10-QPeriod: Q2 FY2009

AFLAC INC Quarterly Report for Q2 Ended Jun 30, 2009

Filed August 7, 2009For Securities:AFL

Summary

Aflac Incorporated reported solid financial results for the second quarter and first half of 2009, despite challenging economic conditions. The company's core insurance operations in Japan and the U.S. demonstrated resilience, with Aflac Japan driving significant growth in pretax operating earnings, up 18.6% and 20.7% year-over-year for the three and six months respectively. This growth was fueled by strong premium income and effective expense management, even as the yen strengthened against the dollar. In the U.S., Aflac experienced modest growth in pretax operating earnings, supported by stable benefit and expense ratios, though new annualized premium sales saw a decline. The company's investment portfolio, while impacted by market volatility and other-than-temporary impairments totaling $619 million pre-tax for the six months, remained largely of high credit quality. Aflac proactively managed its balance sheet by issuing new senior notes and paying off maturing debt, maintaining a strong capital position and ample liquidity.

Financial Highlights

29 data points
Beta

Revenue

$4.31B

Net Income

$314.00M

7.3% Net Margin

EPS (Diluted)

$0.34

Total Assets

$76.04B

Cash & Equivalents

$1.69B

Free Cash Flow

$1.23B

Financial Statements
Beta
Revenue$4.31B
SG&A Expenses$462.00M
Interest Expense$14.00M
Net Income$314.00M
EPS (Basic)$0.34
EPS (Diluted)$0.34
Shares Outstanding (Basic)932.80M
Shares Outstanding (Diluted)936.57M

Key Highlights

  • 1Aflac Japan's pretax operating earnings increased by 18.6% in Q2 2009 and 20.7% for the first six months of 2009, driven by strong premium growth and stable operating expenses.
  • 2Aflac U.S. saw a 4.0% increase in pretax operating earnings for Q2 2009 and 5.6% for the first six months, with stable operating ratios.
  • 3Total revenues for the six months ended June 30, 2009, were $9.131 billion, an increase from $8.603 billion in the prior year period, primarily driven by Aflac Japan's growth.
  • 4Net earnings for the six months ended June 30, 2009, were $882 million, down from $957 million in the prior year, largely due to significant other-than-temporary impairment losses on investments.
  • 5The company recognized $619 million in pre-tax other-than-temporary impairment losses on investments during the first six months of 2009, primarily impacting perpetual securities and corporate bonds.
  • 6Aflac executed a $850 million senior notes offering in May 2009 and repaid $450 million in senior notes upon maturity in April 2009, managing its debt structure effectively.
  • 7Shareholders' equity decreased to $6.35 billion at June 30, 2009, from $6.64 billion at December 31, 2008, reflecting unrealized losses on investment securities and dividend payments.

Frequently Asked Questions

Aflac's investment portfolio experienced unrealized losses, with the total unrealized loss on securities available for sale increasing to $3.441 billion at June 30, 2009, compared to $2.046 billion at December 31, 2008. This was primarily driven by widening credit spreads and, to some extent, changes in interest rates. The company also recognized significant other-than-temporary impairment losses of $619 million pre-tax for the six months ended June 30, 2009, predominantly on perpetual securities and corporate bonds, reflecting market conditions and credit downgrades.

Aflac Japan's operations are primarily yen-denominated, and its results are translated into U.S. dollars for reporting. During the first six months of 2009, the yen strengthened against the dollar. While this generally magnifies reported yen-denominated results when translated into dollars, the company managed its currency exposure through a portfolio of dollar-denominated investments and by issuing yen-denominated debt. Despite the strengthening yen, Aflac Japan reported strong operating results in yen terms due to premium growth and effective expense management.

Aflac maintained a strong capital position. During the second quarter of 2009, the company repaid $450 million in senior notes upon maturity and issued $850 million in new senior notes. The company also made progress in managing its yen-denominated debt by repurchasing portions of its Uridashi and Samurai notes in the open market, realizing a gain from these extinguishments. The debt-to-total capitalization ratio remained manageable at 19.0% as of June 30, 2009.

In Japan, Aflac maintained a cautious outlook for sales in 2009, aiming for flat to 5% growth, which was considered achievable despite global economic uncertainty, though further deterioration could impact this. The company highlighted growth in ordinary life products and strong performance in the new bank distribution channel. In the U.S., due to the weak economic environment and a decline in new annualized premium sales during the first half of the year, achieving positive sales growth for the full year was deemed difficult.