10-QPeriod: Q3 FY2017

AFLAC INC Quarterly Report for Q3 Ended Sep 30, 2017

Filed November 2, 2017For Securities:AFL

Summary

Aflac Incorporated's third quarter and nine-month results for 2017 showed solid performance, with net earnings increasing year-over-year for both periods. The company's strong presence in Japan continues to be a significant driver of its financial results, contributing the majority of total revenues and assets. Despite a weaker yen impacting reported U.S. dollar figures, Aflac Japan demonstrated positive trends in its core business, particularly in third sector insurance products like cancer and medical. In the U.S., Aflac U.S. also saw growth in annualized premiums, driven by sales across various channels and product categories, including accident and critical care insurance. The company maintained a strong capital position and continued its commitment to shareholder returns through share repurchases and dividend increases. Investment income remained a key contributor, though impacted by fluctuating interest rates and currency exchange rates. The company's investment portfolio is diversified across fixed maturities, perpetual securities, and equities, with a focus on managing risk and optimizing long-term returns. Aflac's proactive approach to hedging its foreign currency exposures, particularly for its Japanese operations, helped mitigate some of the adverse effects of currency fluctuations. Overall, the report indicates a stable financial outlook for Aflac, supported by its diversified business model and prudent financial management.

Financial Highlights

33 data points
Beta

Revenue

$5.51B

Net Income

$716.00M

13.0% Net Margin

EPS (Diluted)

$0.90

Total Assets

$136.08B

Cash & Equivalents

$4.93B

Free Cash Flow

$1.43B

Financial Statements
Beta
Revenue$5.51B
SG&A Expenses$686.00M
Operating Income$1.01B
Interest Expense$59.00M
Net Income$716.00M
EPS (Basic)$0.91
EPS (Diluted)$0.90
Shares Outstanding (Basic)788.96M
Shares Outstanding (Diluted)794.76M

Key Highlights

  • 1Net earnings increased to $716 million ($1.80 per diluted share) for Q3 2017, up from $629 million ($1.53 per diluted share) in Q3 2016.
  • 2Nine-month net earnings reached $2.0 billion ($5.05 per diluted share), an increase from $1.9 billion ($4.59 per diluted share) in the same period of 2016.
  • 3Aflac Japan remains the primary contributor to revenue and assets, with its third sector products (cancer, medical) showing strong sales growth.
  • 4Aflac U.S. experienced growth in annualized premiums, driven by strong sales in accident, critical care, and short-term disability insurance.
  • 5The company repurchased $1.0 billion of its common stock in the first nine months of 2017 as part of its ongoing share repurchase program.
  • 6Aflac declared a Q4 2017 cash dividend of $0.45 per share, a 4.7% increase year-over-year, highlighting commitment to shareholder returns.
  • 7The company maintained a strong capital position, with Aflac's Risk-Based Capital (RBC) ratio remaining high.

Frequently Asked Questions

Aflac reported an increase in net earnings for both periods. For the third quarter of 2017, net earnings were $716 million ($1.80 per diluted share), up from $629 million ($1.53 per diluted share) in the same period of 2016. For the first nine months of 2017, net earnings were $2.0 billion ($5.05 per diluted share), compared to $1.9 billion ($4.59 per diluted share) in the corresponding 2016 period.

Aflac Japan's results are significantly impacted by currency fluctuations. A weaker yen relative to the U.S. dollar tends to suppress reported U.S. dollar figures, while a strengthening yen tends to magnify them. For instance, the weighted-average yen/dollar exchange rate was weaker in the first nine months of 2017 compared to 2016, which contributed to a decline in reported revenues. Management closely monitors and often excludes the impact of foreign currency translation when evaluating financial performance to better understand underlying operational trends.

Aflac Japan's growth is primarily driven by its strong performance in third sector insurance products, such as cancer and medical insurance, with sales increasing in yen terms. In Aflac U.S., growth is fueled by increased annualized premiums across various sales channels and product categories, including accident, critical care, and short-term disability insurance. Both segments are focusing on products that are less sensitive to interest rate fluctuations and offer strong profitability.

Aflac maintains a diversified investment portfolio primarily in fixed-maturity securities to match its liabilities and generate stable income. While investment income is a key contributor, it is subject to market conditions, interest rates, and currency fluctuations. The company employs hedging strategies, particularly for its Japanese operations, to mitigate currency risks. Despite lower reinvestment rates and increased hedge costs, net investment income, less amortized hedge costs, showed resilience, partly supported by the performance of U.S. dollar-denominated investments in Aflac Japan.