Aflac Incorporated — FY 2021 Form 10-K
Reporting period: Year ended December 31, 2021. Although the request identifies “2021 Q4,” this 10-K reports the full fiscal year; the supplied filing text does not provide standalone fourth-quarter results. Aflac sells supplemental health and life insurance, principally in Japan and the United States. Japan represented 69% of 2021 revenue and 82% of year-end assets.
Financial performance and position
| Metric | 2021 | 2020 |
|---|---|---|
| Total revenue | $22.106 billion | $22.147 billion |
| Net earnings | $4.325 billion; $6.39 diluted EPS | $4.778 billion; $6.67 diluted EPS |
| Adjusted earnings (non-GAAP) | $4.019 billion; $5.94 diluted EPS | $3.552 billion; $4.96 diluted EPS |
| Net cash from operations | $5.051 billion | $5.958 billion |
| Investments and cash | $142.978 billion | $149.753 billion |
| Shareholders’ equity | $33.253 billion | $33.559 billion |
| Notes payable and lease obligations | $7.956 billion | $7.899 billion |
Revenue was nearly flat year over year. Net earned premiums declined to $17.647 billion from $18.622 billion, while net investment income increased to $3.818 billion from $3.638 billion. Net investment gains were $468 million, versus $270 million of losses in 2020. The 2020 net earnings comparison includes a one-time $1.411 billion tax benefit from releasing deferred foreign tax credit valuation allowances; excluding specified items, adjusted earnings increased 13%.
Segment pretax adjusted earnings rose to $3.754 billion in Japan from $3.263 billion and to $1.478 billion in the U.S. from $1.268 billion. Pretax adjusted earnings margins were 25.2% in Japan (21.2% in 2020) and 22.8% in the U.S. (19.3%). Improved margins primarily reflected lower claims; pandemic-related reductions in non-COVID claims and favorable prior-year claims development contributed.
Operating cash flow decreased 15.2%. Cash returned to shareholders was $3.2 billion, including $2.3 billion of share repurchases and $855 million of cash dividends. The annual dividend was $1.32 per share, and the company announced a 21.2% quarterly dividend increase effective in 2022. Year-end statutory capital indicators were strong: Japan’s solvency margin ratio was 1,012% and the combined U.S. risk-based capital ratio was 659%.
Changes, outlook, and notable items
- New annualized premium sales increased 7.7% in Japan, measured in yen, and 16.9% in the U.S.; management cited new products, reopening-related activity, and favorable comparisons with pandemic-affected 2020.
- Annualized premiums in force declined in both markets, reflecting pandemic-era sales constraints and, in Japan, limited-pay policies reaching paid-up status. Japan Post Group cancer sales remained weak, although proactive sales resumed in April 2021.
- For 2022–2023, management forecast Japan revenue to decline at a 3%–4% compound annual rate, with a 67%–69% benefit ratio and 20.5%–22.5% expense ratio. For the U.S., it forecast 1%–4% revenue growth, a 48%–52% benefit ratio and a 38%–41% expense ratio. These are forward-looking estimates, not guarantees.
- Management’s 2022 priorities include maintaining strong segment pretax margins, investing in digital capabilities, integrating acquisitions, and preserving capital strength. It stated minimum capital targets of 500% for Japan SMR and approximately 400% for Aflac U.S. RBC.
- Unusual items included the 2020 $1.411 billion tax benefit; a $48 million pretax debt-extinguishment expense in 2021; and a $138 million reduction in investment income from historic rehabilitation and solar partnerships, partly offset by $115 million of related tax credits.
- The company expects adoption of long-duration insurance accounting in 2023 to have a significant GAAP impact. Its preliminary estimate is an $18–$20 billion decrease in AOCI at the stated transition date; management does not expect adoption to affect regulatory capital, subsidiary dividend capacity, or cash flows.
Risks, contingencies, and reporting
Key risks include concentration in Japan and Japanese government bonds, yen-dollar movements, interest-rate and credit risk, limited availability of long-dated yen investments, derivative collateral and settlement needs, and uncertainty in investment valuations and claims/reserving assumptions. COVID-19, inflation, labor and distribution constraints, regulation, cybersecurity, and competition may also affect results. The parent depends on regulated subsidiary dividends for liquidity. The company reported $5.1 billion of consolidated cash and cash equivalents, compliance with debt covenants, and no material letters of credit or guarantees. It was a defendant in ordinary-course litigation and stated that pending matters were not expected to materially affect its financial position, results, or cash flows. KPMG issued an unqualified opinion on the financial statements and internal controls; management also concluded internal controls were effective.
Important facts for investors to verify
- Reconcile GAAP earnings with adjusted earnings and assess the effect of the 2020 one-time tax benefit and 2021 investment gains.
- Track premium growth, persistency, claims experience, and the assumptions underlying the Japan and U.S. segment outlook.
- Review Japan concentration, yen exposure, JGB holdings, hedging costs, collateral requirements, and statutory capital/dividend constraints.
- Monitor implementation of long-duration accounting and whether the estimated AOCI transition impact changes.
- Assess capital deployment, including the dividend increase and remaining share-repurchase authorization, against liquidity and regulatory capital needs.