Aflac’s Earnings Call: Growth Amid Financial Pressures

AFLAC Incorporated ((AFL)) has held its Q1 earnings call. Read on for the main highlights of the call.

Aflac’s Earnings Call: Balancing Growth and Challenges

Aflac’s recent earnings call painted a picture of robust growth tempered by financial pressures. The company showcased strong sales growth in Japan and stable adjusted earnings per share, bolstered by effective capital deployment and high persistency rates. However, the sentiment was balanced by challenges such as net investment losses, a decline in Japan’s earned premiums, and increased expense ratios.

Cancer Insurance Sales Increase

Aflac Japan reported a remarkable 12.6% year-over-year increase in sales, with cancer insurance sales contributing significantly with a 6.3% rise. This growth underscores the company’s strong foothold in the Japanese market and its ability to meet consumer needs effectively.

Adjusted Earnings Per Share Stable

Despite facing a $0.01 negative impact from foreign exchange, Aflac maintained its adjusted earnings per diluted share at $1.66, unchanged from the first quarter of 2024. This stability highlights the company’s resilience in managing its financial performance amidst external pressures.

Strong Capital Deployment

Aflac demonstrated robust capital management by deploying $900 million to repurchase 8.5 million shares and returning $1.2 billion to shareholders. This strategic capital deployment reflects the company’s commitment to enhancing shareholder value and maintaining a strong financial position.

U.S. Sales Growth

In the U.S., Aflac experienced a 3.5% year-over-year increase in sales, driven by strong momentum in group life, disability, and dental segments. This growth indicates the company’s successful expansion and competitive positioning in the U.S. market.

High Persistency Rates

Persistency rates remained high, with Japan at 93.8% and the U.S. at 79.3%, showcasing Aflac’s strong customer retention and business stability. These rates are indicative of the trust and satisfaction among Aflac’s policyholders.

Net Investment Losses

Aflac’s net earnings per diluted share were significantly impacted by net investment losses, resulting in a figure of $0.05. This marks a notable shift from the previous year’s gains, highlighting the challenges in the investment landscape.

Decline in Japan Earned Premiums

Aflac Japan faced a decline in net and earned premiums by 5% and 1.4%, respectively. This decrease was attributed to deferred profit liability and reinsurance impacts, posing a challenge to the company’s revenue streams in Japan.

Increased Expense Ratios

Expense ratios in Japan rose to 19.6%, driven by higher technology expenses, while the U.S. saw an increase in total benefit ratios by 120 basis points. These rising costs present a challenge to maintaining profitability.

Variable Investment Income Below Expectations

Variable investment income fell $27 million below long-term return expectations, impacting Aflac’s financial performance. This shortfall underscores the volatility and unpredictability of investment returns.

Forward-Looking Guidance

Looking ahead, Aflac provided key financial metrics and updates, reporting net earnings per diluted share of $0.05, impacted by net investment losses. The company maintained a flat adjusted earnings per diluted share at $1.66 compared to the previous year. In Japan, Aflac achieved significant sales growth, particularly in cancer insurance, and launched a new product, Miraito, with positive initial results. In the U.S., sales growth was supported by strong performance in group life, disability, and dental segments. Aflac’s strong capital position was reinforced by strategic share repurchases and shareholder returns, with an adjusted ROE of 12.7%, or 15.6% excluding foreign currency remeasurement, and a combined RBC ratio estimated to be above 600%.

In summary, Aflac’s earnings call highlighted a balance of growth and challenges. The company demonstrated strong sales growth and stable earnings, supported by strategic capital management and high persistency rates. However, financial pressures such as net investment losses and increased expenses present challenges that Aflac must navigate moving forward.