insurance coverage that is available through other products Japan Post already offers. Aflac Japan was represented by more than 15,000 sales agencies at the end of the third quarter, equating to more than 124,000 licensed sales agents employed by those agencies. With a focus of continuing to broaden our reach to consumers, we continue to work on expanding our distribution system.
With respect to third sector sales, we've seen the contribution from traditional agencies slowing down, and we've developed partnerships with new channels that have helped offset that decline. These channels include Japan Post, and we're making gradual but steady progress with advancing our sales through postal outlets. The number of postal outlets selling our cancer insurance rose from 15,000 to almost 30,000 in March 2014. At our September analyst meeting in Tokyo, Taizo Nishimuro, President and CEO of Japan Post Holdings, announced the expansion of postal outlets selling our cancer product. Effective October 1st, we increased from 3,000 to 10,000 postal outlets. He also shared Japan Post Holdings' plan to increase the number of post offices selling Aflac cancer products to 20,000 by the end of fiscal year 2015.
We believe that both Aflac Japan and Japan Post can enhance their synergies by working together to provide cancer products to a large group of consumers who regularly turn to postal outlets to help with their insurance needs. Let me update you on Aflac Japan's performance for the first nine months of 2014. Our sales target is based on Aflac Japan's third sector products, which include cancer and medical insurance. For the first nine months, third sector policy sales were down 2.8%. Actually, that's premium sales. For the first nine months in yen terms, revenues grew 1.2%, premium increased 0.1%, and pre-tax earnings were up 3.1%. Remaining the leader of third sector products is important to us, and as I mentioned, continues to be the foundation of our product portfolio. We've been taking steps to improve sales results for third sector products for the remainder of this year.
This includes increasing our support to large non-exclusive agencies as well as Japan Post and expanding our sales support network to enhance our training capacity for post office sales representatives. Although third sector sales were down in the third quarter, we liked the initial results we saw in October when we released earnings and announced that third sector sales were up 20% for October. As we previously communicated, we anticipate third sector sales for the full year will come in at the low end of our expectation of a 2%-7% increase. While fourth quarter comparisons will be challenging, we continue to enhance our distribution opportunities and product offerings in Japan, which we believe will benefit sales. We've experienced a tremendous amount of success leveraging the strength of the Aflac brand and our efforts to drive sales.
For example, to promote our new cancer products offered over the last two months, we introduced an advertising campaign in Japan with a new character, Hajimete, or our pioneer duck. This character was created to celebrate Aflac Japan's 40th anniversary in Japan and remind customers that Aflac was the first company to pioneer the sale of cancer 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'll continue to look for new ways to connect with consumers through innovative marketing campaigns for our product line. Japan's population is covered by a universal healthcare system, but 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. Co-payments for salaried workers under 70 have grown to 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 experience expenses is significantly outpacing GDP growth. Because of the rapidly aging population and the higher co-payments 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 in the medical insurance market to continue our growth in the future. Now let me turn to Aflac's U.S. operations.
As you may know, Aflac is the number one provider of voluntary insurance at the work site in the U.S. As such, we primarily collect premiums on a payroll deduction basis. 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. Now, these payments are made regardless of any other insurance policyholders may have. Our group products align well with our individual product portfolio 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 United States come from group policies. Aflac's well-recognized brand and market-leading status only broadens its appeal to consumers throughout the United States.
Our job is to be where consumers want to purchase Aflac products. It's our intention to sell through traditional distribution channels as well as non-traditional distributors, which include commission sales associates and brokers, both large and small. Our diverse yet focused product line of group and individual products is sold through a broad distribution network of more than 70,000 commissioned sales associates and growing relationships with the insurance broker market. About 98% of our products are sold through the work site, and the vast majority of those sales come through smaller employers with under 100 employees. As such, we're working on several key initiatives in 2014 that support our multifaceted distribution network in reaching out to businesses of all sizes.
With regard to our distribution network of independent sales agents, we've been implementing tactical initiatives centered around better performance management and competitive compensation that's more closely tied to corporate goals. These measures are designed to more effectively link sales management success to Aflac's success. When we announced these changes to our sales organization, we anticipated that they could've resulted in short-term sales disruption. However, we were pleased to see an improved trajectory of U.S. sales in the third quarter. Even so, we want to see sustained sales growth before we view this as a turnaround. To that end, we continue to work on initiatives designed to empower our sales channels to grow our new business. As part of our initiatives, we're putting people in place to focus on building and managing relationships with large national brokers.
As part of this strategy, these key Aflac positions will work with large brokers on building a voluntary go-to-market strategy. To support this market in the sales and enrollment process, we are already represented on more than 80 benefit administration platforms, sometimes referred to as exchanges, through various brokers. Let me update you on Aflac U.S. performance. For the first nine months, total new annualized premium sales were down 4.5%. Revenues grew by 1.2%, premium income increased 1.1%, and pre-tax earnings were up 4.7%. Given the sales production for the first nine months of the year, we now expect sales for the full year will likely be down 2%-4%, which is an improved outlook since the release of our second quarter results.
Aflac's established brand has served as an effective door opener that has been a catalyst for many consumers and payroll accounts to be more receptive in hearing how Aflac products can help them. At the same time, our well-known brand has increased expectations for servicing from our payroll accounts, distributors, consumers, and policyholders. That's why a focus on customer service is one of our areas of concentration, and we have initiatives underway to support this important aspect of our business. One constant has been and continues to be the need for our products. There's no plan, even the best major medical plan, that's designed to cover all out-of-pocket expenses. We continue to drive home the need for our products to businesses and ultimately their employees. In so doing, we believe Aflac U.S. has the opportunity to emerge better positioned from the ever-evolving healthcare environment and market.
One reason for that is because just like national healthcare in Japan, more uniform coverage will instill a better understanding and appreciation for the types of products Aflac sells. We continue to believe that Aflac U.S. represents a vast opportunity for growth, and we're building our business and enhancing our distribution systems with that potential in mind. This next slide shows the most recent data from the U.S. Census Bureau. The United States has about 5.6 million businesses with fewer than 100 employees. These small businesses employ more than 39 million people. Although our traditional focus has been on smaller-sized payroll accounts, we believe our strategy for reaching regional and large brokers will better position Aflac in the larger case market as well.
Since 2011, our Global Investments division has been in the midst of a transformation, and we're on track to finish by the end of this year. One of the major outcomes of this transaction was the initiation and implementation of a strategic asset allocation, which produced our investment guidepost for a three-year period, 2012 through 2014. This initial strategic asset allocation led to an improvement in the quality and liquidity of our investment portfolio. More importantly, the strategic asset allocation framework provided us a disciplined approach to investing and the flexibility to make tactical changes within the resulting guideposts. As we complete the study for 2015, it appears to confirm that our investment allocation appears to continue to be on the right track.
As you can see, our approach has led to a rather stable asset composition, with Japanese Government Bonds or JGBs forming the foundation that backs our yen-denominated liabilities. In addition, we expect the less liquid private placements to decline over time, as we're not adding to this asset class today. As you can see on this chart, the debt and perpetual securities that we hold are primarily investment grade. Only a very small percentage of our holdings is below investment grade. Our objective is to have a portfolio that's diversified by geography and industry with a high-quality focus. At the same time, our ability to continue to implement new strategies is based on the evolving capabilities of the Aflac Global Investments division. We have defined our investment objectives as maximizing risk-adjusted performance, subject to our liability profile and our capital requirements.
I'll spend the last portion of my discussion updating you on our 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 to 2012, it weakened dramatically in 2013 and again in 2014 compared with the respective prior years. Due to the significant contribution of Aflac Japan's operations to our overall earnings, a weaker yen suppresses our reported results in dollars. However, Aflac's currency exposure is largely a translation related activity, as opposed to being transaction related. As such, we still believe that viewing our results, excluding the impact of foreign exchange, is the most meaningful way to evaluate our financial performance.
We remain very focused on our capital ratios, which demonstrate our commitment to maintaining financial strength and flexibility on behalf of our policyholders, our shareholders, and our bondholders. Through strong surplus growth and an improved portfolio risk profile, our capital ratios improved significantly in 2013. We estimate our third quarter 2014 risk-based capital or RBC ratio will exceed 775%. Additionally, we expect that Aflac Japan's third quarter solvency margin ratio, or SMR, will be above 750%. We're currently exploring the possibility of increasing the frequency of capital transfers from Japan to the United States, pending completion of our internal governance process. This would enable us to better manage liquidity in the U.S. segment and at the parent company as well. As a result, we've increased the provision for capital repatriation reflected in our estimated September 30th SMR.
It's this increased provision that resulted in a lower estimated SMR at the end of the third quarter, compared with our ratio at June 30, 2014. As part of our capital strategy, we entered into a reinsurance agreement on October first, which was similar to the transaction we executed in September 2013. This transaction will release approximately JPY 55 billion of Aflac Japan's regulatory reserves. 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 decided to repatriate JPY 131.4 billion. At our analyst meetings in May and September, we conveyed our expectation that profit repatriation will be in the range of JPY 110 billion- JPY 150 billion in 2015.
Based on our current forecast of our FSA financials and our solvency margin ratio, as well as our most recent reinsurance transaction, we now expect those earnings to be at the high end of that range. Keep in mind, as we've noticed in the past, that repatriation could change depending on interest rates, credit spreads, foreign exchange rates, and credit losses. We do currently expect profit repatriation to be significant in 2015. As we mentioned at our investor meeting in September, we're currently working on a multi-year capital campaign. As part of that plan, we're making good progress toward a retrocession agreement with a reinsurer to assume some of their risk. Retrocession risk to an existing Aflac entity would improve the economics of our reinsurance program by effectively lowering the cost of reinsurance for Aflac. Maintaining our industry leading return on equity is another high priority for us.
We continue to anticipate operating returns on equity will be strong and exceed 20%, excluding currency. 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 inclusive of interest expense associated with notes payable, but before realized investment gain and losses from securities transactions, impairments, and derivative and hedging activities, as well as other and non-recurring items. On an operating basis, we have a long history of producing earnings growth. As this chart shows, growth in operating earnings per diluted share was held back by the weakening of the yen to the dollar at the end of 2013. Excluding the currency effect, the growth in earnings per share was still strong.
As we have said for many years, when it comes to deploying excess capital, we still believe the growing cash dividend and repurchasing our shares are the most attractive means, and those are the avenues we will continue to pursue. We were pleased with the action by our board of directors to increase the quarterly cash dividend by 5.4% effective with the fourth quarter of 2014. This marks the 32nd consecutive year of increasing our cash dividend. Our objective is to grow the dividend at a rate generally in line with the increase in operating earnings before the impact of the yen. Additionally, our capital strength gives us the confidence to increase our 2014 share repurchase objectives from $1 billion of stock to a $1.2 billion of our common stock. Looking ahead, it's our current plan to repurchase $1.3 billion of our common stock in 2015.
We continue to focus on maintaining the solid fundamentals in our core business and building on our record of earnings growth. As we previously stated, we anticipate increased spending in the fourth quarter related to our technology infrastructure in Japan and our sales force repositioning in the U.S. Taking these factors into account, we continue to expect operating earnings per diluted share will increase 3%-4% for 2014, excluding the impact of the yen. If we achieve that rate of growth and the yen averages 105 to 110 for the last three months of the year, we would expect reported earnings for the fourth quarter to be in the range of $1.28-$1.37 per diluted share. Under that same scenario, we would expect full year operating earnings of $6.14-$6.23 per diluted share.
After assessing our business and opportunities for growth in 2015, we established an objective of increasing operating earnings per diluted share by 2%-7% on a currency-neutral basis. This range reflects the stability of our businesses in the U.S. and Japan, the continued opportunities we see for sales growth in both markets, and our ability to deploy capital for the benefit of our shareholders. This slide shows how our original 2014 EPS might have looked with and without the impact of currency. Today, we estimate that a JPY 1 change in the annual average exchange rate will equal about $0.03 in per-share earnings in 2014. 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.
As we work toward our objectives and goals, we have confidence in our business model, the fundamental need for our products, and most importantly, the future success of Aflac. That concludes my presentation. I thank you for your attention. I'll be glad to respond to any questions you might have.
Great. Thanks, Kriss. We'll have people walking around with microphones, so just raise your hand and we'll get to your question. If I could start off with a couple. With 75% of your business in Japan and the weakening yen at quote, "around 120 today," you ran through some of the financial implications of that. Can you talk a little bit about sort of the economic implications on the business and how you think about insulating the business against changes in the yen?
Well, of course, we do operate in Japan with yen as the functional financial currency. Our policies are sold with yen premiums. Our benefits are paid in yen. Most of our expenses are incurred in yen. We've got a natural match on the operating items. We do want to have yen-denominated liability or assets backing our yen-denominated liabilities in large part. We try to match the principal amounts in yen against the yen-denominated liabilities. We have, however, historically, had a fair volume of assets that carry dollar-denominated coupons. Years ago, those were private placements with cross-currency swaps that might have yen-denominated principal amounts, but dollar-denominated coupons. What that does is in a period of yen weakening, you get more yen from a dollar worth of coupon than you do today. A couple of years ago, we started investing more in dollar-denominated corporate bonds.
We hedge the principal of those JPY-denominated corporate bonds into JPY to create a currency match against our liabilities, but we tended to leave the coupons in dollars. Today, that's created some stability of our dollar reported earnings as the JPY has weakened. In addition, for years, because our shareholders are primarily dollar-denominated shareholders, we've tended to maintain a significant portion Virtually 100% of our GAAP equity in dollar-denominated securities, thinking that, okay, the investors are on some currency risk during the period that we earn the money, but once we earn the money and convert it to capital, we want to convert that to dollars to give the shareholders a match with their natural functional currency. I reported that for 2014, a 1 JPY change in the exchange rate would cause us to lose about $0.03 in reported earnings per share. We'll update that for 2015.
The number will probably be $0.03 a share, or maybe possibly less. We've taken some measures to hedge against JPY weakening in that regard. Of course, we also hedge some of our anticipated profit repatriation, either by dollar averaging before we get it, or we're trying to get the repatriation more frequently, so we're not exposed to changes in currencies for a long period of time. It's better to be exposed for 3 months than a year. That's about it.
That makes sense. Sticking with Japan, thinking about the recent rating agency downgrade, what, if any, impact do you see on Aflac?
Well, I understand Moody's downgraded the Japanese sovereign here recently, and Fitch put a negative watch on the Japanese sovereign here recently. We are invested, probably 30%-35% of our assets are in JGBs. Part of that's for a very appropriate business reason that we have to have assets that we would like to see matched on a duration basis with our liabilities. We have long duration liabilities in Japan, and the most readily available long duration JPY-denominated asset we can find is JGB. We pay attention to the yields and the like, but as most of you know, there's no substantial corporate bond market of JPY-denominated securities in Japan. It used to be we could go out and buy some foreign-denominated securities and do a long duration cross-currency swap. Those things have gotten a lot more expensive than they were pre-financial crisis in 2008.
They're not as cost-effective as they used to be. JGBs are still kind of a natural investment for us. JGBs are still investment-grade securities. They're substantially owned by the citizens of Japan. We're a regulated financial institution in Japan. I think that if anything did happen to the credit worthiness or credit quality of JGBs in Japan, there would be a lot of workout required between the regulatory authorities in Japan because it would affect not only the Japanese insurance companies, including Aflac, but also the major banks and a lot of other companies. We're just kind of taking the cards that are played us. JGBs are a good match from a duration and currency perspective, and for the most part, they provide adequate yields, so at least for we have to modify our products to fit their yields. That's how we feel about that.
Makes sense. We have time for maybe one or two more questions if there's any time. Anyone out there? If not, I have one more here for you. You mentioned the reinsurance transaction that you entered in back in October and sort of following on the one from the year before. When you think about going forward, freeing up capital in Japan, how do you evaluate more reinsurance transactions versus maybe doing some sort of captive reinsurance, the economics between those two, how you guys are evaluating that?
Well, captive reinsurance is basically a way to reinsure from one part of your consolidated entity to another part of your consolidated entity. There are rules and regulations about that. We've found that in Japan, we're most comfortable if we have a third-party relationship between a reinsurer that assumes a portion of our liability, and then we are able to take back a part of the risk that we've ceded to that reinsurer in terms of retrocession to another Aflac entity. You've got arm's length transactions, and we achieve about the same result at a lower cost. We found that's the mechanic that seems to fit our model better than the creation of a captive. We're fairly new in this game. We haven't done much reinsurance over the years.
We have a lot to learn, but we're working with three or four professional reinsurers to learn the ropes, so to speak, and it's a part of the way we're developing the sources and uses of capital model that we're working on right now.
Great. Thank you very much. Well, please join me in thanking Kriss.
Thank you.