美國家庭壽險 (AFL) 2005 Q4 法說會逐字稿

Good evening, everybody. If you would please continue eating, but in the interest of time, we’d like to go ahead and get started. I’d like to personally thank you for joining us for our 2005 year end analyst presentation in New York.

I’d like to begin with a brief introduction of those that have joined us tonight from Aflac, starting with Dan Amos, Chairman and CEO; Kriss Cloninger, President and CFO; Aki Kan-- Aki runs our Japanese business. He’s President of Aflac Japan-- Paul Amos, who runs our U.S. business-- he’s Executive Vice President of Aflac U.S. And, some of you may have met Ron Kirkland at our analyst meeting, if you attended that in New York last May. Ron is Senior Vice President and Director of Sales for Aflac U.S. Also, Robin Mullins, Vice President of Investor Relations. My name’s Ken Janke, if we haven’t met.

Before we start the program, just one housekeeping note for those of you that have followed us a long time. Beginning in the first quarter, we’re going to consolidate two of our quarterly documents - the quarterly report and press release into one document. There’s a growing amount of redundancy in there. Hopefully, it will make it easier for us to produce and easier for you to consume. You won’t lose anything. It will just all be merged into one document. Watch for that, if you would, at the first quarter.

I’d also like to remind you that things we say tonight will be forward-looking within the meaning of federal securities laws. Although we believe these statements are reasonable, I want to remind you that they may prove to be inaccurate because things do change. Actual results could differ materially from those that we discuss tonight, and I’d encourage you to look at our quarterly report press release for the factors that could influence those future results.

I do want to remind you also that this meeting is being webcast. It will be important when we get to the Q&A session to make sure everyone has a mic when you ask your question.

Now, I’d like to turn the program over to Dan Amos, who will talk about the fourth quarter, the full year of ’05 and what we see for 2006. Dan?

Thank you, Ken. Good evening, everyone. We’re glad you were able to join us. The final quarter of 2005 ended in a very good year for Aflac. I’m proud that both Aflac Japan and Aflac U.S. achieved their sales target for the year. From a financial perspective, I’d suggest our reported results actually matched an even better year. Throughout 2005, we were confident that we would meet or exceed our earnings target. As a result, we significantly increased our advertising and promotion in Japan in the latter half of 2005. We also accelerated the production of new Aflac duck commercials in the United States to improve our advertising flexibility in 2006. Most importantly, we were able to take these actions while still achieving our target of earnings per share growth.

Last year marked the sixteenth consecutive year in which we’ve achieved our earnings objective. Let me give you a bit of detail on 2005 and the outlook for 2006, starting with Aflac Japan.

Aflac Japan produced strong financial results all year long. You’ll probably note that Aflac Japan’s fourth quarter included a charge related to our IT project. To recap, we began this project in 2000 and successfully implemented the first two phases which related to our call center technology and the administration of our life products. We also successfully converted our claims processing system in 2003, which was part of our third base.

The primary aspect of our third base was the administration of the third sector products. However, the phase proved to be more complex than originally anticipated. In addition, many things have changed since the phase began, and we had to go in and make some changes accordingly. First, the technology had improved on us. Second, the consolidation of our mainframe environment. And, then, most importantly, we made personnel changes to our IT leadership and developed a new three-year IT strategy. After clarification of that strategy, we concluded late in the year that the remainder of the third phase of the development would not be used. As a result, we wrote off the balance of the capitalized cost of that phase, which was about $0.03 per share on an after-tax basis. We don’t expect anymore write-offs related to that issue.

On the sales front, total new annualized premium sales were up 6.1% in the fourth quarter and 5.1% for the full year, which was in line with our sales target. Throughout the year, sales benefited from strong growth in our medical product line. Total medical sales and standalone medical increased 27.1% for the entire year. Although medical sales has become a much more competitive market, we have not seen any product that represents a better value to consumers than ours. In addition, we believe that we are the best branded company for medical insurance in Japan, and we remain convinced our status as the number-one seller of medical insurance also benefits our sales.

Cancer life sales were also strong last year, representing 16.3% over 2004 - cancer life benefits from the new cancer insurance product we introduced in June of 2005. Our newest cancer product increased the daily outpatient benefit to the level of the hospitalization benefit, and it also incorporated a wellness benefit. We believe the new product is one of the reasons that Dai-ichi Mutual Life had a very strong year of selling our product. Dai-ichi Life sales were up 15.1% for the year. We remain very pleased with the alliance with Dai-ichi Life and its contributions to our sales. Cancer life sales also benefited from a short term conversion program that we mentioned during the third quarter conference call. You’ll recall that we identified a block of business that we needed to convert from the payroll billing to a direct billing mode. The majority of the conversions, which are essentially a rate increase, occurred in the fourth quarter. That added over 1.1 billion yen to the conversion premium in the quarter. It takes a lot of sales associates’ time to explain why we had to make these rate changes, and it takes away from their sales activities. However, these conversions do enhance the profitability of our business; and, of course, this is of great importance to us and to our shareholders.

We continue to expand our distribution reach in Japan. For the year, we recruited 4,400 new agencies, which was on target for the year. Of those recruited, 82% of them were individual agencies. Building the number of individual agencies gives us better access to larger numbers of small businesses in Japan and the individual consumers outside the work environment. Individual agencies use consulting sales techniques, and they’re an effective means for distributing life insurance products.

Aki and Atsushi have also strengthened Aflac Japan’s management team. Many of you have met [Chinga San] at our analyst meeting here and in Tokyo. You may remember that Chinga was promoted in early July and given the responsibility to enhance our banking relationships. His leadership has better positioned him to sell in the third-sector products when the banking channel liberalizes at the end of 2007. He is also working in the corporate agency channel.

In addition to Atsushi at Chinga, our sales team has benefited from the experience of [Takiaki Matsumoto]. Mr. Matsumoto leads our corporate development and marketing strategy areas, and I believe our improved depth in the marketing and sales area will help us achieve our sales objectives in 2006.

For 2006, we are working on ways to improve the effectiveness of our affiliated corporate agency distribution channel. As you know, the contribution from our large agencies has declined for several years, which is part reflected on the changes in the employment patterns and consumers’ behavior. Despite those obstacles, we believe we can enhance the corporate channel’s results through the adoption of new sales techniques and contest rules, among others.

On the product side, just last week, we announced the introduction of a new and unique policy called Ways. Ways is essentially a first sector life insurance product that allows policyholders to determine how they’d like their benefit or how they want to receive it in the later years. They can select from traditional death benefit. They can elect medical or nursing home care or fixed annuities that are payable when they turn 60 or 65 years old. It’s the first time we’ve done anything like this, and we’re hopeful that it will be well received by consumers and translate into strong sales.

As we look ahead to 2006, we expect to see continued strength of our standalone medical product and cancer life product. We will again face declining Rider MAX sales and conversions. And, we will also have to overcome the payroll-to-direct conversions in the latter half of the year. However, based on the analysis and input from Atsushi, Chinga and the territory directors, we believe a sales increase of 5% to 8% for 2006 is reasonable.

As I mentioned on my third quarter conference call, Aflac Japan’s production suggests that the first quarter will likely be the weakest with sales flat to down for the first three months. We expect to see better growth in the second quarter. Importantly, you’ll recall from our analysts meeting that our modeling indicates that all other factors being equal, we should be able to achieve our earnings target based on a 3% to 7% sales growth. So, producing 5% to 8% sales growth this year will give us confidence in our earnings outlook.

Now, let me turn to Aflac U.S. Like Aflac Japan, our financial results were in line with our expectations for the year. In terms of sales, we believe we’ll be taking the right steps to get Aflac back into the double-digit growth. Total new annualized premium sales were up 7.5% in the fourth quarter to a record $369 million. Production exceeded our previous best quarter by more than $24 million. For the year, total new sales were $1.3 billion or 6.1% higher than a year ago, which was in line with our target of a 3% to 8% increase.

From a products standpoint, our sales continued to be led by accident disability in the quarter can do for the year. We also had solid contributions from other products, including Vision Now, our most recent product offering. We’ve been pleased with the initial sales of Vision Now, which is an innovative product that provides both vision correction and eye health benefits. Vision Now generated $17 million of premium in the last six months of the year.

In 2005, we also streamed on our hospital indemnity plan, or HIP, as we call it, to include three basic levels of coverage, one level which was designed to work with health savings accounts. We are also developing revised specified health [plans] and the intensive care plans, which we anticipate launching in the third quarter of this year.

From a promotion standpoint, 2005 was busy and an effective year for us. As we discussed, we think better defining the brand is essential. Initial testing gives us reason to believe that our brand message is resonating with consumers, and they are telling us that finally they are beginning to understand what it is we sell and how our products can help them. Our unaided awareness among the general consumers has literally doubled in the last five years to 49%. We are particularly aggressive in the creative development area through the year, with a consistent brand message in positioning the rollout of new commercials in 2006. We create nine new commercials in 2005, four of which we will air this year.

I'd like to show you two of the new commercials. The first one that you may be familiar with because it aired January 1. But, the second has not been seen by the public. Ken?

[video presentation played]

Let me make a comment about these commercials. In my opinion, since we’ve started the commercials many years ago, and we finally, in my opinion, broke out with the Aflac duck in 2000 with the park bench. It was a major change and really made a difference in our Company. I think the second break-out commercial we had was actually last year. We went four years or so before we had another one. I think the one with the broken leg, which told about why people need our products-- Later we followed up with the person in the hammock that hurt his head. You just saw the one with the broken arms. I think that is the next break-out commercial we’ve got. I think the last one you saw is the next break-out commercial for us. The reason I think it is is it’s the first time that we’ve talked about illness. You don’t know the details. You don’t know what it is. But, it’s obvious now that it’s more than just accident insurance. So, it will be real interesting. We’re testing it as I speak, so we don’t know the results yet. But, we’re hopeful that it will test very well for us and give us another introduction into the public perceiving what we do and how we do it. So, hopefully, they will get the brand message, and it will continue to ultimately help our sales.

As you know, we’ve been spending most of our energy on the people side of our business. To that end, recruiting was up 7.5% in the fourth quarter and 8% higher for the year; and it’s right in line with our target of a 5% to 10% increase. However, we want to do more than just recruit. We must translate-- transform, rather-- more of the new recruits into producers. The number of monthly average producers in 2005 was down from a year ago, and we need to do a better job with that. We still believe the best way to do that is through more effective and standardized training of our sales associates, as well as our sales management team. As you’ve heard us discuss before, we have several training initiatives underway. We are continuing our process with our lease program and our training of that, and we believe that will ultimately help our new associates in their training cycle. We are also pleased with the initial results of our Coordinator In Training, or the CIT program. Our goal of the CIT program is to build a pool of well trained sales managers. Nearly 2,000 of our sales associates participated in the CIT program in 2005, and 64 of our 95 state operations at the end of the year had adapted that particular program. We are also developing new standardized training curriculum for all of our coordinator base. In addition, we are emphasizing the importance of producer growth. The way that we’re doing that is Ron and his territory directors will have included, and part of their bonus will now be, how they do in terms of producer growth. For those of you who wonder if that will be effective or not, I can only remind you that last year, we included a recruiting component in their bonus for the first time. I don’t think it’s coincidental that they were able to achieve their recruiting goal in 2005. I’m sure that it will be an effective way because I’ve always said that salespeople follow the money. The money is going to be to increase sales and increase producer growth. That’s what we’ll be concentrating on.

I’m also sure you realize that our primary goal in the United States is getting back to double-digit growth. I still very much believe the market can support that rate of growth, and I am convinced that we are properly positioning our brand. I am confident our products are well suited for the market, and we’ve not seen any changes in the competitive environment that makes me think anything but that the U.S. can continue to grow.

As you saw, our objective for 2006 is to increase total new sales in the 8% to 12% area. But, I want you to know that I am pushing for a 10% to 12% increase in sales. Our financial modeling assumption for the U.S. is a 5% to 10% increase, which, like Japan, is more conservative than our actual objectives.

Today, Aflac is stronger than it has ever been from a financial perspective. Our investment portfolio is in excellent shape. We’re very comfortable with our capital position. In fact, we estimate that our RBC ration improved from 426% in 2004 to a range somewhere between 470% and 480% in 2005. We’re also generating strong cash flow that we can use to benefit our shareholders. We remain committed to purchasing our shares on a consistent basis, and we’ve done so in every quarter since initiating the share repurchase in 1994. During the fourth quarter, we purchased 2.4 million shares of Aflac stock. For all of 2005, we bought 10 million shares, bringing the total number of shares purchased to over 187 million shares since the program’s inception. We anticipate buying another 10 to 12 million shares in 2006.

We’ve also consistently raised the cash dividends. The cash dividends paid for the year 2005 were 15.8% higher than 2004. When the board of directors meets on February 14, they will address the 2006 cash dividend. As we noted in our press release, we are proposing an 18.2% increase, or to go from $0.11 per share to $0.13 per share, which would take effect in the first quarter of 2006. If approved, this would mark the 24th consecutive year of cash dividend increases. I view the proposed dividend increase as another indicator of the confidence of our future growth.

Over many years, Aflac has earned a reputation as a consistent performer from a financial perspective. I believe that reflects in the renewal nature of our revenues, the stable operating expenses, and the relatively low risk profile of our claims exposure and conservative investment approach.

In terms of communicating our expectations, we’ve been able to look further ahead than most companies - not because we’re smarter but because of the predictable nature of our business. That predictability has not changed. But, the legal and regulatory environment has changed. As we discussed in our quarterly report and press release, we have given careful and considerable thought to the policy of providing earnings guidance. We concluded it is in the best interest of the Company and the shareholders to provide earnings guidance for a year and a half rather than two and a half year projections that we have previously provided. I hope all of you heard me say last May when I said there is a greater risk to a company than ever before in providing earnings targets and guidance, despite the safe harbor provision under the securities law. After one court case last year, an observer referred to the safe harbor as nothing more than the safe puddle. But, I want to emphasize that we are still committed to providing guidance in the investment community. In yesterday’s release, we reaffirmed our 2006 guidance of a 15% increase in operating earnings per share, excluding the impact of currency. Based on the development of the business in the last eight months, we now feel comfortable targeting a 15% to 16% increase in earnings per share before the end in 2007, which is up from 13% to 16%. So, when we meet at our analysts meeting in Georgia this May, we won’t comment on our 2008 expectations, but we will discuss our operations in great detail and let you know what we’re doing to help us achieve our earnings targets in the short run and extend our record of growth for the long run.

Thank you very much. Ken?

Thank you, Dan. Let me just briefly go through some of the financial highlights for ’05 and tell you where we think we’ll be in ’06. If you look in your kit, there are copies of these slides if you care to follow along and make some notes. Let me start just by working through the segment contributions, beginning with Aflac Japan.

Aflac Japan still accounts for the lion’s share of our earnings, about 74% of pretax insurance earnings. In dollar terms, this is clearly influenced by the 1.5% weakening for the full year. It was much weaker than that just in the fourth quarter. However, when looking in functional currency terms, meaning on a yen basis, premium income was up 6.3% for the full year. Investment income was up 7%. Our persistency did continue to improve, and for the full year, it was 94.7% versus 94.5% in 2004. As a result, total revenues hit 1.1 trillion yen, an increase of 6.6%.

Our operating trends were pretty much as expected. We had commented in May we expected the benefit ratio to improve by 50 to 100 basis points this year-- or in ‘05, which it did. The higher expense ratio was clearly influenced by our decision to increase advertising in the second half of the year. We had about a 28% increase in ad spending for Aflac Japan. Of course, we had a couple of charges we took for an IT project in the second quarter and the fourth quarter of 2005. As we look to 2006, we’d expect to see the benefit ratio continue to decline. Again, you may recall that at the analysts meeting we said 40 to 80 basis points of improvement would be reasonable for ’06. We’d expect to see more stability and maybe a little improvement in the expense ratio. In other words, we expect the margin to continue to expand.

With the margin expansion it did benefit earnings growth, which was up 11.5% on a yen basis. However, you’ll recall that a good portion of our investment income comes from dollar sources. For the full year, it was about 32%, and about 36% in the fourth quarter. When you unwind the currency effect, you see that on a real functional currency basis year over year, our pretax earnings were up 10.8%.

In terms of investment activities for Aflac Japan, we had a very good year. Our budget coming into the year was to invest or reinvest at 3%. Yen new money went out at 295 last year; 319 on a blended basis. So, we did better than our budget assumptions. The credit quality of the portfolio remains very high. On a consolidated basis below investment grade securities were 2.3% at the end of ’05 compared with 1.8% at the end of ’04. The biggest reason for that change is the inclusion of Ford Motor and Ford Motor Credit. We did sell General Motors which had been a below investment grade holding, as well as Toys R Us in the fourth quarter of the year.

Aflac U.S. had a good year from a financial perspective. In looking at revenues, which were up 10%, we had a 10.6% increase in premium income. Investment income up 6.5%. Like Japan, the persistency of the business also improved in the U.S. For 2005, that rate was 74.4% versus 73.7% in 2004.

The benefit ratio was slightly higher than it was in 2004. That has primarily been influenced by a slowdown in investment income. If you look at it on a premium basis as a percentage of premium, it’s much more stable than that. Actually, the benefit ratio declined by 0.10% year over year as a percentage of premium. Like Japan, the expense ratio was influenced by our decision to increase advertising, particularly in the creative or new ads that will be run in 2006. As we look to 2006, we’d expect these ratios to be stable to improving, meaning we should see a little bit of margin expansion perhaps for Aflac U.S. As a result, pretax earnings were up 5.6% to $525 million for the year.

Aflac U.S. had an investment objective of investing about 6% for the full year. Our new money yield was 6.16%. So, again, we did pretty well from that perspective. I’d like to remind you that when you look at the return on average invested assets, the ’04 and ’05 numbers were both influenced by the significant amount of cash we had from a securities lending program in 2004. There was a lot of cash collateral - about $2.8 billion. If you unwind that and get a more normalized number in ’04 and ’05, you’d see that the returns were 722 in ’04 and 712 in 2005, so still declining, resulting from lower yields but not quite as pronounced as you see there.

In looking at some other line items contributing to the P&L, interest expense was unchanged at $20 million. We have $1.4 billion of debt - yen-denominated debt - on our balance sheet. The debt to total cap ratio, excluding SFAS 115 gains and equity, was 18.8% for the year. That’s down from 21.7% in 2004.

Corporate and other expenses declined year over year. In ’04, we had made roughly a $12 million contribution for unfunded pension liabilities. That didn’t repeat in ’05. In addition, we had more investment income at the parent company that was netted against parent company expenses in ’05 than we did in ’04. That’s one of the reasons that the number came down a bit more. We ought to see stable to improving corporate expenses in ’06 as well.

You see pretax operating earnings of 10.3%. The tax rate came down a little bit, in part because of options expense. We did adopt SFAS 123R on January 1, ’05. The tax rate was 34.7% in ’05 on an operating basis compared with 35.7% a year ago. It ought to be pretty stable in 2006 versus ’05. You can see operating earnings were up 12%.

Here are the reconciling items that have been pretty consistent for us over the years. We did have significant realized investment gains. You may remember that we began executing the bond-swap program in the third quarter of 2005. It was in great part tax driven. We continued with that program in the fourth quarter and generated significant realized capital gains. The SFAS 133 loss was $10 million versus $13 million a year ago, and we did have in the third quarter a release of valuation allowance on deferred tax assets, which was much smaller than the one we had in the fourth quarter of 2004. So, you see that net earnings were up 17.2%, or 19.2% on a per share basis. Of course, our primary focus is on operating earnings and, more than that, operating earnings excluding currency changes. The yen was stronger in the earlier part of the year and then began to weaken. It hurt us by $0.03 in the fourth quarter. For the full year, operating earnings were reduced by $0.02 per share from the weaker yen. But, excluding that, as you know, we were up 14.8%, which was right in line with the target, meaning $2.56 on a currency adjusted basis.

As you heard from Dan, our target, which we reaffirmed last night, is to generate 15% growth in ’06 in earnings per share ex currency. For 2007, the target is 15% to 16%. When we think about 2006, I hope you’ll give this chart serious consideration. This is a chart we’ve used for several years to help people that follow this company closely understand how the yen might impact our reported results. They have given yen scenarios. Our target, using that 15% increase for 2006, would be $2.92. I’ll remind you that you see the yen average 109.88 in 2005. It’s right now a little over 117, so clearly much weaker than it was for the average of 2005. We’re a little bit more sensitive to currency fluctuations this year because we’ll get a greater contribution from yen earnings than we did in 2005. So, the old saw we said - 1 yen move in the average exchange rate - that rule of thumb equated to about a penny a yen. It’s closer to about $0.012 in ’06, at least that’s our estimate at this point, which you could compute looking at these scenarios. But, as you see, if the yen averages 115 for the full year, we would expect to report $2.86 rather than $2.92. If it weakens and averages 120, we’d expect to report $2.80 for the full year. Please give that consideration when you’re building your models, looking at someone else’s model, or giving thought to what we may earn in a particular quarter or year. For the first quarter, the way we look at it right now, if the yen averages 115 to 120, we’d expect earnings to be around $0.70 to $0.72 on a diluted share basis.

So, that’s it for my comments. I’d like to ask Dan, Kriss, Paul, Aki and Ron to join me, and we’d be happy to take your questions. Again, this is being webcast. I think Heidi in back has the microphone. Please wait for the microphone before you ask your question. It would really be helpful if you could just tell us your name and firm, so the people on the webcast will know who are asking questions. Finally, if you’d just try and limit your questions to one per person. If there’s enough time, we’ll circle back if you have a second question. Vanessa?

Ken, I have three questions. The first one is very quick. When you’re mean to the duck in the commercials, is that a problem? Do people push back on you? Like shutting him in the mailbox.

You know, it’s real funny. People I think identify with the duck. We’ve done our research. We found that in America the thing that seems to resonate with people is there’s so many people that are ignored by other people. The duck is being ignored. So, people identify with it. The humor of it does not seem to-- We’ve had him fall. We’ve had everything happen, from falling in the Grand Canyon to the roller coaster to everything. It won’t be any problem we don’t think.

Okay. I sat at Kriss’ table, so I have to give you a little bit of a hard time here Kriss. With an RBC ratio 480%, what do we think about? Are we going to 500, 600, 700? What’s exactly going to happen here? Are you going to eventually start using this capital a little bit more aggressively that you are generating?

Well, we’re going to continue share repurchase and dividends to shareholders. We announced we were going to recommend that we have an 18.2% increase in dividends to shareholders this year. We’ll continue our share repurchase at a 10 to 12 million share annual repurchase range. Hopefully, the value of the stock will be up such that that will cost us a lot more in dollars, and we’ll be required to dividend some of that capital out of the life company. But, the other side of the RBC ratio is that we feel the need to retain a relatively high RBC ratio just because our statutory capital and surplus position is considerably influenced by the weakness or the strength of the yen. We want to be prepared for all conditions. We don’t have any plans beyond those.

Okay. And, Aki, I’m not letting you off the hook. You’ve been there a year now. You’ve spent a year going back to run the Japan operations. You decided the systems needed some renovation and a write off. Is there anything else in the year that you’ve been there that you would point to as a considerable weakness or challenge or issue that you really need to focus your attention on?

Well, I think we are still-- In core business, we are still the strongest company in the insurance industry. The only thing I have noticed is that-- This is really associated with our evolutional thing. We started our business model from the corporate agencies. Then, we in a sense get into the individual business quite a bit. I believe we started somewhere around 1996 or ’97. We started getting into the individual market and started recruiting individual agencies in a massive amount. And, during that time, I think we in a sense a little bit-- When we compare our resource and time that we gave to the individual and direct market and the corporate market, probably the resource we have given to the corporate market was much less than what we did for individual market. So, in a sense, we-- The balance has been a little bit changed. I think it’s time that we rebalanced this corporate market and individual market. Hopefully this answers your question.

Ken, I have seven questions.

Say six.

[Inaudible.] Dan, can you tell us what the internal target is for growing monthly producing agents that’s tied to the bonus. And, can you also tell us what the target for 2006 is for recruiting overall in the U.S.?

Yes. I can tell you that from the field side, and I’ve been in the field for 30 years, anything you incent gets done. Last year, we incentivized recruiting, and you saw that recruiting came in pretty well. We’ve incentivized producer growth this year. We have a chart that gives them a bonus anywhere from 1% to 15% to 20%. So, if they do extremely well, then not only will the Company do extremely well, but the territory directors will do extremely well also. As far as recruiting, we’re still going to recruit. I think one thing that’s been said by our training coordinator is that you can’t retain who you don’t recruit. So, if we do not recruit well, we won’t be able to retain those people that we don’t have. So, our goal this year is somewhat the same as last year, the 5% range that we’re going to do in the recruiting effort. Our goal primarily this year is to make sure that when we recruit people, we put them in the training mode. We train them extremely well. Therefore, we will retain more people. Our training programs are going extremely well so far this year. As you heard Dan mention, we have about 63 or 64 states in the CIT program. That’s one mode of the training structure. The other is not only classroom training but also field training. We’re doing a tremendous job at both of those. We’ll be able to see the results of that, I think, later on this year.

Let me make one quick follow up to that. Right now, the statistic that we’ve been handing to you that you’re evaluating is average monthly producers. From my time in the field-- Lance Osborn is now our national head of training. He and I were partnered together in Georgia north. We really shifted the company focus to average weekly producers. We really found that was a more secure statistic and really focused on who was being profitable week after week. You’re probably going to begin to see us move in that direction. Obviously so that you can see both statistics for a period of time, we’ll put them both out there until you feel comfortable. I just wanted to make you aware that for the long term we’re beginning to manage on an average weekly producer basis. We feel that is a more relevant statistic to how we manage our business. Both indicate the same thing. One is looking at how many people are producing on a weekly basis versus how many people do on a monthly basis. That is the bonus-- The actual bonus criteria is not average monthly producers, but it is average weekly producers. Again, that’s what we’re shifting our focus to corporately on an internal basis.

Thanks. Suneet Kamath with Sanford Bernstein. You had spent additional money in Japan in the fourth quarter on advertising. If you look at the-- I’m assuming you did the number-one medical campaign. If you look at average sales, they were sort of in the 12 billion range, pretty much all four quarters. I guess I was expecting kind of a ramp in the fourth quarter, and I didn’t see that. I was just wondering if that surprised you. Are you doing anything different on the advertising as we think about ’06? Should we see sort of a spillover effect in terms of the first quarter from the ad spending that you did in the fourth quarter?

When you talk about the expense, is it the entire marketing expense or just the advertising?

Just what you talked about in your press release.

Okay. For advertising, we haven’t really changed that much at all. We have been doing this number-one campaign all the time, and we just have to keep doing that. Certainly, we had to do for our new product, cancer medical [K-plus]. That’s another one. We got pretty good result in the fourth quarter of cancer sales. Also, one environment that we have to look at in Japan is that in the life insurance industry, a couple of very major firms are doing more and more TV commercials. One company who is spending probably six times higher than ours is really trying hard to get the new business from these TV commercials. So, from the competitive perspective, we do have to do at least certain amount of the TV commercials so that we can maintain the number-one insurance company campaign.

Just a quick follow up, the one company that you mentioned that’s spending six times more than you, are they gaining share in that market?

Do they what?

Are they increasing their market share? I know you [inaudible].

I would not say anything about that.

I will. No. I’ll answer it. I’ve looked at statistical research that we have on our competitors, and the answer is no. I want to comment on one thing. Aki being Chief Operating Officer in charge of Japan-- he has done a superb job in overseeing all this. Just to your point, is the medical sales I think were 19%. So, it was a good quarter. But, more than that is that cancer sales was something we advertised a lot, and I wanted to make sure you got that. That hit heavy in the fourth quarter.

Can Aki just elaborate generally on the Japanese competitive environment - the local incumbents and how they’re doing and the foreign companies and such? Maybe just comment generally about the competitive environment and also looking forward with the banks being able to distribute the third-sector products.

Well, a lot of people are saying that more traditional life companies in Japan are becoming more and more competitive because their financial condition is getting better. But, their financial condition is basically based on the exited side, which means strictly the balance sheet perspective. Even if the stock prices are going up a little bit and stable, that does not really mean necessarily that their P&L side has been changing that much, which means their business model has not really been changing at all, from my perspective. So, as long as their business model and their cost structure would not change to compete with ours, I personally would not see any competitive threat from that.

And, about the banking thing, for us, the most critical thing is 2008 - January 2008 - when the first sector products are completely freed up. So, we have been trying to prepare for that 2008. Probably, Aflac is one of the strongest companies in terms of the relationship with banking because out of about 450 banks in Japan, we have over 220 banks that have an affiliated subsidiary company who are our agencies. So, we already have had a tremendous amount of business relationships with bankers. But, the banking channel sales is not really that kind of indirect sales. So, starting from 2008, they are going to directly sell our policies without really involving their agencies or subsidiaries. So, that’s the difference. Based on our long time relationship with their affiliated agencies, we are-- On top of it, we have been trying to build up a more-- better relationship with banks themselves. I personally visited over 50 bankers last year in one year. I strongly feel that they are really waiting for the first sector products in 2008. I’m sure we are 100% ready for that.

Andrew Klieberman at UBS. I’d just like to drill down a little bit more on Terri’s question about the competition, particularly with the domestic Japanese companies. I believe in the last year I’ve seen about a dozen new products come out. I want to get a sense of why or why not those products will have more penetration versus Aflac. That’s the first part. Then, with the foreign competition, I think I saw AXA Financial enter into a JV with a foreign company, and I know AIG is pushing hard. Maybe you could talk about the push coming from the foreign companies as sort of a separate part to that question.

For domestic companies, first of all, the most recent example is Nippon Life, a policy that is kind of limited sale to a certain age block of people. Their premium is pretty high - much higher than ours. So, again, unless they can keep up with our business model and cost structure, I don’t think there’s any competition with Aflac. And, the foreign competition-- Do you have any product in your mind specific? I can talk about it. AXA actually has been competing with us not really by AXA itself, but AXA’s subsidiary company they acquired a couple of years ago. That company’s business model was purely based on the group medical products. The problem in the group medical product is that whenever you get retired, normally the coverage will end. So, they keep-- That subsidiary company keep selling that policy. But, what I understand is, it is not really that much prevailing in the market, even if they are using the group rate. Our policies are not really group rate. Our premium rate is individual rate, but we are still competitive. Our policies cover not only the people under age 60, which is the mandatory retirement age in Japan, but also all the people above age 60. So, we don’t really have any threat on that.

AIG?

AIG? Well, AIG-- Probably the typical company of AIG is Alleco. They sell quite wide range of products, but one product that they are selling very well, I believe, is the product that in a sense a substandard policyholder can get into, which means if you have a kind of chronic disease in a sense-- Even if you have that kind of thing, you can still buy the product, which is not really something that we are really trying to compete. We have no interest in getting into that kind of market at this point. I don’t know how Kriss is considering that.

Andrew, let me just kind of sum it up to say that we get data on all of our competitors on a monthly basis. There is no one threatening us in any way. The biggest fear that we have internally is simply-- and it’s not a fear, but it’s something we have to work through-- is confusion with the public. There’s more out there, and you have to explain it. We are not allowed to do comparison in any way. It’s against the rules according to the government. So, we’re not allowed to do that. So, when someone comes out with a new product with a bell or whistle, we work very hard on a public relations side to get newspapers, radio, TV and whoever to do comparisons for us, which are legal. But, we can’t do it as a company. So, I can tell you unequivocally that no one is out there that we feel like has a better product at a cheaper price that pays a higher commission. All the trends show that we’re doing very well. We’ll see blips of people that will come and go. The same thing happened with the cancer insurance in 2001. I believe we’re on the track of doing-- That’s the reason we kept beating in the number-one campaign. If you can’t tell anything about who’s the best, then you hopefully will associate being number one with being-- They must be the best because they’re number one. That’s not always the case, but it generally is the case. That’s the way we’re working to do it. But, there is no one that’s come on the market that’s all of a sudden scared us in any way, shape or form. But, there are people joining at all times the market to look at it. We have to constantly be aware of it. But, remember, especially with the major life insurers, our market is a lower premium/high volume. Because of the expense factor that all of those companies have, and almost all of them have a 50% higher expense factor than ours, they cannot compete at the low level premium. I believe the Nippon Life premium is almost 60% higher than ours. Now, the benefits may be a little bit more, but they can’t compete on those low premiums. That is our niche. That is our strength. Continue to drive down operating expense ratio. The master of doing that is Aki in Japan. He will continue to do that. That’s going to keep us the leader in beating the competition in Japan.

Hi. I just wanted to ask a little bit about the U.S. revenue growth. You gave us sales targets. Can you just talk a little bit about persistency and how that’s going to play a role. And, then, what is the realistic growth rate that we should be expecting for your U.S. revenues? Are they going to slip into high single digits, and is that really the long term prospects that we should be thinking about?

We do forecast that in 2006 we’ll be in the 9% to 10% range of revenue growth for Aflac U.S. That’s based on kind of the lower end of the sales target. Persistency has been stable in the U.S., as Ken said. We were a little concerned about the effect of the hurricanes and whether we’d see some effect of that. We really hadn’t seen that through the fourth quarter of this year. We may see a little bit of a blip in persistency as the mandatory grace period expires in Louisiana. But, I don’t think that’s going to have any great effect on anything. So, normally, the trend in earned premium follows the trend in increase in new sales. So, right now, it’s been on the low side of what it’s been for the last three or four years. We’re looking for recovery, and I think the trend in earned premium will follow the trend of increase in new sales.

Do you think that you can maintain your long term growth targets if the U.S. revenue growth is below 10% for several years?

Well, sales is going to precede the growth in earned premium. Dan assures me and Ron and Paul all assure me that return to double digits is in the cards. That’s certainly part of our objectives.

I just have one follow up question on the agency. You had talked about hopefully improving agent retention through the training. Can you just give us a few statistics? What has agent retention been? What do you think the improvement might be? And, does that have greater impact on the sales numbers or, actually, maybe the expense number?

All right. Let me go back really quickly, and let’s do a quick historical rebound on this. In 2005, we brought in the first half of the year 24 of the best people from around the country. So, we spent the first six months of the year really stacking up and creating an organization to do our training that would come together and bring the best practices from around the country. We made the strategic decision that the first thing we wanted to do was to develop our coordinators because they were the ones who were ultimately out in the field doing the vast majority of the training. So, we instituted our CIT program, which we believe has had a profound effect. As Dan mentioned, that CIT program has been rolled out in many states, and we are already seeing significantly better producer growth and higher retention in those states, although those statistics are very new and very hard for us to test. I can’t go off quoting them today. But, we believe we are seeing improvement in those CIT programs. In December, we rolled out our new associate training cycle, which is a program and sales school that’s still focused on the foundation of [LEAF] and other programs that we’ve talked about in the past. It’s a broader program that we believe will help move the agent retention numbers. In terms of specific numbers themselves, we’re still developing internally our data and what we believe are going to be the key metrics going forward. I hope to be able to share those with you in the future. We absolutely believe that recruiting plus training equals producer growth as Ron has stated. That is the end goal. To the extent that we have to focus on one or the other is related to ultimately where our sales goals are going to be. As we see productivity increase on an agent level, we can take some of the pressure off of those things in terms of achieving our sales goal, but I will tell you; our ultimate goal is focused more on the distribution side than it is on the productivity side.

Okay. I just have a question on your guidance for 2006. The 15% growth off of the 254 - if you look at earnings in 2006, you had two charges for software expenses, you had higher ad spending in the fourth quarter. Earnings excluding those would have been 262. So, the 292 over that is about 11%. What’s the rationale? You’re expecting earnings growth to pick up in 2007 to 15% to 16%. One is when you gave us the guidance for ’07, did you assume the higher-- or the two charges in 2005 results? The other thing is why do you have confidence that earnings growth is actually going to pick up in ’07 when you’re not really changing the guidance for ’06? What’s the rationale behind the 15% to 16% for ’07?

Okay. When we took the two charges in ’05, we took the IT charge because we deemed it appropriate based on the change in our strategy in Japan operating systems environments and the software and support systems we were going to use. We felt like it was appropriate to take that charge in 2005. We took the first portion of that charge in the second quarter of 2005. We took the remainder of it in the fourth quarter of 2005 as we firmed up our plans, shall we say, for our IT strategic plan going forward. The other charge related to increased advertising was more of a discretionary spend, I would say. If we had been in danger of meeting our primary earnings objective, it’s unlikely that I would have-- Well, I wouldn’t have authorized the additional advertising spend; I can just say that categorically. So, we do pay attention to where we are relative to our objectives when we evaluate whether or not we can incur some of this discretionary spending. We certainly take account of our actual results when we’re setting expected future results. We expected to meet or exceed the 2005 earnings objective based on the guidance we gave you at the end of the third quarter. We met the earnings objective. We considered the likelihood that we would meet that objective as we set our goals for 2006 and as we evaluated our guidance for 2007. I think if you were at the analyst meeting, there was a question posed to me about what the greatest risk in making the ’06 and ’07 estimates-- what the greatest risk was. After puzzling on that for some time, I finally said, “My greatest fear is over earning in ’05 and perhaps ’06.” We didn’t do that. We met the objective; we didn’t over earn. So, ’06 and ’07 will benefit from that I think. As far as the ’07-- narrowing the guidance on ’07, we had initially quoted a range of 13% to 16%, and part of that was moderated on the down side by the risk of earning more than we estimated in ’05 or ’06. All of our goals underlying the earnings forecast for ’06 and ’07 are still capable of being met. I specified goals for U.S. sales, Japan sales, U.S. new money rates on investment, Japan and money rates. I postulated stable persistency and stable tax rates. And, I’ve said the benefit ratio would continue to decline in Japan by some 40 to 80 basis points. All those things are still on target today. We’re comfortable in increasing the guidance-- or narrowing the guidance to the 15% to 16% range for ’07 based on the subsequent information we’ve obtained and experienced after we first made those projections.

It’s about 8:15. We’ve been doing this a little more than an hour. Let’s take one more question if there’s one out there.

Thank you. [Paolo Blenchek]; Lehman Brothers. As we think about your benefits ratio decline in Japan, should this decline moderate over time? In other words, could you give us a sense of the weighted average benefit ratio on your new sales in Japan in the fourth quarter? Is there any equilibrium level that you can think of? Thank you.

Yes. In the materials we presented at the analyst meeting last May, we gave ranges of expected benefit ratios by product category type. Most of the medically oriented products, EVER, Rider MAX, and the like, carry expected benefit ratios in the 55% to 60% range. The ordinary life is somewhat higher, like 65% to 70%, as I recall. Cancer falls sort of in between there. Right now, the benefit ratio associated with new sales is less than the aggregate benefit ratio we’re reporting. As long as we continue to add new sales at a lower average ratio than our existing average, the benefit ratio is going to trim down. There’s also a second factor. That is I think there’s some tailwind for us in that the government of Japan is continuing to encourage hospitals to reduce the average stay in the hospital. Our benefits are related to actual number of days in the hospital or actual number of surgical treatments or actual number of outpatient treatments. Because of the large budget deficit in Japan, the government - the Minister of Health and Welfare - is going to continue to encourage, I think, medical providers to not over indulge their patients in terms of services provided. That will provide some tailwind to us too in terms of any increases in benefit ratios. I don’t have-- My ultimate level of benefit ratios is in the 55% to 60% zone, but we’ve got a long time before we get there. We’ve still got a big block of old business that carries benefit ratios in the 68% to 72% zone. That will give you some indication.

All right. Thank you again for joining us tonight. If you have any additional questions, please feel free to give Robin or myself a call or an e-mail. We’d be happy to follow up with you.