10-QPeriod: Q2 FY2006

AFLAC INC Quarterly Report for Q2 Ended Jun 30, 2006

Filed August 7, 2006For Securities:AFL

Summary

Aflac Inc. reported solid financial results for the second quarter and first half of 2006, demonstrating continued growth and profitability. Net earnings increased by 21.4% year-over-year for the quarter and 17.9% for the six-month period, reaching $408 million and $783 million, respectively. Diluted earnings per share also saw significant growth, rising to $0.81 for the quarter and $1.55 for the six months. This performance was driven by strong contributions from both Aflac Japan and Aflac U.S., with notable revenue growth and improved operating margins. The company's financial position remains robust, with total assets growing to $57.4 billion. Aflac Japan continues to be the primary earnings contributor, showing an 11.5% increase in pretax operating earnings for the quarter, despite a slight decline in premium income due to market conditions. Aflac U.S. also performed well, with a 9.3% increase in premium income and a 15.1% rise in pretax operating earnings for the quarter. The company maintained a strong capital position and effective risk management strategies, including currency hedging, to navigate market fluctuations.

Key Highlights

  • 1Net earnings increased by 21.4% to $408 million for the three months ended June 30, 2006, and by 17.9% to $783 million for the six months ended June 30, 2006.
  • 2Diluted earnings per share grew to $0.81 for the three-month period and $1.55 for the six-month period.
  • 3Total revenues increased to $3,697 million for the quarter and $7,256 million for the six-month period.
  • 4Aflac Japan's pretax operating earnings increased by 11.5% year-over-year for the quarter to $432 million, and by 9.0% for the six-month period to $857 million.
  • 5Aflac U.S. demonstrated strong growth with premium income up 9.3% for the quarter and pretax operating earnings increasing by 15.1% to $150 million.
  • 6The company's investment portfolio generated solid returns, with effective management of currency and interest rate risks.
  • 7Shareholders' equity declined slightly to $7,169 million from $7,927 million at year-end 2005, primarily due to changes in unrealized gains on investment securities.

Frequently Asked Questions

Aflac's earnings growth was driven by a combination of factors including continued strong performance in Aflac Japan, which remains the primary contributor to earnings, and solid growth in Aflac U.S. Revenue increases, disciplined expense management, and effective investment income contributed to the overall positive financial results.

Aflac Japan's pretax operating earnings saw robust growth, increasing by 11.5% year-over-year for the quarter, despite a slight dip in premium income due to market conditions. Aflac U.S. showed significant momentum with a 9.3% rise in premium income and a 15.1% increase in pretax operating earnings for the quarter, indicating strong performance in the U.S. market.

Aflac actively manages currency risk, primarily related to its Aflac Japan operations, through various hedging strategies including holding dollar-denominated securities and utilizing yen-denominated liabilities. Regarding interest rate risk, the company monitors the sensitivity of its debt securities to interest rate changes and aims to match the duration of its assets with its liabilities. They also have a policy of not automatically liquidating below-investment-grade securities if they believe declines are temporary.

Total assets increased to $57.4 billion. Policy liabilities saw a notable increase to $45.0 billion, reflecting the growth of the in-force business. Notes payable decreased to $1.1 billion from $1.4 billion at the end of 2005, mainly due to the repayment of Samurai notes. Shareholders' equity experienced a decrease, primarily attributed to fluctuations in unrealized investment securities.