COLUMBUS, Ga., April 29 /PRNewswire-FirstCall/ -- Aflac
Incorporated today reported its first quarter results. Total
revenues, which benefited from a stronger average yen/dollar
exchange rate than a year ago, rose 12.9% to $4.8 billion, compared
with $4.3 billion in the first quarter of 2008. Net earnings were
$569 million, or $1.22 per diluted share, compared with $474
million, or $.98 per share, a year ago. Net earnings in the first
quarter of 2009 included net realized investment losses of $6
million, or $.01 per diluted share, which reflected both after-tax
realized investment gains and losses, compared with net realized
losses in the first quarter of 2008 of $4 million, or $.01 per
diluted share. Realized after-tax investment gains in the first
quarter of 2009 of $146 million were generated to offset previously
incurred investment losses for federal tax purposes. Realized
after-tax investment losses in the first quarter of 2009 were $152
million. Of the realized investment losses in the first quarter of
2009, approximately $74 million resulted from the impairment of
certain collateralized debt obligations and $32 million was due to
the impairment of the corporate bonds of two issuers: Security
Benefit Life and Ford Motor Co. The company also realized $4
million of after-tax losses related to the impairment of certain
collateralized mortgage obligations. In addition, the company
realized $42 million of impairment losses on perpetual, or
so-called "hybrid," securities of two issuers because their credit
ratings were lowered to below investment grade in the first quarter
of 2009. The company has and will continue to follow the Securities
and Exchange Commission's (SEC) guidance contained in its letter
dated October 14, 2008, regarding perpetual securities until the
Financial Accounting Standards Board (FASB) addresses the issue of
whether a debt or equity method is most appropriate when evaluating
perpetual securities for other-than-temporary-impairment charges
under generally accepted accounting principles (GAAP). In
accordance with this guidance, the company evaluates its holdings
of perpetual securities using a debt impairment method unless the
security is downgraded to below investment grade, in which case the
SEC guidance requires the company to use an equity impairment
method. The debt impairment approach addresses the security
issuer's ability to pay interest and redeem principal on a timely
basis, whereas the equity impairment approach is based on an aging
schedule of unrealized losses. For evaluating perpetual securities
on a statutory accounting basis, the company continues to use the
debt impairment approach as required under statutory accounting
principles. The company'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 of interest and principal. As a result, no impairment
charges will be recorded on a statutory accounting basis for these
perpetual securities. The impact on net earnings from the change in
fair value of the interest rate component of the cross-currency
swaps related to the company's senior notes, as required by SFAS
133, decreased net earnings by $3 million, or $.01 per diluted
share in the first quarter of 2009. The impact from SFAS 133
increased net earnings by $3 million, or $.01 per diluted share in
the first quarter of 2008. Net earnings in the first quarter of
2009 benefited from a gain of $10 million, or $.02 per diluted
share from the extinguishment of parent company debt. 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 first quarter of 2009 were $568 million,
compared with $475 million in the first quarter of 2008. Operating
earnings per diluted share rose 24.5% to $1.22, compared with $.98
per share a year ago. The stronger yen/dollar exchange rate
increased operating earnings per diluted share by $.09 for the
first quarter. Excluding the benefit from the stronger yen,
operating earnings per diluted share rose 15.3% in the first
quarter. The company early adopted the FASB Staff Positions on SFAS
157-4 and SFAS 115-2 in the first quarter. SFAS 157-4 addresses
fair value measurements of assets, whereas SFAS 115-2 speaks to the
determination and recognition of other-than-temporary impairments.
The fair values of the company's investments were not materially
affected by the adoption of the staff position on SFAS 157-4. Total
investments and cash at the end of March were $61.7 billion, or
1.7% lower than a year ago. The decrease in total investments and
cash reflected the impact of the global widening of credit spreads
on the company's long-duration portfolio, which produced lower fair
values for debt securities that are classified as available for
sale on the balance sheet. Gross unrealized losses on investment
securities classified as available for sale were $5.9 billion at
March 31, 2009, compared with $4.1 billion at December 31, 2008,
and $1.9 billion a year ago. Shareholders' equity was $5.2 billion
at March 31, 2009, compared with $6.6 billion at December 31, 2008.
Shareholders' equity at March 31, 2009, included a net unrealized
loss on investment securities of $3.0 billion, which primarily
resulted from the previously mentioned widening of credit spreads,
compared with a net unrealized loss of $1.2 billion at December 31,
2008. The annualized return on average shareholders' equity in the
first quarter was 38.4%. On an operating basis (excluding realized
investment losses, the impact of SFAS 133 and the gain from the
extinguishment of debt from net earnings and unrealized investment
gains/losses in shareholders' equity), the annualized return on
average shareholders' equity was 28.3% for the first quarter of
2009. On April 15, 2009, Aflac Incorporated used internally
generated cash flow to repay its $450 million senior notes and
settle the related cross-currency, interest rate swaps that were
used to convert the original dollar-denominated debt obligation
into yen. The funds were transferred through a loan from the
company's principal life insurance subsidiary, American Family Life
Assurance Company of Columbus, to Aflac Incorporated. The loan is
an admitted asset on the insurance subsidiary's books under
statutory accounting principles; and therefore, does not negatively
impact the insurance company's risk-based capital ratio (RBC). This
note has an annual interest rate of 7.13% and a term of three years
with a provision for early repayment. The three-year term provides
flexibility in accessing the external debt markets when conditions
and interest costs improve. AFLAC JAPAN Aflac Japan premium income
in yen rose 3.6% in the first quarter. Net investment income
increased .5%. Investment income growth in yen terms was lowered by
the stronger yen/dollar exchange rate because approximately 34% of
Aflac Japan's first quarter investment income was
dollar-denominated. Total revenues were up 3.3%. The benefit ratio
continued to improve and the operating expense ratio was slightly
lower than a year ago. As a result, the pretax operating profit
margin expanded from 18.0% to 19.0%, and pretax operating earnings
in yen increased 9.3%. The average yen/dollar exchange rate in the
first quarter of 2009 was 93.37, compared with an average rate of
105.06 in the first quarter of 2008. Aflac Japan's growth rates in
dollar terms were enhanced as a result of the 12.5% strengthening
of the average exchange rate during the quarter. Premium income
growth in dollar terms benefited from the stronger yen in the first
quarter and rose 16.5% to $3.0 billion. Net investment income was
up 12.9% to $560 million. Total revenues increased 16.2% to $3.6
billion. Pretax operating earnings were $681 million, or 22.9%
higher than a year ago. Aflac Japan sales declined .4% in the first
quarter to 27.5 billion yen, or $293 million. Cancer insurance
sales were solid, rising 7.4% and accounting for 34.3% of total new
sales in the first quarter. The increase in cancer insurance sales
primarily benefited from efforts to upgrade the coverage of
existing policyholders to the benefit levels of Aflac Japan's
newest cancer insurance product. Bank channel sales increased
265.6% to 1.0 billion yen in the first quarter, reflecting
favorable comparisons to a year ago when bank channel sales began.
On a sequential basis, bank channel sales rose 5.2% over the fourth
quarter of 2008. At the end of March 2009, Aflac Japan's products
were available to customers of 250 banks. Aflac Japan's objective
for the full year is for sales to be flat to up 5% in yen terms.
AFLAC U.S. Aflac U.S. premium income increased 5.0% to $1.1 billion
in the first quarter. Net investment income increased 1.4% to $125
million. Total revenues rose 4.7% to $1.2 billion. Pretax operating
earnings were up 7.2% to $204 million. Weak economic conditions
continued to challenge Aflac's sales results in the United States.
Total new annualized premium sales in the first quarter were down
.6% to $351 million. Sales benefited from six additional production
days in the first quarter. Without the additional days, sales would
have been down approximately 6.5%. However, many sales indicators
remained positive in the quarter. Newly established payroll
accounts were up 9.9% over a year ago, suggesting Aflac's brand
message and business-to-business efforts are reaching employers
around the country. In addition, the Aflac U.S. distribution system
expanded through new agent recruitment. During the first quarter,
recruitment of 8,100 new sales associates was 25.0% higher than the
first quarter of 2008. Importantly, the number of average weekly
producing sales associates rose 2.4% in the first quarter to more
than 11,100. Like Aflac Japan, the objective for Aflac U.S. is for
sales to be flat to up 5% for the full year. DIVIDEND The board of
directors declared the second quarter cash dividend of $.28 per
share. The second quarter dividend is payable on June 1, 2009, to
shareholders of record at the close of business on May 20, 2009.
OUTLOOK Commenting on the company's first quarter results, Chairman
and Chief Executive Officer Daniel P. Amos stated: "The weakened
economies in Japan and the United States continued to pose
challenges for the sale of our products. However, we still sold
more than 1.2 million policies during the first three months of
this year, which generated more than $643 million of new annualized
premiums. We are confident in our business model and remain
convinced that the underlying need for our products in both
countries is strong. We also believe we are well-positioned to meet
consumers' needs. "From a financial perspective, I am pleased with
our start in 2009. Operating earnings per diluted share were
consistent with our expectations and annual goal for 2009. Although
net earnings reflected realized investment losses, those losses
were manageable. Our ability to absorb the investment losses is a
direct reflection of our capital position and the strength of our
operation in terms of earnings and cash flow. We remain very
focused on maintaining a strong capital position, especially on a
regulatory basis. Although we have not yet finalized our statutory
financial statements, we estimate that our risk-based capital ratio
was 479% at March 31, 2009. "As we assessed the changes to SFAS 157
and 115, we concluded we were in a good position to adopt the
revised standards in the first quarter. Our investment portfolio's
focus on a fairly limited number of asset classes gave us
confidence we will meet the increased disclosure requirements by
the time our first quarter Form 10-Q is filed with the SEC.
Although the pricing of our investments was not materially affected
by the new provisions of SFAS 157, we believe the changes to SFAS
115 support the notion of taking a longer view on the recovery of
the fair value of an investment, which is consistent with the
long-duration nature of our business. "I continue to believe our
overall investment approach of matching our long-duration,
yen-denominated liabilities with securities of comparable
characteristics is the most appropriate and prudent approach for us
to take. Because our liability requirements have not changed, we do
not intend to change our investment discipline. We will continue to
purchase long-duration, investment grade, fixed-maturity securities
when investing our sizeable investment cash flows. Although we have
seen a global and significant downward move in credit ratings, 95%
of our total debt investments and perpetual securities were rated
investment grade at the end of the first quarter. "Our sales
outlook for this year remains cautious due to global economic
uncertainty. At this point in the year, we continue to view flat
sales to a 5% increase in both Japan and the United States as
reasonable targets for 2009. However, we recognize that continued
or further economic weakness would likely result in a need to
revisit those targets. "We also continue to believe our 2009
objective for operating earnings per share growth is reasonable and
achievable. However, at this point in the year, it appears unlikely
that we will repurchase any of our shares in 2009. As a result, we
would expect operating earnings per diluted share to grow at the
low end of our 13% to 15% target range this year, assuming the same
average exchange rate as last year. 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 100 to 105 for the full year, we would expect reported
earnings to be in the range of $4.47 to $4.59 per diluted share.
Using that same exchange rate assumption, we would expect second
quarter operating earnings to be $1.11 to $1.14 per diluted share."
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 Respected Company in
the Global Insurance Industry in 2008. 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 first quarter of 2009 can be
found on the "Investors" page at aflac.com. In addition, the
company has added a complete listing of its investment holdings in
the financial sector. This list, along with a separate listing of
the company's perpetual securities, can also be found on the
"Investors" page of aflac.com. Aflac Incorporated will webcast its
first quarter conference call on the "Investors" page of aflac.com
at 9:00 a.m. (EDT) on Thursday, April 30. AFLAC INCORPORATED AND
SUBSIDIARIES CONDENSED INCOME STATEMENT
--------------------------------------------------------------
(UNAUDITED - IN MILLIONS, EXCEPT FOR SHARE AND PER-SHARE AMOUNTS)
THREE MONTHS ENDED MARCH 31, 2009 2008 % Change ---- ---- --------
Total revenues.......................... $4,818 $4,267 12.9%
Benefits and claims..................... 2,811 2,538 10.7 Total
acquisition and operating expenses...............................
1,136 1,003 13.3 Earnings before income taxes............ 871 726
20.0 Income taxes............................ 302 252 Net
earnings............................ $569 $474 20.0% Net earnings
per share - basic.......... $1.22 $.99 23.2% Net earnings per share
- diluted........ 1.22 .98 24.5 Shares used to compute earnings per
share (000): Basic............................... 466,097 478,138
(2.5)% Diluted............................. 467,132 484,417 (3.6)
Dividends paid per share................ $.28 $.24 16.7% AFLAC
INCORPORATED AND SUBSIDIARIES CONDENSED BALANCE SHEET
--------------------------------------------------------------
(UNAUDITED - IN MILLIONS, EXCEPT FOR SHARE AMOUNTS) MARCH 31, 2009
2008 % Change ---- ---- -------- Assets: Total investments and
cash............. $61,729 $62,788 (1.7)% Deferred policy
acquisition costs...... 7,887 7,354 7.3 Other
assets........................... 2,199 2,127 3.4 Total
assets......................... $71,815 $72,269 (.6)% Liabilities
and shareholders' equity: Policy liabilities.....................
$62,664 $57,796 8.4% Notes payable.......................... 1,573
1,606 (2.1) Other liabilities...................... 2,379 4,733
(49.7) Shareholders' equity................... 5,199 8,134 (36.1)
Total liabilities and shareholders'
equity.............................. $71,815 $72,269 (.6)% Shares
outstanding at end of period (000).................................
467,424 475,091 (1.6)% RECONCILIATION OF OPERATING EARNINGS TO NET
EARNINGS ----------------------------------------------------
(UNAUDITED - IN MILLIONS, EXCEPT FOR PER-SHARE AMOUNTS) THREE
MONTHS ENDED MARCH 31, 2009 2008 % Change ------ ------ --------
Operating earnings...................... $568 $475 19.6%
Reconciling items, net of tax: Realized investment gains
(losses).... (6) (4) Impact from SFAS 133.................. (3) 3
Extinguishment of debt................ 10 - Net
earnings............................ $569 $474 20.0% Operating
earnings per diluted share.... $1.22 $.98 24.5% Reconciling items,
net of tax: Realized investment gains (losses).... (.01) (.01)
Impact from SFAS 133.................. (.01) .01 Extinguishment of
debt................ .02 - Net earnings per diluted share..........
$1.22 $.98 24.5% EFFECT OF FOREIGN CURRENCY ON OPERATING RESULTS(1)
-------------------------------------------------- (SELECTED
PERCENTAGE CHANGES, UNAUDITED) THREE MONTHS ENDED MARCH 31, 2009
Including Excluding Currency Currency Changes Changes(2) ---------
---------- Premium income.......................... 13.2% 4.1% Net
investment income................... 9.6 3.1 Total benefits and
expenses............. 11.5 2.5 Operating
earnings...................... 19.6 11.0 Operating earnings per
diluted share.... 24.5 15.3 (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 Media contact -
Laura Kane, 706.596.3493, FAX: 706.320.2288, or (Logo:
http://www.newscom.com/cgi-bin/prnh/20090422/CL03654LOGO )
http://www.newscom.com/cgi-bin/prnh/20090422/CL03654LOGO
http://photoarchive.ap.org/ DATASOURCE: Aflac Incorporated CONTACT:
Analyst and investor contact, Kenneth S. Janke Jr., 1-800-235-2667
- option 3, FAX: +1-706-324-6330, ; Media contact - Laura Kane,
+1-706-596-3493, FAX: +1-706-320-2288, Web Site:
http://www.aflac.com/
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