10-QPeriod: Q2 FY2011

AFLAC INC Quarterly Report for Q2 Ended Jun 30, 2011

Filed August 5, 2011For Securities:AFL

Summary

Aflac Inc. reported a significant decrease in net earnings for the second quarter and first half of 2011 compared to the same periods in 2010. This was primarily driven by substantial realized investment losses, totaling $668 million pretax in Q2 2011 and $1.2 billion pretax for the first half, compared to much smaller losses in the prior year. These losses were largely attributed to an implemented strategy to reduce investment portfolio risk and ongoing declines in the creditworthiness of certain issuers, leading to significant other-than-temporary impairment charges. Despite the decline in net earnings, the company's core insurance operations demonstrated resilience, particularly in Japan where premium income and pretax operating earnings saw solid growth, aided by a stronger yen and successful sales initiatives. Aflac U.S. also showed positive sales growth. The company maintained a strong capital position, with shareholders' equity reflecting net unrealized gains on investment securities.

Financial Highlights

30 data points
Beta

Revenue

$5.09B

Net Income

$274.00M

5.4% Net Margin

EPS (Diluted)

$0.29

Total Assets

$106.23B

Cash & Equivalents

$1.29B

Free Cash Flow

$2.21B

Financial Statements
Beta
Revenue$5.09B
SG&A Expenses$565.00M
Operating Income$1.11B
Interest Expense$46.00M
Net Income$274.00M
EPS (Basic)$0.29
EPS (Diluted)$0.29
Shares Outstanding (Basic)933.00M
Shares Outstanding (Diluted)939.50M

Key Highlights

  • 1Net earnings decreased significantly year-over-year due to substantial realized investment losses.
  • 2Realized investment losses were driven by a strategic risk reduction in the investment portfolio and other-than-temporary impairments.
  • 3Aflac Japan reported strong growth in premium income and pretax operating earnings, benefiting from a stronger yen and effective sales strategies.
  • 4Aflac U.S. experienced positive sales growth across several product lines.
  • 5The company's investment portfolio saw a reduction in exposure to peripheral Eurozone countries and perpetual securities as part of its derisking efforts.
  • 6Shareholders' equity remained robust, with net unrealized gains on investment securities contributing positively.
  • 7The company reiterated its commitment to shareholder returns through dividends and ongoing share repurchases.

Frequently Asked Questions

The primary reason for the significant decrease in net earnings compared to the prior year is the substantial increase in realized investment losses. These losses were driven by the company's strategic initiative to reduce risk in its investment portfolio and by other-than-temporary impairments recognized on certain securities.

Aflac Japan demonstrated strong performance, with premium income and pretax operating earnings showing solid growth. This was partly due to the favorable impact of a stronger yen relative to the U.S. dollar and successful sales efforts, particularly in new product launches and expanded distribution channels like banks.

Aflac has been actively pursuing strategic investment activities to lower its risk profile. This includes reducing exposure to peripheral Eurozone investments, certain perpetual securities, and specific banks or financial institutions. These efforts have resulted in a significant reduction in exposure to Greece, Ireland, and Portugal, as well as a decrease in overall perpetual and financial sector investments.

The company's financial condition remains strong, supported by robust capital and surplus levels. Liquidity is considered adequate, with Aflac Japan and Aflac U.S. providing sufficient cash flow from premiums and investment income to meet obligations. The company also has access to debt markets for additional capital if needed.