Last week my post, Aflac: Behind the Numbers created emails and phone calls from many different people in regards to lapses and persistency. We all understand that lapse policies is a part of our industry, no matter what product segment we may be in. That being said, there are expectations and certain actuarial assumptions that are used when products are filed in each state.
Below is the definition listed in Aflac’s glossary regarding persistency.
Aflac definition of persistency – Percentage of premiums remaining in force at the end of a period, usually one year. For example, 95% persistency would mean that 95% of the premiums in force at the beginning of the period were still in force at the end of the period.
One of the emails I received last week said, “ Mr. Hyman, is it possible that Aflac has had more lapsed premiums in a year than they had sales?” So here is my answer after carefully researching Aflac’s SEC filings.
Aflac has had a very long history of high lapsed policies. I went back to 1993 and reviewed my data from SEC filings that showed the following data –
Sales year, annualized premiums in force beginning of year, new sales premium (including conversions), premiums lapsed and annualized premiums in force, end of year.
For 2017, annualized premiums in force was $5,896 billion
New sales, including conversions, of $1,552 billion
Premiums lapsed was ($1,525) billion
Annualized premiums in force, end of year was $6,052 billion
In 2016, annualized premiums in force was $5,760 billion
New sales of $1,482 billion
Premiums lapsed ($1,479)
Annualized premiums in force, end of year $5,896
In 2015, annualized premium in force was $5,668 billion
New sales of $1,487 billion
Premiums lapsed ($1,526)
Annualized premiums in force, end of year $5,760 billion
Since 1993, Aflac U.S. has had the following:
New Sales Premium – $26,491,000,000
Premiums Lapsed – $23,139,000,000 (87.34% of new sales premiums)
Since 2009, premiums lapsed exceeded new sales premiums in 2009, 2010, 2013, 2014 & 2015.
Aflac had $6,052 billion of inforce premium at the end of 2017. A 1% improvement in persistency is worth $60 million in premium. I reviewed Aflac’s pretax rate for each year since 1993. Based on 2017’s pretax rate of 19.8%, a 1% improvement in persistency equals about $12 million in pretax profits.
Last year, Aflac’s persistency was 77.5% (before inclusions). The ideal persistency would be 82.5%. A 5% improvement in persistency is equivalent to an additional $300 million a year in premium and about $60 million in additional pretax profits.
I am confident that Aflac will get this under control and over a period of time, we will see a big improvement in persistency.
Are these stats only US or worldwide sales?
Aflac U.S.
Inasmuch as they have added new products at lowered premiums, measuring inforce is not valid for ascertaining lapse rates. New sales far exceed lapse, as many lapses are from older , night’s prices or age bands policies. You’re infirce premium figures are correct. Profits on newer policies are higher. Compensation structures have changed. These are supplemtusl policies , not life insurance. 99% of the insurers in the world wish they had Afkacs profits and cash flow. Your article is highly misleading.
Tom,
Thank you for your comments. My article is based on facts extracted from Aflac’s annual filings. Aflac measures persistency exactly as I measured their persistency for the article. Your comment about older policies being written from years past is correct. However, the lapse policies occurred in the calendar year reported. Therefore, new sales did not exceed lapse premiums in the years I stated.
If you read Aflac’s 10-K reports, you will see my point.
In regard to Aflac’s profits, You are correct, Aflac profits are excellent and has been for decades. My article is based on persistency and the lost profits because of excess lapses.
In regards to my article being misleading, you are not correct. If you read their annual filings, you would also know your comments are not correct.
Thank you again for your comments.
Best regards,
Jeff