10-KPeriod: FY2008

AFLAC INC Annual Report, Year Ended Dec 31, 2008

Filed February 20, 2009For Securities:AFL

Summary

Aflac Incorporated's 2008 10-K filing reveals a company significantly influenced by global economic conditions, particularly in its key markets of Japan and the United States. Despite a challenging economic environment in 2008, marked by widespread financial market disruption and recessionary fears, Aflac demonstrated resilience. The company's strong presence in Japan, accounting for over 70% of revenues and a majority of assets, played a crucial role. Aflac Japan continued to show robust growth in premium income, driven by strong demand for its cancer and medical insurance products, supported by strategic distribution initiatives like partnerships with banks and the Japan Post Network. In the U.S., while sales were impacted by the economic slowdown, Aflac maintained its focus on its core worksite marketing strategy and strengthening its sales force. The company's investment portfolio, heavily weighted towards debt and perpetual securities, experienced valuation declines due to market volatility, leading to significant realized investment losses in 2008, primarily from impairments on financial institution investments and other distressed assets. However, the company maintained strong capital ratios and liquidity throughout the year.

Financial Highlights

31 data points
Beta

Revenue

$16.55B

Net Income

$1.25B

7.6% Net Margin

EPS (Diluted)

$1.31

Total Assets

$79.33B

Cash & Equivalents

$941.00M

Free Cash Flow

$4.96B

Financial Statements
Beta
Revenue$16.55B
SG&A Expenses$1.74B
Interest Expense$29.00M
Net Income$1.25B
EPS (Basic)$1.32
EPS (Diluted)$1.31
Shares Outstanding (Basic)946.81M
Shares Outstanding (Diluted)957.63M

Key Highlights

  • 1Aflac Japan continues to be the primary driver of revenue and assets, showing strong growth in premium income for its cancer and medical insurance products.
  • 2The company experienced significant realized investment losses in 2008 totaling $1,007 million (pre-tax) due to other-than-temporary impairments on securities, particularly those tied to financial institutions and Iceland.
  • 3Despite market volatility, Aflac maintained strong capital and liquidity positions, with its company action level RBC ratio at 476.5% as of December 31, 2008.
  • 4The company is actively expanding its distribution channels in Japan, including agreements with 242 banks and a new channel through the Japan Post Network.
  • 5In the U.S., sales were slightly down due to the weak economy, but the company focused on worksite marketing and increasing its sales force, which grew by 4.4%.
  • 6The company's investment portfolio is heavily concentrated in banks and financial institutions (41% of debt and perpetual securities) and has a significant portion in perpetual securities ($9.1 billion in 2008).
  • 7Ratings agencies downgraded Aflac's financial strength and debt ratings in January 2009 due to concerns about global financial markets and investment exposure, changing the outlook to negative.

Frequently Asked Questions

The global financial crisis significantly impacted Aflac's investment portfolio, leading to substantial realized investment losses in 2008 due to impairments and sales of certain securities, particularly those related to financial institutions. While revenues and operating earnings from insurance segments showed resilience, especially in Japan, the overall net earnings were heavily affected by these investment write-downs.

Aflac Japan is critically important, representing over 70% of total revenues and a substantial majority of total assets. Its strong performance, driven by consistent demand for supplemental health and life insurance products, helped offset some of the negative impacts from the U.S. market and the company's investment portfolio during the challenging economic climate of 2008.

Aflac manages investment risks through diversification and adherence to credit quality standards. However, given the significant market downturn in 2008, the company had to recognize substantial impairments on investments, especially in financial institutions and perpetual securities. The company's investment strategy is subject to ongoing review, and it emphasizes its ability and intent to hold securities until recovery, but the volatility highlighted the inherent risks in these asset classes.

The company expressed a cautious outlook for 2009 due to global economic uncertainty. In Japan, the sales objective was flat to up 5%, contingent on the economy not deteriorating further. In the U.S., the objective was for total new annualized premium sales to be flat to up 5%, also subject to economic conditions. The company's ability to navigate the economic challenges would depend on factors like consumer confidence, market stability, and the effectiveness of its distribution and product strategies.