COLUMBUS, Ga., April 29, 2014 /PRNewswire/ -- Aflac Incorporated
today reported its first quarter results.
Reflecting the weaker yen/dollar exchange rate, total revenues
fell 9.1% to $5.6 billion during the
first quarter of 2014, compared with $6.2
billion in the first quarter of 2013. Net earnings were
$732 million, or $1.60 per diluted share, compared with
$892 million, or $1.90 per share, a year ago.
Net earnings in the first quarter of 2014 included after-tax net
realized investment losses of $36
million, or $.08 per diluted
share, compared with net after-tax gains of $102 million, or $.21 per diluted share, a year ago. After-tax
realized investment gains from securities transactions in the
quarter were $27 million, or
$.06 per diluted share. On an
after-tax basis, impairments were $2
million in the quarter, or $.01 per diluted share. Hedging costs related to
certain dollar investments of Aflac Japan on an after-tax basis,
were $6 million in the quarter, or
$.01 per diluted share. Realized
after-tax net investment losses from other derivative and hedging
activities in the quarter were $55
million, or $.12 per diluted
share. In addition, net earnings included a loss of $6 million, or $.01
per diluted share, from other and nonrecurring items.
Aflac believes that an analysis of operating earnings, a
non-GAAP financial measure, is vitally important to an
understanding of the company's underlying profitability drivers.
Aflac defines operating earnings as the profits derived from
operations, inclusive of interest cash flows associated with notes
payable, but before realized investment gains and losses from
securities transactions, impairments, and derivative and hedging
activities, as well as other and nonrecurring items. Aflac's
derivative activities primarily include: foreign currency, interest
rate and credit default swaps in variable interest entities that
are consolidated; foreign currency swaps associated with certain
senior notes and the company's subordinated debentures; foreign
currency forwards used in hedging foreign exchange risk and
interest rate swaptions used in hedging interest rate risk on U.S.
dollar-denominated securities in Aflac Japan's portfolio; and
foreign currency forwards and options used to hedge certain
portions of forecasted cash flows denominated in yen. Management
uses operating earnings to evaluate the financial performance of
Aflac's insurance operations because realized gains and losses from
securities transactions, impairments, and derivative and hedging
activities, as well as other and nonrecurring items, tend to be
driven by general economic conditions and events or related to
infrequent activities not directly associated with the company's
insurance operations, and therefore may obscure the underlying
fundamentals and trends in Aflac's insurance operations.
Furthermore, because a significant portion of Aflac's business
is in Japan, where the functional
currency is the yen, the company believes it is equally important
to understand the impact on operating earnings from translating yen
into dollars. Aflac Japan's yen-denominated income statement is
translated from yen into dollars using an average exchange rate for
the reporting period, and the balance sheet is translated using the
exchange rate at the end of the period. However, except for certain
transactions that include the Aflac Japan dollar investment
program, the company does not actually convert yen into dollars. As
a result, Aflac views foreign currency as a financial reporting
issue and not as an economic event for the company or its
shareholders. Because changes in exchange rates distort the growth
rates of operations, readers of Aflac's financial statements are
also encouraged to evaluate financial performance excluding the
impact of foreign currency translation. The chart toward the end of
this release presents a comparison of selected income statement
items with and without foreign currency changes to illustrate the
effect of currency.
The average yen/dollar exchange rate in the first quarter of
2014 was 102.70, or 9.8% weaker than the average rate of 92.59 in
the first quarter of 2013. Operating earnings in the first quarter
were $774 million, compared with
$790 million in the first quarter of
2013. Operating earnings per diluted share in the quarter remained
unchanged from a year ago at $1.69.
The weaker yen/dollar exchange rate decreased operating earnings
per diluted share by $.10 for the
first quarter. Excluding the impact from the weaker yen, operating
earnings per diluted share increased 5.9%.
Total investments and cash at the end of March 2014 were $110.5
billion, compared with $108.5
billion at December 31,
2013.
In the first quarter, Aflac repurchased $415 million, or 6.5 million shares, of its
common stock. At the end of March, the company had 42.7 million
shares available for purchase under its share repurchase
authorizations.
Shareholders' equity was $15.7
billion, or $34.53 per share,
at March 31, 2014, compared with
$14.6 billion, or $31.82 per share, at December 31, 2013. Shareholders' equity at the
end of the first quarter included a net unrealized gain on
investment securities and derivatives of $1.9 billion, compared with a net unrealized gain
of $1.0 billion at the end of
December 2013. The annualized return
on average shareholders' equity in the first quarter was 19.3%. On
an operating basis (excluding total net realized investment
gains/losses in net earnings, unrealized investment gains/losses,
and derivative gains/losses in shareholders' equity), the
annualized return on average shareholders' equity was 22.7% for the
first quarter of 2014, or 26.0%, excluding the impact of the
yen.
AFLAC JAPAN
In yen terms, Aflac Japan's premium income rose 1.4% in the
first quarter. Net investment income increased 9.4%. Investment
income growth was magnified by the weaker yen/dollar exchange rate
because approximately 45% of Aflac Japan's first quarter investment
income was dollar-denominated, compared with 40% a year ago. Total
revenues were up 2.2% in the first quarter. The pretax operating
profit margin increased in the first quarter to 22.0% from 21.5% in
the prior year. Pretax operating earnings in yen increased 4.6% on
a reported basis and 1.5% on a currency-neutral basis.
Aflac Japan's growth rates in dollar terms for the first quarter
were suppressed as a result of the weaker yen/dollar exchange rate.
Premium income decreased 8.8% to $3.6
billion in the first quarter. Net investment income was down
1.7% to $663 million. Total revenues
decreased 8.1% to $4.2 billion.
Pretax operating earnings declined 5.7% to $933 million.
In the first quarter, total new annualized premium sales fell
48.7% to ¥27.6 billion, or $268
million. Third sector sales, which include cancer and
medical products, increased 1.8% in the quarter. As expected, sales
of the company's first sector WAYS product declined sharply in the
first quarter, leading to a 63.7% decrease in bank channel
sales.
AFLAC U.S.
Aflac U.S. premium income increased 1.1% to $1.3 billion in the first quarter. Net investment
income was up 2.5% to $161 million.
Total revenues increased 1.2% to $1.5
billion. The pretax operating profit margin increased to
20.8% from 19.5% a year ago, reflecting improvements in both the
benefit and expense ratios. Pretax operating earnings were
$303 million, an increase of 7.9% for
the quarter.
Aflac U.S. total new annualized premium sales decreased 4.4% in
the quarter to $318 million.
Additionally, persistency in the quarter was 73.8%, compared with
74.7% a year ago.
DIVIDEND
The board of directors declared the second quarter cash
dividend. The second quarter dividend of $.37 per share is payable on June 2, 2014, to shareholders of record at the
close of business on May 21,
2014.
OUTLOOK
Commenting on the company's first quarter results, Chairman and
Chief Executive Officer Daniel P.
Amos stated: "We are pleased with our overall financial
results in the first quarter of 2014. Aflac Japan, our largest
earnings contributor, generated strong financial results for the
quarter. As we anticipated, Aflac Japan's total new annualized
premium sales in the first quarter were down significantly
following difficult comparisons to the prior year when first sector
sales increased dramatically ahead of a premium rate increase in
April 2013 that was prompted by
declines in interest rates. While Aflac
Japan's third sector product sales were lower than expected,
we remain encouraged by the long-term sales growth potential as we
continue to expand and enhance our distribution channels. As such,
we continue to expect that Aflac Japan's sales of third sector
products will increase 2% to 7% for the year.
"From a financial perspective, Aflac U.S. continued to perform
well in the first quarter, although we remain disappointed with our
sales growth. However, we are beginning to see some of the
sales-related initiatives we've been working on take hold,
including activities centered on recruiting, training, account
retention and performance management. While uncertainty around
health care reform implementation has prompted many businesses and
consumers to postpone decisions related to health care coverage, we
believe the need for our products remains as strong as ever. We
will continue to work on expanding our distribution capabilities to
access employers of all sizes, and we seek opportunities to
leverage our brand strength and attractive product portfolio in the
evolving health care environment.
"Overall, we were pleased with our investment results in the
first quarter of 2014, especially given the ongoing low-yield
landscape in both Japan and the U.S. Our approach is first to
ensure we meet our policyholder obligations. We then seek to
achieve a high degree of confidence in allocating capital to our
shareholders, while also pursuing investment strategies that
benefit our overall income growth. As such, we invested in U.S.
dollar securities during the quarter as a result of our confidence
in meeting our objectives. Given our capital position and current
market dynamics, we are pleased that we have been able to generally
follow our asset allocation program and pursue strategies to
enhance income while providing diversification and high credit
quality.
"We remain committed to maintaining strong capital ratios on
behalf of our policyholders and bondholders. Although we have not
yet finalized our statutory financial statements, we estimate our
first quarter 2014 risk-based capital, or RBC ratio, will exceed
775%. Additionally, we expect that Aflac Japan's estimated first
quarter solvency margin ratio, or SMR, will be above 750%. Given
the strength of our capital ratios, we now anticipate repatriating
about ¥127 billion, rather than approximately ¥100 billion as
previously indicated, which reinforces our plan to repurchase
$800 million to $1 billion of our
common stock in 2014.
"I want to reiterate that our objective for 2014 is to increase
operating earnings per diluted share 2% to 5% on a currency neutral
basis. We are pleased that our first quarter earnings per share
were above our annual target. However, as we communicated when we
established our objective last year, our 2014 EPS will benefit from
increased share repurchase activities, but will also be challenged
by several headwinds. As the year progresses, we expect to see
increased spending and higher benefit ratios than we experienced in
the first quarter. Assuming we achieve our earnings objective and
the yen averages 100 to 105 to the dollar for 2014, we would expect
to report operating earnings of $6.06 to
$6.40 per diluted share for the full year. Additionally, for
the second quarter of 2014, using the same currency assumptions, we
expect operating earnings will be in the range of $1.54 to $1.68 per diluted share. We continue to
believe we are well-positioned in the two best insurance markets in
the world."
ABOUT AFLAC
When a policyholder gets sick or hurt, Aflac pays cash benefits
fast. For nearly six decades, Aflac insurance policies have given
policyholders the opportunity to focus on recovery, not financial
stress. In the United States,
Aflac is the leading provider of voluntary insurance at the
worksite. In Japan, Aflac is the number one life insurance company
in terms of individual policies in force. Aflac individual and
group insurance products help provide protection to more than 50
million people worldwide. For eight consecutive years, Aflac has
been recognized by Ethisphere magazine as one of the World's Most
Ethical Companies. In 2014, FORTUNE magazine recognized Aflac as
one of the 100 Best Companies to Work For in America for the 16th
consecutive year. Also, in 2014, FORTUNE magazine included Aflac on
its list of Most Admired Companies for the 13th time, ranking the
company number one in the life and health insurance category. Aflac
Incorporated is a FORTUNE 500 company listed on the New York Stock
Exchange under the symbol AFL. To find out more about Aflac, visit
aflac.com or espanol.aflac.com.
A copy of Aflac's Financial Analysts Briefing (FAB) supplement
for the quarter can be found on the "Investors" page at aflac.com,
as well as a complete listing of Aflac's investment holdings in the
financial sector that includes separate listings of the company's
sovereign and financial investments in both perpetual and
peripheral Eurozone securities.
Aflac Incorporated will webcast its quarterly conference call
via the "Investors" page of aflac.com at 9:00 a.m. (EDT) on Wednesday, April 30, 2014.
AFLAC INCORPORATED
AND SUBSIDIARIES CONDENSED INCOME STATEMENT
|
(UNAUDITED – IN
MILLIONS, EXCEPT FOR SHARE AND PER-SHARE AMOUNTS)
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
MARCH 31,
|
|
2014
|
|
|
2013
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
$
|
5,640
|
|
$
|
6,208
|
|
(9.1)
|
%
|
|
|
|
|
|
|
|
|
|
Benefits and
claims
|
|
3,220
|
|
|
3,521
|
|
(8.6)
|
|
|
|
|
|
|
|
|
|
|
Total acquisition and
operating expenses
|
|
1,316
|
|
|
1,326
|
|
(.7)
|
|
|
|
|
|
|
|
|
|
|
Earnings before
income taxes
|
|
1,104
|
|
|
1,361
|
|
(18.9)
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
372
|
|
|
469
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
$
|
732
|
|
$
|
892
|
|
(18.0)
|
%
|
|
|
|
|
|
|
|
|
|
Net earnings per
share – basic
|
$
|
1.61
|
|
$
|
1.91
|
|
(15.7)
|
%
|
|
|
|
|
|
|
|
|
|
Net earnings per
share – diluted
|
|
1.60
|
|
|
1.90
|
|
(15.8)
|
|
|
|
|
|
|
|
|
|
|
Shares used to
compute earnings per share (000):
|
|
|
|
|
|
|
|
|
|
Basic
|
454,731
|
|
466,462
|
|
(2.5)
|
%
|
|
Diluted
|
457,699
|
|
469,124
|
|
(2.4)
|
|
|
|
|
|
|
|
|
|
|
Dividends paid per
share
|
$
|
.37
|
|
$
|
.35
|
|
5.7
|
%
|
AFLAC INCORPORATED
AND SUBSIDIARIES CONDENSED BALANCE SHEET
|
(UNAUDITED – IN
MILLIONS, EXCEPT FOR SHARE AMOUNTS)
|
|
|
|
|
|
|
|
|
MARCH
31,
|
|
2014
|
|
|
2013
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments and
cash
|
$
|
110,493
|
|
$
|
107,400
|
|
2.9
|
%
|
|
|
|
|
|
|
|
|
|
Deferred policy
acquisition costs
|
|
8,965
|
|
|
9,210
|
|
(2.7)
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
3,834
|
|
|
3,928
|
|
(2.4)
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
123,292
|
|
$
|
120,538
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
|
Liabilities and
shareholders' equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policy
liabilities
|
$
|
92,890
|
|
$
|
92,951
|
|
(.1)
|
%
|
|
|
|
|
|
|
|
|
|
Notes
payable
|
|
4,913
|
|
|
4,283
|
|
14.7
|
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
9,813
|
|
|
7,769
|
|
26.3
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
15,676
|
|
|
15,535
|
|
.9
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders' equity
|
$
|
123,292
|
|
$
|
120,538
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
|
Shares outstanding at
end of period (000)
|
|
454,028
|
|
|
466,025
|
|
(2.6)
|
%
|
|
RECONCILIATION OF
OPERATING EARNINGS TO NET EARNINGS
|
(UNAUDITED – IN
MILLIONS, EXCEPT FOR PER-SHARE AMOUNTS)
|
|
|
|
|
|
|
|
|
|
THREE MONTHS
ENDED MARCH 31,
|
|
2014
|
|
|
2013
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings
|
$
|
774
|
|
$
|
790
|
|
(2.0)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciling items,
net of tax:
|
|
|
|
|
|
|
|
|
|
Realized investment
gains (losses):
|
|
|
|
|
|
|
|
|
|
Securities transactions and
impairments
|
|
25
|
|
|
42
|
|
|
|
|
Hedge costs
related to
foreign
|
|
|
|
|
|
|
|
|
|
currency investments
|
|
(6)
|
|
|
(3)
|
|
|
|
|
Impact of other
derivative/hedging activities
|
|
(55)
|
|
|
63
|
|
|
|
|
Other and non-recurring income (loss)
|
|
(6)
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
$
|
732
|
|
$
|
892
|
|
(18.0)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
per diluted share
|
$
|
1.69
|
|
$
|
1.69
|
|
–%
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciling items,
net of tax:
|
|
|
|
|
|
|
|
|
|
Realized investment gains
(losses):
|
|
|
|
|
|
|
|
|
|
Securities transactions and
impairments
|
|
.05
|
|
|
.08
|
|
|
|
|
Hedge
costs related to
foreign
|
|
|
|
|
|
|
|
|
|
currency
investments
|
|
(.01)
|
|
|
(.01)
|
|
|
|
|
Impact of other derivative/hedging activities
|
|
(.12)
|
|
|
.14
|
|
|
|
|
Other and
non-recurring income (loss)
|
|
(.01)
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per
diluted share
|
$
|
1.60
|
|
$
|
1.90
|
|
(15.8)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EFFECT OF FOREIGN
CURRENCY ON OPERATING RESULTS1
(SELECTED PERCENTAGE
CHANGES, UNAUDITED)
|
|
|
|
THREE MONTHS ENDED
MARCH 31, 2014
|
Including
Currency
Changes
|
Excluding
Currency
Changes2
|
|
|
|
Premium
income
|
(6.4)
|
%
|
1.2
|
%
|
|
|
|
|
|
Net investment
income
|
(0.7)
|
|
4.0
|
|
|
|
|
|
|
Total benefits and
expenses
|
(6.4)
|
|
1.1
|
|
|
|
|
|
|
Operating
earnings
|
(2.0)
|
|
4.0
|
|
|
|
|
|
|
Operating earnings
per diluted share
|
–
|
|
5.9
|
|
|
1 The
numbers in this table are presented on an operating basis, as
previously described.
|
2 Amounts
excluding currency changes were determined using the same
yen/dollar exchange rate for the current period as the comparable
period in the prior year.
|
2014 OPERATING
EARNINGS PER SHARE SCENARIOS
|
|
Average
Exchange
Rate
|
|
Annual
Operating
EPS
|
|
% Growth
Over 2013
|
|
Yen
Impact
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
|
|
|
$
|
6.40
|
-
|
6.58
|
|
3.6
|
-
|
6.5%
|
|
$
.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97.54*
|
|
|
|
6.31
|
-
|
6.49
|
|
2.1
|
-
|
5.0
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
|
6.22
|
-
|
6.40
|
|
.6
|
-
|
3.6
|
|
(.09)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105
|
|
|
|
6.06
|
-
|
6.24
|
|
(1.9)
|
-
|
1.0
|
|
(.25)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110
|
|
|
|
5.91
|
-
|
6.09
|
|
(4.4)
|
-
|
(1.5)
|
|
(.40)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Actual 2013
weighted-average exchange rate
|
FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides
a "safe harbor" to encourage companies
to provide prospective information, so long as those informational
statements are identified as forward-looking and are accompanied by
meaningful cautionary statements identifying important factors that
could cause actual results to differ materially from those included
in the forward-looking statements. We desire to take advantage of
these provisions. This document contains cautionary
statements identifying important factors that could cause actual
results to differ materially from those projected herein, and in
any other statements made by company officials in
communications with the financial community and contained in
documents filed with the Securities and Exchange Commission
(SEC).
Forward-looking statements are not based on historical
information and relate to future operations, strategies, financial
results or other developments. Furthermore, forward-looking
information is subject to numerous assumptions, risks and
uncertainties. In particular, statements containing words such
as "expect," "anticipate,"
"believe," "goal,"
"objective," "may,"
"should," "estimate,"
"intends," "projects,"
"will," "assumes,"
"potential," "target" or similar
words as well as specific projections of future results,
generally qualify as forward-looking. Aflac undertakes no
obligation to update such forward-looking statements. We
caution readers that the following factors, in addition to other
factors mentioned from time to time, could cause actual results to
differ materially from those contemplated by the forward-looking
statements: difficult conditions in global capital markets and the
economy; governmental actions for the purpose of stabilizing the
financial markets; defaults and credit downgrades of securities in
our investment portfolio; exposure to significant financial and
capital markets risk; fluctuations in foreign currency exchange
rates; significant changes in investment yield rates; credit and
other risks associated with Aflac's investment in perpetual
securities; differing judgments applied to investment valuations;
significant valuation judgments in determination of amount of
impairments taken on our investments; limited availability of
acceptable yen-denominated investments; concentration of our
investments in any particular single-issuer or sector concentration
of business in Japan; decline in
creditworthiness of other financial institutions; deviations in
actual experience from pricing and reserving assumptions;
subsidiaries' ability to pay dividends to Aflac Incorporated;
changes in law or regulation by governmental authorities; ability
to attract and retain qualified sales associates and employees;
decreases in our financial strength or debt ratings; ability to
continue to develop and implement improvements in information
technology systems; interruption in telecommunication, information
technology and other operational systems, or a failure to maintain
the security, confidentiality or privacy of sensitive data residing
on such systems; changes in U.S. and/or Japanese accounting
standards; failure to comply with restrictions on patient privacy
and information security; inability to recognize tax benefits
associated with capital loss carryforwards; level and outcome of
litigation; ability to effectively manage key executive succession;
catastrophic events including, but not necessarily limited to,
epidemics, pandemics, tornadoes, hurricanes, earthquakes, tsunamis,
acts of terrorism and damage incidental to such events; ongoing
changes in our industry; events that damage our reputation; and
failure of internal controls or corporate governance policies and
procedures.
Analyst and investor contact – Robin Y.
Wilkey, 706.596.3264 or 800.235.2667, FAX: 706.324.6330 or
rwilkey@aflac.com
Media contact – Laura Kane,
706.593.0786, FAX: 706.320.2288, or lkane@aflac.com
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SOURCE Aflac Incorporated