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. (Logo:
http://www.newscom.com/cgi-bin/prnh/20090422/CL03654LOGO ) Analyst
and investor contact - Kenneth S. Janke Jr., 800.235.2667 - option
3, FAX: 706.324.6330, or Media contact - Laura Kane, 706.596.3493,
FAX: 706.320.2288, or
http://www.newscom.com/cgi-bin/prnh/20090422/CL03654LOGODATASOURCE:
Aflac Incorporated CONTACT: Analyst and investor contact - Kenneth
S. Janke Jr., 1-800-235-2667 - option 3, FAX: +1-706-324-6330, or ;
or Media contact - Laura Kane, +1-706-596-3493, FAX:
+1-706-320-2288, or Web Site: http://www.aflac.com/
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