COLUMBUS, Ga., July 29 /PRNewswire-FirstCall/ -- Aflac Incorporated today
reported its second quarter results.
Reflecting the benefit from a stronger yen/dollar exchange rate, but
higher realized investment losses, total revenues were basically flat at $4.3
billion during the second quarter of 2009, compared with a year ago. Net
earnings were $314 million, or $.67 per diluted share, compared with $483
million, or $1.00 per share, a year ago.
Net earnings in the second quarter of 2009 included after-tax realized
investment losses of $249 million, or $.53 per diluted share, compared with
realized investment losses of $1 million, or nil per share in the second
quarter of 2008. Of the realized investment losses in the second quarter of
2009, $104 million resulted from the impairment of Aflac's holdings in CIT,
which were sold at the impaired book value subsequent to the conclusion of the
second quarter. Two fixed-maturity securities of Kommunalkredit were also
impaired in the quarter, totaling $51 million. The company also realized $2
million of after-tax losses related to the impairment of certain
collateralized mortgage obligations and $1 million of realized investment
gains from other transactions. In addition, the company realized $93 million
of impairment losses on perpetual, or so-called "hybrid," securities of two
issuers. The impairment loss on the hybrid securities was determined using
the equity impairment method under generally accepted accounting principles
(GAAP) because their credit ratings are below investment grade. No impairment
charges will be recorded on a statutory accounting basis for these perpetual
securities because Aflac's credit analysis suggests that both issuers of the
perpetual securities that were impaired on a GAAP basis will be able to meet
their contractual obligations for payment.
We believe that an analysis of operating earnings, a non-GAAP financial
measure, is vitally important to an understanding of Aflac's underlying
profitability drivers. We define operating earnings as the profits we derive
from our operations before realized investment gains and losses, the impact
from SFAS 133, and nonrecurring items. Management uses operating earnings to
evaluate the financial performance of Aflac's insurance operations because
realized gains and losses, the impact from SFAS 133, and nonrecurring items
tend to be driven by general economic conditions and events, and therefore may
obscure the underlying fundamentals and trends in Aflac's insurance
operations.
Furthermore, because a significant portion of our business is in Japan,
where our functional currency is the Japanese yen, we believe it is equally
important to understand the impact on operating earnings from translating yen
into dollars. We translate Aflac Japan's yen-denominated income statement
from yen into dollars using an average exchange rate for the reporting period,
and we translate the balance sheet using the exchange rate at the end of the
period. However, except for a limited number of transactions, we do not
actually convert yen into dollars. As a result, we view foreign currency as a
financial reporting issue for Aflac and not as an economic event to our
company or shareholders. Because changes in exchange rates distort the growth
rates of our operations, we also encourage readers of our financial statements
to evaluate our financial performance excluding the impact of foreign currency
translation. The chart toward the end of this release presents a comparison
of selected income statement items with and without foreign currency changes
to illustrate the effect of currency.
Operating earnings in the second quarter were $562 million, compared with
$487 million in the second quarter of 2008. Operating earnings per diluted
share rose 18.8% to $1.20, compared with $1.01 a year ago. The stronger
yen/dollar exchange rate increased operating earnings per diluted share by
$.05 during the quarter. Excluding the impact from the stronger yen,
operating earnings per share increased 13.9%.
Results for the first six months of 2009 also benefited from the stronger
yen. Total revenues rose 6.1% to $9.1 billion, compared with $8.6 billion in
the first half of 2008. Reflecting higher realized investment losses, net
earnings were $882 million, or $1.89 per diluted share, compared with $957
million, or $1.98 per share, for the first six months of 2008. Operating
earnings for the first six months of 2009 were $1.1 billion, or $2.42 per
diluted share, compared with $962 million, or $1.99 per share, in 2008.
Excluding the benefit of $.14 per share from the stronger yen, operating
earnings per diluted share rose 14.6% for the first six months of 2009.
Total investments and cash at the end of June were $65.6 billion, compared
with $61.7 billion at March 31, 2009. The increase in total investments
and cash reflected improvement in the fair values of the company's
investments, compared with invested asset values at the end of the first
quarter. In addition, the fair values of the company's investments at the end
of June also benefited from a stronger end-of-period yen/dollar exchange rate,
compared with March 31, 2009. Gross unrealized losses on investment
securities classified as available for sale were $4.9 billion at June 30,
2009, compared with $5.9 billion at March 31, 2009.
Shareholders' equity was $6.4 billion at June 30, 2009, compared with $5.2
billion at March 31, 2009. Shareholders' equity at June 30, 2009, included a
net unrealized loss on investment securities of $2.1 billion, compared with a
net unrealized loss of $3.0 billion at the end of March 2009. Shareholders'
equity per share was $13.58 at the end of the second quarter of 2009, compared
with $11.12 per share at the end of the first quarter of 2009. The annualized
return on average shareholders' equity in the second quarter was 21.7%. On an
operating basis (excluding realized investment losses, and the impact of SFAS
133 from net earnings and unrealized investment gains/losses in shareholders'
equity), the annualized return on average shareholders' equity was 27.0% for
the second quarter of 2009.
AFLAC JAPAN
In the second quarter, Aflac Japan's total revenues in yen were up 2.5%.
Premium income in yen rose 3.1%, and net investment income declined .2%.
Investment income growth in yen terms was suppressed by the stronger
yen/dollar exchange rate because approximately 34% of Aflac Japan's second
quarter investment income was dollar-denominated. Excluding the impact of the
stronger yen, net investment income was up 2.3% in the quarter. Due to
continued improvement in the benefit ratio, the pretax operating profit margin
expanded from 18.2% to 19.7%. As a result, pretax operating earnings in yen
increased 10.7%. For the first six months, premium income in yen increased
3.3%, and net investment income was up .2%. Total revenues were up 2.9%, and
pretax operating earnings grew 10.0%.
The average yen/dollar exchange rate in the second quarter of 2009 was
97.53, or 7.1% stronger than the average rate of 104.50 in the second quarter
of 2008. For the first six months, the average exchange rate was 95.44, or
9.8% stronger than the rate of 104.77 a year ago. Aflac Japan's growth rates
in dollar terms for both the second quarter and first six months were
magnified as a result of the stronger average yen/dollar exchange rates.
Reflecting the stronger yen, premium income in dollars rose 10.7% to $2.9
billion in the second quarter. Net investment income was up 7.2% to $544
million. Total revenues increased 10.1% to $3.5 billion. Pretax operating
earnings advanced 18.6% to $679 million. For the first six months, premium
income was $5.9 billion, or 13.6% higher than a year ago. Net investment
income rose 10.0% to $1.1 billion. Total revenues were up 13.1% to $7.0
billion. Pretax operating earnings were $1.4 billion, or 20.7% higher than a
year ago.
Aflac Japan's total new annualized premium sales increased 5.0% to 30.1
billion, or $309 million in the second quarter. For the first six months,
total new premium sales were up 2.3% to 57.6 billion, or $602 million. The
increase in second quarter sales primarily reflected the favorable consumer
response to a recently introduced insurance product. Due to the strong
initial sales of our new child endowment product, ordinary life insurance
sales rose 38.7% in the second quarter. In addition, sales through the bank
channel continued to improve. In the second quarter, bank channel sales rose
106.4%, compared with a year ago, to a record 1.4 billion. Bank channel
sales were 39.0% higher than the first quarter of 2009.
AFLAC U.S.
Aflac U.S. total revenues rose 2.7% to $1.2 billion in the second quarter.
Premium income increased 2.8% to $1.1 billion, and net investment income was
up 1.8% to $127 million. Pretax operating earnings were $198 million, an
increase of 4.0%. For the first six months, total revenues were up 3.7% to
$2.5 billion. Premium income rose 3.9% to $2.2 billion. Net investment
income increased 1.6% to $252 million. Pretax operating earnings rose 5.6% to
$402 million.
Very weak economic conditions in the United States continued to influence
total new annualized premium sales. In the second quarter, total new sales
declined 10.9% to $341 million. For the six months, total new sales were $692
million, or 6.0% lower than a year ago. Like the first quarter however,
growth of new payroll accounts remained solid. Newly established payroll
accounts rose 9.6% in the second quarter. In addition, new agent recruitment
also remained strong. Newly recruited agents increased 14.9% during the
second quarter to more than 7,800.
PURCHASE OF CONTINENTAL AMERICAN INSURANCE COMPANY
Today Aflac also announced its planned acquisition of Continental American
Insurance Company (CAIC) for $100 million. The purchase will be funded with
internal capital, and the transaction is expected to close in the fourth
quarter of 2009. CAIC, which is currently privately owned and headquartered
in Columbia, South Carolina, specializes in offering voluntary group insurance
products that are distributed by insurance brokers at the worksite. CAIC is
rated A- (Excellent) by A.M. Best. Based on statutory accounting statements
filed with the state insurance departments, CAIC produced total revenues of
$79 million and net income of $7 million in 2008. At the end of 2008, CAIC's
admitted assets were $104 million and capital and surplus was $33 million.
After anticipated integration expenses, the company expects the purchase to be
modestly accretive to 2010 consolidated earnings.
DIVIDEND
The board of directors declared the third quarter cash dividend. The
third quarter dividend of $.28 per share is payable on September 1, 2009, to
shareholders of record at the close of business on August 19, 2009.
OUTLOOK
Commenting on the company's second quarter results, Chairman and Chief
Executive Officer Daniel P. Amos stated: "Despite the very challenging global
economic environment, I continue to be pleased with our overall financial
performance so far this year. Operating earnings per diluted share remain
consistent with our expectations and annual objective for 2009. Net earnings
again reflected larger-than-usual realized investment losses. However, our
strong financial position and capital generation enabled us to absorb these
losses, while still maintaining a strong risk-based capital ratio. Although
our statutory financial statements for the first half of the year are not yet
final, we estimate that our risk-based capital ratio was 459% at June 30,
2009, compared with 479% at the end of March.
"Reflecting the ongoing uncertainly of the global economy, our overall
sales outlook for this year remains cautious. Yet based on our year-to-date
sales results in Japan, we believe we are still positioned to achieve Aflac
Japan's objective for sales to be flat to up 5% for the full year. With sales
down in the United States for the first half of the year, it is unlikely that
Aflac U.S. will generate positive sales growth in 2009. However, we remain
encouraged about our long-term sales opportunities in both markets. We are
convinced the underlying need for our products in Japan and the United States
remains strong. At the same time, we are confident in our business model.
"In fact, our strong belief in Aflac's business model is what led us to
invest in our U.S. operation. While Continental American Insurance Company is
small from a financial perspective, we believe it brings distinct value and
potential to Aflac U.S. Aflac will gain access to an attractive portfolio of
voluntary group worksite products that complement the individually issued
insurance products we have sold at worksites for more than 50 years.
Acquiring the capabilities to develop, price and administer voluntary group
products will also help us better advance our insurance broker distribution
initiative, while at the same time, continuing to meet the needs of our
rapidly growing sales force of individual sales associates.
"Our objective for 2009 remains an increase of 13% to 15% in operating
earnings per diluted share, excluding the impact of foreign currency. An
increase of 13% in operating earnings per diluted share would equal $4.51 in
2009, assuming 2008's average yen/dollar exchange rate of 103.46. If the yen
averages 95 to 100 for the full year, we would expect reported earnings to be
in the range of $4.59 to $4.73 per diluted share. Using that same exchange
rate assumption, we would expect third quarter operating earnings to be $1.19
to $1.22 per diluted share. For 2010, our objective remains a 9% to 12%
increase in operating earnings per diluted share before the impact of the
yen/dollar exchange rate."
For more than 50 years, Aflac products have given policyholders the
opportunity to direct cash where it is needed most when a life-interrupting
medical event causes financial challenges. As the number one provider of
guaranteed-renewable insurance in the United States and the number one
insurance company in terms of individual insurance policies in force in Japan,
Aflac insurance products provide protection to more than 40 million people
worldwide. Aflac has been recognized by Ethisphere magazine as one of the
World's Most Ethical Companies for three consecutive years and was also named
by the Reputation Institute as the Most Reputable Company in the Global
Insurance Industry for two consecutive years. In 2009 Fortune magazine
recognized Aflac as one of the 100 Best Companies to Work For in America for
the eleventh consecutive year. Fortune magazine also ranked Aflac No. 1 on its
global list of the Most Admired Companies in the Life and Health Insurance
category. Aflac appears on Hispanic Enterprise magazine's list of the 50 Best
Companies for Supplier Diversity and on Black Enterprise magazine's list of
the 40 Best Companies for Diversity. Aflac was also named by Forbes magazine
as America's Best-Managed Company in the Insurance category. Aflac
Incorporated is a Fortune 500 company listed on the New York Stock Exchange
under the symbol AFL. To find out more about Aflac, visit aflac.com.
A copy of Aflac's Financial Analysts Briefing (FAB) supplement for the
second quarter of 2009 can be found on the "Investors" page at aflac.com,
along with a complete listing of Aflac's investment holdings in the financial
sector and a separate listing of the company's investments in perpetual
securities.
Aflac Incorporated will webcast its second quarter conference call on the
"Investors" page of aflac.com at 9:00 a.m. (EDT) on Thursday, July 30, 2009.
AFLAC INCORPORATED AND SUBSIDIARIES CONDENSED INCOME STATEMENT
--------------------------------------------------------------
(UNAUDITED - IN MILLIONS, EXCEPT FOR SHARE AND PER-SHARE AMOUNTS)
THREE MONTHS ENDED JUNE 30, 2009 2008 % Change
---- ---- --------
Total revenues....................... $4,313 $4,336 (.5)%
Benefits and claims.................. 2,723 2,575 5.8
Total acquisition and operating
expenses............................ 1,117 1,021 9.3
Earnings before income taxes......... 473 740 (36.1)
Income taxes......................... 159 257
Net earnings......................... $314 $483 (35.1)%
Net earnings per share - basic....... $.67 $1.02 (34.3)%
Net earnings per share - diluted..... .67 1.00 (33.0)
Shares used to compute earnings
per share (000):
Basic........................... 466,401 474,383 (1.7)%
Diluted......................... 468,285 480,828 (2.6)
Dividends paid per share............. $.28 $.24 16.7%
AFLAC INCORPORATED AND SUBSIDIARIES CONDENSED INCOME STATEMENT
--------------------------------------------------------------
(UNAUDITED - IN MILLIONS, EXCEPT FOR SHARE AND PER-SHARE AMOUNTS)
SIX MONTHS ENDED JUNE 30, 2009 2008 % Change
---- ---- --------
Total revenues....................... $9,131 $8,603 6.1%
Benefits and claims.................. 5,534 5,113 8.2
Total acquisition and operating
expenses............................ 2,253 2,024 11.3
Earnings before income taxes......... 1,344 1,466 (8.3)
Income taxes......................... 462 509
Net earnings......................... $882 $957 (7.8)%
Net earnings per share - basic....... $1.89 $2.01 (6.0)%
Net earnings per share - diluted..... 1.89 1.98 (4.5)
Shares used to compute earnings
per share (000):
Basic........................... 466,249 476,261 (2.1)%
Diluted......................... 467,709 482,623 (3.1)
Dividends paid per share............. $.56 $.48 16.7%
AFLAC INCORPORATED AND SUBSIDIARIES CONDENSED BALANCE SHEET
-----------------------------------------------------------
(UNAUDITED - IN MILLIONS, EXCEPT FOR SHARE AMOUNTS)
JUNE 30, 2009 2008 % Change
---- ---- --------
Assets:
Total investments and cash........... $65,572 $60,892 7.7%
Deferred policy acquisition costs.... 8,089 7,194 12.4
Other assets......................... 2,380 2,466 (3.5)
Total assets....................... $76,041 $70,552 7.8%
Liabilities and shareholders' equity:
Policy liabilities................... $64,795 $55,881 16.0%
Notes payable........................ 1,992 1,539 29.5
Other liabilities.................... 2,904 5,233 (44.5)
Shareholders' equity................. 6,350 7,899 (19.6)
Total liabilities and shareholders'
equity.............................. $76,041 $70,552 7.8%
Shares outstanding at end of
period (000)........................ 467,484 476,027 (1.8)%
RECONCILIATION OF OPERATING EARNINGS TO NET EARNINGS
----------------------------------------------------
(UNAUDITED - IN MILLIONS, EXCEPT FOR PER-SHARE AMOUNTS)
THREE MONTHS ENDED JUNE 30, 2009 2008 % Change
---- ---- --------
Operating earnings..................... $562 $487 15.3%
Reconciling items, net of tax:
Realized investment gains (losses)... (249) (1)
Impact from SFAS 133................. - (3)
Extinguishment of debt............... 1 -
Net earnings........................... $314 $483 (35.1)%
Operating earnings per diluted share... $1.20 $1.01 18.8%
Reconciling items, net of tax:
Realized investment gains (losses)... (.53) -
Impact from SFAS 133................. - (.01)
Extinguishment of debt............... - -
Net earnings per diluted share......... $.67 $1.00 (33.0)%
RECONCILIATION OF OPERATING EARNINGS TO NET EARNINGS
----------------------------------------------------
(UNAUDITED - IN MILLIONS, EXCEPT FOR PER-SHARE AMOUNTS)
SIX MONTHS ENDED JUNE 30, 2009 2008 % Change
---- ---- --------
Operating earnings..................... $1,129 $962 17.4%
Reconciling items, net of tax:
Realized investment gains (losses)... (255) (5)
Impact from SFAS 133................. (3) -
Extinguishment of debt............... 11 -
Net earnings........................... $882 $957 (7.8)%
Operating earnings per diluted share... $2.42 $1.99 21.6%
Reconciling items, net of tax:
Realized investment gains (losses)... (.54) (.01)
Impact from SFAS 133................. (.01) -
Extinguishment of debt............... .02 -
Net earnings per diluted share......... $1.89 $1.98 (4.5)%
EFFECT OF FOREIGN CURRENCY ON OPERATING RESULTS(1)
--------------------------------------------------
(SELECTED PERCENTAGE CHANGES, UNAUDITED)
THREE MONTHS ENDED JUNE 30, 2009 Including Excluding
Currency Currency
Changes Changes(2)
------- -------
Premium income......................... 8.4% 3.0%
Net investment income.................. 5.0 1.1
Total benefits and expenses............ 6.8 1.5
Operating earnings..................... 15.3 10.5
Operating earnings per diluted share... 18.8 13.9
(1) The numbers in this table are presented on an operating basis, as
previously described.
(2) Amounts excluding currency changes were determined using the same
yen/dollar exchange rate for the current period as the comparable
period in the prior year.
EFFECT OF FOREIGN CURRENCY ON OPERATING RESULTS(1)
--------------------------------------------------
(SELECTED PERCENTAGE CHANGES, UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2009 Including Excluding
Currency Currency
Changes Changes(2)
------- -------
Premium income......................... 10.8% 3.6%
Net investment income.................. 7.3 2.1
Total benefits and expenses............ 9.1 2.0
Operating earnings..................... 17.4 10.7
Operating earnings per diluted share... 21.6 14.6
(1) The numbers in this table are presented on an operating basis, as
previously described.
(2) Amounts excluding currency changes were determined using the same
yen/dollar exchange rate for the current period as the comparable
period in the prior year.
2009 OPERATING EARNINGS PER SHARE SCENARIOS
-------------------------------------------
Average Annual
Exchange Operating % Growth Yen
Rate EPS Over 2008 Impact
85 $5.04 - 5.12 26.3 - 28.3% $.53
90 4.87 - 4.96 22.1 - 24.3 .37
95 4.73 - 4.81 18.5 - 20.6 .22
100 4.59 - 4.68 15.0 - 17.3 .09
103.46* 4.51 - 4.59 13.0 - 15.0 -
105 4.47 - 4.55 12.0 - 14.0 (.04)
110 4.37 - 4.44 9.5 - 11.3 (.15)
*Actual 2008 weighted-average exchange rate
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" to encourage companies to provide prospective information, so long as
those informational statements are identified as forward-looking and are
accompanied by meaningful cautionary statements identifying important factors
that could cause actual results to differ materially from those included in
the forward-looking statements. We desire to take advantage of these
provisions. This document contains cautionary statements identifying important
factors that could cause actual results to differ materially from those
projected herein, and in any other statements made by company officials in
communications with the financial community and contained in documents filed
with the Securities and Exchange Commission (SEC).
Forward-looking statements are not based on historical information and
relate to future operations, strategies, financial results or other
developments. Furthermore, forward-looking information is subject to numerous
assumptions, risks and uncertainties. In particular, statements containing
words such as "expect," "anticipate," "believe," "goal," "objective," "may,"
"should," "estimate," "intends," "projects," "will," "assumes," "potential,"
"target" or similar words as well as specific projections of future results,
generally qualify as forward-looking. Aflac undertakes no obligation to update
such forward-looking statements. We caution readers that the following
factors, in addition to other factors mentioned from time to time, could cause
actual results to differ materially from those contemplated by the
forward-looking statements: difficult conditions in global capital markets and
the economy generally; governmental actions for the purpose of stabilizing the
financial markets; defaults and downgrades in certain securities in our
investment portfolio; impairment of financial institutions; credit and other
risks associated with Aflac's investment in perpetual securities; differing
judgments applied to investment valuations; subjective determinations of
amount of impairments taken on our investments; realization of unrealized
losses; limited availability of acceptable yen-denominated investments;
concentration of our investments in any particular sector; concentration of
business in Japan; ongoing changes in our industry; exposure to significant
financial and capital markets risk; fluctuations in foreign currency exchange
rates; significant changes in investment yield rates; deviations in actual
experience from pricing and reserving assumptions; subsidiaries' ability to
pay dividends to the Parent Company; changes in regulation by governmental
authorities; ability to attract and retain qualified sales associates and
employees; ability to continue to develop and implement improvements in
information technology systems; changes in U.S. and/or Japanese accounting
standards; decreases in our financial strength or debt ratings; level and
outcome of litigation; ability to effectively manage key executive succession;
catastrophic events; and failure of internal controls or corporate governance
policies and procedures.
Analyst and investor contact - Kenneth S. Janke Jr., 800.235.2667 - option
3, FAX: 706.324.6330, or kjanke@aflac.com
Media contact - Laura Kane, 706.596.3493, FAX: 706.320.2288, or
lkane@aflac.com
SOURCE: Aflac Incorporated
Web Site:
http://www.aflac.com