Source: Aflac Incorporated
Aflac Incorporated today reported its first quarter results.
Total revenues decreased 2.6% to
$5.3 billion during the first quarter of 2017, compared with
$5.5 billion in the first quarter of 2016. Net earnings were
$592 million, or
$1.47 per diluted share, compared with
$731 million, or
$1.74
per share, a year ago. The decrease in revenue and net earnings
reflects realized gains and losses in the comparable quarters and lower
premium and investment income in the
Japan segment attributable to the low-interest-rate environment.
Net earnings in the first quarter of 2017 included pretax net losses of
$129 million, or
$.31 per diluted share on a pretax basis, compared with pretax net gains of
$40 million, or
$.09
per diluted share on a pretax basis, 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 losses
from securities transactions and impairments for the first quarter
amounted to
$17 million and were composed of pretax net realized investment losses from securities transactions of
$7 million, and pretax realized investment losses from impairments of
$10 million. Pretax net realized investment losses from certain derivative and foreign currency activities in the quarter were
$92 million. Net earnings also included a pretax loss of
$20 million, reflecting guaranty fund assessments of
$14 million and
Japan branch conversion costs of
$6 million. The income tax benefit on non-operating items in the quarter was
$45 million. See the "Reconciliation of Net Earnings to Operating Earnings" schedule.
The following discussion
includes references to Aflac's non-U.S. GAAP performance measures,
operating earnings, operating earnings per diluted share and operating
return on equity. 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 and operating
earnings per diluted share 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.
Aflac defines operating earnings
(a non-U.S. GAAP financial measure) as the profits derived from
operations. Operating earnings includes interest cash flows associated
with notes payable and 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,
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 average outstanding
shares (basic or dilutive) for the period presented. Operating return on
equity excluding foreign currency effect is calculated using operating
earnings excluding yen, 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. Reconciliations of the foregoing non-GAAP
measures 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 "excluding current period foreign currency impact" and
operating return on average shareholders' equity excluding foreign
exchange 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 first quarter of 2017 was 113.56, or 1.6% stronger than the
average rate of 115.35 in the first quarter of 2016. Operating earnings
in the first quarter were
$676 million, compared with
$705 million in the first quarter of 2016. Operating earnings per diluted share decreased .6% to
$1.67 in the quarter, compared with
$1.68 a year ago. The stronger yen/dollar exchange rate increased operating earnings per diluted share by
$.01 for the first quarter. Excluding the impact of the stronger yen, operating earnings per diluted share decreased 1.2%.
Total investments and cash at the end of
March 2017 were
$120.5 billion, compared with
$116.4 billion at
December 31, 2016.
In the first quarter, Aflac repurchased
$600 million,
or 8.5 million of its common shares. At the end of March, the company
had 18.3 million shares available for purchase under its share
repurchase authorizations.
Shareholders' equity was
$20.3 billion, or
$51.11 per share, at
March 31, 2017, compared with
$20.0 billion, or
$48.22 per share, at
March 31, 2016.
Shareholders' equity at the end of the first quarter included a net
unrealized gain on investment securities and derivatives of
$4.5 billion, compared with a net unrealized gain of
$4.7 billion at the end of
March 2016. The annualized return on average shareholders' equity in the first quarter was 11.6%.
Shareholders' equity was
$17.7 billion, or
$44.49 per share (excluding AOCI) at
March 31, 2017, compared with
$17.1 billion, or
$41.15 per share, at
March 31, 2016.
On an operating basis (excluding AOCI), the annualized return on
average shareholders' equity for the first quarter was 15.1%, excluding
the impact of foreign currency.
AFLAC JAPAN
In yen terms, Aflac Japan's
premium income, net of reinsurance agreements, decreased 1.1% in the
first quarter to ¥362.9 billion, with growth in third sector premium
offset by reduced first sector premium. Net investment income declined
6.3%, reflecting the stronger yen/dollar exchange rate on
dollar-denominated investment income, increased amortized hedge costs on
the U.S. dollar investment portfolio and the persistent
low-interest-rate environment. Amortized hedge costs on the U.S. dollar
investment portfolio totaled
$52 million in the quarter, as compared to
$32 million
in the previous year. Total revenues were down 1.9% to ¥427.7 billion
in the first quarter. Pretax operating earnings in yen decreased 5.6% on
a reported basis and 5.1% on a currency-neutral basis. The pretax
operating profit margin for the
Japan segment was 20.5%, compared with 21.3% in the prior year.
Aflac Japan's growth rates in
dollar terms for the first quarter were magnified as a result of the
stronger yen/dollar exchange rate. Premium income, net of reinsurance
agreements, increased .5% to
$3.2 billion in the first quarter. Net investment income, which includes amortized hedge costs on foreign investments, decreased 5.4% to
$557 million.
Total revenues declined slightly by .4% to
$3.8 billion. Pretax operating earnings declined 4.7% to
$769 million.
In the first quarter, total new annualized premium sales decreased 29.2% to ¥22.1 billion, or
$194 million.
Third sector sales, which include cancer, medical and income support
products increased 7.6% to ¥19.6 billion in the quarter. Total first
sector sales, which include products such as WAYS and child endowment,
were down 81.3% in the quarter, reflecting the company's actions to
reduce the sale of first sector savings products that are more
interest-sensitive.
AFLAC U.S.
Aflac U.S. premium income increased 1.7% to
$1.4 billion in the first quarter. Net investment income was up 2.0% to
$178 million. Total revenues increased 1.7% to
$1.6 billion.
The pretax operating profit margin for the U.S. segment was 19.7%,
compared with 21.5% a year ago. Pretax operating earnings were
$310 million,
a decrease of 6.7% for the quarter. Results reflect first quarter 2017
investments in the U.S. platform as well as favorable benefit ratios in
the first quarter 2016.
Aflac U.S. total new annualized premium sales increased 1.7% in the quarter to
$333 million. Additionally, persistency in the quarter was 77.5%, compared with 76.6% a year ago.
DIVIDEND
The board of directors declared the second quarter cash dividend. The second quarter dividend of
$.43 per share is payable on
June 1, 2017, to shareholders of record at the close of business on
May 24, 2017.
OUTLOOK
Commenting on the company's results, Chairman and Chief Executive Officer
Daniel P. Amos
stated: "We are pleased with the company's overall performance for the
quarter. Our results for the first quarter are consistent with what we
communicated on our December outlook call. Despite the persistent
low-interest-rate environment, Aflac Japan, our largest earnings
contributor, generated solid financial results. In yen terms, results on
an operating basis were in line with our expectations for the quarter.
Additionally, our operation in
Japan
produced better-than-expected third sector sales results. As we've
communicated, we continue to believe the long-term compound annual
growth rate for third sector product sales will be in the range of 4% to
6%.
"Turning to our U.S. operations,
we are pleased with the financial performance and continued strength in
profitability. Our results on an operating basis reflect ongoing
investment in our platform and are in line with our expectations. As
we've communicated, we anticipate a long-term compound annual growth
rate of 3% to 5% in new annualized premium sales.
I want to
reiterate that as we look ahead, we believe the strategy for growth we
implemented in both our career and broker channels is the right one, and
we will continue to make tactical adjustments to meet our long-term
growth objectives.
"We remain committed to maintaining strong capital ratios on behalf of our policyholders. We 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, front-end loaded in the first half of the year.
As is always the case, this assumes stable capital conditions and the
absence of compelling alternatives. Our objective is to grow the
dividend at a rate generally in line with the increase in operating
earnings per diluted share before the impact of foreign currency
translation.
"I want to reiterate our 2017
earnings guidance. Our first quarter results put us squarely on track to
produce stable operating earnings per diluted share of
$6.40 to $6.65, assuming the average exchange rate in 2016 of
108.70 yen
to the dollar. If the yen averages 105 to 115 to the dollar for the
second quarter, we would expect operating earnings, a non-U.S. GAAP
measure, to be approximately
$1.55 to $1.70
per diluted share in the second quarter. As always, we are working very
hard to achieve our earnings-per-share objective while also ensuring we
deliver on our promise to policyholders."
ABOUT AFLAC
When a policyholder gets sick or
hurt, Aflac pays cash benefits fast. For 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. Through its trailblazing One Day Pay
SM 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 one in four households. Aflac individual and group insurance
products help provide protection to more than 50 million people
worldwide. For 10 consecutive years, Aflac has been recognized by
Ethisphere as one of the World's Most Ethical Companies. In 2016,
Fortune
magazine recognized Aflac as one of the 100 Best Companies to Work For
in America for the 18th consecutive year and in 2017 included Aflac on
its list of Most Admired Companies for the 16th time. In 2015, Aflac's
contact centers were recognized by J.D. Power by providing "An
Outstanding Customer Service Experience" for the Live Phone Channel.
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
Pay
SM, 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.
