Why did Aflac report a net loss in Q3 2024 when adjusted earnings grew?

The GAAP net loss of $93 million was driven by $1.4 billion of net investment losses, mainly from losses on certain derivatives and foreign currency activity as the yen strengthened about 12.9% in the quarter. Aflac's adjusted earnings exclude these net investment gains and losses, and they rose 10.6% to $1.2 billion, reflecting stronger operating performance, especially in Japan.

How did the two main segments perform?

Aflac Japan was strong: pretax adjusted earnings rose 25.5% in yen to ¥158.7 billion, with a 44.7% pretax margin, helped by lower benefits and remeasurement gains. Aflac U.S. was weaker: pretax adjusted earnings fell 26.8% to $350 million, with the margin dropping to 20.8%, due to lower remeasurement gains and higher incurred claims. Management expects the U.S. benefit ratio for the full year to be at the higher end of its 45% to 47% guidance range.

What does the leadership change mean for investors?

Virgil R. Miller will become President of Aflac on January 1, 2025, in addition to his role as President of Aflac U.S. Daniel P. Amos will give up the President title but remain Chairman and CEO, so day-to-day operating responsibility is consolidated under Miller. Miller's initial base salary is $825,000, with a 150% target bonus and a roughly $2.475 million performance-based equity award expected in February 2025. The filing does not indicate any change to Amos's position as CEO.

Is Aflac's dividend and capital return program at risk?

Not based on this filing. The board declared a $0.50 quarterly dividend payable December 2, 2024, and Aflac is extending its record of annual dividend increases to 42 consecutive years. Management cited a $500 million buyback in the quarter, $2.1 billion of holding-company liquidity above the minimum, and a solvency margin ratio above 1,100%. The company also said it will keep balancing growth investments against capital returns.

Why did adjusted leverage increase, and is it a concern?

Adjusted leverage rose to 21.0% from 18.8% a year earlier. Management said the increase reflects yen-driven movements in the value of roughly 60% of its debt, which is denominated in yen. Management described this as intentional and part of an enterprise hedging program that protects the dollar value of Aflac Japan, and it said the ratio remains within its 20% to 25% target range.

AFL 8-K: Earnings & Results & Leadership Changes

01—Abstract

Summary

Summary of the 8-K filed October 30, 2024. Cited figures are marked; the original filing is the authoritative source.

Aflac reported a third-quarter 2024 GAAP net loss of $93 million^a, or $0.17 per diluted share, versus earnings of $1.6 billion, or $2.64 per share, a year earlier.

The swing was driven by $1.4 billion^b of net investment losses, mainly from derivatives and foreign currency activity as the yen strengthened about 12.9% during the quarter. Total revenues fell 40.4% to $2.9 billion. Investors should focus on the underlying results.

Adjusted earnings rose 10.6% to $1.2 billion^c, and adjusted EPS grew 17.4% to $2.16 (19.0% to $2.19 excluding the $0.03 currency impact). Aflac Japan was the main driver, with pretax adjusted earnings up 25.5% in yen terms and a pretax margin of 44.7%, helped by roughly ¥39.7 billion of remeasurement gains. The U.S. segment was weaker, with pretax adjusted earnings down 26.8% and a margin of 20.8%, reflecting lower remeasurement gains and higher claims.

Balance sheet and capital metrics were mixed but stable. Adjusted book value per share was $51.21^d, and book value per share including unrealized FX translation losses rose 7.3% to $43.77. The annualized adjusted ROE was 16.7%, or 17.0% excluding currency impact.

Aflac repurchased $500 million of stock (4.9 million shares) and declared a $0.50 quarterly dividend, extending its streak of annual dividend increases to 42 years in 2024. Adjusted leverage rose to 21.0% because of yen-driven changes in the value of yen-denominated debt, which management described as an intentional part of its hedging program. The 8-K also disclosed a leadership change.

Virgil R. Miller will become President of Aflac effective January 1, 2025, while continuing as President of Aflac U.S. Daniel P.

Amos will step down as President but remain Chairman and CEO. Management indicated that the U.S. net earned premium growth will likely be at the low end of its 3% to 5% guidance range, and that Japan's full-year benefit ratio will be 62% to 63%, with a 35% to 36% pretax margin.

02—Key points

Key Highlights

GAAP net loss of $93 million (-$0.17 per diluted share) versus $1.6 billion of earnings ($2.64 per share) in Q3 2023, driven by $1.4 billion of net investment losses tied to derivatives and FX activity.
Adjusted earnings rose 10.6% to $1.2 billion; adjusted EPS increased 17.4% to $2.16, or 19.0% to $2.19 excluding FX.
Aflac Japan pretax adjusted earnings rose 25.5% in yen to ¥158.7 billion, with a 44.7% pretax margin aided by ¥39.7 billion of remeasurement gains.
Aflac U.S. pretax adjusted earnings fell 26.8% to $350 million, with the pretax margin down to 20.8% from 28.8%, due to lower remeasurement gains and higher incurred claims; U.S. sales rose 5.5%.
Adjusted book value per share was $51.21 (up 5.7%); book value per share including FX translation losses was $43.77 (up 7.3%); adjusted ROE was 16.7%.
Capital deployment: $500 million of share repurchases (4.9 million shares) and a $0.50 Q4 dividend; $54.3 million shares remain authorized; adjusted leverage was 21.0%.
Leadership change: Virgil R. Miller becomes President of Aflac effective January 1, 2025, while Daniel P. Amos steps down as President but remains Chairman and CEO.

03—Questions

Frequently Asked Questions

Why did Aflac report a net loss in Q3 2024 when adjusted earnings grew?
The GAAP net loss of $93 million was driven by $1.4 billion of net investment losses, mainly from losses on certain derivatives and foreign currency activity as the yen strengthened about 12.9% in the quarter. Aflac's adjusted earnings exclude these net investment gains and losses, and they rose 10.6% to $1.2 billion, reflecting stronger operating performance, especially in Japan.
How did the two main segments perform?
Aflac Japan was strong: pretax adjusted earnings rose 25.5% in yen to ¥158.7 billion, with a 44.7% pretax margin, helped by lower benefits and remeasurement gains. Aflac U.S. was weaker: pretax adjusted earnings fell 26.8% to $350 million, with the margin dropping to 20.8%, due to lower remeasurement gains and higher incurred claims. Management expects the U.S. benefit ratio for the full year to be at the higher end of its 45% to 47% guidance range.
What does the leadership change mean for investors?
Virgil R. Miller will become President of Aflac on January 1, 2025, in addition to his role as President of Aflac U.S. Daniel P. Amos will give up the President title but remain Chairman and CEO, so day-to-day operating responsibility is consolidated under Miller. Miller's initial base salary is $825,000, with a 150% target bonus and a roughly $2.475 million performance-based equity award expected in February 2025. The filing does not indicate any change to Amos's position as CEO.
Is Aflac's dividend and capital return program at risk?
Not based on this filing. The board declared a $0.50 quarterly dividend payable December 2, 2024, and Aflac is extending its record of annual dividend increases to 42 consecutive years. Management cited a $500 million buyback in the quarter, $2.1 billion of holding-company liquidity above the minimum, and a solvency margin ratio above 1,100%. The company also said it will keep balancing growth investments against capital returns.
Why did adjusted leverage increase, and is it a concern?
Adjusted leverage rose to 21.0% from 18.8% a year earlier. Management said the increase reflects yen-driven movements in the value of roughly 60% of its debt, which is denominated in yen. Management described this as intentional and part of an enterprise hedging program that protects the dollar value of Aflac Japan, and it said the ratio remains within its 20% to 25% target range.

04—Continue

← View all 8-K filings