AFLAC Japan — Adapting to Change

       2001 was a year of change for AFLAC Japan. On January 1, 2001, the third sector of the Japanese insurance industry — the sector in which AFLAC Japan primarily operates — was deregulated. As we anticipated, deregulation brought more competition to the market as many insurance companies or their subsidiaries began selling third-sector products, specifically cancer life insurance. However, the first year of deregulation ended the same way it began — we were the number one seller of cancer life insurance in Japan.

       We believe that our operating efficiency is a key reason why we have maintained our leadership in a more competitive environment. Our expense structure in Japan allows us to offer the best products at the best price and to pay the highest commissions to our sales force. Simply put, AFLAC Japan's products offer the best supplemental insurance value in the market. With that value proposition so important to our ongoing success, we continued to improve our product line in 2001.

       One highlight of the year was the introduction of 21st Century Cancer Life. This dramatically redesigned product offers consumers a wide range of benefit choices. Introduction of this product marked the first time that consumers could customize the type of cancer life coverage they wanted to purchase. Although we had some initial difficulty selling the product due to its complexity, we streamlined its design and packaging, and our sales results showed improvement. We believe 21st Century Cancer Life is the best cancer insurance product in the market, and independent research shows that others agree with us. A special report on life insurers in the July 9, 2001, issue of Toyo Keizai Weekly ranked AFLAC's 21st Century Cancer Life as the best cancer insurance product available. Equally impressive, our cancer life policy was identified as the second-best product in the entire Japanese life insurance market. The same report also ranked AFLAC as the number one company consumers would turn to if they needed to replace an existing product.

       We also took action in other product areas. In the second quarter of the year, we discontinued selling a product in our annuity line, which had been sold as business insurance. We stopped selling that product because its profitability did not meet our targets, and we did not want to sacrifice profitability for sales. In July, we became the first life insurer to introduce an accident policy in Japan. And late in the year, we revised our popular Rider MAX product by improving its benefits. As we look ahead, we believe we will retain our outstanding reputation for product innovation. In fact, AFLAC Japan was again ranked as the number one life insurance company in terms of product development in Japan, according to a survey published in January 2002 by the Nikkei Kinyu, a daily financial newspaper.

       In addition to product development, we also focused on further enhancing our already strong distribution system. Overall, our ongoing objective is to gain better access into the huge market of small to medium-size businesses in Japan. To accomplish that objective, we continued to recruit new agencies, especially individual agencies. We also worked very closely with our marketing alliance partner, Dai-ichi Mutual Life, Japan's second largest life insurance company. In April 2001, Dai-ichi Life's sales force began selling our newest cancer life policy. As the year progressed, Dai-ichi Life's sales gained significant momentum. We believe Dai-ichi Life's interest in selling our product, rather than developing its own policy, indicates the strength of AFLAC's market position and reputation. And Dai-ichi Life's success at selling our policy clearly points to the need for and quality of 21st Century Cancer Life.

       To help us better prepare for future growth, we also made key changes within AFLAC Japan's executive management. Charles D. Lake II was promoted to deputy president of AFLAC Japan. Before joining AFLAC in early 1999, Charles worked in the Washington, D.C. law offices of Dewey Ballantine LLP. Prior to that, he was director of Japan Affairs and special counsel in the office of the United States Trade Representative. We also hired a new marketing director, Atsushi Yagai, who began working with us in September 2001. Atsushi is the former chief executive of Barilla Japan. Previously, he was a marketing consultant with McKinsey & Co., and prior to that was employed at Dentsu, Japan's top advertising agency. I believe these two executives, in addition to the other men and women who manage AFLAC Japan's operations, will enable us to maintain our strong market position.

       We expect to continue making the best of a challenging market. Clearly, Japan's economy remains very weak, and that has impacted business confidence and consumer spending. Yet, Japan is the second largest economy and the second largest insurance market in the world. More importantly, we believe Japan's insurance market is perfectly suited to the types of products we sell. And above all, we believe we are positioned with the best people, the best products, and the best service in Japan.