10-QPeriod: Q3 FY2020

AFLAC INC Quarterly Report for Q3 Ended Sep 30, 2020

Filed October 29, 2020For Securities:AFL

Summary

Aflac Incorporated (AFL) reported its financial results for the period ending September 29, 2020. The company demonstrated strong profitability, with net earnings significantly increasing year-over-year, primarily driven by a substantial tax benefit from the release of valuation allowances on deferred foreign tax credits. Despite a slight decline in total revenues year-to-date, driven by increased net investment losses, the company's core insurance operations showed resilience, particularly Aflac Japan, which continued to be the largest contributor to earnings. Management highlighted the company's robust liquidity and capital position maintained throughout the COVID-19 pandemic. Aflac took proactive steps to support its financial resources by issuing new senior notes. The company also reiterated its commitment to capital allocation strategies, including tactical share repurchases, and maintaining strong solvency margins in its key operating segments. The report also detailed ongoing efforts to adapt to the challenges presented by the pandemic, including shifts towards digital sales channels and remote work arrangements, while navigating the impact on sales performance in both Japan and the U.S.

Financial Highlights

33 data points
Beta

Revenue

$5.67B

Net Income

$2.46B

43.4% Net Margin

EPS (Diluted)

$3.44

Total Assets

$160.96B

Cash & Equivalents

$5.56B

Free Cash Flow

$2.00B

Financial Statements
Beta
Revenue$5.67B
SG&A Expenses$847.00M
Operating Income$1.04B
Interest Expense$63.00M
Net Income$2.46B
EPS (Basic)$3.45
EPS (Diluted)$3.44
Shares Outstanding (Basic)711.70M
Shares Outstanding (Diluted)713.79M

Key Highlights

  • 1Net earnings significantly increased to $2.46 billion for the three months ended September 30, 2020, compared to $777 million in the prior year period, largely due to a $1.4 billion tax benefit.
  • 2For the nine months ended September 30, 2020, net earnings were $3.83 billion, up from $2.52 billion in the prior year period, also heavily influenced by the tax benefit.
  • 3Total revenues for the nine months decreased slightly to $16.23 billion from $16.70 billion in the prior year period, impacted by higher net investment losses.
  • 4Aflac Japan's pretax adjusted earnings were $747 million for the quarter, a decrease from $838 million in the prior year, impacted by a decline in sales due to COVID-19.
  • 5Aflac U.S. pretax adjusted earnings were $329 million for the quarter, a slight decrease from $335 million in the prior year, also affected by pandemic-related sales challenges.
  • 6The company maintained a strong liquidity position, with $5.6 billion in cash and cash equivalents at September 30, 2020.
  • 7Shareholders' equity increased to $32.48 billion at September 30, 2020, up from $28.96 billion at December 31, 2019, reflecting strong earnings and share repurchases.

Frequently Asked Questions

The significant increase in net earnings was primarily driven by a one-time income tax benefit of $1.4 billion recognized in the third quarter of 2020. This benefit resulted from the release of valuation allowances on deferred foreign tax credits, following new U.S. tax regulations.

The COVID-19 pandemic had a notable impact on sales performance in both key segments. Aflac Japan experienced a sales decline of 32.0% in the third quarter of 2020 compared to the prior year, attributed to the effects of the pandemic. Similarly, Aflac U.S. saw a sales decline of 35.7% in the third quarter of 2020 compared to the prior year, primarily due to social distancing measures that limited face-to-face sales opportunities.

Aflac maintained a strong liquidity and capital position entering the COVID-19 crisis. As of September 30, 2020, the company held $5.6 billion in cash and cash equivalents. Management stated that the company entered the crisis with capital ratios designed to absorb market volatility and took proactive steps to support liquidity by issuing senior notes and maintaining available revolving credit facilities with no outstanding borrowings.

The company continued to follow its strategy of investing primarily in fixed maturity securities to generate reliable income. Management noted that fundamental credit analysis and de-risking activities in prior periods contributed to the portfolio's quality. In the third quarter, the company continued de-risking activity, reducing positions in portfolios deemed more vulnerable to the current environment. While markets stabilized, the company remained cautious about the recovery path and potential long-term impacts on vulnerable sectors.