Aflac Incorporated — Q1 2024 Form 10-Q
Business context and period: Aflac sells supplemental health and life insurance primarily in Japan and the United States through Aflac Japan and Aflac U.S. This unaudited report covers the three months ended March 31, 2024, compared with Q1 2023; balance-sheet comparisons are with December 31, 2023. Amounts below are U.S. dollars unless noted.
Key financial results
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Total revenue | $5.436 billion | $4.800 billion |
| Net earned premiums | $3.456 billion | $3.688 billion |
| Net investment income | $1.000 billion | $943 million |
| Net investment gains | $951 million | $123 million |
| Net earnings | $1.879 billion | $1.188 billion |
| Diluted EPS | $3.25 | $1.94 |
| Adjusted earnings (non-GAAP) | $961 million; $1.66 per diluted share | $953 million; $1.55 per diluted share |
| Operating cash flow | $849 million | $890 million |
| Cash and cash equivalents | $5.098 billion | $4.306 billion at Dec. 31, 2023 |
| Notes payable and lease obligations | $7.912 billion | $7.364 billion at Dec. 31, 2023 |
| Shareholders’ equity | $23.537 billion | $21.985 billion at Dec. 31, 2023 |
Reported revenue and earnings benefited substantially from investment gains, including foreign-currency and derivative gains. Adjusted earnings, which exclude specified investment and other items, increased modestly. The filing reports an annualized Q1 GAAP return on average equity of 33.0% and adjusted return on equity excluding foreign-currency impact of 14.3%.
Material changes and segment performance
- Aflac Japan: Pretax adjusted earnings rose to $810 million from $788 million. In yen, premiums fell 5.9%, while pretax adjusted earnings rose 15.6%. The average yen/dollar rate was 148.67 versus 132.30, an 11% weaker yen; management says currency translation reduced adjusted earnings per diluted share by $0.08. Japan premium declines reflected internal reinsurance and limited-pay policies reaching paid-up status. Japan’s adjusted profit margin was 32.8%, up from 28.2%.
- Aflac U.S.: Pretax adjusted earnings were $356 million versus $352 million. Premiums increased 3.3%, while new annualized premium sales declined 5.2% to $298 million; management attributed the decline to continued underwriting discipline. The adjusted profit margin was 21.0%, compared with 21.2%.
- Investment gains: Q1 2024 gains included $703 million from derivatives and foreign currency activities, $173 million from sales and redemptions, and $76 million on equity securities. These items are excluded, as adjusted, from the company’s principal operating earnings measure.
- Capital returns: The company repurchased $750 million of shares (9.3 million shares under its program) and paid $278 million in cash dividends. The quarterly dividend was $0.50 per share, versus $0.42 a year earlier. In April, the board declared another $0.50 dividend, payable June 3, 2024.
Liquidity, debt, and risks
- Cash and cash equivalents were $5.1 billion; management’s target minimum holding-company cash buffer is approximately $1.8 billion. The company said cash and operating cash generation should cover expected requirements, including shareholder returns. It reported compliance with debt and credit-facility covenants and no defaults.
- March 2024 yen-denominated senior-note issuances totaled ¥123.6 billion across public and private offerings. The filing reports $823 million of borrowings proceeds in Q1. Total notes payable and lease obligations increased to $7.9 billion.
- Commercial real estate and loan credit quality warrant attention. At March 31, $1.007 billion of loans were past due, including $910 million 90 or more days past due and in nonaccrual status, versus $751 million past due and $718 million nonaccrual at year-end. The company had identified $601 million of transitional real estate loans in anticipation of potential foreclosure or deed-in-lieu transactions and recorded a $60 million credit allowance on $598 million of loans whose collateral value was below amortized cost. Office properties are a risk area; the company says broader unrealized securities losses are primarily market-driven and it does not intend or expect to be required to sell the affected available-for-sale securities before recovery.
- The company’s investment portfolio is materially exposed to Japan: Japan government securities were an exposure exceeding 10% of shareholders’ equity. Fixed-maturity holdings were 23.9% BBB by fair value and 1.7% BB or lower. The yen/dollar exchange rate, interest rates, credit conditions, and availability of yen investments remain key risks.
- Management cited litigation and regulatory inquiries in the ordinary course and believes pending matters will not materially adversely affect results, financial position, or cash flows. It also identified risks including market and credit conditions, policyholder experience, Japan concentration, cybersecurity and operational disruption, regulation, tax changes, and catastrophe events. No formal full-year earnings guidance is provided in the supplied filing text.
Investor items to verify
- How much of reported earnings growth reflects recurring insurance operations versus the $951 million of investment gains; review the company’s non-GAAP reconciliations.
- Developments in delinquent/nonaccrual real-estate loans, potential foreclosures, collateral values, and future credit-loss allowances.
- Underlying Japan premium and sales trends, policy paid-up effects, reinsurance impacts, and sensitivity to further yen weakness.
- Capital and liquidity needs from debt issuance, derivatives and collateral exposure, share repurchases, and dividends; also monitor the planned Japan solvency-regime transition in fiscal 2025.