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COLUMBUS, Ga., April 26, 2023 /PRNewswire/ -- Aflac Incorporated (NYSE: AFL) today reported its first quarter results.
Total revenues were $4.8 billion in the first quarter of 2023, compared with $5.2 billion in the first quarter of 2022. Net earnings were $1.2 billion, or $1.94 per diluted share, compared with $1.0 billion, or $1.60 per diluted share a year ago.
Net earnings in the first quarter of 2023 included net investment gains of $123 million, or $0.20 per diluted share, compared with net investment gains of $122 million, or $0.19 per diluted share a year ago. These net investment gains were driven by net gains on certain derivatives and foreign currency activities of $99 million and $57 million of net gains from sales and redemptions, both of which were largely driven by changes in exchange rates. Net investment losses also included a $3 million loss from a decrease in the fair value of equity securities and a $30 million increase in the company's current expected credit losses (CECL) reserves and impairments.
Adjusted earnings* in the first quarter were $953 million, compared with $942 million in the first quarter of 2022, reflecting an increase of 1.2%. Adjusted earnings per diluted share* increased 7.6% to $1.55 in the quarter. Variable investment income ran $39 million, or $0.05 per share, below the company's long-term return expectations. The weaker yen/dollar exchange rate negatively impacted adjusted earnings per share by $0.07.
The average yen/dollar exchange rate in the first quarter of 2023 was 132.30, or 12.2% weaker than the average rate of 116.18 in the first quarter of 2022.
Total investments and cash at the end of March 2023 were $120.5 billion, compared with $132.6 billion at March 31, 2022. The decline in the carrying amount of the portfolio is principally driven by the weaker yen and higher interest rates.
Shareholders' equity was $19.8 billion, or $32.65 per share, at March 31, 2023, compared with $17.6 billion, or $27.21 per share, at March 31, 2022. Shareholders' equity at the end of the first quarter included a cumulative decrease of $4.9 billion for the effect of the change in discount rate assumptions on insurance reserves, driven by the adoption of the new accounting guidance for long-duration insurance contracts, compared with a corresponding cumulative decrease of $11.6 billion at March 31, 2022 and a net unrealized gain on investment securities and derivatives of $1.3 billion, compared with a net unrealized gain of $5.8 billion at March 31, 2022. Shareholders' equity at the end of the first quarter also included an unrealized foreign currency translation loss of $3.6 billion, compared with an unrealized foreign currency translation loss of $2.4 billion at March 31, 2022. The annualized return on average shareholders' equity in the first quarter was 23.8%.
Shareholders' equity excluding AOCI (or adjusted book value*) was $27.1 billion, or $44.66 per share at March 31, 2023, compared with $26.0 billion, or $40.31 per share, at March 31, 2022. The annualized adjusted return on equity excluding foreign currency impact* in the first quarter was 14.8%.
AFLAC JAPAN
In yen terms, Aflac Japan's net earned premiums were ¥287.0 billion for the quarter, or 5.9% lower than a year ago, mainly due to limited pay products reaching paid-up status and the implementation of our global reinsurance strategy. Adjusted net investment income increased 2.4% to ¥80.9 billion, mainly due to the impact of foreign exchange on dollar-denominated investments offset by higher hedge costs. Total adjusted revenues in yen declined 4.1% to ¥369.1 billion. Pretax adjusted earnings in yen for the quarter increased 3.2% on a reported basis to ¥104.3 billion, primarily due to lower benefits and expenses offset by decreased revenues during the quarter. Pretax adjusted earnings decreased 3.0% on a currency-neutral basis. The pretax adjusted profit margin for the Japan segment increased to 28.2%, compared with 26.2% a year ago.
In dollar terms, net earned premiums decreased 17.3% to $2.2 billion in the first quarter. Adjusted net investment income decreased 10.1% to $611 million. Total adjusted revenues declined by 15.8% to $2.8 billion. Pretax adjusted earnings declined 9.4% to $788 million.
For the quarter, total new annualized premium sales (sales) increased 10.8% to ¥13.2 billion, or $100 million, primarily reflecting the continued rollout of the new cancer product and refreshed first sector products.
AFLAC U.S.
Aflac U.S. net earned premiums rose 1.1% to $1.4 billion in the first quarter compared to the prior year. Adjusted net investment income increased 7.1% to $197 million, largely due to higher floating rate income. Total adjusted revenues were up 1.3% to $1.7 billion. Pretax adjusted earnings were $352 million, 5.7% higher than a year ago, primarily due to lower benefits and higher revenues offset by higher expenses. The pretax adjusted profit margin for the U.S. segment was 21.2%, compared with 20.3% a year ago.
Aflac U.S. sales increased 5.3% in the quarter to $315 million, reflecting continued improvement from investment in growth initiatives as well as productivity gains.
CORPORATE AND OTHER
For the quarter, total adjusted revenues increased 74.3% to $129 million compared to the prior year, primarily due to higher total premiums from our global reinsurance strategy and an increase in adjusted net investment income. Pretax adjusted earnings were a loss of $7 million, compared with a loss of $42 million a year ago, reflecting the increase in adjusted revenue, partially offset by higher other adjusted expenses, net benefits and claims.
DIVIDEND AND CAPITAL RETURNED TO SHAREHOLDERS
The board of directors declared the second quarter dividend of $0.42 per share, payable on June 1, 2023 to shareholders of record at the close of business on May 17, 2023.
In the first quarter, Aflac Incorporated deployed $700 million in capital to repurchase 10.3 million of its common shares. At the end of March 2023, the company had 106.3 million remaining shares authorized for repurchase.
OUTLOOK
Commenting on the company's results, Chairman and Chief Executive Officer Daniel P. Amos stated: "When taking a material weakening of the yen into account, Aflac delivered another quarter of solid earnings results, and the first quarter marked a good start to the year. As noted last quarter, we are actively focused on numerous initiatives in the U.S. and Japan around new products and distribution strategies that present challenges but also offer opportunities, while setting the stage for future growth.
"Looking at our operations in Japan, we are encouraged by the planned May reclassification of COVID-19 that will bring it to the same level as influenza as Japan emerges from the pandemic. I am pleased with the continued sales improvements, which reflect the ongoing rollout of our cancer insurance policy initially sold through associates and Daido Life, followed by Dai-ichi Life and financial institutions. I am also encouraged by the fact that Japan Post Company and Japan Post Insurance began selling our new cancer insurance product earlier this month. First quarter sales also reflected refreshed first sector product updates. We are focused on creating new customers through products like WAYS and Child Endowment to increase opportunities to sell our third sector products, including our cancer and medical products.
"In the U.S., while the first quarter tends to generate the lowest sales of the year, I am encouraged by the continued improvement in the productivity of our agents and brokers as well as contribution from the buildout of our acquired platforms, namely network dental and vision and group life and disability. We continue to work toward reinforcing our leading position and building our momentum.
"As always, we are committed to prudent liquidity and capital management. We continue to generate strong investment results while remaining in a defensive position as we monitor evolving economic conditions. In addition, we have taken proactive steps in recent years to defend cash flow and deployable capital against a weakening yen. We treasure our track record of dividend growth, highlighted by 2022 marking the 40th consecutive year of dividend increases. We remain committed to extending this track record, supported by the strength of our capital and cash flows. At the same time, we remain in the market repurchasing shares with a tactical approach, focused on the growth investments we have made in our platform to improve our strength and leadership position."
All relevant prior-year amounts have been adjusted for the adoption of accounting guidance on January 1, 2023 related to accounting for long-duration insurance contracts.
*See Non-U.S. GAAP Financial Measures section for an explanation of foreign exchange and its impact on the financial statements and definitions of the non-U.S. GAAP financial measures used in this earnings release, as well as a reconciliation of such non-U.S. GAAP financial measures to the most comparable U.S. GAAP financial measures.
ABOUT AFLAC INCORPORATED
Aflac Incorporated (NYSE: AFL), a Fortune 500 company, has helped provide financial protection and peace of mind for more than 67 years to millions of policyholders and customers through its subsidiaries in the U.S. and Japan. In the U.S., Aflac is the No. 1 provider of supplemental health insurance products.1 In Japan, Aflac Life Insurance Japan is the leading provider of cancer and medical insurance policies in force. In 2021, the company became a signatory of the Principles for Responsible Investment (PRI). In 2022, the company was included in the Dow Jones Sustainability North America Index for the ninth year, the World's Most Ethical Companies by Ethisphere for the 17th consecutive year, Fortune's World's Most Admired Companies for the 22nd time and Bloomberg's Gender-Equality Index for the fourth consecutive year. To find out how to get help with expenses health insurance doesn't cover, get to know us at aflac.com or aflac.com/espanol. Investors may learn more about Aflac Incorporated and its commitment to corporate social responsibility and sustainability at investors.aflac.com under "Sustainability."
1 LIMRA 2021 U.S. Supplemental Health Insurance Total Market Report
A copy of Aflac's financial supplement for the quarter can be found on the "Investors" page at aflac.com.
Aflac Incorporated will webcast its quarterly conference call via the "Investors" page of aflac.com at 8:00 a.m. (ET) on Thursday, April 27, 2023.
Note: Tables within this document may not foot due to rounding.
AFLAC INCORPORATED AND SUBSIDIARIES CONDENSED INCOME STATEMENT | ||||||
(UNAUDITED – IN MILLIONS, EXCEPT FOR SHARE AND PER-SHARE AMOUNTS) | ||||||
THREE MONTHS ENDED MARCH 31, | 2023 | 2022 | % Change | |||
Total revenues | $ 4,800 | $ 5,173 | (7.2) % | |||
Benefits and claims, net | 2,150 | 2,483 | (13.4) | |||
Total acquisition and operating expenses | 1,308 | 1,396 | (6.3) | |||
Earnings before income taxes | 1,342 | 1,294 | 3.7 | |||
Income taxes | 154 | 247 | ||||
Net earnings | $ 1,188 | $ 1,047 | 13.5 % | |||
Net earnings per share – basic | $ 1.94 | $ 1.61 | 20.5 % | |||
Net earnings per share – diluted | 1.94 | 1.60 | 21.3 | |||
Shares used to compute earnings per share (000): | ||||||
Basic | 611,205 | 649,753 | (5.9) % | |||
Diluted | 613,950 | 652,827 | (6.0) | |||
Dividends paid per share | $ 0.42 | $ 0.40 | 5.0 % |
All relevant prior-year amounts have been adjusted for the adoption of accounting guidance on January 1, 2023 related to accounting for long-duration |
AFLAC INCORPORATED AND SUBSIDIARIES CONDENSED BALANCE SHEET | ||||||
(UNAUDITED – IN MILLIONS, EXCEPT FOR SHARE AMOUNTS) | ||||||
MARCH 31, | 2023 | 2022 | % Change | |||
Assets: | ||||||
Total investments and cash | $ 120,500 | $ 132,599 | (9.1) % | |||
Deferred policy acquisition costs | 9,267 | 9,502 | (2.5) | |||
Other assets | 5,199 | 5,595 | (7.1) | |||
Total assets | $ 134,966 | $ 147,696 | (8.6) % | |||
Liabilities and shareholders' equity: | ||||||
Policy liabilities | $ 99,933 | $ 115,551 | (13.5) % | |||
Notes payable and lease obligations | 7,420 | 7,768 | (4.5) | |||
Other liabilities | 7,829 | 6,816 | 14.9 | |||
Shareholders' equity | 19,784 | 17,560 | 12.7 | |||
Total liabilities and shareholders' equity | $ 134,966 | $ 147,696 | (8.6) % | |||
Shares outstanding at end of period (000) | 605,952 | 645,349 | (6.1) % |
All relevant prior-year amounts have been adjusted for the adoption of accounting guidance on January 1, 2023 related to accounting for long-duration |
NON-U.S. GAAP FINANCIAL MEASURES
This document includes references to the Company's financial performance measures which are not calculated in accordance with United States generally accepted accounting principles (U.S. GAAP) (non-U.S. GAAP). The financial measures exclude items that the Company believes may obscure the underlying fundamentals and trends in insurance operations because they tend to be driven by general economic conditions and events or related to infrequent activities not directly associated with insurance operations.
Due to the size of Aflac Japan, where the functional currency is the Japanese yen, fluctuations in the yen/dollar exchange rate can have a significant effect on reported results. In periods when the yen weakens, translating yen into dollars results in fewer dollars being reported. When the yen strengthens, translating yen into dollars results in more dollars being reported. Consequently, yen weakening has the effect of suppressing current period results in relation to the comparable prior period, while yen strengthening has the effect of magnifying current period results in relation to the comparable prior period. A significant portion of the Company's business is conducted in yen and never converted into dollars but translated into dollars for U.S. GAAP reporting purposes, which results in foreign currency impact to earnings, cash flows and book value on a U.S. GAAP basis. Management evaluates the Company's financial performance both including and excluding the impact of foreign currency translation to monitor, respectively, cumulative currency impacts and the currency-neutral operating performance over time. The average yen/dollar exchange rate is based on the published MUFG Bank, Ltd. telegraphic transfer middle rate (TTM).
The company defines the non-U.S. GAAP financial measures included in this earnings release as follows:
RECONCILIATION OF NET EARNINGS TO ADJUSTED EARNINGS | ||||||
(UNAUDITED – IN MILLIONS, EXCEPT FOR PER-SHARE AMOUNTS) | ||||||
THREE MONTHS ENDED MARCH 31, | 2023 | 2022 | % Change | |||
Net earnings | $ 1,188 | $ 1,047 | 13.5 % | |||
Items impacting net earnings: | ||||||
Adjusted net investment (gains) losses | (209) | (134) | ||||
Other and non-recurring (income) loss | — | — | ||||
Income tax (benefit) expense on items excluded from adjusted earnings | (26) | 28 | ||||
Adjusted earnings | 953 | 942 | 1.2 % | |||
Current period foreign currency impact 1 | 41 | N/A | ||||
Adjusted earnings excluding current period foreign | $ 994 | $ 942 | 5.5 % | |||
Net earnings per diluted share | $ 1.94 | $ 1.60 | 21.3 % | |||
Items impacting net earnings: | ||||||
Adjusted net investment (gains) losses | (0.34) | (0.21) | ||||
Other and non-recurring (income) loss | — | — | ||||
Income tax (benefit) expense on items excluded from adjusted earnings | (0.04) | 0.04 | ||||
Adjusted earnings per diluted share | 1.55 | 1.44 | 7.6 % | |||
Current period foreign currency impact 1 | 0.07 | N/A | ||||
Adjusted earnings per diluted share excluding | $ 1.62 | $ 1.44 | 12.5 % |
All relevant prior-year amounts have been adjusted for the adoption of accounting guidance on January 1, 2023 related to accounting for long-duration insurance contracts. | |
1 | Prior period foreign currency impact reflected as "N/A" to isolate change for current period only. |
2 | Amounts excluding current period foreign currency impact are computed using the average foreign currency exchange rate for the comparable prior-year period, which eliminates fluctuations driven solely by foreign currency exchange rate changes. |
RECONCILIATION OF NET INVESTMENT (GAINS) LOSSES TO ADJUSTED NET INVESTMENT (GAINS) LOSSES | ||||||
(UNAUDITED – IN MILLIONS) | ||||||
THREE MONTHS ENDED MARCH 31, | 2023 | 2022 | % Change | |||
Net investment (gains) losses | $ (123) | $ (122) | 0.8 % | |||
Items impacting net investment (gains) losses: | ||||||
Amortized hedge costs | (58) | (26) | ||||
Amortized hedge income | 29 | 11 | ||||
Net interest cash flows from derivatives associated with certain investment strategies | (69) | (9) | ||||
Interest rate component of the change in fair value of foreign currency swaps on notes payable1 | 12 | 13 | ||||
Adjusted net investment (gains) losses | $ (209) | $ (134) | 56.0 % |
1 | Amounts are included with interest expenses that are a component of adjusted expenses. |
RECONCILIATION OF NET INVESTMENT INCOME TO ADJUSTED NET INVESTMENT INCOME | ||||||
(UNAUDITED – IN MILLIONS) | ||||||
THREE MONTHS ENDED MARCH 31, | 2023 | 2022 | % Change | |||
Net investment income | $ 943 | $ 903 | 4.4 % | |||
Items impacting net investment income: | ||||||
Amortized hedge costs | (58) | (26) | ||||
Amortized hedge income | 29 | 11 | ||||
Net interest cash flows from derivatives associated with certain investment strategies | (69) | (9) | ||||
Adjusted net investment income | $ 845 | $ 879 | (3.9) % |
RECONCILIATION OF U.S. GAAP BOOK VALUE TO ADJUSTED BOOK VALUE | ||||||
(UNAUDITED - IN MILLIONS, EXCEPT FOR SHARE AND PER-SHARE AMOUNTS) | ||||||
MARCH 31, | 2023 | 2022 | % Change | |||
U.S. GAAP book value | $ 19,784 | $ 17,561 | ||||
Less: | ||||||
Unrealized foreign currency translation gains (losses) | (3,618) | (2,437) | ||||
Unrealized gains (losses) on securities and derivatives | 1,263 | 5,758 | ||||
Effect of changes in discount rate assumptions | (4,894) | (11,608) | ||||
Pension liability adjustment | (29) | (163) | ||||
Total AOCI | (7,278) | (8,450) | ||||
Adjusted book value | $ 27,062 | $ 26,011 | ||||
Add: | ||||||
Unrealized foreign currency translation gains (losses) | (3,618) | (2,437) | ||||
Adjusted book value including unrealized foreign currency translation gains (losses) | $ 23,444 | $ 23,574 | ||||
Number of outstanding shares at end of period (000) | 605,952 | 645,349 | ||||
U.S. GAAP book value per common share | $ 32.65 | $ 27.21 | 20.0 % | |||
Less: | ||||||
Unrealized foreign currency translation gains (losses) per common share | (5.97) | (3.78) | ||||
Unrealized gains (losses) on securities and derivatives per common share | 2.08 | 8.92 | ||||
Effect of changes in discount rate assumptions per common share | (8.08) | (17.99) | ||||
Pension liability adjustment per common share | (0.05) | (0.25) | ||||
Total AOCI per common share | (12.01) | (13.09) | ||||
Adjusted book value per common share | $ 44.66 | $ 40.31 | 10.8 % | |||
Add: | ||||||
Unrealized foreign currency translation gains (losses) per common share | (5.97) | (3.78) | ||||
Adjusted book value including unrealized foreign currency translation gains (losses) per common share | $ 38.69 | $ 36.53 | 5.9 % |
All relevant prior-year amounts have been adjusted for the adoption of accounting guidance on January 1, 2023 related to accounting for long-duration insurance contracts. |
RECONCILIATION OF U.S. GAAP RETURN ON EQUITY (ROE) TO ADJUSTED ROE | ||||
(EXCLUDING IMPACT OF FOREIGN CURRENCY) | ||||
THREE MONTHS ENDED MARCH 31, | 2023 | 2022 | ||
U.S. GAAP ROE - Net earnings1 | 23.8 % | 24.2 % | ||
Impact of excluding unrealized foreign currency translation gains (losses) | (3.2) | (2.1) | ||
Impact of excluding unrealized gains (losses) on securities and derivatives | 0.2 | 7.2 | ||
Impact of excluding effect of changes in discount rate assumptions | (3.1) | (12.9) | ||
Impact of excluding pension liability adjustment | — | (0.2) | ||
Impact of excluding AOCI | (6.1) | (7.9) | ||
U.S. GAAP ROE - less AOCI | 17.7 | 16.3 | ||
Differences between adjusted earnings and net earnings2 | (3.5) | (1.6) | ||
Adjusted ROE - reported | 14.2 | 14.6 | ||
Less: Impact of foreign currency3 | (0.6) | N/A | ||
Adjusted ROE, excluding impact of foreign currency | 14.8 | 14.6 |
All relevant prior-year amounts have been adjusted for the adoption of accounting guidance on January 1, 2023 related to accounting for long-duration insurance contracts. | |
1 | U.S. GAAP ROE is calculated by dividing net earnings (annualized) by average shareholders' equity. |
2 | See separate reconciliation of net income to adjusted earnings. |
3 | Impact of foreign currency is calculated by restating all foreign currency components of the income statement to the weighted average foreign currency exchange rate for the comparable prior year period. The impact is the difference of the restated adjusted earnings compared to reported adjusted earnings. For comparative purposes, only current period income is restated using the weighted average prior period exchange rate, which eliminates the foreign currency impact for the current period. This allows for equal comparison of this financial measure. |
EFFECT OF FOREIGN CURRENCY ON ADJUSTED RESULTS1 | ||||
(SELECTED PERCENTAGE CHANGES, UNAUDITED) | ||||
THREE MONTHS ENDED MARCH 31, 2023 | Including Currency Changes | Excluding Currency Changes2 | ||
Net earned premiums3 | (9.6) % | (1.9) % | ||
Adjusted net investment income4 | (3.9) | 0.3 | ||
Total benefits and expenses | (10.8) | (3.0) | ||
Adjusted earnings | 1.2 | 5.5 | ||
Adjusted earnings per diluted share | 7.6 | 12.5 |
All relevant prior-year amounts have been adjusted for the adoption of accounting guidance on January 1, 2023 related to accounting for long-duration insurance contracts. | |
1 | Refer to previously defined adjusted earnings and adjusted earnings per diluted share. |
2 | Amounts excluding currency changes were determined using the same foreign currency exchange rate for the current period as the comparable period in the prior year, which eliminates dollar-based fluctuations driven solely from currency rate changes. |
3 | Net of reinsurance |
4 | Refer to previously defined adjusted net investment income. |
FORWARD-LOOKING INFORMATION
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. The company desires 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," "outlook" 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.
The company cautions 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:
Analyst and investor contact - David A. Young, 706.596.3264; 800.235.2667 or dyoung@aflac.com
Media contact - Ines Gutzmer, 762.207.7601 or igutzmer@aflac.com
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SOURCE Aflac Incorporated