Aflac Incorporated — 2023 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2023, with 2022 comparatives. Aflac sells supplemental health and life insurance in Japan and the United States. Japan generated 60% of adjusted revenues and accounted for 80% of assets. The company adopted long-duration insurance accounting standard LDTI in 2023; prior-period figures shown were adjusted, and adoption materially changed reported equity.
Financial performance
| Metric | 2023 | 2022 |
|---|---|---|
| Total revenue | $18.7 billion | $19.1 billion |
| Net earnings | $4.659 billion | $4.418 billion |
| Diluted EPS | $7.78 | $6.93 |
| Adjusted earnings (non-GAAP) | $3.733 billion; $6.23 per diluted share | $3.614 billion; $5.67 per diluted share |
| Net cash from operations | $3.190 billion | $3.879 billion |
| Cash and cash equivalents | $4.306 billion | $3.943 billion |
| Notes payable and lease obligations | $7.364 billion | $7.442 billion |
| Shareholders’ equity | $21.985 billion | $20.140 billion |
Revenue fell 2.3%, while net earnings rose about 5.5% and adjusted earnings rose about 3.3%. Weaker yen translation reduced adjusted earnings per diluted share by $0.19; on a prior-year exchange-rate basis, adjusted EPS was $6.43. Net investment income increased to $3.811 billion from $3.656 billion. Net investment gains were $590 million, including $441 million of net derivative and foreign-currency gains, $200 million from sales and redemptions, and a $139 million increase in credit loss allowances.
Segment results: Aflac Japan pretax adjusted earnings were $3.234 billion, down from $3.281 billion in reported dollars; the yen-based result increased 6.0%. Its pretax adjusted margin rose to 30.5% from 27.7%. Aflac U.S. pretax adjusted earnings increased 10.4% to $1.501 billion, with margin rising to 22.7% from 21.0%. Corporate and other reported a $425 million adjusted pretax loss, compared with $218 million.
Financial position, liquidity and capital
- Operating cash flow declined 17.8% year over year. Investing activities provided $817 million; financing activities used $3.723 billion, mainly reflecting $2.801 billion of share repurchases and $966 million of cash dividends.
- Total assets were $126.724 billion and total policy liabilities were $91.599 billion at year-end. The future policy benefits liability was $83.718 billion.
- Japan’s solvency margin ratio was 1,219%, up from 878%; the U.S. combined RBC ratio was 710%, down from 732%. Management’s stated capital objectives are a minimum 500% Japan SMR and approximately 400% U.S. combined RBC over time.
- The company reported compliance with debt and credit-facility covenants. It said cash and operating cash generation should meet expected requirements, while noting that subsidiary dividends and other transfers to the parent are subject to regulatory limits.
Material changes, outlook and risks
- Japan premiums and in-force premiums continued to decline, primarily as limited-pay policies reached paid-up status and internal reinsurance transactions affected reported results. New annualized premium sales rose 10.9% in yen, supported by refreshed cancer, medical and savings-type products. U.S. new annualized premium sales rose 5.0%.
- Management’s 2024 objectives include increasing sales and maintaining pretax margins. Expected benefit and expense ratios: Japan 66%–68% and 19%–21%; U.S. 45%–47% and 38%–40%. Corporate and other net investment income is expected to be stable, assuming U.S. rates remain stable and excluding tax-credit investment effects.
- The board increased the quarterly cash dividend 19%, to $0.50 per share beginning in the first quarter of 2024. The company repurchased 38.9 million shares for $2.8 billion in 2023.
- Unusual items: 2023 net earnings included an after-tax $119 million loss from a reinsurance treaty novation. A U.S. pension-plan freeze generated a $49 million curtailment gain, excluded from adjusted earnings. Aflac U.S. also wrote off $31 million of capitalized software costs. Tax-credit investments and a $174 million DST-related tax benefit affected the tax result.
- Key risks: exposure to yen-dollar movements, Japanese interest rates and JGBs; credit and valuation risk in investments; and potential commercial real estate stress. In 2023, the company foreclosed on certain real estate loans, recorded a $66 million loss on those foreclosures, and increased credit loss allowances. A proposed U.S. rule could restrict fixed-indemnity and hospital-indemnity product design and affect tax treatment; final timing and substance were uncertain.
- Other disclosed risks include regulatory change, competition, claims and reserving assumptions, distribution-partner dependence, cybersecurity and vendor disruptions, and limits on subsidiary dividends. Management said pending litigation and routine regulatory inquiries were not expected to have a material adverse effect. KPMG issued an unqualified opinion on the financial statements and internal controls.
Important facts for investors to verify
- How much of earnings growth reflects recurring insurance and investment operations versus investment gains, tax items and the reinsurance novation?
- Whether Japan’s premium and in-force declines stabilize, and whether refreshed products and distribution partnerships sustain sales growth.
- Whether commercial real estate and other loan exposures lead to additional defaults, foreclosures or credit allowances.
- How yen weakness, hedging costs and Japan’s evolving solvency rules affect reported earnings, capital ratios and dividends to the parent.
- Whether the proposed U.S. fixed-indemnity regulation is finalized and how it affects product structure, sales and tax treatment.
- Whether operating cash flow, capital ratios and subsidiary dividend capacity support the announced dividend and capital-return plans.