美國家庭壽險 (AFL) 2002 Q4 法說會逐字稿

Thanks for joining us tonight and thank you for your patience in waiting for us so we can start the webcast on time. There are a couple hundred people on the webcast, so I think we'll go ahead and get started and I first would like to start by introducing the representatives of AFLAC that are joining us today, starting with Dan Amos, Chairman and CEO, Chris Cloninger, President and CFO, Aki Kan, Vice President of U.S. Operations, Joe Smith, Senior Vice President and Chief Investment Officer, Robin Mullins and the Back Room Vice President of Investor Relations and my name is Ken Janke, and I'm the senior vice president of Investor Relations.

Dan's going to speak first. In your kit, we do have copies of the slides that I will be using. I hope you will pay attention to the safe harbor provisions that are on the inside front cover of that. I think you all know that what we will be talking about tonight is perspective in nature within the meaning of the federal securities laws and what we discuss tonight may differ materially from what occurs in the future, and I encourage you to look at the risk factors that could affect that. With that being said, I would like to introduce - bring Dan up here to talk about the fourth quarter and what happened during the year and our outlook for 2003, and I will follow up with a few numbers and we will take your questions. Dan?

Thank you, Ken. Good evening, everyone. I think you'll all agree that 2002 was a great year for AFLAC, especially when you consider how tough it was for the industry, in general. Many companies faced tough sales environments, significant investment challenges, vac charges, and pressures on the rating agencies. We, on the other hand, produced sales results that exceeded our expectations and investment portfolio that avoided all the notable bankruptcies, claims experience that was better than expected in Japan, and an upgrade to our financial strength by Moody's.

Most importantly, our operating earnings per share rose 17.9% excluding the impact to the end significantly ahead of our 15% objective for the year. Certainly, we were very fortunate and probably had a bit of luck, but I also think that we created some of that luck ourselves just in part by staying very disciplined in what we do. Some of you have heard me talk about it before, but I believe that the principles of risk management insurance are so important and I tried to use them over the years in terms of running our business. They're real simple. Never risk a lot for a little. Never risk more than you can afford to lose, and consider the odds. They're very simple, but they've been very effective for us as a company, and by applying those principles, whether in good years or bad, we remained focused on our business model that's working very well and has been producing great returns.

Let me first begin with AFLAC Japan. We began 2002 with a primary challenge of turning around our sales in Japan quickly as possible. At this meeting a year ago, I told you that I was very disappointed in our sales in 2001, but no longer frustrated. I was convinced at that time that we were headed in the right direction, and I believe that our sales increase of 17.9% to a record 108.3 billion Yen in 2002 shows that we are clearly in the right direction. One of the actions that we took to improve sales was to further enhance our product line.

As you know, we introduced a new medical product called Ever last February. The development of Ever resulted from the research that indicated that interest in stand-alone medical insurance was increasing among the Japanese consumers. We also sense that there was some consumer dissatisfaction with the medical policies that were available in the market at that particular time. Without a doubt, Ever has been a tremendous success. AFLAC Japan quickly emerged as the number one seller of medical insurance. For the year, we sold 480,600 Ever policies and medical policies accounted for 17% of our total new sales for the year. Although Ever is a new product, keep in mind that it's really not that different from the other products that we've been selling for years. Our specialty is paying a fixed benefit amount on a number of days that an individual is required to be hospitalized for other types of medical treatment, and that's exactly what Ever does.

Actually, we have sold stand-alone medical insurance since 1985, and we have a lot of experience from that particular administration and pricing and claims in that kind of product. In fact, prior to Ever, we had more than a quarter of a million medical policies in force. Another product that has led our company has been the improved sales due to the rider Max. Rider Max, which has been very popular with consumers since we introduced in 1998, represents 31% of the total new sales. As you know, we began offering a new whole life version in February of 2000. A year ago, we did not think that we would see a significant amount of conversions to the new plan because the benefits remained the same and the premium went up initially to guarantee the whole premium, and in the U.S. that just never would have happened. However, we were pleasantly surprised in Japan that approximately 25% of the rider Max customer base converted to rider Max during 2002.

That tells me that our customers intend to keep the rider Max coverage for a long period of time meaning that we should see better persistency on the block of business. In addition, the success of the new whole life Max validates the research that we conducted in 2001 of December which revealed that 72% of the customers preferred whole life rather than term coverage. Similar research in December of 2002 showed the numbers had increased to 88% of the people preferred. If there's a downside to conversions, it's that they tend to be a very short sales cycle. As we told you, since the second quarter of last year, conversions should continue to taper off which will affect our 2003 sales numbers compared to last year. Remember, that we only count the incremental increase as a sale. This year, rider Max conversion premium will likely be down 10 to 15%, but even with a bit of headwind, we still expect total new annualized premium sales to increase in Japan 5 to 10%.

We believe that's a reasonable target for several reasons. First, our products that we offer are at the best benefits at the best price and pay the highest commission. Consumer recognize the value of our product and so do our agents. Second, AFLAC is well known for its financial strength. On December 17th issue of Japan's "Economist Magazine," AFLAC was identified as the most reliable insurer in Japan, and finally, the financial strain of Japan's national health care system is highlighting the need for our product even more today than ever. As you know, the co-payments and the deductibles of Japan's national health care system will rise from 20% to 30% on April 1st. There is no doubt in my mind that the change has already heightened the demand for the types of products that we sell. Distribution expansion is another important element of our strategy. During 2002, we recruited about 3,500 agencies which exceeded our target of 3,000 new agents.

We expect to recruit another 3500 agencies in 2003. As you may recall, we have especially focused on recruiting individual agencies which better position us to further penetrate the small business and individual markets. Our marketing alliance with dihichi mutual has been an effective expansion of our distribution system. Diachi life sold more than 359,000 of our cancer life policies in 2002, or an increase of 35% over 2001. Since March of 2001, diachi Life produced more than 22.5 billion Yen, or $185 million, worth of new business. This year, as diachi concentrates more on selling their own policies, we'll likely see sales of the cancer policies decline slightly compared to last year, but let me give you a little perspective on how diachi life's sales have really done for AFLAC. In 2002, dichi life's cancer life sales exceeded upon life the number one insurance company in Japan by 160% and beat Tokyo Fire and Marines sales by 290%. I think that demonstrates how successful the marketing alliance with diachi muteual has been.

Certainly, our financial strength has helped us stand out in the industry that has struggled over the last several years. One unpleasant consequence of the industry struggles has been the need for additional funding of Japan's policyholder protection plan. As we announced in December, we received a formal proposal regarding the policyholder protection fund. The proposal called for an extension of Japan's government pledge to enact fiscal measures of up to 400 billion Yen until March 31st of 2006 and for the industry to contribute an additional 78 billion Yen. Despite opposition to the proposal by AFLAC and a few other companies, it did pass on December 27th. As a result, we took a charge in the fourth quarter of $26 million, or about 5 cents per share diluted for the estimated contribution to the fund. It shouldn't surprise you that we voted against the proposal. We believe the industry has done more than its share, and we don't believe that AFLAC or any other company that has conservatively managed its balance sheet should be forced to pay for the mistakes of others.

However, I should point out that when you look back over the last three assessments, each assessment has been smaller than the previous one and at the same time, the life insurance industry's resistance to this effort has become stronger and stronger with each vote. For example, Japan's largest life insurance company voted against the most recent proposal.

That's the first time that that has ever happened. We believe the government has finally goten the message that the industry is not in a position to do any more. In fact, as part of the negotiation that took place at the end of last year, the government committed to conducting a thorough review of the current safety net system in looking to establish a more sustainable funding mechanism in the future. Despite our disappointment with the additional funding requirement, we remain enthused about the Japanese insurance market in general. It is the second largest insurance market and it holds great potential for us. In addition to the increased co-payments under the national health care system that will impact us in the near term, there is also the long-term trends that are favorable for our business, as well.

As Japan's population continues to age, its health care system will come under even greater stress because older adults access the health care system more frequently than young citizens. Given Japan's demographics and its national health care system, we think that Japan will remain a very good market for our products for many years to come. We also believe that we're in the best position to pass that market as we move forward. Now let me turn to AFLAC U.S.

Our business continues to thrive producing rapid sales, revenues, and earnings growth. For the first time in the U.S. history, we surpassed the $300 million mark in new sales for the quarter and for the year, we topped a billion dollars in new sales. New sales rose 16.4% to $1.1 billion. That's nearly double our sales in 1999. For the 9th consecutive year, accident and disability insurance was our top-selling product accounting for 51% of our new sales for the year. Our cancer insurance and fixed benefit dental products were strong contributors as was our newest product, which is a personal sickness indemnity that we call dsi. Psi is part of the hospital indemnity plan category and was designed to help consumers pay for physician business, as well. Psi sales have helped hospital indemnity to become our third best-selling product category.

In fact, the hospital indemnity sales rose 98% over 2001. Our strong sales results are a direct reflection of our ability to expand our sales force. During the year, we recruited more than 22,500 new sales associates which was an increase of 25% over 2001. We had 15,800 agencies who produced business for us on a monthly basis. That increase was 21% over 2001. A key to our success is our ability to recruit and our campaign for advertising has made an enormous difference with the AFLAC duck. During 2002, we released four new commercials.

One featuring hall of famer Yogi Berra, which you may have seen in the "Wall Street Journal" was one of the top commercials in the year. This is the first commercial that we released that had a celebrity in it. We have several more AFLAC duck commercials scheduled to release in 2003. The first three will also have celebrities. I want to just take a minute and show you the two new commercials that will air. You have seen one of them already, but I think you'll find the next one interesting.

At the count of three, you're going to be a chicken - Is this dangerous? - No - You don't even need that insurance - What insurance? - Two - AFLAC - If you're sick and miss work, they pay you cash - Three - You're a chicken - AFLAC, (both squawking like a chicken) - Now you're a duck - AFLAC, ask about it at work - AFLAC! - So young - Naïve - I bet they don't have a clue - or that insurance - What insurance? - The one that pays you cash and can't work - What one's that? - (playing music) - AFLAC, ask about it at work - AFLAC! - It's amazing what they've done for us.

Although the first one, which is the Creston commercial, has been out only about a month, we already have strong indications about its success. The brand recall research from intermedia advertising group recently appeared in advertising age that supports our claim. If you don't know about intermedia age advertising group, all you have to do is read its tag line, which is measuring the performance of every ad every night on television. Based on the monitoring of the commercial, intermedia computed a brand recall index for the ads that ran from January 1st through January 19th. During that period, the Preskin commercial had the highest brand recall of any commercial on TV during that three weeks.

We're also pleased to see references about how the duck is doing in terms of how it's perceived in branding, as well, with human resources which is a human resourcing outsourcing today publication, and they do employee benefits and pension plans, and their comment on AFLAC was, and I will quote it, created the most effective business brand symbol of the modern era, the AFLAC duck. It's becoming increasingly clear that we firmly established AFLAC as a pre-imminent brand in the United States. According to our continuous tracking, we now know that 87% of the people surveyed toward the end of last year new the brand AFLAC. In addition, we have seen references to AFLAC permeate everyday American life. You probably have all seen a cartoon or a comic on TV whose quacked the name AFLAC. However, to show you the AFLAC duck has truly become a Popeye con, you only need to look at this next clip.

Announcer - "Saturday Night Live"! - I don't even care. I'm just happy to be up and around after that accident on the job. I know the company paid the bills. Missing all those days of work must have been rough on your wallet. I was worried. I have insurance that pays for all of that - AFLAC. AFLAC. AFLAC - Announcer: from the national life association.

It's interesting to me how they almost quote verbatim exactly what we cover in terms of what we want to get across as a message, so it's really been great. We plan on continue to use the AFLAC duck in our advertising as long as possible, but at the same time, we are making sure the flak duck is becoming more than advertising, but a symbol of corporate philanthropy which helps our image as a caring company. As you know, we sell these stuffed ducks on our website to raise money for the cancer center and blood disorders of children's health care of Atlanta.

Federated department stores supported our efforts by selling a special holiday duck with the proceeds going to the AFLAC cancer center. We have one of these ducks for each of you today, and I can tell you that they are very hard to find. In fact, we were to introduce the ducks as a test in nine states, and we were supposed to have them between Thanksgiving and Christmas, and they sold out in two weeks in every store across federated and, and we sold 28,000 of them, so it just gives you an idea how popular our mascot has been. Some of you have asked me over the last several years how long can the AFLAC duck last?

Our answer is as long as the duck continues to go new places, people don't seem to get tired of it. So our message is to continue bringing in him new places and keeping people entertained and let our agents, in the meantime, make the sales. I also have been asked over the last several years if we plan on expanding it other foreign countries, like China and Europe, and I think it's becoming very clear that the next growth market for AFLAC is the - [audio gap] - our U.S. sales have compounded at 21.7%. Yet, we still expect sales to increase about 15% in 2003.

And we viewed the U.S. market as a vastly underpenetrated market. As the payroll leader, we still sell through 250 thousand payroll accounts. Yet that represents less than 4.5% of small businesses in the United States. Sheer size of the market, combined with the trend of increasing deductibles or lower employee paid coverage will make our products even more valuable than ever before. Back in May of 2001, we set a 2003 target to have a 15 to 17% growth in operating earnings per share before the impact occurrences. Just take a moment and consider what has happened in the world since then. Consider the economies of Japan and the United States.

Companies have lowered and continued to reduce earnings guidance. We, on the other hand, net or surpass all of our objectives in 2002, and we believe we will have another record year in 2003. As we look to this year, we believe that we will achieve a 15% increase in operating earnings before the effect of the Yen. That is our official target.

However, if things go as well as they did last year, we may be in a position to do a little better than the 15% increase. But we'll have to see as the year progresses what happens, but remember, we are all striving to extend that record of strong earnings growth beyond just one year. I'm always in it for the long term, and that is the most important aspect to me 2004, our objective is to have an operatings increase of 15% excluding currency, and those numbers are based on the extensive model, one that we consider to be realistic assumptions. Most importantly, they reflect our intense focus on doing what we do best, providing consumers with the best supplemental insurance value in the two largest insurance markets in the world today. I will turn the program back over to Ken. Thank you very much.

Thank you, Dan. I am taking my glasses off so I can see. Let me take you briefly through the financials, beginning with AFLAC Japan. AFLAC Japan's pre-tax earnings growth was is your pressed a little bit by the 2.9% weakening of the Yen for the year arising 13.9% as reported in dollars. However, if you look at the functional currency growth of AFLAC Japan, we had, I think, a pretty good year. Revenues were up 5.6%. You may recall that we came into the year expecting revenues to be up about 5% so we did come in better than expectation. That was on a premium income increase of 5.5% and investment income up 6.5%. The persistency of the business in Japan for the year was 94.1%, which was down from 94.7 in 2001.

Undoubtedly, there was some affect there from the lingering weak economy, but at the same time, we know we have seen a shift in our business in Japan whereby more is being sold on a direct basis as in to Diachi Mutual Life, and that type of business has lowered persistency than the payroll business that we have traditionally written. We continue to see improvement in the operating trends in the business, as we had expected and discussed all year long last year. We believe the benefit of ratio will continue to decline as it has since 1996. This primarily reflects the changing business mix at AFLAC Japan. In fact, at the end of the year, cancer insurance premiums in force represented about 66% of total premiums down from about 70% a year earlier and about 94% ten years ago. We do expect to see that to continue to decline going forward.

The expense ratio was fairly stable and as a result, we saw margin expansion and we should see that again in 2003, probably somewhere around the 13% area. With the higher margin we produced last year at AFLAC Japan, we did see pre-tax operating earnings in Yen climb 17.4%. However, if you unwind the currency affect on the dollar denominated income of AFLAC Japan, whereby the weaker Yen actually helps their earnings, pre-tax earning on a currency mutual basis, we're up 16.1%. In terms of our investment activities, I think we did an excellent job in an extremely difficult environment. One that deteriorated toward the latter part of the year. Going into the year, our budget was to invest new money at 3.5% and that remains our budget for '03, as well. However, you can see that we invested in Yen-only securities last year at 3.65% and on a blended basis, 3.93%.

Overall, we continue to have a very high quality invest. - investment portfolio companywide. Company securities represent just 2.3% of total investments and with Joe here, he can talk in much greater detail about our activities last year, as well as our plans for '03. In terms of U.S., as you heard from Dan, it had an outstanding year. Like 2001, AFLAC U.S. represented 30% of our pre-tax insurance earnings. We had exceptionally strong revenue growth, with revenues growing climb 18.8%. Premium income was primary driver of that rising 20.5% and investment income was up 9.2% for the year. We did see a slight improvement in persistency, which went 74% in 2001 to 74.6% in 2002. The operating trend has been very stable for the last several years.

We expect that stability to continue into the future. As a result, the margins should remain kind of in the mid-15% area as it was in the year 2002. And with that stability, we saw very strong earnings growth, up 16.7% and should see a mid-teen increase in 2003, as well. I think we also did a very good job in our U.S. investment activities. Obviously, the new money yields reflect just an overall decline in available yields in the marketplace. Joe's staff tried to be somewhat contrariant and pick up high-quality yields that were issuers that were out of favor, so we did a lot better than a lot would have expected, but it is, obviously, a more challenging environment to invest in the U.S. than it was, say, a year ago. With that, the quality of the U.S. portfolio also remains very high and two-thirds of the fixed maturity investments we have in the U.S. are rated "A" or better.

In looking at some other line items for the income statement, interest expense was unchanged. You may know we have 1.3 billion of debt on the books, which is about 24.8% debt to total capital ratio excluding FAS 115. We did by 12 million shares 12.1 million in 2002, which was in line with our target, and we expect to buy another 12 shares in 2003. Corporate and other expenses rose a bit. Actually, basically in line with earnings growth. However, I should point out that in the 2002 number, there was about $6 million less of parent company investment income to offset corporate expenses than we had had in the prior year, which obviously affected the comparisons, but we shouldn't see any significant increase in corporate and other in 2003.

As a result, pre-tax earnings were up 14.8% as reported, excluding the effective currency, they were up 16.3%. The tax rate remained very stable and was 35.3% versus 35.2 on an operating basis and earnings were up 14.5 or 15.9% excluding the Yen. There are a few reconciling items here to take you from operating earnings to net earnings and line items which Dan commented on. A large item there, 37 million relates to FAS 133. You may know that when we issued dollar bonds in 1999, we swapped those bonds into a fixed rate of interest in the Yen and we do mark the interest rate to those currency swaps to market on a total run basis.

It's a noncash item that will ultimately go to zero in 2009, but it does cause volatility in the net line. We did have 15 million of unrealized or realized losses during the year. There were no impairments of any magnitude, no bond impairments in the fourth quarter. We did have equity impairments, and we had, I think a very reasonable loss of what was going on in the market. And then finally, as Dan mentioned, we did provide for our obligations as the industry's we have pre-announced this in December. We estimated that the charges would be 21m- [audio gap]. Would be 6% of the industry by the time that we pass those directions paid out which will be the year 2010, so we did book a little amount of $26 million, or 5 cents a share.

And then that brings you the net earnings which were up 19.5% and on a per share basis, you probably saw the net was 1.55, which is pretty close to the $1.56 that we reported in operating earnings. Operating earnings were held back a little bit, 2 cents a share by the weaker Yen year over year, or up 17.9% ex-currency. As Dan mentioned, we have retained our guidance for 2003, as well as 2004. Believing that operating earnings per share will be up within the range we have established a couple of years ago this year and 15% in '04. In looking a little closer at how this year may play out, we have set $1.80 as our official target for 2003 at last year's average exchange rate of 1.32515. You may recall that the sensitivity of our earnings per share to the changes in the currency was running about one half percent of one Yen move for the average exchange rate for the year.

Because we have not made any significant contributions to dollar investments or virtual securities in Japan, we are getting a little less dollar income this year out of the branch than we would have last year, which will bring that sensitivity up a little bit and a better rule of thumb for '03 is more likely about .7 or three-quarters of a tenth per year for every one Yen move for the exchange rate on an annualized basis, so you can use that to kind of measure where you might be in terms of your estimates and expectations. The Yen right now is at about 1.20. It averaged 1.19 in the month of January and the first call in right now is $1.80, right in line with our target. Well, that concludes our formal comments this evening, and I would like to ask Dan, Kriss, Aki and Joe to join me and give us a second, and we will be happy to take any questions that you might have. Do we have a microphone for questions?

Yes.

We do have a microphone. We'll try to get to everyone's question. If you would please hold on and make sure that you have a question at the mic. Does anyone have a question? Anyone up here? We have one up here.

Dan, you talked a little bit about potentially a slowdown in sales of Diachi based on their own products. Would this be a good year to do a joint venture [audio gap]

Well, it's always a good year to do a joint venture, if we can find the right mix that works out. I said publicly that we constantly are looking for someone as a potential candidate to do in the non-life center, and frankly, we haven't done anything because we have seen nothing that, at this point in time, we think would really create a surge in business, and there are a lot of conflicts in the channel. Remember, on the life side, they are individual agents that are on salaries and the profit went to Diachi life themselves and they pay out what they want. On the non-life side, they're mostly independent contractors and they're selling on an employer-employee basis like we do, so there is some conflict in channels, and so we just haven't been able to work anything out. It's reasonable to say that we're still dealing with several companies and are working on trying to find the right solution, but I'm not going to get in a hurry to put something together that really won't work. It's like anything else. Once I closed the deal with one, the other one will close up, so I just want to make sure who we do it with is the best one.

There's no doubt, and I said early on that it was important that the Diachi work, and if it worked, it would bring other people to the table. That's exactly what happened. We had much more interest than the non-life side of people wanting to talk to us because they see, as I said, that they outproduce in Nippon life by 160% and fire and marine by 290%. The real answer is we're working on it. We don't have anything. Would this be a good year? Any year would be a really good year if we could really work it out. The other thing that I worry about is the anticipation of what the market would see in it. I can already tell you no matter who it is, it will not be another Diachi life. It will not bring that kind of business in. But I still am hopeful that at some point in time, we will be able to work something out.

A couple of questions. First, Dan, if you can just discuss any new products that you have in the pipeline. Second, probably a question for Kriss, I am wonder if it's possible to eliminate taxes on goods overhead, how would you change your [inaudible]. Policy?

Well, on the dividend side of things, our current yield's about .8%. It would be higher if our stock price were lower, but we don't want to see that. Basically, the way I look at it is if we have about $500 million of free cash flow to devote to shareholders in one way or the other, we have been devoting that 25% of it to dividends and about 75% of it to share re-purchase, and quite frankly, at the present time, we think share re-purchase is still important to us on an ongoing basis, so I think, you know, until the actual tax policy changes, we aren't going to think about changing.

If it does change, we'll look at the form it takes and consider what the balance is between returning funds for shareholders, be it dividends and share re-purchase and what's most efficient for AFLAC. In terms of new products, I think in Japan, we will continue to be carried by the Ever product for this coming year because we only introduced it in February, and so it has not peaked, and as you know, we don't bring out as many products in Japan as we do in the United States. In the United States, we're introducing at least two new products that are revisions to the old.

One is the cancer and the accident that we'll be doing. Two of our main products are getting a face lift as we saw, and it should be very positive for us and should hope to carry us on. Remember for those who don't know the details. Everything is indemnity in nature. So if we don't go in and offer a conversion of some sort, then the people are not as happy with their policy if it pays $200 and they bought it five years ago, it still pays $200 and if they need $300, we need to offer a conversion. The good news is that they're not required to get a rate increase. If it's actual expenses, it's just increasing every year and we don't do that, and it's beneficial from an earnings perspective to give us much easier ways to calculating the premium, so those are the ones in the pipe line right now.

Kriss, could you talk about the change in reserves in Japan going from IBR to a more permanent reserve and why that happened and how we should think about that?

We are seeing some triples in terms of the number of days that people are spending in the hospital for the treatment of cancer. When those average number of days per stay has been declining gradually for some period of time. Recently, say the last 18 months, we really have seen that trim accelerate, and I have been asking why is this happening? I knew that the Japanese health care agency was putting pressure probably on the hospitals to try to minimize the health care cost under the national health program in response to budget pressures.

But we did find out that the hospitals are basically being compensated more for shorter hospitalizations than they are for meeting size stay hospitalizations and even less for longer hospitalizations. So the way the government health care financing is working is having the affect of shortening hospital stays. Now, in our point reserve, we reserve for claims that are incurred but unpaid associated with a current treatment period of cancer. And what we're seeing is that the current treatment period is shortened rather significantly, and it's gone down, we think about 15 to 20% in the last 18 months for an average stay of, say, in the neighborhood of 45 days to a little less than 40 days.

Now, that reduces the claim reserve, itself. The real question becomes for the total anticipated benefits on that. And we have not seen evidence that suggests or proves to me that our total benefit costs over the life cycle of the treatment of the cancer claimant is reduced yet, and therefore, you smile, but I haven't seen it. Therefore, I have taken the position that I can't reduce my total benefit provision.

I believe that our original assumptions are reasonable and provide roughly 100 days of treatment for a cancer claimant, and we have seen those decrease over the last five years to maybe 99 days to 97 days, but nothing like the precipitous drop we have seen in the current treatment period, so what I'm saying right now is that I anticipate that we're going to have more stays of shorter duration and end up with about the same amount of benefits so I transferred reserves from claim reserves to the current period to future policy benefits saying we're going to have more and that's as simple as I could make it. Yeah. Yeah, we did it in very similar amount.

Joe, you mentioned - pardon me, Joe, Ken mentioned that you had taken some successful contrariant backs last year. Could you cite some examples and tell us whether you're still in them or not? Obviously, if you could be specific naming the bonds that worked out as well as they did. Thank you.

Probably the biggest one that we took last year was household finance. I wouldn't call me a vulture. I wouldn't go that far, but certainly contrariant, and any time there's headline risk and given the way the markets operate now when you have headlines on any one particular company, spreads just explode, and we like to go in and do our credit work and find out if the company really is in trouble, if there really is anything to the story and if it's not, we view that as an opportunity of us, so essentially, alco finance was probably the best example.

We ended up buying a single-A rated bond at double B spreads that is now going to be double-A rated. I would like to claim credit that we saw the takeover by HSPC as coming, that it was going to make it into a double-A credit, but we're not that good, but that's the sort of thing that we like to look at, and yes, we still hold that position that was done in Yen. It's now going to be an HSBC bond assuming the merger goes through or takeover still goes through. And there are other examples. I mean, we looked at different thing in the energy industry which has been beaten up. We looked at the automobile industry, which is under a lot of pressure these days, and we have taken some positions in those areas, but our investment philosophy focuses on the credit analysis, and again, all of these are rated instruments.

We don't buy anything that's not rated by Moody's, be it Moody's, S&P, or FDIC, but when those ratings are under pressure or seem to be under pressure, we view that as an opportunity in a lot of ways. Household is the exception. We would discredit ten ideas with the household if we thought the company was solid and we were satisfied with the credit whether or not HBIC took it over or not.

Kriss, can you talk about profit repatriation and what we can expect in 2003 and also what your plans for debt repayment are, if any?

Right now, we don't have any - right now, all of our debt is the 5-year samerize that we have done, and the first one is going to come due in 2005, so we don't have any debt repayment commitments in 2003 or 2004. We believe that we'll probably resume repatriating roughly 80% of our after-tax Yen earnings in Japan, and we'll use those proceeds for share re-purchase and general corporate purposes. I think it's probably unlikely that we'll go back to the debt markets, but it's not out of the question depending on where interest rates shake out. We've committed a rating agencies to maintain our debt to total capital ratios in the 25% neighborhood. 25 to 30%, we've been there for the last three years, right at 25 and I think we'll probably just recycle repatriation to share re-purchase and not significantly change our debt position.

Listen, we thank you very much for coming. We will be here a few minutes longer. If you have any additional questions, we do encourage to you call our toll-free number or send me an E-Mail. We would love to hear from you. Thanks, again, for joining us.