Aflac Earnings Call NUGGETS: Investing Strategy, WAYS Products
Nigel Dally – Morgan Stanley: With the strategy of investing in the U.S. and swapping back to Japan, can you discuss how much incremental yield you expect to pick up from that strategy? If rates remain unchanged from current levels, what type of Japan new money yields do you expect to achieve in the back half of the year?
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Eric Kirsch – First SVP and Global Chief Investment Officer: Sure. It’s Eric Kirsch, and I can give you a range of estimates. I can’t give you precise numbers just because yields and spreads and different types of purchases could be different depending on market conditions. But by way of example, with this new program that we’ve initiated that Dan mentioned today, we are buying publicly available U.S. corporate bonds, focused in A, BBB type of credits. This strategy will give us greater liquidity, greater portfolio flexibility in the future, and we are looking at maturities anywhere from 10 to 30 years across the curve. So ultimately, as we build this new portfolio, it will be a combination of those things. But after taking into account the cost of our currency hedges, because our strategy is to have this hedged back into our yen liabilities, you could be looking at anywhere from again let me emphasize based on current market yields and spreads anywhere from 2.5% to 3.25%. So if yields and spreads stay where they are today which isn’t likely, they move as you all know, we’d probably be building a portfolio that on average at that kind of yield after currency hedging costs. As you know year-to-date because we’ve been cautious and conservative not buying a private placement, being much more stringent on our credit standards, a majority of our new money was going into JGBs, which as Robin mentioned overall year-to-date new money yield somewhere around 185 but on a whole portfolio new money about 2%. You could see based on my comments we’ll be able to increase the returns fairly significantly while at the same time improving the overall quality, diversification, and investment opportunities for the portfolio. The program just got initiated, so we will start off in a modest sense as the team is coming together as we worked very closely global basis but I’m confident as each month goes by the impact to that new money yield and our overall investment results will continue to a great contributor from this new investment program.
Christopher Giovanni – Goldman Sachs: Eric you mentioned potential to invested, 2.5% to 3.25% so curious what that would do to the margin for the WAYS products versus where you’re investing today 2%?
Kriss Cloninger III – President and CFO: This is Kriss. At the FAD meeting we reported that at a 2% new money rate the WAYS profit would range from 8% to 12% of premium. If that increases at 2 in a quarter the range of profit goes up from 13% to 17% of premium and at 2.5 we get up to 17% to 21%. So I am looking at this as an opportunity to dollar average up our net investment yield by pursuing this new strategy compared to what we have done over the last six to 12 months.
Christopher Giovanni – Goldman Sachs: With this investment strategy in place would you guys consider sort of reallowing the 5 WAYS product to be sold in the back half of the year if these are the type of margins you can be generating with a higher investment return?
Kriss Cloninger III – President and CFO: I think that what’s more likely to happen is that we’ll move to a 10-pay WAYS I think that’s what the bank channel is going to do.
Daniel P. Amos – Chairman and CEO: They are already doing it.
Kriss Cloninger III – President and CFO: The difference there is that the policy is not paid up as quickly, the full cash values aren’t available to the policy holders quite as quickly and therefore it stretches out the period associated with becoming fully paid up and having access to full cash values. What that does is, it reduces the risk of potential disintermediation by stretching out the period between the issue date and paid up date, not the disintermediation is going to occur, necessarily in the event of a spike in interest rates but it is a possibility and so we are comfortable that we’re doing the right thing and we will probably not reintroduce 5-pay WAYS.
Christopher Giovanni – Goldman Sachs: Then lastly, Dan, you had mentioned the opportunity to cross sell the cancer and medical products via the bank distribution. So, curious when you expect that this could take hold just given sales are essentially flat or down for those products despite the robust sales on the bank.
Daniel P. Amos – Chairman and CEO: Well, actually it’s taking place now. Our sales of medical or cancer are the same number as WAYS. The difference is, is the premium is so high. So, it’s actually been taking place. I think what will drive our increase in sales immediately is going to be the introduction of this new – what do we call the cancer product, the one that – I mean the medical product?
Robin Y. Wilkey – SVP IR: Gentle EVER.
Daniel P. Amos – Chairman and CEO: Gentle EVER, which is a higher risk but higher premium. It’s a substandard and I think that’s going to drive in the second half of the year sales. But actually the bank channel is doing quite well while medical and cancer sales, it’s just (one night) the premium is the problem.