Aflac Incorporated — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparison is with the three months ended March 31, 2021 unless otherwise noted. Aflac primarily sells supplemental health and life insurance in the U.S. and Japan. Japan represented 71% of Q1 2022 revenue, including investment gains and losses.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $5.272 billion | $5.869 billion |
| Net earned premiums | $4.178 billion | $4.593 billion |
| Net investment income | $903 million | $925 million |
| Net investment gains | $122 million | $307 million |
| Earnings before income taxes | $1.276 billion | $1.603 billion |
| Net earnings | $1.032 billion | $1.293 billion |
| Diluted EPS | $1.58 | $1.87 |
| Operating cash flow | $1.260 billion | $1.366 billion |
| Cash dividends per share | $0.40 | $0.33 |
Revenue fell about 10% and net earnings about 20%. Lower premiums and investment gains were major contributors. Pretax adjusted earnings, a non-GAAP measure, were $1.143 billion versus $1.306 billion; adjusted earnings were $927 million, or $1.42 per diluted share, versus $1.058 billion, or $1.53. Excluding the current-period currency impact, adjusted earnings were $963 million, or $1.48 per diluted share.
Segment results: Aflac Japan pretax adjusted earnings were $862 million, down from $887 million; yen-denominated earnings increased 6.8%, while the weaker yen reduced translated U.S.-dollar results. Aflac U.S. pretax adjusted earnings fell to $325 million from $445 million, with higher incurred benefits and expenses. Corporate and other reported a pretax adjusted loss of $44 million versus $26 million.
Balance sheet, cash flow and capital
- At March 31, 2022, total assets were $147.0 billion, total liabilities $117.5 billion, and shareholders’ equity $29.5 billion, down from $157.5 billion, $124.3 billion and $33.3 billion, respectively, at year-end 2021.
- Cash and cash equivalents were $4.3 billion, compared with $5.1 billion at December 31, 2021. The company reported $7.8 billion of notes payable and lease obligations. It was in compliance with debt and credit-facility covenants, with no defaults reported.
- Operating cash flow was $1.260 billion. Investing activities used $1.210 billion and financing activities used $737 million; cash declined by $776 million during the quarter.
- Shareholder returns included $500 million of share repurchases and $250 million of cash dividends. The board declared a second-quarter dividend of $0.40 per share, payable June 1, 2022.
- Comprehensive loss was $3.248 billion, chiefly reflecting unrealized losses on fixed-maturity securities and foreign-currency translation. AOCI was $3.1 billion at quarter-end, versus $7.4 billion at year-end 2021.
Changes, outlook and risks
- Japan sales, measured in yen, declined 14.8%, reflecting pandemic-related conditions and a prior-year comparison that included a new medical product launch. U.S. new annualized premium sales increased 19.0%; management said it expected this sales trend to continue for the full year 2022.
- Management cited COVID-19-related economic uncertainty, inflation and supply constraints, the Russia-Ukraine conflict, and a widening U.S.-Japan interest-rate differential. Yen depreciation suppressed reported results; the average yen/dollar rate was 116.18 versus 105.88 a year earlier.
- Japan benefited from favorable claims experience, including lower healthcare utilization, while U.S. claims were moving toward pre-pandemic levels. Japan also saw increased COVID-19 hospitalization claims during the Omicron surge; the company said it was monitoring experience and would adjust reserves if needed.
- The company expects an effective tax rate of approximately 20% in future periods. The filing gives no specific consolidated full-year earnings guidance in the provided text.
- Long-duration insurance accounting standard LDTI is scheduled for adoption on January 1, 2023. A preliminary transition estimate indicates an $18–$20 billion decrease in AOCI and an approximately $0.3 billion decrease in retained earnings; estimates remain subject to change.
- Key risks include market and interest-rate movements, credit losses, yen exchange-rate changes, dependence on Japan, claims and reserving deviations, distribution and persistency challenges, and pandemic-related economic effects. Management stated that pending litigation was not expected to materially adversely affect financial position, results or cash flows.
Important facts for investors to verify
- How much of the decline in reported earnings reflects weaker yen translation and lower investment gains, versus underlying insurance operations.
- Whether Japan premium trends and U.S. claims, lapse rates and expense levels improve or deteriorate in subsequent quarters.
- How interest rates, credit spreads and the yen affect investment values, capital measures, hedge settlements and liquidity.
- Progress and updated estimates for LDTI adoption, particularly the projected AOCI and retained-earnings transition adjustments.
- Capacity to sustain dividends and repurchases while maintaining the stated liquidity buffer and meeting insurance-subsidiary capital requirements.