Why did reported net earnings rise so much more than adjusted earnings?

Reported net earnings include $951 million of net investment gains, largely from $703 million of gains on certain derivatives and foreign currency, which are excluded from adjusted earnings. Adjusted earnings rose only 0.8% to $961 million, so the reported 58.2% jump mostly reflects non-recurring investment gains rather than operating improvement.

How did the weaker yen affect results?

The average yen/dollar rate was 148.67, about 11% weaker than a year earlier, which reduced adjusted EPS by $0.08. Excluding this impact, adjusted EPS would have risen 12.3% instead of 7.1%. Because much of Aflac's business is in Japan, currency translation is a material driver of reported dollar results.

Is Aflac's Japan business growing?

Not in top-line terms. Japan net earned premiums fell 6.0% in yen and 16.3% in dollars, reflecting paid-up policies and prior-year reinsurance transactions, and new sales fell 5.1%. Profitability improved, however, as the pretax margin rose to 32.8% on lower benefits and expenses, and management plans sales campaigns around its 50th anniversary starting in Q2.

How strong is Aflac's capital position and shareholder return program?

Capital appears strong. Aflac repurchased $750 million of stock in Q1 with 68.5 million shares remaining under authorization, and paid $288 million in dividends. The Japan solvency margin ratio exceeded 1,100%, the combined U.S. RBC ratio was estimated above 650%, and unencumbered holding company liquidity was $3.7 billion.

What credit risks should investors monitor?

The commercial real estate watchlist is about $1.2 billion, with roughly $600 million in active foreclosure proceedings, and management raised CECL reserves on these loans by $10 million. Management described the market as distressed and not reflecting intrinsic value, and it expects to take ownership of assets and recover value. Investors should watch whether these reserve increases grow or whether losses materialize.

AFL 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed May 1, 2024. Cited figures are marked; the original filing is the authoritative source.

Aflac reported first-quarter 2024 net earnings of $1.9 billion^a, or $3.25 per diluted share, up 58.2% from $1.2 billion a year earlier.

That headline figure was inflated by $951 million^b of net investment gains, driven mainly by $703 million of gains on derivatives and foreign currency. The more representative measure, adjusted earnings, rose only 0.8% to $961 million, while adjusted EPS grew 7.1% to $1.66 thanks to a lower share count. Excluding a $0.08 negative yen impact, adjusted EPS rose 12.3% to $1.74.

Investors should weigh the adjusted figures more heavily when judging underlying growth. Underlying operations were mixed. Aflac Japan's pretax adjusted earnings rose 2.8% in dollar terms to $810 million^c, with a pretax margin of 32.8% versus 28.2% a year ago, helped by lower benefits and expenses.

However, Japan net earned premiums fell 16.3% in dollars and new annualized sales declined 5.1%. Aflac U.S. showed modest growth, with net earned premiums up 3.3% and pretax adjusted earnings up 1.1% to $356 million^d, though U.S. sales fell 5.2%. The weaker yen, which averaged 148.67 per dollar (11.0% weaker), was a headwind throughout.

Capital returns remained strong. Aflac repurchased a record $750 million of stock, retired 9.3 million shares, and declared a second-quarter dividend of $0.50 per share, extending a 41-year streak of dividend growth.

Shareholders' equity reached $23.5 billion, or $41.27 per share, and adjusted book value per share rose 12.4% to $50.22. Adjusted ROE was 13.7%, and the company disclosed a commercial real estate watchlist of about $1.2 billion, with roughly $600 million in active foreclosure proceedings.

02—Key points

Key Highlights

Reported net earnings of $1.9 billion ($3.25 per diluted share) were up 58.2%, but were boosted by $951 million of net investment gains that are excluded from adjusted results.
Adjusted earnings rose only 0.8% to $961 million; adjusted EPS grew 7.1% to $1.66 and 12.3% to $1.74 excluding the $0.08 currency drag.
Aflac Japan pretax adjusted earnings rose 2.8% to $810 million, with the pretax margin expanding to 32.8% from 28.2%, while Japan net earned premiums fell 16.3% in dollar terms.
Aflac U.S. net earned premiums grew 3.3% and pretax adjusted earnings rose 1.1% to $356 million, though U.S. new sales declined 5.2%.
Aflac repurchased a record $750 million of shares in Q1 and declared a $0.50 quarterly dividend, marking 41 consecutive years of dividend growth.
Adjusted book value per share rose 12.4% to $50.22, and adjusted ROE was 13.7%; adjusted leverage stood at 20.4%, near the low end of its 20%–25% corridor.
The commercial real estate watchlist totals about $1.2 billion, with roughly $600 million in active foreclosure proceedings, and CECL reserves were increased by $10 million on those loans.

03—Questions

Frequently Asked Questions

Why did reported net earnings rise so much more than adjusted earnings?
Reported net earnings include $951 million of net investment gains, largely from $703 million of gains on certain derivatives and foreign currency, which are excluded from adjusted earnings. Adjusted earnings rose only 0.8% to $961 million, so the reported 58.2% jump mostly reflects non-recurring investment gains rather than operating improvement.
How did the weaker yen affect results?
The average yen/dollar rate was 148.67, about 11% weaker than a year earlier, which reduced adjusted EPS by $0.08. Excluding this impact, adjusted EPS would have risen 12.3% instead of 7.1%. Because much of Aflac's business is in Japan, currency translation is a material driver of reported dollar results.
Is Aflac's Japan business growing?
Not in top-line terms. Japan net earned premiums fell 6.0% in yen and 16.3% in dollars, reflecting paid-up policies and prior-year reinsurance transactions, and new sales fell 5.1%. Profitability improved, however, as the pretax margin rose to 32.8% on lower benefits and expenses, and management plans sales campaigns around its 50th anniversary starting in Q2.
How strong is Aflac's capital position and shareholder return program?
Capital appears strong. Aflac repurchased $750 million of stock in Q1 with 68.5 million shares remaining under authorization, and paid $288 million in dividends. The Japan solvency margin ratio exceeded 1,100%, the combined U.S. RBC ratio was estimated above 650%, and unencumbered holding company liquidity was $3.7 billion.
What credit risks should investors monitor?
The commercial real estate watchlist is about $1.2 billion, with roughly $600 million in active foreclosure proceedings, and management raised CECL reserves on these loans by $10 million. Management described the market as distressed and not reflecting intrinsic value, and it expects to take ownership of assets and recover value. Investors should watch whether these reserve increases grow or whether losses materialize.

04—Continue

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