Welcome to our fourth quarter call. Joining me this morning from the U.S. is Dan Amos, Chairman and CEO; Kriss Cloninger, President of Aflac Incorporated; Paul Amos, President of Aflac; Fred Crawford, Executive Vice President and CFO of Aflac Incorporated; Teresa White, President of Aflac U.S., and Eric Kirsch, Executive Vice President and Chief Global Investment Officer. Also joining us from Tokyo is Hiroshi Yamauchi, President and COO of Aflac Japan, and Koji Ariyoshi, Executive Vice President and Director of Sales and Marketing in Japan. Before we start this morning, let me remind you that some of the statements in today’s conference are forward-looking within the meaning of federal securities laws. Although we believe these statements are reasonable, we can give no assurance that they will prove to be accurate because they are prospective in nature. Actual results could differ materially from those we discuss today. We encourage you to look at our annual report on Form 10-K for some of the various risk factors that could materially impact our results. The earnings release is available on the investor page of Aflac.com and also includes reconciliations of certain non-GAAP measures. Now I’ll turn the program over to Dan, who will begin this morning with comments about the quarter and the year. Kriss and Paul will follow with an update on the operations in the U.S. and Japan respectively, and Fred will discuss our financial performance for the quarter and the year before we start taking your questions. We’ll begin with Dan.

Thank you, Robin. Good morning and thank you for joining us. Let me start off by saying 2016 was another great year for Aflac. What’s been an advantage for more than six decades and what sets us apart from every one of the competitors is our distinct product focus on voluntary and supplemental insurance in both the U.S. and in Japan. That focus has been a major factor in our success and I believe it will continue to drive our leading position in the future. I’m especially pleased at our operating earnings per share growth before currency exceeded our expectations for the year, rising 4.7%. I think this is especially worth noting given the historically low interest rates and the disciplined investment in our U.S. and Japan platforms, with the goal of driving future growth and operating effectiveness. Because we are reporting year-end results, you will hear from Teresa and Paul today about the two operating segments, Aflac U.S. and Aflac Japan; but let me first say that I’m pleased with the overall results of 2016 and I’m proud of the hard work and accomplishments our management team, the employees, and our sales distribution in Japan and the United States. I believe both business segments are well positioned to achieve the performance goals communicated on the December outlook call. Turning to the capital management and deployment, Fred will provide more detail shortly, but I will share a few highlights. First, as we’ve said, we view growing the cash dividend and repurchasing our shares as the most attractive means for deploying capital, particularly in the absence of any compelling alternative. Our plan for 2017 is to repurchase in the range of $1.3 billion to $1.5 billion of our shares. As I said last quarter, 2016 was the 34th consecutive year in which we’ve increased the cash dividend. Our objective remains to grow the dividend at a rate generally in line with the increase in operating earnings per share on a diluted basis before the impact of foreign currency. You’ve heard me say that my job was a balance of the interests of all stakeholders. I think we did a good job in 2016, just as we have in the past, and I believe we’re going to do that in 2017 by delivering on our promise to the policy holders and enhancing our shareholder value. Now I’ll turn the program over to Teresa, who will give you an update on Aflac U.S. Teresa?

Thank you, Dan. 2016 was the most profitable year in Aflac U.S. history in terms of pre-tax earnings. This was particularly notable as we invested over $20 million in our group technology platform. We’ve begun to see our platform investments pay off in the form of improved persistency and customer satisfaction. Ninety-five percent of our policy holders who use one-day pay say they are likely to refer other people to Aflac, which will continue to differentiate and reinforce our strong brand and policy holders’ trust. We’ve also increased our career agents’ adoption of our Everwell enrollment platform which in turn has increased account penetration in our accounts with less than 100 employees. Despite our progress and profitability, I am disappointed in the U.S. sales results for 2016. While we wrote almost $1.5 billion in new premium, we did not achieve our 2016 sales growth target of 3 to 5%. The career agent channel underperformed for the majority of 2016. Sales to groups with less than 100 employees, which is the focus of our career agents, were relatively flat for the year; however, over the past 18 months, I’ve witnessed the positive correlation between sales and compensation, so those sales leaders who have done really well have been rewarded, and those who have not done well have caused significant turnover. This results in a short term disruption; however, these changes are better for Aflac in the long run. Moving into 2017, we’ll continue to focus our career sales agents on groups with fewer than 100 employees. I believe this market is Aflac’s to grow because our career sales agents are best positioned within the industry to reach and therefore succeed with these smaller employers. We will also continuing improving the productivity of new recruits, as we did in 2016. Recruiting fell…

Thank you, Teresa. Next, I’ll provide highlights from Aflac Japan’s operations, which had a profitable year in terms of pre-tax earnings. We did, however, face headwinds due to the persistent low interest rate environment and absorbed a fourth quarter reserve adjustment which impacted overall profitability. Fred will discuss the financials in detail later, but I would note that we anticipate that low interest rates will remain one of the biggest issues facing the Japanese life insurance industry in 2017. I’m very happy with Aflac Japan’s strong annual third sector sales increase of 4.1%, which is at the high end of the 2016 expectation of flat to up 5%. These results were impressive considering we upwardly revised our sales targets twice in 2016. Aflac Japan produced solid results across all channels and further affirmed its leading position in the third sector market. On the product side, we’re excited to report that cancer insurance sales were up 8.5% for the year. Second half sales results also benefited from the July introduction of a new third sector product called income support insurance. As you’ll recall, this product provide fixed benefit amounts should a policy holder be unable to work due to significant illness or injury. It was developed to supplement the disability coverage provided through Japan’s social security system. Our income support insurance targets consumers in their 20s through 40s, which is a segment of the population where we’ve been underrepresented. Income support insurance was received favorably and has the potential to gradually develop into a new product pillar over the long term. Turning to the interest rate sensitive first sector products, you will recall that we proactively pulled products from select channels and aggressive re-priced our wave and child endowment products, factoring in the reality of a prolonged low interest rate environment.…

Thanks Paul. First, let me say that I’m pleased with the overall financial results of the company for both the quarter and the year. Our earnings results for the full year exceeded our expectations going into 2016. Operating EPS on a currency neutral basis was up 4.7% for the year and within the increased guidance range communicated on our third quarter call. Our earnings results are particularly noteworthy considering proactive investments in our business model, the Bank of Japan’s actions early in the year, and a fourth quarter reserve strengthening. Turning to the fourth quarter results, there’s a few items worth calling out that negatively impacted the reported earnings. First, as mentioned during both our third quarter call and our outlook call, we completed our year-end actuarial review of interest-sensitive blocks of business in Japan. There are two smaller blocks of legacy third sector business that have been subject to strengthening in the past years due to continual interest rate declines. The specific strengthening in the quarter was on a closed block of business we refer to as super care, and resulted in a charge of 6 billion yen or roughly $0.08 per share. It’s important to note that this is a GAAP only impact and does not affect FSA reserves, cash flow, or core capital ratios. Additional items that negatively impacted the quarter include corporate expenses, which were elevated as a result of stock compensation expense and accelerated amortization due to retirement eligibility; in addition, elevated interest expense related to our debt issuance in September, which prefunded maturities in February. Together, these items amounted to roughly $0.03 a share in the quarter. If you exclude only the reserve strengthening in Japan, our fourth quarter operating earnings per share were within the expected range provided in the third quarter. Our…

Thank you, Fred. Now we’re ready to take your questions, but please let me remind you that to be fair to everybody in the queue, limit yourself to one initial question and only one follow-up that relates to your initial question. We’ll now begin taking the first question.

[Operator instructions] Our first question is from Nigel Dally with Morgan Stanley. Your line is now open, sir.

Great, thanks, and good morning. This question is on guidance. When the yen is at 115, the midpoint of the EPS guidance seems to have declined $0.09 from what you provided back in December. Just hoping you can discuss what drove that change.

So a couple things, Nigel. Your comment is really relative to sensitivity. What’s changed is in the course of working towards installing hedge costs into our operating earnings in 2017, we refined our model to reflect having locked in those hedge costs effectively prior to entering 2017. What happens is that has the effect of essentially locking in a dollar-based expense at the time of that transaction, and so the way our actual results end up playing out because we’ve locked in those hedge costs is effectively reducing the dollar coupon income, if you will, in Japan. This has the effect of increasing the relative yen earnings to dollar earnings, and therefore increasing the sensitivity. This is a very nuanced issue, but it has less to do with the nature of hedge costs and amortization and more really to do with the fact that we have locked in those costs with a fixed exchange rate that therefore does not float throughout the year, so it has the effect of increasing our relative yen revenue and earnings, if you will, relative to our total. What I would tell you is this - both the hedge costs in our operating earnings as well as the strategy of locking in longer dated hedges are both new strategies, and as we go through the year, we’re going to watch very carefully these sensitivities, and obviously as we see them move around, we’ll adjust if necessary; but this is our best estimate at the moment.

Okay, got it. The follow-up is just on U.S. recruited agents. You touched on it briefly in the earlier remarks, but they seem to have dropped to the lowest level we’ve seen in many years. Just hoping to get some additional color as to what’s going on there and whether that’s also a contributing factor to the sales challenges.

Nigel, specifically on recruited agents, if you recall in my comments last year, we talked about making sure that we drove agent productivity, so we’re looking at this from a long term perspective. What we saw as our focus was on productivity was an increase in the productivity of the agent. We saw an increase in new associate APs. We saw an increase in new accounts, and so those were all positives that we saw as it relates to recruited agents. What our data supports is that we know that we have a strong correlation between lifetime tenure with Aflac if the agents get started off and they start off well, so that was really the focus there. We did have broker recruiting as well. We actually increased our penetration in our current brokers as well, so we focused on that. Now, that’s not to say though that in 2017, we have a focus on recruiting, but what we wanted to do is we wanted to fix that front end funnel so that we could make sure that the people who were recruited in had a likelihood of staying with us, and we are seeing the retention of an agent coming in going to year two increase, so that’s really what we were solving for.

Very helpful, thanks.

Thank you. Our next question is from Jimmy Bhullar with JP Morgan. Your line is now open, sir.

Hi, good morning. First, Fred, I just had a question on if you could give us some color on your forward rate assumptions that you’re using in the super care block in terms of reserves, and under what situation would you--could the charge that you saw this quarter beat, and just give us some idea on what you’re assuming and how often you reassess reserves.

Sure. So this is an annual process that as you may recall has gone on for years, and of course I don’t have the history but many around the table here do, and so do many of you as analysts. But over the past 10 years or so, we’re periodically added to reserves both on this block but also on a dementia block, and typically for similar reasons with the persistently lower interest rate environment in Japan. So that to degree, it’s not unusual - these tend to be blocks we focused in on in low rate environments, not surprisingly. What we did more specifically is we took the long term new money rate assumption down around 22 basis points. We took it down from roughly 175 to 150 - 1.5%, and realize that the new money rate assumptions include both the yen investments as well as the dollar program, and also incorporate hedge costs which back off those dollar coupons, so it’s really looking at the investment strategy. What’s very unique about Aflac and somewhat a testimonial to the conservative nature of the company is that we also tend to have a practice of leaving those low rates long forever; in other words, we don’t assume a recovering rate out into the future, which would make a difference in the level of charge, and we do that simply to be conservative but also to some degree to put this type of risk behind us as we look at the assumptions. So that amounted to the charge, so in other words your portfolio yield eventually grades down to the 1.5%. In terms of future rate risk, of course, that’s going to be dependent upon what we see going on in Japan. We’ll do the same thing we do every year, which is test the reserves according to the rate environment. We’ve seen some very recent recovery, but as is often the case, we tend not to be shifting around our assumptions based on short-term moves in rates down or up. But we felt the Bank of Japan action earlier in the year was fairly significant and it somewhat recast a new rate environment for us, and so we felt it really prudent to recast our long-term rate assumptions. That’s not always going to be the case. The only other thing I would tell you is that realize that on this particular block, it’s 4% of our reserves. Together with dementia, that’s less than 10% of our reserves, and there is really no rate risk with the majority of business that we have in Japan. There is very little, if any, rate risk in the U.S., and really what we’re talking about here is a GAAP testing process. While we do test statutory and FSA, the reserves are quite adequate there. The margins are strong and we don’t see risk in our core capital ratios. If that helps you out, hopefully it gives you the information you need.

Sure. Then maybe just for Teresa, there is a lot of talk obviously of changes in the healthcare landscape in the U.S. What’s the risk that the whole uncertainty about what the changes are going to be pressures your sales this year as small businesses sort of defer the decision to add additional benefits? Are you seeing some of that in the market, and do you expect--is that factored into your assumptions for sales growth this year?

Well, I’ll tell you there is a lot of talk about it, but I don’t have enough evidence to say whether it will impact sales or not. I have some meetings in the next couple of weeks with various broker partners, and I’m also talking to various folks in our field force to really just understand what they’re hearing and what they’re seeing, but at this point I think it’s still early yet, and I don’t know that I can assign that as a cost or put any factor on that as it relates to U.S. sales.

Okay, thank you.

Our next question is from Mr. Humphrey Lee with Dowling & Partners. Your line is now open.

Good morning, and thank you for taking my questions. Just to follow up on the U.S. sales, can you talk a little bit in terms of why you are seeing the weakness in the mid-case market?

Certainly. So we saw the less than 100s relatively flat. Mid-case market, as you are aware, is really serviced by both our veteran agents, and we have a number of veteran agents who have existing accounts in that mid-case market, but also it’s serviced by our broker partners. We’ve seen a lot more brokers move into that space. A couple of things that we’re doing in 2017, I explained that in 2016 our focus was on new and building that front end of the funnel. I think that we took the eye off of that mid-case market specifically from a veteran perspective, and so we’re driving some incentives to the mid-case market from a veteran perspective to allow them to be able to go back into their existing accounts and drive sales there. The other piece of this is that as brokers have moved into that mid-case market, what we found is we were really underpenetrated from a broker sales professional perspective, so we call the people who are sales people for Aflac broker sales professionals, and we need to make sure that we actually can execute in that market, so we’re going to increase the number of people--25% increase in the number of people in that broker--as broker sales professionals to basically target the mid-case market. So I think it’s really more about under-penetration in that area.

I’d also like to respond on that one moment. One of the things that we made a decision on, and Teresa played a big role in this, is the 100 to 250, we made a conscientious decision not to write that on a group platform. Now, one reason we did is our manual--so much of our systems over there is manual, and that’s why we’ve spent $25 million to invest in the future. We found out the 100 to 250, we were making basically zero profits or losing a little bit, and it was also taking time away from our accounts of 1,000 or more from a service perspective, so she made the call to concentrate on the 1,000, and that’s why you’ve seen a 12% compound growth in the 1,000 or more. So will we eventually go back to the 100 and 250? Yes, when these new systems are put in starting January 1 of next year. But we have moved away from that unless we have such a big block of business from a certain broker, and then we are taking that on as an entire block to keep them happy. But service is the issue there, as well as profitability.

Got it. Thank you for the color. Then maybe shifting it to Japan a little bit, the cancer sales continue to be pretty strong throughout 2016, and I know part of it is because of the new cancer survivorship product being well received. How much would you consider this just because the reception being better than expected, or would it be partly because of Japan Post continuing to be delivering better than expected production relative to your baseline assumptions?

Humphrey, thank you for the question. This is Paul. I will tell you that it’s a combination of all factors. First of all, cancer sales are not up just because of Japan Post or just because of the new product. No doubt the new product was additive and Japan Post has continued to produce in a manner that is in line with what we would expect and want. We can’t go into the specifics about any of their numbers, but what I can tell you is that the Japanese consumer continues to see cancer as a productive line of business that is positive for them, and continues to see--we continue to see across the board demand for the product, so we remain optimistic. Obviously as the numbers on this particular product and this particular launch of our cancer product over time will dissipate, but as you know, we always are looking to reinvent our products and launch new versions of those, and so just as we’ve announced on February 20 we’ll launch a new medical as well as a new first sector protection product in our GIFT plan, we will look in the future to eventually launch a new cancer plan, and we have every belief that the long term viability [indiscernible].

Okay, thank you.

Thank you. Our next question is from John Nadel with Credit Suisse. Your line is now open, sir.

Hi, good morning everybody. A question on the U.S. market. So clearly a shift for the larger case market. I’m just curious whether we should expect that the margin on sales generated to 1,000 lives or bigger groups should be similar, or probably I’m guessing lower than the margins you would generate at the lower end of the market, just given the pricing competition at the upper end.

This is Teresa. One of the things that we’re looking at is we’ve said that the group would have slightly--it’d probably be very similar, but slightly less than our margins on the individual side, and today as Dan talked about, what we’re really trying to work on is the thing that’s depressing the margin right now is more about administration. So as we work on administration, I think we can move the margins back to where we priced them.

That’s right, and I would just add to that that there is a competitive landscape - no question - in the larger case market in general, and we’ll have to be mindful of that but realize that the types of returns we’re generating are quite comfortably well above our cost of capital and additive. But Teresa is exactly right - what you’ll find at a lot of companies is pricing for your aspirational expense base as opposed to pricing for your actual expenses, and Aflac’s practice is to price according to what we’re seeing in the way of administrative expenses, so many of the investments that Dan mentioned and Teresa just noted are designed around solving for a more efficient platform that creates the dynamic of improved returns going forward.

Just as a quick follow-up on that, how big is the differential right now in sort of priced foreign margin?

You know, Todd, I don’t know whether you’ve got a view on that in terms of the differential in margin? I’m going to say at least a few hundred basis points.

Yes, that’s about right.

I don’t want to guess, but Todd is nodding, so something in the neighborhood of 200 to 300 basis points would not be unusual.

Okay, that’s helpful. Then a question for Dan. Dan, you--

Realize by the way--hey John, you realize, by the way, that’s starting from a very high return base on our core business, so it’s not like we’re talking 10% to 7%. We’re talking about mid-teens and seeing a 300 basis point differential in pricing.

Yes, I understand. Then Dan, just a question for you on the outlook for dividend growth, common dividend growth. You’ve talked for a long time now about targeting increases in the dividend over time in line with operating income growth, ex-currency. But I think by your own guidance for 2017 and certainly by our estimates, your operating income will be flat to down, EPS may be modestly up given the buybacks. Should we expect that maybe 2017 is a year where the dividend moves flat?

No, I think you should look for an increase in the dividend. Where or how, I’m not exactly sure where it will end up, but as you know, we tend to be a little on the conservative side, and we always are very attuned to individual shareholders, and that is--of course, we have much more institutions today, but they are still a part of our company, so we’re always trying to find ways to make sure the dividend is growing.

Okay, and if I could follow up with one more quick one. If you didn’t hedge 90% of the costs, if you didn’t lock in 90% of the costs for the hedge program for 2017, how much higher today versus pre-election would those hedge costs be running?

I’ll toss to Eric on that, John, and we can comment on what we’re seeing.

From election to now, I’d say it’s about, on a one-year basis, 20, 25 basis points. Keep in mind, the long end of the curve went up a lot since the election; the short end really has not moved all that much because it’s still based on short-term rate differentials, and on that basis with the Fed’s actions that they did in December were very much expected by the market. But the increase was more or less in line with our expectations in either event.

Got it, thank you so much.

One other thing I just want to mention. One thing also that drives our interest in that dividend is we’re an elite group of people with going 34 years of continuing increases in the dividend, so I wouldn’t want to stop it for that, either.

Understood.

Our next question is from Erik Bass with Autonomous Research. Your line is now open.

Hi, thank you. First just for Teresa, you’ve given some of these numbers, but was hoping you could just provide a couple more. In the U.S., can you just give the sales growth detail for groups, I guess both 1,000 lives as well as the midmarket, as well as what the growth was for the individual or small case? Then also, roughly how much does each channel contribute to your overall sales volumes?

The midmarket was actually our negative. We were in the negatives there, negative single digits, flat in the less than 100, and we had double-digit increases in the greater than 1,000. I can get specifics offline. Now, the other thing is the large majority of our business sits in the less than 100 category, so that’s where we have the majority of our business and then we go up to the mid-case and then the larger case. Our challenge right now is from a broker perspective, whereas Aflac is very heavy - 70% of career, 30% broker production. Most of our competitors are just the opposite, and so our base is a lot bigger as far as the core, which then drives us to have to overcome that big base. The other thing is just when you look at the 100 to 999, if you just pull that out and you look at 250 to 999, that was relatively flat as well, so there’s a specific area within that 100 to 250 that we saw the level of decrease, and that’s where we’re really focusing. We believe some of that was primarily the instance that Dan talked about, which was the 100 to 250 space where we decided to be very selective in what we sold from a group perspective in those smaller case markets.

It was self-inflicted, to a great degree.

Yes.

Got it. Then just one follow-up for Paul. You mentioned the new EVER product you’re coming out with. I don’t know how many details you can give at this point, but would you characterize it as sort of a major revision, or just minor tweaks to the product?

Yes, this is more of a major overhaul. We traditionally, over about a three-year period, will do both minor revisions or additions of small riders, as we did about 18 months ago. This particular revision is one that is more significant in nature. That said, as we’ve talked about both at MiniFab [ph] and otherwise, the competitiveness of the medical market continues to be strong, and so we feel that while this product will be additive to sales, I’m tempering excitement somewhat in the overall product launch but I feel that for most of our channels, it will be strong. Keep in mind, however, as we think about our strategic alliance partners, be it Daiichi, be it Japan Post, [indiscernible] and others, they don’t sell our medical product, and such a large percentage of our sales continues to be focused on cancer, and that’s something you have to keep in mind as you look at a product launch of EVER itself.

Got it, thank you.

Our next question is from Ryan Krueger with KBW. Your line is now open.

Hey thanks, good morning. I have one for Fred. Do you have an update on how much of the $2.5 billion floating rate U.S. dollar portfolio that you’ve added so far?

Yes, so I think you’re referring to the switch trade that we did last year, where we sold out of U.S. dollar bonds, went into JGBs, and are now feathering our way back into a floating rate portfolio. I’m assuming that’s what your question is?

Yes, [indiscernible].

Yes, so very little, very little. It will build throughout the year. In fact, and I’ll give you some additional detail, our estimate of the drag to net investment income in 2017 related to the switch trade is running right around $0.08 to $0.10 for the full year. The difference in that range will have to do with the pace of putting that money to work. We’re actively engaged in both qualifying and starting the process of preparing to fund as good loans come in our direction, and really emphasis on that last piece, and that is the pace of it is not--we’re not in a rush, if you will, to put money to work ignoring, if you will, the credit fundamentals. These tend to be by definition double-B-ish type investment credit ratings, and so you want to be particularly careful that you put it to work in a measured way. So we’ve been somewhat conservative and practical in that build of the portfolio, and expect it to go on throughout the year. Eric, if you’ve got something to add, please do.

Yes, I would just add a couple of comments. In our planning, because we are forming more partnerships with lenders, if you will, both for middle market loans and transitional real estate, and I should mention that transitional real estate by and large is investment grade versus the middle market loans that are double-B. But in our planning relative to the guidance that Fred’s previously given to you is an assumption that we start to fund by the end of the second quarter. To the extent we’re able to get them online sooner, that will be a net positive to our earnings for the year; but we were conservative because as Fred said, we want to be conservative on the underwriting. We like underwriting, we like credit risk. We think we do that well, but because it’s a larger core allocation, we also have to be just as careful around onboarding and starting the process of more volume of those. So it’s conservatively estimated, but it will be a net positive to our net investment income after hedge costs, so while we took a short term decline in net investment income, long term this is a very good relative value proposition for our program.

Thanks, then one more for Teresa. I guess you have a long term U.S. sales target of 3 to 5% growth. Given some of the initiatives you’re working on for 2017, do you think that’s achievable this year?

I’m certainly still--I feel like we’re still going to be within the range of CAGR that we provided, so absolutely.

Great, thank you.

Now I’m going to tell you, we’re going to have a tough first quarter. I do want to say that. But I feel pretty good about the--what we’ve already talked about, the guidance.

Thank you. Our next question is from Randy Binner with FBR Capital Partners. Your line is now open.

Hey, good morning, thanks. I wanted to ask a question about the benefit ratio and kind of loss margins in Japan. That benefit ratio is higher in our model than it’s been several quarters just on a core basis, and my understanding was that utilization trends have just been very favorable in Japan, and that I kind of expected that benefit ratio to stay where it had been, maybe even work lower. So the question I have is, was there anything unusual in the benefit and loss activity in the fourth quarter, outside of the super care charge? And can I get an update on how loss trends and utilization is going in Japan? Hospital utilization is mostly what I’m referring to.

Yes, I’ll answer a couple of the questions, and then certainly welcome Todd Daniels to comment on sort of utilization trends if he has more color to add. But just a couple things, and you hit on it, Randy, so first recognize that the reported benefit ratio to premium, the 74% that if you adjust for the reserve strengthening, that comes down to around 72.5%, 72.4%, and is actually consistent sequentially with what we reported in the third quarter. Now, it is a tick up from the fourth quarter last year, but that’s not unusual that you’ll have those types of fluctuations as you’re doing IB&R adjustments and the like every quarter, frankly. So that’s what I mean by saying that core benefit ratio, when adjusted for the reserve strengthening, is in line with our expectations in Japan. In terms of utilization and overall trends that are driving the benefit ratio and hospitalization trends, they have indeed been favorable, albeit that over time they naturally start the process of plateauing a bit, meaning that you eventually start to see it stabilize but at these favorable rates. So we do see pockets of improvement, but maybe not as material as they have been historically. Todd, do you have anything you want to comment on?

Yes, I’ll just mention too that for the year-to-date benefit ratio when adjusting for the super care adjustment was 72.2% as a ratio to premium, and that’s still trending lower versus what we saw in ’14, ’15. Regarding the utilization, we are continuing to see hospitalizations trend in a positive manner, so we are reflecting that periodically as we do our reserve testing.

Just as long as I have you on utilization, on the U.S. side the margins were pretty good. Any update on utilization trends there, because that’s also been a tailwind, I think, the last couple of years.

Yes, I think there, it’s a slightly different story. There are those fundamental trends that have been positive, but there’s also a mix of business dynamic playing into it. Todd, again I’ll ask if you have anything to add.

That’s right - there’s some mix of business playing into it. As Fred mentioned, I think in the prior quarter, we have tended to sell more products with these guarantee issue features, and as we went into some of these products, we were relatively conservative with these--pricing these during these guarantee issue periods. We’ve seen some favorable experience with that, so as our mix of business has shifted to more products with those features, we have seen the benefit ratio come down. I will say as we look at things on an overall lifetime basis, we do see these ratios moderating a bit. I wouldn’t expect an increase in 2017, however; I think we’re still going to see a continuation of the benefit ratio we saw in 2016.

I think one thing I would add, and again I realize that any particular quarter does not tell that full story, but just don’t lose sight of the fact that there is some level of correlation between record U.S. profits and profit margin and our sales progression, and that is one thing that we have let our guard down on, is really a couple things. One is pricing with a level of conservatism, focus on high quality business, and we’re not going to chase competitive dynamics in pockets where we think it’s not the right kind of business for us. So again, it’s a long term plan of that type of discipline that yields the kind of earnings results in the U.S., but there is a correlation.

All right, thank you.

Our next question is from Sid Camus [ph] with CD [ph]. Your line is now open.

Thanks and good morning. Just wanted to ask a couple more on the U.S. Teresa, in your prepared comments, you talked about some turnover disruption, I think associated with some of the senior leadership. How long do you think that’s going to take to fix?

Well, we put in the performance management plan end of 2014, I think is when we started it, so we had a full year in 2015. 2015, we basically are correlating sales growth with our compensation, and those that are in those roles--we also had some retirements as well, so I need to say that. But our goal is to make sure that when people move into those roles, they understand the dynamics of the market, they understand how the market--what they need to do within the market, and so obviously when something is just put in, you’re going to have a cycle of more moves than you have ongoing, so we hope to stabilize within 2017 to see what we have. We’ve been seeing a lot more competitors wanting to come in, come to join the markets as well, and so we’re hoping to see that stabilize within 2017. But you know, again, it’s really all about whether there is--whether the performance is where it needs to be.

Let me make a comment about that. In the last 18 months, we’ve had a turnover at the MKD level, which would be equivalent to what we call in charge of the state, of 50% of the people. As Teresa said, it was either due to retirements or it was due to lack of income that they were used to because their sales were not where they should be, and therefore they made a lot less money. Because of all these openings, we’ve had opportunities not only to fill them with our people, but we’ve had a lot of competitors come our way and interested in those slots. Teresa has filled those slots with some key people that are growing our business, or that we expect to grow our business in 2017. But anytime you’ve got a lot of changes like this, it does take a little time, and as Teresa said, it makes it a little bit harder the first quarter because of all these changes, and so hopefully we’ll see it--

--stabilized in the year, yes.

Okay?

Yes, that’s fine. I had one follow-up actually, Dan, either for you or for Teresa, I guess. A couple years ago, we spent a lot of time talking about channel conflict between the brokers and the traditional agents. Some of the comments you made earlier, particularly in that mid-case market, it sounds like both of those distribution channels are participating in that mid-case market, so I guess the question is are those channel conflict issues behind us now, or is there still some of that stuff going on in the U.S.?

Well you know, I don’t know that channel conflict will ever be totally behind us from that perspective, but it’s not at a fever pitch. I think that our directors of sales, both on the career side - Andy Glaub, who is looking at it from a U.S. perspective, but focused on the career side, and then Drew Niziak, who is on the broker side, there’s a tremendous amount of collaboration that’s happening, and quite frankly in various markets, we see that our broker teams are working collectively with our career teams to enhance what we deliver to brokers as enrollers, etc. So we’ve seen it work, we see it working, but are there still pockets where we have channel conflict? Absolutely, there are pockets. Really, I think that’s where--it really becomes a matter of understanding where the market is taking us and making sure that we deliver tools and services for each of the market sets, so both of those markets, especially from a career perspective, can grow. So that’s what we’ll continue to do.

All right, thank you.

Our next question is from Tom Gallagher with Evercore ISI. Your line is now open.

Thanks. Teresa, just a follow-up on what’s going on, on the distribution side. Just to be clear, is the high turnover in some of the underperforming regions for the agency channel that you’re referring to, is that because they’re getting picked off and recruited away by competitors, or are those people that you’re firing, that you’re pushing out?

The majority of the people that have moved out of those market positions have moved into sales positions, so many of them have decided to move back down into a coordinator-type position within Aflac. So I’ve not heard of many of them going to competitors, if that was your question.

Yes, it is. Thank you. Then--so from the standpoint of this turnover and the impact on sales, was a lot of this happening later in the year and that’s why 1Q is going to be affected? Can you talk us through the--

Right, so if you think about it from a sales perspective, we’re looking at sales targets by quarter, and most of the volume is hitting in the fourth quarter. So many of the changes happened within the third and fourth quarter where we started seeing that people were not going to meet objectives. Some of them decided that they would retire, that type of thing, so yes, that’s why we are anticipating a little bit more disruption in the fourth quarter as well as in the first quarter.

Got you. Then just Paul, a question for you. You were referencing the strategic alliance partners in Japan pivoting to their own products into the fiscal year-end as being one of the reasons why 1Q is going to be softer. Can you just comment on your level of confidence that this isn’t the beginning of a weaker trend with the alliance partners, that this 1Q dip is not the sign of some kind of signal for where those sales are likely to go in the subsequent quarter as well?

I obviously can’t get into specifics, but I can tell you I’m extremely confident. The reality is that for their fiscal fourth quarter, and of course kicking off their year, the beginning of the first quarter for them is the second quarter for us, sales could be slightly light; but we know the second half of the year will be strong. We talk to our partners and make commitments internally on an annual basis. As I’ve said, they outperformed the first three quarters of their year, ending in the end of last year, and as I can’t go into specifics and I don’t want to put us in any kind of a precarious situation, all I can say is that I think this is temporary in nature and is partly reflective of the success that we’ve had with our alliance partners, but should in no way temper future expectations.

I will make a comment that I’ve seen this with Daiichi Life - once they make their numbers, they tend to focus on other things and then set the new numbers for the next year. So the way these numbers will fall out after the first quarter will be a new year, so they’ll be setting the new numbers and making those, and that’s just their way of doing business from a Japanese perspective.

Okay, thanks.

All right, thank you very much. We’ve answered all the calls that came in, so please let me just follow up with a couple comments. I want to share with you today our calendar for 2017 is available on the investor relations page of aflac.com. I would also point out that our financial analysts meeting that has historically been held in May has been moved to a September time frame, and this year it will be held on September 28 - that’s September 28 in New York. Please feel free to call our investor and rating agency relations department with any questions, and we look forward to speaking with you soon. Thank you and have a good day.

That concludes today’s conference. Thank you for your participation. You may now disconnect.