美國家庭壽險 (AFL) 2009 Q4 法說會逐字稿

Welcome to the AFLAC fourth-quarter earnings conference call. Your lines have been placed on listen only until the question-and-answer session. Please be advised today's conference is being recorded. I would like to turn the call over to Mr. Ken Janke, Senior Vice President of investor relations.

Thank you, Wendy. Good morning, everybody, and thanks for taking the time to join us this morning. With me in Columbus is Dan Amos, Chairman and CEO; Kriss Cloninger, President and CFO; Paul Amos, President of AFLAC and Chief Operating Officer of our US business; Jerry Jeffery, Senior Vice President and Chief Investment Officer; and Tohru Tonoike, who is President and COO of AFLAC Japan joins us from Tokyo. Now before we begin this morning let me remind you that some of the statements we'll make in this teleconference are forward-looking within the meaning of federal securities laws. Although we believe these statements are reasonable we can give no assurance they'll prove to be accurate because they're perspective in nature. The actual results in the future could differ materially from those we discuss today and I'd encourage to you look at our press release from last night for some of the various risk factors that could materially impact future results.

Now I'll turn it over to Dan, who will begin this morning with some comments about the quarter and our operations, I'll follow up with some financial highlights and then we'll be pleased to take your questions. Dan?

Thank you, Ken. Good morning and thank you for joining us. Let me begin a review of last year with a discussion of insurance segments starting with Japan. AFLAC Japan posted strong results through 2009. We were happy with the financial performance of our largest earning contributor and we were extremely pleased with AFLAC Japan's sales results. We had an incredibly strong fourth quarter and sales significantly surpassed our expectation. In fact, the month of December was the largest December in AFLAC's 35-year history in Japan. Total annualized premium sales in yen were up 14.9% for the quarter, and 6.7% for the year, which surpassed our goal of 0% to 5% increase for the year. Additionally our large block of in-force business was marked by strong persistency, as expected, and our margins again improved.

Our sales growth was mainly propelled by product innovation, effective promotion and channel expansion. Fourth-quarter medical sales were exceptionally strong, rising 57.7% over the fourth quarter of 2008. In August we launched a revision of our popular medical product, EVER. The advertising for this updated EVER product featured the AFLAC duck dressed up as a meineke neko, or beckoning cat, that is frequently seen in drawings and figurines throughout Asia. The raised paw of this cat is said to attract good luck and the AFLAC's duck affiliation with character links the cat's good fortune with the positive brand image. For AFLAC Japan the meineke neko/duck campaign created an overnight sensation for consumers of all ages. Most importantly, it also helped us sell more than 361,400 EVER policies from the time the new EVER plan was launched through the end of 2009, which exceeded our expectations. We also continued to experience strong sales in the ordinary life category which was up 45%, and accounted for 30% of the sales in the quarter. The positive reception of the child endowment product we introduced in March was largely responsible for the strong life sales in 2009. During the quarter we sold 27,500 child endowment policies at an average premium of JPN152,800, which is significantly higher premium than our core medical or cancer products.

In addition to new products, we also achieved greater distribution through the bank channel and our new agency recruitment. Bank channel sales continued to improve and we were a record JPN2.9 billion in the fourth quarter. hat represents a 33% increase over the third quarter of 2009, and a 202.7% increase over a year ago. At the end of December, a total of 353 banks represented AFLAC Japan. We have a very strong position within the bank channel and have significantly more banks selling for us than any other insurer operating in Japan. We have also been developing our distribution beyond the bank channel. In that regard, traditional agency recruitment remains strong. In the fourth quarter, newly recruited agencies were 22.4% higher than a year ago. For the year, we produced a 17.9% increase in recruited agencies. We believe recruiting has not only benefited from the weak economy, but also from the strength of the brand and the relevant products and the improvement in recruiting and training techniques.

As we noted in last night's press release, AFLAC Japan has again targeted flat sales to a 5% increase in 2010. We believe we still have solid momentum in the medical and ordinary product categories to start 2010. Also, the first quarter represents a fairly-easy comparison to last year. However, the comparisons get tougher as the year progresses, especially in the fourth quarter. In addition, we expect much lower sales contribution from an alternative distribution channel which are primarily telemarketing-based agencies. This type of independent agency has always produced varied sales results. The largest of these agencies has made a large reduction in its number of telemarketers. As a result, we expect these sales contribution to be about JPN50 million lower this year. We also expect to see a decline into AG life sales. However, we still believe we are positioned to have a good year in 2010 and we remain excited about the opportunities we see in the Japan market.

Let me turn to our US operations. As has been the case for the last several quarters the difficult economic environment continues to pose challenges to the US sales growth. As such, we were not surprised that the fourth quarter sales were down 6.3%, for the year a sales decline of 6.4%. As you know our persistency rate has also been impacted by the extended recession, which was especially true in the fourth quarter of 2009. However, the persistency rate of the US business improved steadily as the year progressed. Frankly, it's disappointing that our sales have declined for two years in a row, but I have to say that in my 36 years with AFLAC I have never seen the economy have such an impact on the US business. I am sure many of you could say the same about your business. However, we believe that the disruptions and the demand for our product is temporary and reflects the budgetary stress that many US households face. Concerns about job security and the overall consumer confidence levels has impeded our success at the work site selling. Specifically, the lack of hiring within our existing accounts has especially hurt the sales of the veteran agents. But as we've discussed before, we remain convinced the underlying need for our products is just as strong, if not stronger, than it's ever been.

At the same time we're determined to further strengthen our business model by focusing on the competitive strengths so that we are strongly positioned when economic stability returns. For instance, we continued to enhance our product line with new introductions last year. In particular, we launch wad we refer to as essential cancer and accident products. These new products have been streamlined with lower benefit and premium levels. In short, we believe that they're better suited to the current economy and in the long run they will give consumers more choice.

e also continues to recruit and train new sales associates to expand our reach in the market. Although age of recruitment declined in the fourth quarter, recruitment was up 10.6% for the full year to more than 28,400 new sales associates. Sales growth from associates in their first year was again better than veteran associates, which again proved my point that hiring freezes at existing payroll accounts hurts veteran agents who establish and now manage these accounts. The number of new average weekly producers or those who are selling regularly in the first year increased 6.2% for 2009. In addition, new sales associates produced 19.2% increase in new payroll accounts in 2009. This kind of production from new agents indicates that our distribution model is still working and our training is -- excuse me -- is effective.

As you know, we made a strategic acquisition last year that we believe further enhanced our business and position in the marketplace. In October in 2009 we completed the purchase of Continental American Insurance Company, which is now branded as the AFLAC Group Insurance. This acquisition equips AFLAC with an attractive offering of voluntary group insurance products that should enhance the sales opportunities for our traditional sales force of individual associates. At the same time, group products are well suited for distribution by insurance brokers at the work site. We believe that broker distribution can enhance and compliment our current distribution capabilities. We also believe our broker initiative is taking us in the right direction. Just last month a survey of 358 brokers conducted by the Business Intelligence Consulting firm found that AFLAC is the number one preferred carrier of voluntary insurance among brokers. We were ranked fourth in 2008. This survey also revealed the 25% increase of familiarity among brokers, which was the largest increase of any insurance carrier.

We have also been active in the area of advertising and branding. We just marked the tenth anniversary of AFLAC duck with a new advertising campaign. Thanks to the AFLAC duck 94% of the consumers know the AFLAC brand. But as we've discussed over the last several years, advertising and marketing is focused on better explaining the brand, not just promoting it. To that end we hope that the new animated commercials will help consumers understand more about what AFLAC insurance is and exactly how our products can help them. Our current campaign is different. It's bold and we believe it will further help define our brand.

Last, like last year, our outlook for new sales in the United States remains cautious until we see some stability in the economy. I also want to remind you that we had four extra days production in the first quarter of 2009, which will make this year's first-quarter comparison very difficult. As a result, we expect to see a sizeable decline in the first quarter sales of AFLAC US For 2010, we have again set our target of 0% to 5% increase in growth. Some of you may feel that the 2010 sales target's too aggressive considering the environment. However, I want to remind you that this target is one of the performance measures for our officers' bonus compensation, as those of you who no me well should remember that I want to incentivize our officer group for achievement of positive performance. In addition, we still believe strongly in the products we sell. We are convinced that the potential market for our products in the United States is vast and that consumers will be increasingly receptive to our products once the economy and the employment begins to improve.

From a financial perspective we are very pleased with the fourth quarter of 2009 and the full year. Operating earnings were $1.18 per diluted share, or up 20.4% for the fourth quarter of 2000. Excluding the impact of the yen operating earnings per share rose 17.3% for the quarter, a 15% for the full year. Our full-year operating earnings growth was in line with our objective of a 13% to 15% increase before the impact of yen. Throughout the last two decades we have consistently achieved our annual target of operating earnings per share. I believe that accomplishment speaks directly to the strength and resilience of the business model.

As we noted in our press release, net earnings in the fourth quarter were again influenced by a larger-than-normal realized investment losses. In the fourth quarter, we booked $126 million of GAAP-only impairments on three perpetual securities using the equity impairment model. You'll recall that we were required by GAAP accounting to apply an aging schedule of unrealized losses to those perpetual securities that are classified as below investment grade. If there are no additional down grades to perpetual securities to below investment grade in the quarter than we would not expect any equity impairments or perpetual securities holdings for the first quarter of 2010.

You may have noted that we impaired our remaining holdings of Takefuji senior debt in the fourth quarter. As we discussed we reduced our exposure to Takefuji from last year. Our ownership dropped from a par value of $617 million at the end of 2008 to $363 million at the end of 2009. Last month we made the determination that the impairment charge was warranted based on the current credit analysis, which suggests that Takefuji may not be able to meet all its remaining obligations to us. As we noted, net earnings also included the previously-announced loss to the Exchange of two Lloyd banking group securities.

We generated significant capital through our last -- excuse me -- we generated significant capital through our operations last year, which enabled us to absorb investment losses and the impact of the credit rating downgrades. However, we concluded it was prudent to strengthen our capital position even further and did so in December with the issuance of $400 million of 30-year senior notes. With significant capital resources at the parent company level, we decided to make a capital contribution at the end of 2009 for MAPICS, Incorporated to our principal life insurance subsidiary in the amount of $500 million. We estimate that our year-end risk-based capital ratio was in excess of 475%, which included a contribution of about 40 -points from the capital contribution. So even excluding the capital contribution our ratio was significantly higher than the target of 375% we established in early 2009. At year end our total adjusted capital was approximately $1.3 billion above what was required to support an RBC of 375%.

Over the long run our strong capital generation has allowed to us maintain a policy of steadily increasing the cash dividend, even as time when many companies have either decreased or eliminated the dividend payments. AFLAC's cash dividend in 2009 was 16.7% higher than they were in 2008. Last year was the 22nd -- 27th consecutive year we've increased the dividends. We would certainly like to extend that track record to 28 consecutive years and more. However, I'd like to reiterate that we have previously communicated before we commit to increasing the dividend in 2010 or repurchasing shares, we feel compelled to closer monitor global financial markets to make sure the worst is behind us. We will also regularly assess our capital level as measured by the RBC ratio. As much as we would like to see the dividend increase or resume share repurchase, our greatest priority continues to be maintaining a strong capital position.

Yet at the same time were still very focused on growing earnings. In that regard, we have reaffirmed the earnings outlook we previously communicated in 2010. Our goal is to increase operating earnings per diluted share 9%to 12% before the impact of the yen. We believe the achievement of this goal will result from steady top-line growth and continued expansion for AFLAC Japan and the margins. Overall I believe AFLAC remains well positioned in the two best insurance markets in the world. The Japanese and US insurance markets share characteristics that make them perfectly suited to the products we offer and both still present opportunities for growth. Along with the rest of the world we will likely face challenges in 2010 and beyond. but with the operations that continue to perform well and the balance sheet that remains solidly positioned, I have every confidence in our business model and the fundamental need for our products and, most importantly, the future success of AFLAC.

Ken?

Thank you, Dan. Let me briefly take you through some fourth-quarter financial highlights starting with AFLAC Japan. For the top line, in yen terms revenues roses 3.4% for the quarter while investment income was up 1.2%. Excluding the effect of the stronger yen on AFLAC Japan's dollar-dominated investment income net investment income rose 3.7% in the quarter. The annualized persistently rate, excluding the annuities, was 94%, which was unchanged from the nine months but down from 94.5% in 2008. The benefit ratio continued to improve over last year and was 59.7% in the fourth quarter compared with 63.6% a year ago. The expense ratio for the quarter was 21.6%, which was up from 20.1% a year ago. The increase in the expense ratio reflected, in part, increased advertising and promotion, as well as higher debt amortization from the lower persistency rate.

Reflecting the lapsed -- or the lowering benefit ratio, the pretax margin rose from 16.3% to 18.7% in the quarter. Due to the expansion of the margin, pretax earnings increased 18.5% for the quarter in yen, and again excluding the impact of the stronger yen on dollar-dominated investment income, pretax earnings rose 19.8% in the quarter. For the quarter we invested our cash flow in yen securities at an average yield of 2.26% and including dollars the blended rate was 2.46%. The lower new money yields in the quarter resulted largely from spread compression and the purchase of higher-rated securities. The portfolio yield for AFLAC Japan was 3.77% at the end of December, down three-basis points from September and 13-basis points lower than a year ago.

or AFLAC US total revenues rose 4.3% in the quarter, and benefited from the inclusion of the new AFLAC Group Insurance segment. The annualized persistency rate for the year was 72.2% compared with 73.2% a year ago. Although it was lower than a year ago, as Dan mentioned it improved steadily as the year progressed. The benefit ratio was 53.8% compared with 53.3% in the fourth quarter and the increase in the benefit ratio was due to a year-end adjustment of $28 million to IBNR for the accident and cancer product lines. The operating expense ratio was 33.7% compared with 33.5% in the fourth quarter of 2008, and reflecting the higher benefit and expense ratios the profit margin for the quarter was 12.5% compared with 13.2% a year ago, resulting in a 1.5% decline in pretax operating earnings for the quarter. In terms of US new money yields, the yield in the fourth quarter of 2009 was 6.25% compared with 9.8% a year ago. The yield on the portfolio at the end of December was 7.17%, down three-basis points from September but up seven-basis points over a year ago.

Now turning to some other items for the the quarter, excluding the affect of FAS 115 the ratio of debt to total capital was 22.3% at the end of the year compared with 18% at the end of 2008. Non-insurance interest expense in the fourth quarter was $25 million compared with $7 million a year ago. The higher interest expense reflected the debt issuance earlier in the year and the impact of the stronger yen on yen-dominated debt. Parent company and other expenses were $32 million in the fourth quarter compared with $12 million a year ago. The higher parent company expenses in the quarter primarily resulted from lower investment income at the parent company and even more so, realized foreign currency losses on yen assets that are being held at the parent company and had not been designated as a hedge. The operating margins improved for the quarter. On a consolidated basis the pretax margin rose from 15% to 16.1% and the after-tax margin increased from 9.8% to 11%.

On an operating basis, the tax rate declined from 38.8% to 31.5%. As we noted in the press release, we recently completed an IRS exam; it was for the tax years 2006 and 2007. Our provisions for tax payments were higher than we had estimated, which resulted in a release of $24 million in the fourth quarter. Since we had accrued those provisions through operating earnings in prior periods, the tax release was -- did flow through operating earnings. For 2010 we would expect the tax rate to return to its prior normal level. Net earnings per diluted share for the quarter were $0.53, up from $0.42 a year ago. The primary difference between net earnings and operating earnings was, again, realized investment losses, which were $0.65 per share in the fourth quarter of 2009 compared with $0.56 per share in the fourth quarter of 2008.

I'd like to point out that on January 1 we did adopt SFAS 167, which will require us to consolidate $6 billion of qualified special purpose entities and variable interest entities that we have owned for many, many years. These QSBEs and VIEs are trusts that were established for the issuance of reversable currency investments or other yen-denominated investments. The trusts contain a dollar bond and a swap into yen. Going forward we will be marking the swaps to market and the gains or losses on those swaps will be reflected in realized investment gains or losses. As such, the impact from FAS 167 will be excluded from operating earnings. Importantly. the economics of our investments in these securities won't change, only the accounting for those instruments, and our risk of loss is unchanged and is limited to our original investment. Upon adoption we have made a one-time cumulative adjustment to shareholders equity, which will reduce shareholders equity by approximately $200 million and will be reflected in our March 31, 2010 financials.

As reported, operating earnings per diluted share rose 20.4% to $1.18, which was ahead of our guidance. The stronger yen increased operating earnings by $0.03 per diluted share in the quarter and $0.26 for the year. Excluding the yen's impact operating earnings were up 17.3% for the quarter and 15% for the year. If you also exclude the tax benefit of $0.05 per diluted share that flowed through operating earnings, operating earnings per share would have increased 13.8% for the full year, which was consistent with our underlying rate of growth for the first nine months of 2009.

Lastly let me comment on the outlook for operating earnings per share for 2010. As you heard, we have affirmed our objective for this year of a 9% to 12% increase in operating earnings per diluted share before the impact of the yen. That would equate to $5.29 to $5.43 for the full year, assuming no change in the currency rate from last year. This year we estimate that a one yen change on the average exchange rate for the year will equal approximately $0.035 per diluted share. As such, if we achieve our objective of 9% to 12% growth and the yen averages JPN0.90 to JPN0.95 for the full year, we would expect operating earnings per share to be in the area of $5.24 to $5.52.

We're now ready to take your questions. We'd like to make sure that everyone has the opportunity to ask a question so please limit your questions to one. Wendy, now I'll now turn it back over to you for the Q&A.

Thank you. (Operator Instructions). Our first question, Jimmy Bhullar . You may ask your question and please state your company

Hi, it's JPMorgan. Thank you. I just had question on recruiting trends in the US. Previously the economy being weak actually had been a plusyou'd been recruiting a decent amount, but this quarter you saw a down tick, so if you could just address what caused the decline this quarter and then just comment on your outlook for 2010?

Sure. First of all, recruiting for the overall 2010 was extremely strong. Remember, we do have a total training capacity based on our state trainers and their states combined with our district sales coordinators out in the field with a total number of people. We had an extremely strong first three quarters. Those first three quarters really built up to strong average weekly new producer growth and we felt like the combination of fourth-quarter reinrollments, combined with the volume of people that we recruited throughout the beginning of the year allowed to us let up a little bit on recruiting. Now, obviously, comparisons from a 2009 to 2010 standpoint will be a little more difficult, but our overall goal is to continue to grow our producers, specifically focusing on our new producers, but also reengaging and regrowing our veteran producers in 2010. So I am not concerned about the fourth-quarter downturn in recruiting, that was planned and projected. But at the same time I think that we will continue to recruit but to do so in a moderate level that allows us to successfully bring on the right number of producers for our business in 2010.

Related to that, on your US business, besides the comps being easier on sales and also just the incentive comp being linked to positive sales growth are there other things that you're doing that give you confidence that you can actually get to positive sales growth this year?

Yes. I mean --

-- (inaudible) if you can just talk about your 0% to 5% guidance?

Sure. Obviously, the final number that you all get of 0% to 5% represents a large number of levers that we can be moving in one direction or another. We have a tremendous number of initiatives that we have going on that we believe will strongly influence that. We're -- as that -- since my tenure here at worldwide headquarters we are focused on training. We're going to make sure that we are more effectively training our -- both our new agents. as well as our veteran agents, bringing out new classes and new things that we think within an economy of this nature will help our agents be more successful with their sales skills, as well as with their overall product knowledge and packaging that happens at a time like this or that needs to be sold at a time like this. We're also focused on broker and large account market. Really, the final piece for us to be competitive in the accounts over 1,000 was the group platform that we purchased through Continental American, and now AFLAC Group, and so I do believe that is -- those are, right there, are large factors.

Third would be the marketing campaign. As Dan mentioned, the "You Don't Know Quack" campaign we believe is driving both consumer and business understanding for why the value of our products is necessary for their business or them as an individual. The sec -- the last part is that I really believe, or hope, that the first half of the year the economy's going to continue to be difficult but I have a hope that the second half of the year the economy will continue to move in the right direction. President Obama stated that small business was a big focus for him and what was going to happen and we continue to write the vast majority of our accounts in America's smallest businesses. Those businesses thrive the most during a rising economy and are the ones that are hurt the most during a difficult economy. But overall, throughout the history of America the economy has been very strong're in the right market for us and that long term we will continue to get back on the right track.

The last comment I'll make is that you all put me in a position where my focus is to grow the long-term sales of this Company. It's not just about focusing on what first quarter of this year will be, but doing what's right for this business for the long term and I believe the initiatives we have in place are about making sure that for the long-term stability of our growth in sales and not just about trying to produce for first quarter of 2010, but really success for the long-term.

Thank you.

Thank you. Our next question is from Ed Spehar. You may ask your question and please state your company name. Ed Spehar, you may ask your question.

Yes, thank you, sorry. Kriss, I had a question about the capital contribution to the insurance subsidiary. I'm trying to understand why you put capital down on the sub when the RBC ratio, without the contribution, was 435% or well above what you've talked about as a target. I guess the question is, why not keep it at the holding company and if something bad happens then move it to the sub? Why exercise the option rather than holding it? Thanks.

Okay, Ed. Well, that's a legitimate question. If we had the benefit of hindsight we might have done something differently, but I'm really not sure we would have. We set an objective at the beginning of this year to make sure that we managed risk-based capital as the highest priority, and last year we had finished the year at about $475 million and we got down to $405 million at the end of third quarter. Many of you expressed concern over the drop between the second and third quarter. I reassured you that we had about $500 million of cash at the holding company I could contribute to the life company to bolster that RBC during the fourth quarter. Going into the fourth quarter, we were looking at a couple of rating agencies talking about changing their methodology for rating perpetual securities and we didn't know exactly what that held in store for us, particularly in the latter part of December. We didn't want to come up to the last two weeks in December and be surprised by significant ratings changes on that category of securities.

So, really,after we released third-quarter results and we went through our analyst meetings and our board meetings and I reflected on what we had to do in 2010, I looked at the strong capital markets in the US and I said, well, okay, I've got about half of my Samurai note of JPN40 billion that comes due in July 2010 already refinanced. We had borrowed roughly JPN15 billion earlier in 2009, which covered about half of that. I still had JPN25 billion to go and I said to myself, well, with a strong capital markets in the US and I was told that we ought to explore the capital markets in Japan, that those might open up. So we actually did some inquiries as to whether we could do another Samurai transaction in late November or early December in Japan and we concluded at that time that our usual sources of Samurai funds still weren't receptive to foreign financials. So we decided to pull back from the Samurai market and we decided, okay, there's a strong capital market in the US, we were going to go ahead and borrow the extra $400 million in December in the US which we did. And at the same time we had scheduled a profit repatriation from Japan from about -- for about JPN20 billion, so we went ahead and took that into the parent company.

So that gave us, JPN35 billion, JPN36 billion of funds at the parent company and then we were looking at having about $600 million of cash at the holding company and we thought, well, what's the best utilization of that. Well, we don't get any credit for anything if the funds are at the holding company. We don't really have any long-term concern about being able to get capital out of the life company, Ed, so we decided we would rather have the insurance against rating agency actions on the perpetuals adversely affected our risk-based capital position so we decided to contribute $500 million to the life company is the most efficient use of funds. So we did it primarily to bolster our RBC position. At the same time we assured that we've got adequate funds at the holding company to pay off the next maturing Samurai note. So, that's a long answer to a short question. Apologize but I thought I needed to walk you through the thought process.

That's very helpful. Thank you.

Thank you. Our next question is from Steven Schwartz. You may ask your question and please state your company name.

Steven Schwartz, Raymond James. Good morning, everybody. I wanted to -- I want to talk about CAIC a little bit. I'm wondering -- two parts to this question, I guess. First, any metrics maybe you can offer about the progress there? I know you stated that -- Paul suggested that the you were the number one favorite for brokers but I'm just wondering if there are any metrics you can talk about on how that's progressing and the integration of that, particularly with your agents? And as well, I'm looking at the sales breakdown for the US. There isn't -- there is one area that did increase, that was hospital indemnity plans. I think CAIC does mini med, I was wondering if you could touch on that product, what exactly that is. And I'll just leave it at that.

Sure. First of all, CAIC, now AFLAC Group, had a tremendous number of enrollments set up for the fourth quarter prior to our purchase and our top two goals, obviously, were integration from a technology and platform standpoint, as well as making sure that they were effective in the enrollments they already had set. We were less concerned about attempting to write business from an AFLAC perspective with 2010 really being our launch for an integrated marketing and sales effort. In terms of the metrics that we're taking a look at, obviously we're less concerned about what business is written in an individual versus a group platform; we're more concerned about the totality of the business that's grown. That said, we understand that you 'e going to want to look at things, both by channel or as well by product type. We do not believe that broker and individual are synonymous with group and individual. Those are four different groupings that can be done in either direction and we need to make sure we differentiate on how those are looked at, because both individual agents can offer both types products, as well as brokers can offer both types of products and we feel like offering both will be essential for our long-term growth.

In terms of the sales of the mid med products specifically, that product is a different product than is traditionally sold at AFLAC. We have made the decision that we will be shutting down the sale of that product for all future policies at CAIC based on the date of the last bids and proposals that we had out with brokers. We're going to continue to follow through with the commitments that we had made, but effectively we are shutting down the sales of that product. Of the sales in the fourth quarter of $26.8 million at CAIC, $6.4 million of those were the mid med. We did not believe that was a product core to what we wanted. Again, this was a technology purchase for us, the capability to use the group platform and to use the intelligent people they have to help us do group platform benefits with flexibility to meet the needs of large accounts and brokers and otherwise and it was not about trying to get into a major medical or comprehensive medical program. As such, we've made that decision and are moving forward with it. I hope that answers your question.

In terms of the hip business that you talked about, that is just AFLAC's hip. Hip continues to be a driving force based on American consumers seeing benefit in their major medical plans continue to erode and so our hip business does continue to be a strong reason for sales in the US.

Okay, that was great, Paul, I appreciate that. Where' the -- on that page where's the mid med located?

It's in the hip category.

He's saying it is in the hip -- I'm sorry, I get a more broken down report than what you guys have put out here. He's showing it to me. Mine's much more detailed and I take it out of the hip plan. That small amount is in, but it only represented $6.4 million for the entire year in terms of sales on hip because we only took the CAIC numbers for the fourth quarter.

Right. Okay, thanks, I appreciate the insight.

Thank you. Our next question is from Randy Binner. Your line is open, please state your company name.

Hi, Randy Binner, FBR Capital Markets. Jut a question on the stand-alone medical product sales in Japan. Obviously it was very successful, 43% of all new sales, just trying to get some color on if there was seasonality there, if there was a year-end push, or trying to get to how sustainable that level of sales contribution on that product might be?

Okay, I think it's a chance to let Tohru talk and brag a little bit about what all's going on because there's a phenomenon going on in Japan in terms of what has happened from a marketing campaign and also the results of what's happened with new sales, specifically of the new EVER product. So, Tohru, go ahead.

Yes. When we started to plan the introduction of the new EVER, which was introduced in last August last year, we took -- it took us maybe two to three months to make all the preparations and we planned it as a multifaceted plan in which we ma -- we tried many things. [For example], we planned that what our branches and the agents should do in preparation for the introduction of the new products, which customer they are expected to sell and how they plan to do it, and we do it individual agents or small independent agents and the big affiliated agents separately. So we spent some time on it. Also, we planned a new TV commercial featuring new character called meineke neko cat, which Dan explained a few minutes ago. And also we planned to time airing the commercials at the right timing. Right -- the time -- around the time of the introduction, we ran the commercials very heavily for that image of the new character, meineke neko cat, and our new product is very well received by the general public.

And right before the introduction we ran a big press conference -- press release of the new producted hosted by a very famous and a popular actress, Owi Miazaki. She shows up in the commercial and she is extremely popular in Japan. So thanks to the participation of Owi it attracted a large number of the media people, over 200, and it was well covered by the various media; TVs, magazines and the newspaper. And (inaudible) -- and also, we created a big character -- meineke neko character in the size of six-feet tall and we made three of them, put in a large bus and the bus caravaned all over the Japan in the -- for about three or four months. And using that bus, we hosted a town festival-type event in about a dozen places in the big cities and those events attracted large number of people. So, for example, the first one was held at (inaudible)in Japa -- in Tokyo and that event attracted about 20,000 people in two days, so you can imagine how big that participants was. So overall -- so over time we were able to build up the popularity with the new product, so the sales continued to -- sales were very good from the very beginning and it consistently kept growing. So that's why that our [EI] number was larger than the former quarters. The momentum continues, I don't think that will grow forever but the momentum still continues and we expect it lasts fairly long. I don't know exactly when it slows down but --

Let me say one other thing, Tohru. Just to give the analysts some idea how big this thing is, 20,000 people showing up at a location tells you something, but our commercials have been number one in financial services before but the actual new commercials with the meineke neko duck is the number one commercial in all of Japan in any category whatsoever, beating soft drinks, beating computers, beating anything. So it has created such a buzz that that, on top of having a superior product, is what's driving this.

Yes, it's amazing, thanks for the explanation. If I can sneak one more in on Japan, another distribution channel there, it seems like Japan Post is not coming up as much in the conversation. Is there any update on the impact of the new government there on the privatization effort at the Post? Thank you.

No, I'll answer that. I have said all along that if you'll remember back when we got the banking channel and we got the Post, I always said that I expected the real winner to be the banking channel because we had worked in this environment, it had been great for us and it has really taken off and I give, again, [Shinkai] a large credit for what's taken place there. In regard to the Post we are still working with them. The sales are up over last year but they're insignificant in relationship to, say, what the banking channel is doing. But we continue to work with them, we're encouraged that they will continue to grow that market for us, but they are very bureaucratic and they go at their own pace and we have very little control in pushing them. So we just have to fall within the line of what they consider acceptable, but I do feel like that we've got a great marketing team working on it and the potential's there, but I don't see any major change in 2010 except for a continued increase.

Randy, this is Ken, let me just add one thing. As Dan mentioned, it's still a small contributor and was less than 1% of sales for 2009, which is why we didn't break it out. In terms of what's going on with the current government in Japan, you may have seen that last year there was legislation put forth to freeze the pending IPOs of the various postal entities and now the government is basically regrouping to see what the best organization might be. For instance, one of the proposals is to have the postal operations be folded into the holding company and then leave the insurance and the banking groups as separate subsidiaries to that. This is all very much in a state of flux, and for those of you that consume the English versions of the Japanese press I think you'll likely see more and more articles out of it in the coming months as the government starts floating what may be no more than trial balloons or maybe appear in the press about what the future might look like for Japan Post.

Thank you.

Thank you. Our next question is from Andrew Kligerman. Your line is open, please state your company name.

Great, thanks. In trying to frame the Continental American acquisition, maybe just a few data points. What would be a typical premium for a group account with more than 1,000 employees, that's part A? And part B is, is there any type of conflict given that Continental American is more of a broker market? Would there be a conflict between your agents and those producers going forward?

Andrew, of course channel conflict is one of the things that we would immediately want to mitigate. As you can imagine, there are circumstances in the past where other companies have brought together a broker and a field force channel where that has not worked well and I think we have taken and learned from their experience. As you can imagine there are different products with different commission structures and by giving access to both channels -- the field force, as well as the broker channel -- to all of those products we believe that's the first step in mitigating some of that channel conflict. Additionally, we have found away to leverage our current commission structure so that we can pay brokers more than they would be receiving if they were to use an enrollment company and by using our AFLAC field force as their enrollment company. So if we can ultimately pay our new brokers a higher level of commissions and at the same time pay our field force, there should not only be no channel conflict it should be a win-win situation in terms of what we were able to bring together by having the world's best distribution force now with a budding broker market.

In terms of the account sizes and the average premium per account size, we're just not getting into that at this time. first of all, that is based on the previous success of what Continental American did in their previous accounts. Based on the varying sizes of those accounts and the number of them I just think it would be statistically invalid for a company of our size to comment at this time. By size I may be able to give you a more -- a deeper set of data on how that works, but what I can tell as you that the average premium sizes are of the same range in terms of a per certificate, or per policy basis between AFLAC US and AFLAC Group.

Well, one last part, then, to it, Paul, maybe minus that mid med product you don't want to continue, so they did about $20 million in the fourth quarter, just in terms of your excitement do you think you could do dramatically better than that, do you get real excited net/net with this new platform for group?

In the long term I do believe that the platform for Group would add considerable business, but 2010 is yet to be determined. In terms of the broker market itself, AFLAC has a long history of going head to head with the brokers, and as a result I think it's essential for us to continue to build relationships within that broker market. Ron [Ajept] and our entire broker team are out working with our AFLAC Group team to continue to build recognition within that market, but the majority of the business in any broker market is always going to be written in the fourth quarter. As a result, really and truly we won't no a lot about how tempered and big that excitement will be until we get to the latter half of the year.

So we continue to push it. I continue to have hopes -- high hopes for it. But, again, when you base it on the size of sales that we did in 2010 in our individual, or field force channel, it's just so large in proportion to what the broker business is today that I don't believe even a large increase is going to have a considerable effect on the overall. But for the long-term viability of the business I do believe that both channels, our continued core channel, 500 and under field force focusing on the sales continues to be a core of what we'll be, but the enhancement of the broker market and large accounts will continue to be something that will help grow the business also.

Thanks a lot, Paul.

And, Andrew, let me comment on national healthcare because this all kind of ties together. Of course, because of what took place in Massachusetts there is a big change taking place, but I think it's important to note that we are well positioned under any particular program that was brought on by either the house or the senate side. We've still positioned ourself in a way that, whether it's major medical insurance at the work site or it's national healthcare at the work site, that ours will help supplement those particular programs, or either it's national healthcare in Japan or these programs here in the US. So I think it's worthy to note as we moved through this year -- or moved through 2009 where there was such discussion about healthcare that we're still positioned in a way that we should do very well in whatever environment should take place from that standpoint.

Thanks a lot.

Thank you. Our next question is from [Sidney Cummins]. Your line is now open, please state your company name.

Thanks, from Sanford Bernstein. Just a -- first just a quick follow up to Andrew's question about the Group business, maybe for Kriss. Is the pricing and the underwriting discipline, and I guess ultimately the margin on the Group product similar to what you're seeing in terms of the products sold by the individual agents in the US.?

Yes. The overall net margin is pretty similar to the AFLAC traditional margin on health products. The expense ratio's slightly higher, benefit ratio's slightly lower but net/net it's a similar margin.

Okay, and then just a second question on capital. You talked about maybe not doing anything just yet in terms of buybacks and dividends, you talked about $1.3 billion of [stat] capital cushion, if you will, relative to $375 million RBC and maybe $2 billion of stat earnings, in 2010 maybe a little bit higher than that. So as we think about that capital cushion of maybe $3 billion changing over time, how would you think about redeploying capital with buybacks versus dividends? Again, you mentioned track record in terms of dividend increases, is it fair to assume, then, that we would likely see -- if you're to do anything in terms of capital redeployment it would start with a dividend increase and then buyback, or how do you think about that?

My first comment is, what a difference a year makes (LAUGHTER), but I'll let Kriss answer.

Well, relative to -- we have a long history -- I forget how many years it is, 27, 28 years of increasing the dividend every calendar year and we'd hate for that record to go by the wayside. We believe that we had a strong year in 2009, given the environment. We finished the year at about the same RBC that we entered the year and we went through a lot of trauma in between January 1st and December 31st,, but we finished the year strong and we're not expecting 2010 to be as challenging as 2009. Last year we told the analyst community and the rating agencies we expected that we could earn our way through any difficulties and we still believe that to be the case. Given that and given the references to our capital position and the like, we think we'll be in a position to consider a dividend increase later in 2010.

Relative to share repurchase, we had a consistent share repurchase program in place from 1994 through 2008. We purchased shares every year in virtually every quarter during that period of time and we still believe that share repurchases is an effective way for us to use capital we don't otherwise need in the operation. We aren't in a position yet to say we don't want more capital than -- that we don't want to retain the capital we'll internally generate. We are not yet in a position to say that, but I don't think it's fair to say that we don't anticipate we'll be raising any external capital. That being said, if the conditions continue to stabilize and improve, then I think our outlook for deploying excess capital we're generating will probably be deployed in share repurchase at some point in the future when we're comfortable that we've reached just a comfortable level with a reasonably good outlook for the future. So that's about -- that's our internal view on the thing.

Okay, thanks.

Wendy, my clock is showing that we're very close to the top of the hour and out respect to another company in our industry I know there is a 10:00 call that's going to pull a lot of these participants away to that call, so we're going to conclude our call at this time. I apologize if we didn't get to everybody who had a question. If you still have a question, feel free to either e-mail Robin Wilke or myself, or call our 800 number and we'd be happy to get back with you and we'll get back with you just as soon as we can. And thanks, again, for joining us this morning.

Thank you, this does conclude our conference. Thank you for participating. You may disconnect at this time.