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AFLAC INC Annual Report, Year Ended Dec 31, 2002

Filing Date
Filed March 27, 2003
Period End
December 31, 2002
Security
AFL
In the record · 2016–202610-K1110-Q328-K114

AFL filed 11 annual reports (10-K), 32 quarterly reports (10-Q) and 114 current reports (8-K) between 2016 and 2026.

  1. Material agreement8-K · Oct ’17Oct ’17
  2. Leadership change8-K · Nov ’19Nov ’19
  3. Leadership change8-K · Feb ’23Feb ’23
  4. FY2024 annual report10-K · Feb ’25Feb ’25

01—Abstract

Summary

Summary of the 10-K filed March 27, 2003. Cited figures are marked; the original filing is the authoritative source.

AFLAC's 2002 results were strong on the metrics management emphasizes.

Net earnings rose 19.5% to $821 milliona ($1.55 per diluted share, up 21.1%), while operating earnings per diluted share grew 16.4% to $1.56, or 17.9% excluding yen/dollar translation effects, beating management's 15% target. Growth was driven by AFLAC Japan, which contributed about 75% of total revenues and 84% of total assets. Japan's pretax operating earnings rose 13.9% in dollars to $938 million, supported by a falling benefit ratio, a 17.9% rise in new annualized premium sales in yen, and high persistency.

AFLAC U.S. also grew, with pretax operating earnings up 16.7% to $402 millionb on a 16.4% increase in new annualized premium sales. The main headwinds are the low-yield environment and the cost of Japan's policyholder protection fund. Net investment income was essentially flat at about $1.6 billion for three years, and the portfolio yield is declining as higher-yielding securities mature.

Japan's industry-wide policyholder protection fund assessment reduced 2002 net earnings by $26 millionc ($0.05 per share). Impairment losses of $58 million and a weaker yen also weighed on results. Management targets 15% to 17% growth in operating EPS for 2003 excluding currency effects, with a specific goal of at least $1.80 per diluted share.

Balance sheet growth was substantial. Total assets rose to $45.1 billiond from $37.9 billion, largely because of the stronger yen, and shareholders' equity increased to $6.4 billion.

The company repurchased $346 million of stock and raised dividends 19% to $0.23 per share. Investors should watch the yen/dollar exchange rate, Japan's weak economy and deregulated competitive environment, the pace of repatriating profits from Japan, and the declining yield on the investment portfolio.

02—Key points

Key Highlights

  1. Net earnings rose 19.5% to $821 million, or $1.55 per diluted share (up 21.1%), from $687 million in 2001.
  2. Operating EPS grew 16.4% to $1.56, or 17.9% excluding currency effects, exceeding management's 15% target.
  3. AFLAC Japan (about 75% of revenues) pretax operating earnings rose 13.9% to $938 million, and new annualized premium sales in yen rose 17.9%.
  4. AFLAC U.S. pretax operating earnings rose 16.7% to $402 million, with new annualized premium sales up 16.4% to $1.1 billion.
  5. A $26 million after-tax charge ($0.05 per share) for Japan's policyholder protection fund reduced 2002 earnings.
  6. Net investment income was flat at about $1.6 billion for three years as low yields persist, and the portfolio yield is declining.
  7. Total assets rose to $45.1 billion and shareholders' equity to $6.4 billion; the dividend increased 19% to $0.23 per share and $346 million of stock was repurchased.

03—Questions

Frequently Asked Questions

  1. How much of AFLAC's business depends on Japan, and how does the yen affect reported results?

    AFLAC Japan generated 75% of 2002 total revenues and held 84% of total assets. Its functional currency is the yen, so a weaker yen lowers reported dollar results. In 2002 the weaker yen reduced net earnings by about $10 million ($0.02 per diluted share), and the stronger year-end yen increased reported total assets by $3.2 billion.

  2. What is management's earnings target for 2003?

    Management targets 15% to 17% growth in operating EPS excluding currency translation, with a specific goal of at least $1.80 per diluted share. At a 2003 yen/dollar rate of 115, operating EPS could reach about $1.88; at 135, about $1.74.

  3. What are the main risks to AFLAC's earnings?

    Key risks include Japan's weak economy and deregulated, more competitive insurance market, low investment yields that are gradually lowering portfolio returns, further policyholder protection fund assessments, currency fluctuations, the ability to repatriate profits from Japan, and credit impairments (2002 impairments totaled $58 million). Japan's solvency margin rules can also limit profit transfers to the U.S.

  4. Is AFLAC's dividend and capital position secure?

    The dividend rose to $0.23 per share in 2002 from $0.193, and management expects comparable dividends to continue. AFLAC's U.S. insurance subsidiary can pay up to about $505 million in 2003 without regulatory approval. Its NAIC risk-based capital ratio is described as very high, and AFLAC Japan's solvency margin significantly exceeds regulatory minimums. Ratings are AA from S&P and Fitch and Aa2 from Moody's.

04—Continue

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