COLUMBUS, Ga., Oct. 25, 2017 /PRNewswire/ -- Aflac
Incorporated today reported its third quarter results.
Total revenues were $5.5 billion
during the third quarter of 2017, compared with $5.7 billion in the third quarter of 2016. Net
earnings were $716 million, or
$1.80 per diluted share, compared
with $629 million, or $1.53 per diluted share a year ago. The increase
in net earnings in the third quarter of 2017 primarily reflects
realized investment gains compared with third quarter 2016.
Net earnings in the third quarter of 2017 included pretax net
realized investment gains of $71
million, or $0.18 per diluted
share on a pretax basis, compared with pretax net losses of
$130 million, or $0.32 per diluted share a year ago. Beginning in
the first quarter of 2017, the company began reporting amortized
hedge costs associated with certain U.S. dollar investments in the
Japan portfolio as part of
operating earnings. Pretax net realized gains from securities
transactions and impairments for the third quarter amounted to
$53 million and were composed of
pretax net realized investment gains from securities transactions
of $61 million and pretax realized
investment losses from impairments and change in loan loss reserves
of $8 million. Pretax net realized
investment gains from certain derivative and foreign currency
activities in the quarter were $18
million. Net earnings also included a pretax charge of
$10 million, reflecting Japan branch conversion costs. The income tax
expense on non-operating items in the quarter was $21 million.
The following discussion includes references to Aflac's non-U.S.
GAAP performance measures, operating earnings, operating earnings
per diluted share, operating return on equity, amortized hedge
costs, and adjusted book value. These measures are not calculated
in accordance with U.S. GAAP. The measures exclude items that the
company believes may obscure the underlying fundamentals and trends
in insurance operations because they tend to be driven by general
economic conditions and events or related to infrequent activities
not directly associated with insurance operations. Management uses
operating earnings, operating earnings per diluted share, and
operating return on equity to evaluate the financial performance of
Aflac's insurance operations on a consolidated basis and believes
that a presentation of these measures is vitally important to an
understanding of the underlying profitability drivers and trends of
Aflac's insurance business. The company believes that amortized
hedge costs, which are a component of operating earnings, measure
the periodic currency risk management costs associated with hedging
a portion of Aflac Japan's U.S. dollar-denominated investments and
are an important component of net investment income. The company
considers adjusted book value important as it excludes accumulated
other comprehensive income (AOCI), which fluctuates due to market
movements that are outside management's control. Definitions of the
company's non-GAAP measures and reconciliations to the most
comparable U.S. GAAP measures are provided in the schedules
accompanying this release.
Due to the size of Aflac Japan, where the functional currency is
the Japanese yen, fluctuations in the yen/dollar exchange rate can
have a significant effect on reported results. In periods when the
yen weakens, translating yen into dollars results in fewer dollars
being reported. When the yen strengthens, translating yen into
dollars results in more dollars being reported. Consequently, yen
weakening has the effect of suppressing current period results in
relation to the comparable prior period, while yen strengthening
has the effect of magnifying current period results in relation to
the comparable prior period. As a result, the company views foreign
currency translation as a financial reporting issue for Aflac
rather than an economic event to the company or shareholders.
Because a significant portion of the company's business is
conducted in Japan and foreign
exchange rates are outside of management's control, Aflac believes
it is important to understand the impact of translating Japanese
yen into U.S. dollars. Operating earnings, operating earnings per
diluted share, and operating return on equity, all excluding
current period foreign currency impact, are computed using the
average yen/dollar exchange rate for the comparable prior year
period, which eliminates dollar based fluctuations driven solely
from currency rate changes.
The average yen/dollar exchange rate in the third quarter of
2017 was 111.03, or 7.8% weaker than the average rate of 102.37 in
the third quarter of 2016. For the first nine months, the average
exchange rate was 111.89, or 3.0% weaker than the rate of 108.58 a
year ago. Aflac Japan's growth rates in dollar terms for the third
quarter and first nine months were suppressed as a result of the
weaker yen/dollar exchange rate.
Operating earnings in the third quarter were $676 million, compared with $713 million in the third quarter of 2016. The
decrease in operating earnings primarily reflects the impact of a
weaker yen in the quarter. Strong overall margins in the quarter
were driven by an improved benefit ratio in Japan and include pretax cancer claim
reserve adjustments of $22 million,
or ¥2.4 billion. Operating earnings per diluted share decreased
2.3% to $1.70 per diluted share in
the quarter, and includes an after-tax benefit from the reserve
adjustment of $0.04 per diluted
share, compared with $1.74 a year
ago. The weaker yen/dollar exchange rate decreased operating
earnings per diluted share by $0.07
for the third quarter. Excluding the impact of the weaker yen,
operating earnings per diluted share increased 1.7% to $1.77.
For the first nine months of 2017, total revenues were down 2.2%
to $16.2 billion, compared with
$16.6 billion in the first nine
months of 2016. Net earnings were $2.0
billion, or $5.05 per diluted
share, compared with $1.9 billion, or
$4.59 per diluted share, for the
first nine months of 2016. Operating earnings for the first nine
months of 2017 were $2.1 billion, or
$5.20 per diluted share, compared
with $2.1 billion, or $5.06 per diluted share, in 2016. Excluding the
negative impact of $0.08 per share
from the weaker yen, operating earnings per diluted share increased
4.3% for the first nine months of 2017.
Total investments and cash at the end of September 2017 were $122.5
billion, compared with $121.9
billion at June 30, 2017.
In the third quarter, Aflac repurchased $219 million, or 2.7 million of its common
shares. For the first nine months of the year, the company
purchased $1.0 billion, or 13.9
million of its common shares. At the end of September, the company
had 53.0 million shares available for purchase under its share
repurchase authorizations.
Shareholders' equity was $22.0
billion, or $55.80 per share,
at September 30, 2017, compared with
$22.8 billion, or $55.84 per share, at September 30, 2016. Shareholders' equity at the
end of the third quarter included a net unrealized gain on
investment securities and derivatives of $5.4 billion, compared with a net unrealized gain
of $6.1 billion at September 30, 2016. The annualized return on
average shareholders' equity in the third quarter was 13.2%.
Shareholders' equity excluding AOCI was $18.4 billion, or $46.83 per share at September 30, 2017, compared with $17.4 billion, or $42.70 per share, at September 30, 2016. On an operating basis, the
annualized return on average shareholders' equity excluding AOCI on
a currency-neutral basis for the third quarter was 15.4% and for
the first nine months of the year was 15.5%.
AFLAC JAPAN
In yen terms, Aflac Japan's premium income, net of reinsurance,
decreased 3.5% in the third quarter to ¥355.3 billion, with growth
in third sector premium more than offset by an anticipated
reduction in first sector premium due to savings products reaching
premium paid-up status in the quarter. Net investment income, net
of amortized hedge costs, increased 1.1% to ¥62.5 billion primarily
due to the foreign currency impact of U.S. dollar-denominated
investments. The increases in net investment income from the
weakening yen/strengthening dollar were partially offset by lower
re-investment rates and increased amortized hedge costs. Amortized
hedge costs on the U.S. dollar investment portfolio totaled
$60 million pretax quarter to date,
compared with $54 million in the
previous year. Total revenues were down 2.8% to ¥419.0 billion in
the third quarter. Pretax operating earnings in yen for the quarter
decreased 1.3% on a reported basis and 4.4% on a currency-neutral
basis. The pretax operating profit margin for the Japan segment was 19.9%, compared with 19.6%
in the prior year.
For the first nine months, premium income in yen was ¥1.1
trillion, or 2.4% lower than a year ago. Net investment income, net
of amortized hedge costs, decreased 3.4% to ¥188.3 billion. Total
revenues in yen were down 2.5% to ¥1.3 trillion. Pretax operating
earnings were ¥259.0 billion, or 1.8% lower than a year ago.
Aflac Japan's growth rates in dollar terms for the third quarter
were suppressed as a result of the weaker yen/dollar exchange rate.
Premium income, net of reinsurance, decreased 11.0% to $3.2 billion in the third quarter. Net investment
income, net of amortized hedge costs, decreased 7.6% to
$561 million. Total revenues declined
by 10.5% to $3.8 billion. Pretax
operating earnings declined 9.6% to $748
million.
For the first nine months of the year, premium income in dollars
was $9.6 billion, or 5.5% lower than
a year ago. Net investment income, net of amortized hedge costs,
decreased 7.0% to $1.7 billion. Total
revenues were down 5.7% to $11.3
billion. Pretax operating earnings were $2.3 billion, or 5.3% lower than a year ago.
In the third quarter, total new annualized premium sales
decreased 10.5% to ¥23.7 billion, or $214
million. Third sector sales, which include cancer, medical
and income support products, increased 2.1% to ¥22.1 billion in the
quarter. Total first sector sales, which include products such as
WAYS and child endowment, were down 66.7% in the quarter,
reflecting the company's actions to reduce the sale of first sector
savings products that are more interest-sensitive.
For the first nine months of the year, new annualized premium
sales declined 19.0% to ¥71.2 billion, or $637 million. Third sector sales increased 5.0%
in the first nine months of the year.
AFLAC U.S.
Aflac U.S. premium income increased 2.1% to $1.4 billion in the third quarter. Net investment
income was up 2.8% to $181 million.
Total revenues increased 2.1% to $1.6
billion. The pretax operating profit margin for the U.S.
segment was 20.1%, compared with 20.9% a year ago. Pretax operating
earnings in the quarter were $316
million, a decrease of 2.2%, reflecting elevated investment
in the platform.
For the first nine months of the year, total revenues were up
1.9% to $4.7 billion and premium
income rose 1.9% to $4.2 billion. Net
investment income increased 2.5% to $539
million. Pretax operating earnings were $956 million, 1.1% higher than a year ago.
Aflac U.S. total new annualized premium sales increased 7.5% in
the quarter to $348 million.
Persistency in the quarter was 77.7%, compared with 76.9% a year
ago. For the first nine months of the year, total new sales were up
3.8% to $1.0 billion.
DIVIDEND
The board of directors announced a 4.7% increase in the
quarterly cash dividend, effective with the fourth quarter payment.
The fourth quarter dividend of $0.45
per share is payable on December 1,
2017, to shareholders of record at the close of business on
November 15, 2017.
OUTLOOK
Commenting on the company's results, Chairman and Chief
Executive Officer Daniel P. Amos
stated: "We are pleased that our third quarter and year to date
financial results in both Japan
and the U.S. reflected solid performance and continued our progress
toward achieving the company's objectives for 2017.
"Aflac Japan, our largest earnings contributor, generated strong
financial results both in the quarter and the first nine months of
the year. In yen terms, results on an operating basis were better
than expected for the quarter, resulting primarily from improved
benefit ratios. Additionally, our operation in Japan continued to produce strong third sector
sales results. As discussed at our Financial Analysts Briefing,
near-term growth rates for third sector products face challenging
comparisons, and we continue to target a long-term growth rate in
the range of 4% to 6% through 2019.
"Turning to our U.S. operations, we are pleased with our overall
performance and continued strength in profitability. I am
particularly encouraged by our strong sales results in the third
quarter. This success reflects our focus on the growth strategy we
implemented in both our career and broker channels. Our results on
an operating basis reflect continued strength in benefit ratios and
ongoing investment in our platform. We continue to anticipate a
long-term growth rate of 3% to 5% in new annualized premium sales
through 2019.
"We remain committed to maintaining strong capital ratios on
behalf of our policyholders and all stakeholders. We balance this
financial strength with a focus on increasing the dividend,
repurchasing shares and reinvesting in our business. We continue to
believe our financial strength in Japan positions us to repatriate in the range
of ¥120 to ¥140 billion to the U.S. for the calendar year 2017,
assuming capital conditions remain stable. We continue to
anticipate that we'll repurchase in the range of $1.3 to $1.5 billion of our shares in 2017, which
also assumes stable capital conditions and the absence of
compelling alternatives.
"The board of directors' action to increase the quarterly
dividend by 4.7% demonstrates our commitment to rewarding our
shareholders. This marks the 35th consecutive year of
increasing our cash dividend. Our dividend policy is guided by
growth in operating earnings per share along with free cash flow
generation and capital quality.
"Having completed the first nine months of the year, I am
pleased with the company's overall results. We believe those
results, combined with our outlook for the remainder of 2017,
well-position Aflac for another year of solid financial
performance. We continue to expect increased spending in the fourth
quarter in support of initiatives designed to drive future growth.
I am extremely pleased that we are upwardly revising our 2017
operating earnings per diluted share outlook from a range of
$6.40 to $6.65 to a higher range of
$6.75 to $6.95, both of which exclude
the impact of the yen. If the yen averages ¥110 to ¥115 to the
dollar for the fourth quarter, we would expect operating earnings,
a non-GAAP measure, to be approximately $1.42 to $1.66 per diluted share in the fourth
quarter, making full-year operating earnings approximately
$6.62 to $6.86 per diluted
share."
ABOUT AFLAC
When a policyholder gets sick or hurt, Aflac pays cash benefits
fast. For more than six decades, Aflac insurance policies have
given policyholders the opportunity to focus on recovery, not
financial stress. In the United
States, Aflac is the leader in voluntary insurance sales at
the worksite. Through its trailblazing One Day PaySM
initiative, Aflac U.S. can receive, process, approve and disburse
payment for eligible claims in one business day. In Japan, Aflac is the leading provider of
medical and cancer insurance and insures 1 in 4 households. Aflac
insurance products help provide protection to more than 50 million
people worldwide. For 11 consecutive years, Aflac has been
recognized by Ethisphere as one of the World's Most Ethical
Companies. In 2017, Fortune magazine recognized Aflac as one of the
100 Best Companies to Work for in America for the 19th consecutive
year and in 2017 included Aflac on its list of Most Admired
Companies for the 16th time. Aflac Incorporated is a Fortune 500
company listed on the New York Stock Exchange under the symbol AFL.
To find out more about Aflac and One Day PaySM, visit
aflac.com or aflac.com/espanol.
A copy of Aflac's Financial Analysts Briefing (FAB) supplement
for the quarter can be found on the "Investors" page at
aflac.com.
Aflac Incorporated will webcast its quarterly conference call
via the "Investors" page of aflac.com at 9:00 a.m. (EDT) on Thursday, October 26, 2017.
AFLAC INCORPORATED
AND SUBSIDIARIES CONDENSED INCOME STATEMENT
|
(UNAUDITED – IN
MILLIONS, EXCEPT FOR SHARE AND PER-SHARE AMOUNTS)
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
SEPTEMBER 30,
|
|
2017
|
|
|
2016
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
$
|
5,506
|
|
$
|
5,716
|
|
(3.7)
|
%
|
|
|
|
|
|
|
|
|
|
Benefits and claims,
net
|
|
3,083
|
|
|
3,378
|
|
(8.7)
|
|
|
|
|
|
|
|
|
|
|
Total acquisition and
operating expenses
|
|
1,348
|
|
|
1,375
|
|
(2.0)
|
|
|
|
|
|
|
|
|
|
|
Earnings before
income taxes
|
|
1,075
|
|
|
963
|
|
11.6
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
359
|
|
|
334
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
$
|
716
|
|
$
|
629
|
|
13.8
|
%
|
|
|
|
|
|
|
|
|
|
Net earnings per
share – basic
|
$
|
1.81
|
|
$
|
1.54
|
|
17.5
|
%
|
|
|
|
|
|
|
|
|
|
Net earnings per
share – diluted
|
|
1.80
|
|
|
1.53
|
|
17.6
|
|
|
|
|
|
|
|
|
|
|
Shares used to
compute earnings per share (000):
|
|
|
|
|
|
|
|
|
|
Basic
|
394,479
|
|
408,519
|
|
(3.4)
|
%
|
|
Diluted
|
397,381
|
|
411,140
|
|
(3.3)
|
|
|
|
|
|
|
|
|
|
|
Dividends paid per
share
|
$
|
0.43
|
|
$
|
0.41
|
|
4.9
|
%
|
AFLAC INCORPORATED
AND SUBSIDIARIES CONDENSED INCOME STATEMENT
|
(UNAUDITED – IN
MILLIONS, EXCEPT FOR SHARE AND PER-SHARE AMOUNTS)
|
|
|
|
|
|
|
|
|
NINE MONTHS ENDED
SEPTEMBER 30,
|
|
2017
|
|
|
2016
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
$
|
16,243
|
|
$
|
16,604
|
|
(2.2)
|
%
|
|
|
|
|
|
|
|
|
|
Benefits and claims,
net
|
|
9,174
|
|
|
9,657
|
|
(5.0)
|
|
|
|
|
|
|
|
|
|
|
Total acquisition and
operating expenses
|
|
4,050
|
|
|
4,033
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
Earnings before
income taxes
|
|
3,019
|
|
|
2,914
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
998
|
|
|
1,006
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
$
|
2,021
|
|
$
|
1,908
|
|
5.9
|
%
|
|
|
|
|
|
|
|
|
|
Net earnings per
share – basic
|
$
|
5.09
|
|
$
|
4.62
|
|
10.2
|
%
|
|
|
|
|
|
|
|
|
|
Net earnings per
share – diluted
|
|
5.05
|
|
|
4.59
|
|
10.0
|
|
|
|
|
|
|
|
|
|
|
Shares used to
compute earnings per share (000):
|
|
|
|
|
|
|
|
|
|
Basic
|
397,323
|
|
413,023
|
|
(3.8)
|
%
|
|
Diluted
|
400,241
|
|
415,446
|
|
(3.7)
|
|
|
|
|
|
|
|
|
|
|
Dividends paid per
share
|
$
|
1.29
|
|
$
|
1.23
|
|
4.9
|
%
|
AFLAC INCORPORATED
AND SUBSIDIARIES CONDENSED BALANCE SHEET
(UNAUDITED – IN
MILLIONS, EXCEPT FOR SHARE AMOUNTS)
|
|
|
|
|
|
|
|
|
SEPTEMBER
30,
|
|
2017
|
|
|
2016
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments and
cash
|
$
|
122,489
|
|
$
|
128,935
|
|
(5.0)
|
%
|
|
|
|
|
|
|
|
|
|
Deferred policy
acquisition costs
|
|
9,413
|
|
|
9,759
|
|
(3.5)
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
4,181
|
|
|
5,407
|
|
(22.7)
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
136,083
|
|
$
|
144,101
|
|
(5.6)
|
%
|
|
|
|
|
|
|
|
|
|
Liabilities and
shareholders' equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policy
liabilities
|
$
|
98,713
|
|
$
|
105,556
|
|
(6.5)
|
%
|
|
|
|
|
|
|
|
|
|
Notes
payable
|
|
5,248
|
|
|
5,765
|
|
(9.0)
|
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
10,145
|
|
|
9,995
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
21,977
|
|
|
22,785
|
|
(3.5)
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders' equity
|
$
|
136,083
|
|
$
|
144,101
|
|
(5.6)
|
%
|
|
|
|
|
|
|
|
|
|
Shares outstanding at
end of period (000)
|
|
393,875
|
|
|
408,021
|
|
(3.5)
|
%
|
|
DEFINITIONS OF NON-U.S. GAAP FINANCIAL
MEASURES
Aflac defines the non-U.S. GAAP measures included in this
earnings release as follows:
- Operating earnings includes interest cash flows associated with
notes payable and amortized hedge costs related to foreign currency
denominated investments, but excludes certain items that cannot be
predicted or that are outside of management's control, such as
realized investment gains and losses from securities transactions,
impairments, change in loan loss reserves and certain derivative
and foreign currency activities; nonrecurring items; and other
non-operating income (loss) from net earnings. Nonrecurring and
other non-operating items consist of infrequent events and activity
not associated with the normal course of the company's insurance
operations and do not reflect Aflac's underlying business
performance.
- Operating earnings per share (basic or dilutive) are the
operating earnings for the period divided by the weighted average
outstanding shares (basic or dilutive) for the period
presented.
- Operating return on equity excluding current period foreign
currency impact is calculated using operating earnings excluding
the impact of the yen/dollar exchange rate, as reconciled with
total U.S. GAAP net earnings, divided by average shareholders'
equity, excluding accumulated other comprehensive income (AOCI).
The comparable U.S. GAAP measure is return on average equity (ROE)
as determined using net earnings and average total shareholders'
equity.
- Amortized hedge costs represent costs incurred in using foreign
currency forward contracts to hedge the foreign exchange risk of a
portion of U.S. dollar-denominated assets in the company's
Japan segment investment
portfolio. These amortized hedge costs are derived from the
difference between the foreign currency spot rate at time of trade
inception and the contractual foreign currency forward rate,
recognized on a straight line basis over the term of the
hedge. There is no comparable U.S. GAAP financial measure for
amortized hedge costs.
- Adjusted book value is the U.S. GAAP book value, less AOCI as
recorded on the U.S. GAAP balance sheet.
RECONCILIATION OF
NET EARNINGS TO OPERATING
EARNINGS1
(UNAUDITED – IN
MILLIONS, EXCEPT FOR PER-SHARE AMOUNTS)
|
|
|
|
|
|
|
|
|
|
THREE MONTHS
ENDED SEPTEMBER 30,
|
|
2017
|
|
|
2016
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
$
|
716
|
|
$
|
629
|
|
13.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Items impacting net
earnings:
|
|
|
|
|
|
|
|
|
|
Realized investment
(gains) losses:
|
|
|
|
|
|
|
|
|
|
Securities transactions and
impairments
|
|
(53)
|
|
|
37
|
|
|
|
|
Certain
derivative and foreign currency (gains)
losses2,
3
|
|
(18)
|
|
|
93
|
|
|
|
|
Other and non-recurring (income) loss3
|
|
10
|
|
|
–
|
|
|
|
|
Income tax (benefit) expense on items excluded
from operating
earnings2
|
|
21
|
|
|
(46)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings
|
|
676
|
|
|
713
|
|
(5.2)
|
%
|
|
Current period
foreign currency impact4
|
|
29
|
|
|
N/A
|
|
|
|
|
Operating earnings
excluding current period foreign
currency
impact5
|
$
|
705
|
|
$
|
713
|
|
(1.1)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per
diluted share
|
$
|
1.80
|
|
$
|
1.53
|
|
17.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Items impacting net
earnings:
|
|
|
|
|
|
|
|
|
|
Realized investment (gains)
losses:
|
|
|
|
|
|
|
|
|
|
Securities transactions and
impairments
|
|
(0.13)
|
|
|
0.09
|
|
|
|
|
Certain
derivative and foreign currency (gains)
losses2,
3
|
|
(0.05)
|
|
|
0.23
|
|
|
|
|
Other and
non-recurring (income) loss3
|
|
0.03
|
|
|
–
|
|
|
|
|
Income tax (benefit) expense on items excluded
from operating
earnings2
|
|
0.05
|
|
|
(0.11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
per diluted share
|
|
1.70
|
|
|
1.74
|
|
(2.3)
|
%
|
|
Current period
foreign currency impact4
|
|
0.07
|
|
|
N/A
|
|
|
|
|
Operating earnings
per diluted share excluding
current period foreign currency
impact5
|
$
|
1.77
|
|
$
|
1.74
|
|
1.7
|
%
|
|
|
|
1
|
Amounts may not foot
due to rounding.
|
2
|
To conform to current
year presentation, prior-year amounts have been revised to reflect
the change in methodology of classifying the amortized hedge costs
related to foreign currency denominated investments as a component
of operating earnings.
|
3
|
Foreign currency
gains (losses) for all periods have been reclassified from other
income (loss) to derivative and foreign currency gains (losses) for
consistency with current period presentation.
|
4
|
Prior period foreign
currency impact reflected as "N/A" to isolate change for current
period only.
|
5
|
Amounts excluding
current period foreign currency impact are computed using the
average yen/dollar exchange rate for the comparable prior-year
period, which eliminates dollar-based fluctuations driven solely
from currency rate changes.
|
RECONCILIATION OF
NET EARNINGS TO OPERATING
EARNINGS1
|
(UNAUDITED – IN
MILLIONS, EXCEPT FOR PER-SHARE AMOUNTS)
|
|
|
|
|
|
|
|
|
|
NINE MONTHS
ENDED SEPTEMBER 30,
|
|
2017
|
|
|
2016
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
$
|
2,021
|
|
$
|
1,908
|
|
5.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Items impacting net
earnings:
|
|
|
|
|
|
|
|
|
|
Realized investment
(gains) losses:
|
|
|
|
|
|
|
|
|
|
Securities transactions and
impairments
|
|
(33)
|
|
|
(29)
|
|
|
|
|
Certain
derivative and foreign currency (gains)
losses2,
3
|
|
90
|
|
|
327
|
|
|
|
|
Other and non-recurring (income) loss3
|
|
38
|
|
|
–
|
|
|
|
|
Income tax (benefit) expense on items excluded
from operating
earnings2
|
|
(33)
|
|
|
(104)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings
|
|
2,083
|
|
|
2,101
|
|
(0.9)
|
%
|
|
Current period
foreign currency impact4
|
|
31
|
|
|
N/A
|
|
|
|
|
Operating earnings
excluding current period foreign
currency
impact5
|
$
|
2,114
|
|
$
|
2,101
|
|
0.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per
diluted share
|
$
|
5.05
|
|
$
|
4.59
|
|
10.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Items impacting net
earnings:
|
|
|
|
|
|
|
|
|
|
Realized investment (gains)
losses:
|
|
|
|
|
|
|
|
|
|
Securities transactions and
impairments
|
|
(0.08)
|
|
|
(0.07)
|
|
|
|
|
Certain
derivative and foreign currency (gains)
losses2,
3
|
|
0.22
|
|
|
0.79
|
|
|
|
|
Other and
non-recurring (income) loss3
|
|
0.09
|
|
|
–
|
|
|
|
|
Income tax (benefit) expense on items excluded
from operating
earnings2
|
|
(0.08)
|
|
|
(0.25)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
per diluted share
|
|
5.20
|
|
|
5.06
|
|
2.8
|
%
|
|
Current period
foreign currency impact4
|
|
0.08
|
|
|
N/A
|
|
|
|
|
Operating earnings
per diluted share excluding
current period foreign currency
impact5
|
$
|
5.28
|
|
$
|
5.06
|
|
4.3
|
%
|
|
|
|
|
1
|
Amounts may not foot
due to rounding.
|
|
2
|
To conform to current
year presentation, prior-year amounts have been revised to reflect
the change in methodology of classifying the amortized hedge costs
related to foreign currency denominated investments as a component
of operating earnings.
|
|
3
|
Foreign currency
gains (losses) for all periods have been reclassified from other
income (loss) to derivative and foreign currency gains (losses) for
consistency with current period presentation.
|
|
4
|
Prior period foreign
currency impact reflected as "N/A" to isolate change for current
period only.
|
|
5
|
Amounts excluding
current period foreign currency impact are computed using the
average yen/dollar exchange rate for the comparable prior-year
period, which eliminates dollar-based fluctuations driven solely
from currency rate changes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RECONCILIATION OF
U.S. GAAP BOOK VALUE TO ADJUSTED BOOK VALUE
(UNAUDITED – IN
MILLIONS, EXCEPT FOR SHARE AND PER-SHARE AMOUNTS)
|
|
SEPTEMBER 30,
|
|
2017
|
|
|
2016
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GAAP book
value1
|
$
|
21,977
|
|
$
|
22,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AOCI
adjustment
|
|
(3,531)
|
|
|
(5,364)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted book
value2
|
$
|
18,446
|
|
$
|
17,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of outstanding
shares at end of period (000)
|
|
393,875
|
|
|
408,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GAAP book value
per common share
|
$
|
55.80
|
|
|
$
55.84
|
|
(0.1)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted book value
per common share
|
|
46.83
|
|
|
42.70
|
|
9.7
|
|
|
|
|
|
1
|
U.S. GAAP book value
represents total shareholders' equity as recorded on the balance
sheet.
|
|
2
|
Adjusted book value
is the U.S. GAAP book value, adjusted for AOCI (as recorded on the
U.S. GAAP balance sheet).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RECONCILIATION OF
U.S. GAAP RETURN ON EQUITY (ROE) TO OPERATING ROE
(EXCLUDING IMPACT OF
FOREIGN CURRENCY)
|
|
|
|
THREE MONTHS ENDED
SEPTEMBER 30,
|
2017
|
2016
|
|
|
|
U.S. GAAP
ROE1
|
13.2
|
%
|
11.1
|
%
|
|
|
|
|
|
Differences between operating earnings and net
earnings2
|
(0.7)
|
|
1.5
|
|
|
|
|
|
|
Impact
of foreign currency3
|
(0.5)
|
|
–
|
|
|
|
|
|
|
Impact
of excluding AOCI4
|
3.5
|
|
3.9
|
|
|
|
|
|
|
Operating ROE,
excluding impact of foreign currency5
|
15.4
|
%
|
16.5
|
%
|
|
|
|
1
|
ROE is calculated by
dividing net earnings (annualized) by average shareholders'
equity.
|
2
|
See separate
reconciliation of net income to operating earnings.
|
3
|
Impact of foreign
currency is calculated by restating all yen components of the
income statement to the weighted average yen rate for
the comparable prior year
period. The impact is the difference of the restated operating
earnings compared to reported operating earnings.
For comparative purposes,
only current period income is restated using the weighted average
prior period exchange rate, which eliminates
the foreign currency impact
for the current period. This allows for equal comparison of this
financial measure.
|
4
|
Excludes all U.S.
GAAP components of average AOCI from average shareholders'
equity.
|
5
|
Amounts presented may
not foot due to rounding.
|
RECONCILIATION OF
U.S. GAAP RETURN ON EQUITY (ROE) TO OPERATING ROE
(EXCLUDING IMPACT OF
FOREIGN CURRENCY)
|
|
|
|
NINE MONTHS ENDED
SEPTEMBER 30,
|
2017
|
2016
|
|
|
|
U.S. GAAP
ROE1
|
12.7
|
%
|
12.6
|
%
|
|
|
|
|
|
Differences between operating earnings and net
earnings2
|
0.4
|
|
1.3
|
|
|
|
|
|
|
Impact
of foreign currency3
|
(0.2)
|
|
–
|
|
|
|
|
|
|
Impact
of excluding AOCI4
|
2.6
|
|
2.4
|
|
|
|
|
|
|
Operating ROE,
excluding impact of foreign currency5
|
15.5
|
%
|
16.2
|
%
|
|
|
|
|
|
|
|
1
|
ROE is calculated by
dividing net earnings (annualized) by average shareholders'
equity.
|
2
|
See separate
reconciliation of net income to operating earnings.
|
3
|
Impact of foreign
currency is calculated by restating all yen components of the
income statement to the weighted average yen rate for
the
comparable prior year
period. The impact is the difference of the restated operating
earnings compared to reported operating earnings.
For
comparative purposes,
only current period income is restated using the weighted average
prior period exchange rate, which eliminates the
foreign currency
impact for the current period. This allows for equal comparison of
this financial measure.
|
4
|
Excludes all U.S. GAAP components of
average AOCI from average shareholders' equity
|
5
|
Amounts presented may not foot due
to rounding.
|
EFFECT OF FOREIGN
CURRENCY ON OPERATING RESULTS1
(SELECTED PERCENTAGE
CHANGES, UNAUDITED)
|
|
|
|
THREE MONTHS ENDED
SEPTEMBER 30, 2017
|
Including
Currency
Changes
|
Excluding
Currency
Changes2
|
|
|
|
Net premium
income3
|
(7.4)
|
%
|
(4.9)
|
%
|
|
|
|
|
|
Net investment
income4
|
(4.7)
|
|
(1.5)
|
|
|
|
|
|
|
Total benefits and
expenses
|
(7.0)
|
|
(4.5)
|
|
|
|
|
|
|
Operating
earnings
|
(5.2)
|
|
(1.1)
|
|
|
|
|
|
|
Operating earnings
per diluted share
|
(2.3)
|
|
1.7
|
|
|
|
|
1
|
Refer to previously
defined operating earnings and operating earnings per diluted
share.
|
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.
|
3
|
Net
of reinsurance
|
4
|
Less
amortized hedge costs on foreign investments
|
EFFECT OF FOREIGN
CURRENCY ON OPERATING RESULTS1
(SELECTED PERCENTAGE
CHANGES, UNAUDITED)
|
|
|
|
NINE MONTHS ENDED
SEPTEMBER 30, 2017
|
Including
Currency
Changes
|
Excluding
Currency
Changes2
|
|
|
|
Net premium
income3
|
(3.4)
|
%
|
(2.1)
|
%
|
|
|
|
|
|
Net investment
income4
|
(4.4)
|
|
(2.8)
|
|
|
|
|
|
|
Total benefits and
expenses
|
(3.7)
|
|
(2.3)
|
|
|
|
|
|
|
Operating
earnings
|
(0.9)
|
|
0.6
|
|
|
|
|
|
|
Operating earnings
per diluted share
|
2.8
|
|
4.3
|
|
|
|
|
1
|
Refer to previously
defined operating earnings and operating earnings per diluted
share.
|
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.
|
3
|
Net of
reinsurance
|
4
|
Less amortized hedge
costs on foreign investments
|
2017 OPERATING EARNINGS PER SHARE1
SCENARIOS2
Weighted-Average
Yen/Dollar
Exchange Rate
|
Operating Earnings
Per
Diluted Share
|
Foreign
Currency
Impact
|
|
|
|
100
|
$ 7.10 -
7.30
|
$ 0.35
|
105
|
6.89 -
7.09
|
0.14
|
108.703
|
6.75 -
6.95
|
–
|
110
|
6.71 -
6.91
|
(0.04)
|
115
|
6.53 -
6.73
|
(0.22)
|
120
|
6.37 -
6.57
|
(0.38)
|
|
|
1
|
A non-GAAP financial
measure, operating earnings per share (basic or dilutive) are the
operating earnings for the period divided by the
weighted average outstanding shares (basic or dilutive) for
the period presented in 2017 and 2016.In reliance on the
"unreasonable efforts" exception in Item 10(e)(1)(i)(B) of SEC
Regulation S-K, a quantitative reconciliation to the most
comparable GAAP measure is not provided for this financial
measure. Forward-looking information with regard to the
most comparable GAAP financial measure, earnings per share, is not
available without unreasonable effort. This is due to
the unpredictable and uncontrollable nature of these reconciling
items, which would require an unreasonable effort to forecast
and we believe would result in such a broad range of
projected values that would not be meaningful to investors. For
this reason, we believe that the probable significance
of such information is low.
|
2
|
Table recasts all
quarters to the average exchange rate.
|
3
|
Actual 2016
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 report 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", "outlook" 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; exposure to
significant interest rate risk; concentration of business in
Japan; foreign currency fluctuations in the yen/dollar
exchange rate; failure to execute or implement the
conversion of the Japan branch
conversion to a legal subsidiary ; limited availability of
acceptable yen-denominated investments; deviations in actual
experience from pricing and reserving assumptions; ability to
continue to develop and implement improvements in information
technology systems; governmental actions for the purpose of
stabilizing the financial markets; 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; ongoing changes
in our industry; failure to comply with restrictions on patient
privacy and information security; extensive regulation and changes
in law or regulation by governmental authorities; defaults
and credit downgrades of our investments; ability to attract and
retain qualified sales associates and employees; decline in
creditworthiness of other financial institutions; subsidiaries'
ability to pay dividends to Aflac Incorporated; decreases in our
financial strength or debt ratings; inherent limitations to
risk management policies and procedures; concentration of our
investments in any particular single-issuer or sector;
differing judgments applied to investment valuations; ability to
effectively manage key executive succession; significant valuation
judgments in determination of amount of impairments taken on our
investments; catastrophic events including, but not necessarily
limited to, epidemics, pandemics, tornadoes, hurricanes,
earthquakes, tsunamis, acts of terrorism and damage incidental to
such events; changes in U.S. and/or Japanese accounting standards;
loss of consumer trust resulting from events external to our
operations; increased expenses and reduced profitability resulting
from changes in assumptions for pension and other postretirement
benefit plans; level and outcome of litigation; failure of internal
controls or corporate governance policies and procedures; and other
risks and uncertainties described from time to time in Aflac
Incorporated's filings with the SEC.
Analyst and investor contact – David A.
Young, 706.596.3264 or 800.235.2667; FAX: 706.324.6330 or
dyoung@aflac.com
Media contact – Catherine H.
Blades, 706.596.3014; FAX: 706.320.2288 or
cblades@aflac.com
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SOURCE Aflac Incorporated