10-KPeriod: FY2003

AFLAC INC Annual Report, Year Ended Dec 31, 2003

Filed March 11, 2004For Securities:AFL

Summary

AFLAC Inc.'s 2003 Form 10-K report highlights a strong financial performance characterized by consistent revenue growth driven primarily by its Japanese operations, which constituted 74% of total revenues and 84% of total assets. The company, a leading writer of individually underwritten policies marketed at worksites, demonstrated resilience despite a challenging economic environment in Japan. The report details product offerings in both Japan and the U.S., focusing on supplemental health and life insurance. Key financial indicators show net earnings of $795 million, with diluted EPS of $1.52 for 2003. While realized investment losses were noted, the company's core insurance business, supported by a robust investment portfolio, remained the primary driver of profitability. AFLAC Japan's operations were significantly impacted by foreign currency translation, a factor management evaluates separately from underlying business performance. The company's U.S. segment also showed solid growth in annualized premiums in force.

Key Highlights

  • 1AFLAC Japan continues to be the primary revenue and asset driver, accounting for 74% of total revenues and 84% of total assets in 2003.
  • 2Consolidated net earnings for 2003 were $795 million, with diluted earnings per share of $1.52.
  • 3The company experienced a net realized investment loss of $191 million in 2003, impacting earnings per share by $0.37.
  • 4Annualized premiums in force showed growth in both Japan (+$877 million, influenced by currency translation) and the U.S. (+$369 million).
  • 5AFLAC Japan's yen-denominated new sales increased by 11.9% in 2003, demonstrating continued market penetration.
  • 6The U.S. segment saw a 13.8% increase in annualized premiums in force, driven by worksite sales and improved persistency.
  • 7The company maintained a strong investment portfolio with a high percentage of investment-grade securities in Japan.

Frequently Asked Questions

AFLAC Inc.'s primary revenue source is its insurance operations. The Japanese market is exceptionally significant, accounting for approximately 74% of the company's total revenues in 2003 and 84% of its total assets. This highlights a strong reliance on and success within the Japanese supplemental health and life insurance market.

The strengthening Yen in 2003, relative to the prior year, had a positive effect on AFLAC's reported financial results. The report indicates that the foreign currency translation for AFLAC Japan increased total assets by $4.2 billion, total liabilities by $4.2 billion, and net earnings by $7 million. Management views this as a financial reporting consideration rather than an economic event and analyzes performance excluding its impact.

The primary driver of AFLAC's profitability is its core insurance business, specifically premiums earned and investment income. In 2003, net investment income was $1.8 billion. The company reported a significant realized investment loss of $191 million, which negatively impacted net earnings per diluted share by $0.37. There were no major non-recurring items impacting net earnings in 2003, unlike the prior year which included a charge for the Japanese policyholder protection fund.

AFLAC's investment strategy focuses on fixed-income securities to generate reliable investment income. The company emphasizes maintaining a high-quality portfolio. In Japan, 97.2% of securities were classified as investment grade as of December 31, 2003. The U.S. portfolio also demonstrates a strong credit quality, with a significant portion in investment-grade corporate fixed-maturity securities and U.S. government or agency securities.