 |
AFLAC Japan has an extensive distribution system, which includes 95% of all companies listed on the Tokyo Stock Exchange. However, we continue to expand our sales force to improve our reach into the marketplace. In 2002 we exceeded our recruiting goal, adding 3,500 new agencies, compared with a target of 3,000. The number of licensed sales associates rose 11.1% at year-end to more than 58,000, while the total number of agencies representing AFLAC Japan was 22.5% higher than a year ago. Many of the new agencies are individual agents, which help us reach employees in the small to medium-sized business market.
We estimate there are approximately 40 million potential customers in companies with less than 100 employees. Selling through Hojinkai, an association of 1.2 million small to medium-sized companies, is one example of our approach to this vast market. AFLAC is an important provider of products for their members' welfare plans. The Hojinkai organization has endorsed EVER and the new whole life Rider MAX in addition to our 21st Century Cancer Life for the welfare plans of its member firms.
Our tremendously successful strategic marketing alliance with Dai-ichi Mutual Life Insurance Co. has also helped us expand our distribution system. Dai-ichi Life is Japan's second-largest life insurance company in terms of assets. Through our alliance, Dai-ichi Life's sales force sells AFLAC's 21st Century Cancer Life policy. Dai-ichi Life, with a sales force numbering about 50,000 salespeople, sold more than 359,500 AFLAC cancer life policies in 2002, an increase of 35.6%, compared with 2001. Since our alliance began in April 2001, Dai-ichi Life has produced new sales of more than ¥22.5 billion.
There is perhaps no more important aspect to our business in Japan than our operating efficiency. We believe our products represent the best value in the Japanese insurance market. Our operating costs are among the lowest in the industry, which allows us to offer the best products at the best price to our customers and pay the highest commissions to our sales force.
A key to our efficiency is our use of technology. During 2003, we will continue our multiyear project of converting AFLAC Japan's IT infrastructure to a next-generation system. We believe this new system will help our company become even more efficient, while providing us the flexibility that a changing marketplace and expanding product line require. We have also worked hard to improve our work processes. This has helped us further reduce our claims-processing time. On average, we currently process a claim in 2.2 business days, compared with 3.6 business days in 1996. Our efficiency and service should improve even more when we introduce our new customer management system in Japan later this year. This new system will be a customer-focused system that will improve the way we provide service, including 24 hour access to policy information for our agents and customers.
Without a doubt, the greatest challenge we have faced over the last 10 years has been investing AFLAC Japan's significant cash flows in a historically low interest rate environment. That was again the case in 2002. Yet our investment approach hasn't changed. We have a simple investment philosophy – we work to maximize investment income while minimizing risk. And we emphasize liquidity, safety and quality when we invest.
We don't own investment real estate, and equities account for less than .4% of AFLAC Japan's investments and cash. We primarily own longer-dated yen-denominated debt securities to better match the durations of our assets to our liabilities. As a result, our portfolio has been better suited to the low interest rate environment. Based on data from Japan's Financial Services Agency for the Japanese fiscal year ended March 31, 2002, our portfolio yield was higher than any other life insurer in Japan with assets of more than ¥2 trillion. In fact, our portfolio yield has been consistently higher than the industry average during the last 10 years. Adhering to our simple and effective strategy enabled us to again produce superior investment results. Some AFLAC Japan investment highlights include:
Investments and cash rose 20.1% to $34.0 billion at year-end. In yen, investments were up 9.2%.
Net investment income increased 3.4% to $1.3 billion. In yen, net investment income rose 6.5%.
The average yield on new investments was 3.93% in 2002, compared with 3.86% in 2001.
AFLAC's overall credit quality continued to remain high. Approximately 75% of our holdings were rated "A" or better at the end of the year. Securities owned by AFLAC Japan that were below investment grade at year-end represented only 2.1% of total debt securities.
Our conservative approach to investing has certainly benefited our financial strength ratings. In fact, Moody's upgraded AFLAC to "Aa2" during 2002. And we have a high solvency margin, which is a Japanese regulatory measure of capital adequacy, to support that rating. As of September 30, 2002, our solvency margin was higher than any of Japan's top 10 life insurers. Reflecting our strong solvency margin, Japan's Economist magazine, a leading business publication, ranked AFLAC as Japan's most reliable life insurer in its December 17, 2002, issue.
There is still no indication as to when Japan's economy will turn around or when investment yields will start going back up. However, when the investment environment changes in Japan, we will adapt quickly to ensure that our investments continue to provide us with predictable and steady returns. By doing so, we know we can keep the promises we have made to our policyholders.
|
|
