Aflac 2007 Annual Report Download - page 36

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The benefit ratio has declined over the past several years,
reflecting the impact of newer products and riders with lower
loss ratios. We have also experienced favorable claim trends in
our major product lines. We expect the improvement in the
benefit ratio to continue as we shift to newer products and
riders and benefit from the impact of favorable claim trends.
However, this improvement is partially offset by the effect of
low investment yields, which impacts our profit margin by
reducing the spread between investment yields and required
interest on policy reserves (see table and discussion in the
Interest Rate Risk section of this MD&A). We expect the
operating expense ratio to increase modestly in 2008. Due to
improvement in the benefit ratio, the pretax operating profit
margin expanded to 16.8% in 2007. We expect continued
expansion in the profit margin in 2008.
Aflac Japan Sales
As discussed last year, we expected sales to decline in the first
half of 2007 and to be flat to up 4% in the second half.
Consistent with our expectations, Aflac Japan’s total new
annualized premium sales in yen declined 6.9% in the first six
months of 2007 but increased 2.5% in the last six months of
2007, resulting in an overall decrease of 2.4% for the full year,
compared with 2006. The sales decline primarily reflected
industrywide weakness in the market for stand-alone medical
insurance as well as continued declines in the sales of Rider
MAX and ordinary life products. The following table presents
Aflac Japan’s total new annualized premium sales for the years
ended December 31.
The following table details the contributions to total new
annualized premium sales by major product for the years
ended December 31.
Cancer insurance was our top-selling product category for
Aflac Japan in 2007 with sales rising 12.9% over 2006. We
expect cancer insurance sales to remain strong in part because
of the successful introduction of Cancer Forte, which is the
first major revision we have made to our cancer product
category in six years. With Cancer Forte, we increased
outpatient benefits. In addition to our traditional first-
occurrence benefit, this product also pays an annuity to a
newly diagnosed patient from the second year through the
fifth year following diagnosis. It also assists policyholders with
counseling and doctor referral services through a third party
upon diagnosis of the disease. Our cancer life policies are also
marketed by Dai-ichi Mutual Life and in June 2006, Dai-ichi
Life began selling a new cancer product customized for their
market. In 2007, Dai-ichi Life sold nearly 244,000 of our
market-leading cancer life policies, enabling Dai-ichi Life to
retain its distinction as the number two seller of cancer
insurance behind only Aflac Japan. We are convinced that the
affordable cancer products Aflac Japan provides will continue
to be an important part of our product portfolio.
Medical sales decreased 3.8% in 2007. However, as the year
progressed, medical sales improved, primarily resulting from
the success of Gentle EVER, our new nonstandard medical
product that was introduced in August 2007. With continued
cost pressure on Japan’s health care system, we expect the
need for medical products will continue to rise in the future
and we remain encouraged about the outlook for the medical
insurance market. Although the market is very competitive,
Aflac Japan remained the number one seller of stand-alone
medical insurance in Japan in 2007. We believe that our
number one position benefits us in the marketplace. As a
result, we continue to believe that the medical category will be
an important part of our product portfolio.
We believe that there is still a strong need for our products in
Japan. Our objective is to increase sales 3% to 7% in 2008,
including contributions from our new distribution channels
which we expect to gradually increase throughout the year
(see the Japanese Regulatory Environment section of this
MD&A for further discussion regarding these distribution
channels).
Aflac Japan Investments
Growth of investment income in yen is affected by available
cash flow from operations, timing of and yields on new
investments, and the effect of yen/dollar exchange rates on
dollar-denominated investment income. Aflac Japan has
invested in privately issued securities to secure higher yields
than Japanese government or other public corporate bonds
There’s Only One Aflac
In Dollars In Yen
(In millions of dollars
and billions of yen) 2007 2006 2005 2007 2006 2005
Total new annualized
premium sales $ 974 $ 1,010 $ 1,167 ¥ 114.6 ¥ 117.5 ¥ 128.8
Percentage change
over prior year (3.5)% (13.5)% 3.0% (2.4)% (8.8)% 5.1%
2007 2006 2005
Medical policies 33% 33% 37%
Cancer life 33 28 26
Ordinary life 22 23 18
Rider MAX 710 11
Other 568
Total 100% 100% 100%