10-QPeriod: Q1 FY2011

AFLAC INC Quarterly Report for Q1 Ended Mar 31, 2011

Filed May 6, 2011For Securities:AFL

Summary

Aflac Incorporated reported net earnings of $395 million for the first quarter of 2011, a decrease from $636 million in the prior year. This decline was primarily driven by significant realized investment losses totaling $579 million, which included $405 million in other-than-temporary impairments and $161 million from securities sold as part of a risk reduction strategy. Total revenues saw a modest increase of 1.0% to $5.12 billion, benefiting from a stronger yen. Despite the impact of investment losses, Aflac's core insurance operations remained robust. Aflac Japan, the primary contributor to earnings, reported pretax operating earnings of $980 million, a 19.3% increase in dollar terms, driven by strong premium income growth and effective expense management. Aflac U.S. also showed positive performance with pretax operating earnings of $253 million, a 3.7% increase. The company is actively managing its investment portfolio to reduce risk exposure, which impacted short-term results but is intended to bolster long-term financial stability.

Financial Highlights

30 data points
Beta

Revenue

$5.12B

Net Income

$389.00M

7.6% Net Margin

EPS (Diluted)

$0.41

Total Assets

$101.14B

Cash & Equivalents

$2.09B

Free Cash Flow

$2.17B

Financial Statements
Beta
Revenue$5.12B
SG&A Expenses$534.00M
Operating Income$1.17B
Interest Expense$45.00M
Net Income$389.00M
EPS (Basic)$0.41
EPS (Diluted)$0.41
Shares Outstanding (Basic)936.02M
Shares Outstanding (Diluted)944.21M

Key Highlights

  • 1Net earnings decreased to $395 million in Q1 2011 from $636 million in Q1 2010, largely due to $579 million in realized investment losses.
  • 2Total revenues increased by 1.0% to $5.12 billion, supported by a stronger yen.
  • 3Aflac Japan's pretax operating earnings increased by 19.3% to $980 million, driven by premium growth and effective expense management.
  • 4Aflac U.S. pretax operating earnings grew by 3.7% to $253 million, with positive sales growth for the first time in nine quarters.
  • 5The company recognized $405 million in other-than-temporary impairment losses on its investment portfolio.
  • 6A strategic plan to reduce investment risk led to the sale of certain securities, resulting in $161 million in net losses for the quarter.
  • 7Shareholders' equity ended the quarter with a net unrealized loss on investment securities and derivatives of $21 million, compared to a net unrealized gain of $64 million at the end of 2010.

Frequently Asked Questions

The primary reason for the decrease in net earnings was a substantial increase in realized investment losses. This included $405 million in other-than-temporary impairments on investment securities and $161 million in net losses from selling securities as part of a strategy to reduce investment portfolio risk. These factors more than offset the modest growth in total revenues and strong operating performance from the insurance segments.

Aflac Japan reported a net income statement impact of $12 million (1.0 billion yen) for benefits expenses and $8 million (0.7 billion yen) in operating expenses related to the earthquake and tsunami. While initial estimates indicated no material impact on the company's financial position or results of operations, the full extent of claims is subject to change. The company continues to monitor the situation and its potential effects on the Japanese economy and its investment portfolio, particularly Japanese Government Bonds.

The company is actively managing its investment portfolio to reduce risk exposure, which resulted in significant realized losses in the current quarter. The low-interest-rate environment, particularly in Japan, continues to challenge investment yields. Aflac Japan is increasing its investment in higher-yielding dollar-denominated securities to mitigate this. The company's investment strategy emphasizes liquidity, safety, and quality, and it believes it has sufficient cash flows to meet obligations without liquidating investments prematurely.

Aflac is actively pursuing strategic investment activities to lower the risk profile of its portfolio, which includes reducing exposure to concentrated positions and investments in countries like Greece, Ireland, and Portugal. This strategy led to the sale of certain securities and recognition of losses in the first quarter of 2011. The company continues to monitor credit risks associated with financial institutions in these regions and has evaluated its exposure carefully, recognizing other-than-temporary impairments where necessary.