COLUMBUS, Ga., Feb. 2 /PRNewswire-FirstCall/ -- Aflac Incorporated
today reported its fourth quarter results. Total revenues benefited
from the strengthening of the yen to the dollar in the fourth
quarter, rising 6.0% to $4.3 billion, compared with $4.0 billion in
the fourth quarter of 2007. Net earnings were $197 million, or $.42
per diluted share, compared with $382 million, or $.78 per share, a
year ago. For the full year of 2008, our results also benefited
from the stronger yen/dollar exchange rate, compared with 2007.
Total revenues were $16.6 billion, an increase of 7.5% over 2007.
Net earnings were $1.3 billion, or $2.62 per diluted share,
compared with $1.6 billion, or $3.31 per share, in 2007. The
decline in net earnings for the full year was attributable to
realized investment losses. Realized investment losses were $655
million in 2008, or $1.37 per diluted share, compared with realized
investment gains of $19 million, or $.04 per share, in 2007. The
impact of SFAS 133 was immaterial for both 2008 and 2007. Net
earnings in the fourth quarter included realized investment losses
of $262 million, or $.56 per diluted share, compared with a loss of
$1 million, or nil per diluted share in the fourth quarter of 2007.
Approximately $117 million of the after-tax investment losses in
the fourth quarter related to the previously announced impairment
of the company's investment in three Icelandic banks. Following an
impairment analysis in the fourth quarter, the company concluded
there was an increased probability that the contractual terms of
interest and principal payments may not be met for certain
collateralized debt obligations (CDOs). As a result, the company
realized $125 million of after-tax losses related to the impairment
of CDOs. As discussed in the company's third quarter earnings
announcement, Aflac owns a portfolio of perpetual debentures, or
so-called "hybrid securities." The company's holdings of these
perpetual debentures, which have characteristics of both debt and
equity investments, totaled $9.1 billion at amortized cost ($8.0
billion at fair value) at the end of December 31, 2008. Included in
the company's investment in perpetual debentures are $6.5 billion
at amortized cost ($6.2 billion at fair value) of Upper Tier II
securities and $2.6 billion at amortized cost ($1.8 billion at fair
value) of Tier I securities. At the end of 2008, 92% of the
company's total perpetual debenture securities were rated A or
higher. With the exception of the previously mentioned Icelandic
bank securities that were written off in the fourth quarter of
2008, all of the perpetual debentures owned by Aflac were current
on interest and principal payments at the end of the year. On
October 14, 2008, the Securities and Exchange Commission (SEC)
issued a letter to the Financial Accounting Standards Board (FASB)
on the topic of hybrid securities. The SEC's letter noted that due
to the debt characteristics of hybrid securities, a debt impairment
model could be used for filings subsequent to October 14, 2008,
until the FASB further addresses whether a debt or equity
impairment approach is most appropriate. With no action taken by
the FASB in the fourth quarter, Aflac continued to apply its debt
impairment model to its perpetual debenture investments, which
Aflac has applied for reporting periods commencing after June 30,
2008. As such, no impairment charges of our perpetual debentures
were warranted in the fourth quarter other than those related to
previously mentioned Icelandic banks. We believe that an analysis
of operating earnings, a non-GAAP financial measure, is vitally
important to an understanding of Aflac's underlying profitability
drivers. We define operating earnings as the profits we derive from
our operations before realized investment gains and losses, the
impact from SFAS 133, and nonrecurring items. Management uses
operating earnings to evaluate the financial performance of Aflac's
insurance operations because realized gains and losses, the impact
from SFAS 133, and nonrecurring items tend to be driven by general
economic conditions and events, and therefore may obscure the
underlying fundamentals and trends in Aflac's insurance operations.
Furthermore, because a significant portion of our business is in
Japan, where our functional currency is the Japanese yen, we
believe it is equally important to understand the impact on
operating earnings from translating yen into dollars. We translate
Aflac Japan's yen-denominated income statement from yen into
dollars using an average exchange rate for the reporting period,
and we translate the balance sheet using the exchange rate at the
end of the period. However, except for a limited number of
transactions, we do not actually convert yen into dollars. As a
result, we view foreign currency as a financial reporting issue for
Aflac and not as an economic event to our company or shareholders.
Because changes in exchange rates distort the growth rates of our
operations, we also encourage readers of our financial statements
to evaluate our financial performance excluding the impact of
foreign currency translation. The chart toward the end of this
release presents a comparison of selected income statement items
with and without foreign currency changes to illustrate the effect
of currency. Operating earnings in the fourth quarter of 2008 were
$458 million, compared with $382 million in the fourth quarter of
2007. Operating earnings per diluted share rose 25.6% to $.98,
compared with $.78 per share a year ago. The stronger yen/dollar
exchange rate increased operating earnings per diluted share by
$.07 for the fourth quarter. Excluding the benefit from the
stronger yen, operating earnings per diluted share rose 16.7% in
the fourth quarter. Operating earnings for the year were $1.9
billion, or $3.99 per diluted share, compared with $1.6 billion, or
$3.27 per share, in 2007. Excluding the benefit of $.23 per share
from the stronger yen, operating earnings per diluted share rose
15.0% for the year. That result was in line with our upwardly
revised expectation of a 15% increase in operating earnings per
diluted share before the impact of currency translation. Total
investments and cash at the end of December were $68.6 billion, or
20.1% higher than a year ago. The increase in total investments and
cash resulted from solid cash flows to investments and a stronger
yen/dollar exchange rate at the end of the year, compared with
year-end 2007. However, these benefits were somewhat offset by the
global widening of credit spreads, which produced lower fair values
for debt securities that are classified as available for sale on
the balance sheet. Gross unrealized losses on investment securities
classified as available for sale were $4.1 billion at December 31,
2008, compared with $3.1 billion at September 30, 2008, and $1.0
billion a year ago. Approximately $357 million of the increase in
the gross unrealized loss from the end of the third quarter to the
end of the fourth quarter on available-for-sale investments was
attributable to the 13.8% strengthening of the yen to the dollar.
Shareholders' equity was $6.6 billion at December 31, 2008,
compared with $6.5 billion at September 30, 2008, and $8.8 billion
a year ago. Shareholders' equity at December 31, 2008, included a
net unrealized loss on investment securities of $1.2 billion, which
primarily resulted from the widening of credit spreads, compared
with a net unrealized loss of $882 million at September 30, 2008,
and a net unrealized gain on investment securities of $874 million
a year ago. The return on average shareholders' equity in the
fourth quarter was 12.0%. On an operating basis, (excluding
realized investment losses and the impact of SFAS 133 from net
earnings and unrealized investment gains/losses in shareholders'
equity) the return on average shareholders' equity was 24.0% for
the fourth quarter of 2008. For the full year, the return on
average shareholders' equity was 16.3%, and on an operating basis
it was 24.2%. AFLAC JAPAN Aflac Japan premium income in yen rose
3.3% in the fourth quarter. Net investment income decreased .5%.
Investment income growth in yen terms was lowered by the stronger
yen/dollar exchange rate because approximately 34% of Aflac Japan's
fourth quarter investment income was dollar-denominated. Total
revenues were up 2.3%. The benefit ratio improved over a year ago,
and as a result, the pretax operating profit margin expanded from
15.0% to 16.3%. Pretax operating earnings in yen increased 11.6%.
For the year, premium income in yen increased 3.5%, and net
investment income was unchanged. Total revenues were up 2.8%, and
pretax operating earnings grew 8.4%. The average yen/dollar
exchange rate in the fourth quarter of 2008 was 96.55, or 17.3%
stronger than the average rate of 113.24 in the fourth quarter of
2007. For the full year, the average exchange rate was 103.46 in
2008, or 14.0% stronger than the rate of 117.93 for the full year
of 2007. Benefiting from the stronger average yen in the fourth
quarter, premium income in dollars increased 21.6% to $2.9 billion.
Net investment income rose 17.1% to $546 million. Total revenues
advanced 20.3% to $3.4 billion. Pretax operating earnings were $560
million, or 30.9% higher than a year ago. For the full year, Aflac
Japan's results in dollar terms were also helped by the stronger
yen/dollar exchange rate. Premium income was $10.7 billion, up
18.1% from a year ago. Net investment income rose 14.0% to $2.1
billion. Total revenues were up 17.3% to $12.7 billion. Pretax
operating earnings were $2.2 billion, or 23.6% higher than a year
ago. Aflac Japan sales declined .1% in the fourth quarter to 30.3
billion yen, or $316 million. For the year, total new annualized
premium sales were up slightly to 114.7 billion yen, or $1.1
billion. Cancer insurance sales were strong in the fourth quarter,
rising 20.3% and accounting for 36% of total new sales in the
quarter. The sharp increase in cancer insurance sales primarily
reflected our efforts at upgrading our existing coverage to the
benefit levels of our newest cancer insurance product. Bank channel
sales declined 26.8% in the fourth quarter, compared with the third
quarter of 2008, to 959 million yen. We believe the decline was
primarily attributable to the global financial crisis. During the
fourth quarter, many banks initiated service calls to customers who
had purchased other insurance companies' investment products
through the banks. Those service calls took away from the time
available to sell our products. At the end of 2008, Aflac Japan's
products were available to customers of 242 banks. Sales of our
cancer insurance product through the Japan Post Network Co. began
in October 2008, and were 193 million yen, or .6% of total new
sales in the fourth quarter. AFLAC U.S. Aflac U.S. premium income
increased 7.0% to $1.1 billion in the fourth quarter. Net
investment income increased .7% to $128 million. Total revenues
rose 6.2% to $1.2 billion. Pretax operating earnings declined 5.5%
to $160 million. For the year, premium income rose 8.5% to $4.3
billion. Net investment income increased .9% to $505 million. Total
revenues were up 7.7% to $4.8 billion. Pretax operating earnings
rose 7.6% to $745 million. The weak economy continued to pose
challenges to our U.S. sales growth. Total new annualized premium
sales were down 5.6% to $446 million in the fourth quarter. For the
year, total new annualized premium sales decreased .4% to $1.6
billion. Although still a small contributor to total new sales, we
were pleased to see strong life insurance sales in 2008. Life
insurance sales rose 12.9% for the year and accounted for 6.2% of
total new sales. We believe the improvement in life sales resulted
from promoting life and health insurance bundles, which we
initiated in April of 2008. Despite the sluggish sales results, we
continued to make strides in expanding our sales force. During the
fourth quarter, we recruited more than 6,000 new sales associates,
an increase of 7.4% over the fourth quarter of 2007. The number of
average producing sales associates rose .6% in the fourth quarter
and 2.6% for the year. OUTLOOK Commenting on the company's fourth
quarter and full-year results, Chairman and Chief Executive Officer
Daniel P. Amos stated: "Overall, I am pleased with our financial
results and our accomplishments in 2008. It certainly proved to be
a more challenging year than we anticipated due to continued
economic deterioration. Even though we did not meet our annual
sales objectives for Aflac Japan or Aflac U.S. in 2008, we
continued to build on the strong foundations of our insurance
operations. In Japan, we made major strides in diversifying and
expanding our distribution system through the addition of the bank
channel and the Japan Post Network Co. We also enhanced our product
line to better meet the needs of consumers. In the United States,
we produced steady growth in the number of new payroll accounts
throughout the year, while also continuing to recruit and train new
sales associates to further penetrate the vast U.S. market. "I also
remain very pleased with the quality and strength of our balance
sheet. Although 2008 was marked by realized investment losses that
were unusually high by Aflac standards, we believe our investment
philosophy of matching our long-duration, yen-denominated
liabilities with securities of comparable characteristics is the
most prudent approach for us to take. That approach has served us
very well in the past and we believe it will be effective in the
future. We will also retain our conservative approach to managing
our investment portfolio. At the end of the year, more than 98% of
our total investments and cash were in fixed maturity securities or
perpetual debentures. Of those securities, just 1.8% was rated
below investment grade at year-end 2008. "More than anything, we
are intensely focused on our capital level. Despite the negative
impacts of the stronger yen and realized investment losses, Aflac's
capital position from a U.S. regulatory standpoint remained very
strong. Although we have not yet finalized our statutory financial
statements, we estimate that our risk-based capital ratio exceeded
450% at December 31, 2008. We do not anticipate a need for raising
additional capital. "Although we have a cautious outlook for sales
in 2009 due to the current global economic uncertainty, we believe
flat sales to a 5% increase in both Japan and the United States are
reasonable targets for this year. However, our sales expectations
could change if the U.S. and Japanese economies experience further
deterioration. Importantly, our objective for 2009 operating
earnings growth has not changed. Our goal is to increase operating
earnings per diluted share 13% to 15% this year to $4.51 to $4.59
per diluted share, excluding the impact of the yen. However, the
yen is currently stronger to the dollar than it was in 2008. If the
stronger yen persists and averages 90 to 95 for the full year, we
would expect reported earnings to be in the range of $4.73 to $4.96
per diluted share." For more than 50 years, Aflac products have
given policyholders the opportunity to direct cash where it is
needed most when a life-interrupting medical event causes financial
challenges. Aflac is the number one provider of
guaranteed-renewable insurance in the United States and the number
one insurance company in terms of individual insurance policies in
force in Japan. Our insurance products provide protection to more
than 40 million people worldwide. Aflac has been included in
Fortune magazine's list of America's Most Admired Companies for
seven years and in Fortune magazine's list of the 100 Best
Companies to Work For in America for eleven consecutive years.
Aflac has been recognized three times by both Fortune magazine's
list of the Top 50 Employers for Minorities and Working Mother
magazine's list of the 100 Best Companies for Working Mothers and
has also been included in Ethisphere magazine's list of the World's
Most Ethical Companies for two consecutive years. Aflac
Incorporated is a Fortune 500 company listed on the New York Stock
Exchange under the symbol AFL. To find out more about Aflac, visit
aflac.com. A copy of Aflac's Financial Analyst Briefing (FAB)
supplement for the fourth quarter of 2008 can be found on the
"Investors" page at aflac.com. Aflac Incorporated will host a
conference call to discuss the strength of the company's capital
position. It will be webcast via the "Investors" page of aflac.com
on Tuesday, February 3, 2009, at 9:00 a.m. (EST) In addition, Aflac
Incorporated will webcast a presentation on 2008 financial
highlights and the outlook for 2009 via the "Investors" page of
aflac.com at 6:40 p.m. (EST) on Tuesday, February 3, 2009. AFLAC
INCORPORATED AND SUBSIDIARIES CONDENSED INCOME STATEMENT (UNAUDITED
- IN MILLIONS, EXCEPT FOR SHARE AND PER-SHARE AMOUNTS) THREE MONTHS
ENDED DECEMBER 31, 2008 2007 % Change Total revenues $4,260 $4,018
6.0% Benefits and claims 2,835 2,431 16.6 Total acquisition and
operating expenses 1,124 1,002 12.3 Earnings before income taxes
301 585 (48.6) Income taxes 104 203 Net earnings $197 $382 (48.4)%
Net earnings per share - basic $.42 $.79 (46.8)% Net earnings per
share - diluted .42 .78 (46.2) Shares used to compute earnings per
share (000): Basic 465,450 486,017 (4.2)% Diluted 468,978 492,240
(4.7) Dividends paid per share $.24 $.205 17.1% AFLAC INCORPORATED
AND SUBSIDIARIES CONDENSED INCOME STATEMENT (UNAUDITED - IN
MILLIONS, EXCEPT FOR SHARE AND PER-SHARE AMOUNTS) TWELVE MONTHS
ENDED DECEMBER 31, 2008 2007 % Change Total revenues $16,554
$15,393 7.5% Benefits and claims 10,499 9,285 13.1 Total
acquisition and operating expenses 4,141 3,609 14.7 Earnings before
income taxes 1,914 2,499 (23.4) Income taxes 660 865 Net earnings
$1,254 $1,634 (23.2)% Net earnings per share - basic $2.65 $3.35
(20.9)% Net earnings per share - diluted 2.62 3.31 (20.8) Shares
used to compute earnings per share (000): Basic 473,405 487,869
(3.0)% Diluted 478,815 493,971 (3.1) Dividends paid per share $.96
$.80 20.0% AFLAC INCORPORATED AND SUBSIDIARIES CONDENSED BALANCE
SHEET (UNAUDITED - IN MILLIONS, EXCEPT FOR SHARE AMOUNTS) DECEMBER
31, 2008 2007 % Change Assets: Total investments and cash $68,550
$57,056 20.1% Deferred policy acquisition costs 8,237 6,654 23.8
Other assets 2,544 2,095 21.5 Total assets $79,331 $65,805 20.6%
Liabilities and shareholders' equity: Policy liabilities $66,219
$50,676 30.7% Notes payable 1,721 1,465 17.5 Other liabilities
4,752 4,869 (2.4) Shareholders' equity 6,639 8,795 (24.5) Total
liabilities and shareholders' equity $79,331 $65,805 20.6% Shares
outstanding at end of year (000) 466,615 486,530 (4.1)%
RECONCILIATION OF OPERATING EARNINGS TO NET EARNINGS (UNAUDITED -
IN MILLIONS, EXCEPT FOR PER-SHARE AMOUNTS) THREE MONTHS ENDED
DECEMBER 31, 2008 2007 % Change Operating earnings $458 $382 19.9%
Reconciling items, net of tax: Realized investment gains (losses)
(262) (1) Impact from SFAS 133 1 1 Net earnings $197 $382 (48.4)%
Operating earnings per diluted share $.98 $.78 25.6% Reconciling
items, net of tax: Realized investment gains (losses) (.56) -
Impact from SFAS 133 - - Net earnings per diluted share $.42 $.78
(46.2)% RECONCILIATION OF OPERATING EARNINGS TO NET EARNINGS
(UNAUDITED - IN MILLIONS, EXCEPT FOR PER-SHARE AMOUNTS) TWELVE
MONTHS ENDED DECEMBER 31, 2008 2007 % Change Operating earnings
$1,912 $1,613 18.5% Reconciling items, net of tax: Realized
investment gains (losses) (655) 19 Impact from SFAS 133 (3) 2 Net
earnings $1,254 $1,634 (23.2)% Operating earnings per diluted share
$3.99 $3.27 22.0% Reconciling items, net of tax: Realized
investment gains (losses) (1.37) .04 Impact from SFAS 133 - - Net
earnings per diluted share $2.62 $3.31 (20.8)% EFFECT OF FOREIGN
CURRENCY ON OPERATING RESULTS(1) (SELECTED PERCENTAGE CHANGES,
UNAUDITED) THREE MONTHS ENDED DECEMBER 31, 2008 Including Excluding
Currency Currency Changes Changes(2) Premium income 17.2% 4.0% Net
investment income 12.1 2.8 Total benefits and expenses 15.4 2.3
Operating earnings 19.9 12.3 Operating earnings per diluted share
25.6 16.7 (1) The numbers in this table are presented on an
operating basis, as previously described. (2) Amounts excluding
currency changes were determined using the same yen/dollar exchange
rate for the current period as the comparable period in the prior
year. EFFECT OF FOREIGN CURRENCY ON OPERATING RESULTS(1) (SELECTED
PERCENTAGE CHANGES, UNAUDITED) TWELVE MONTHS ENDED DECEMBER 31,
2008 Including Excluding Currency Currency Changes Changes(2)
Premium income 15.2% 4.9% Net investment income 10.5 3.4 Total
benefits and expenses 13.5 3.4 Operating earnings 18.5 11.6
Operating earnings per diluted share 22.0 15.0 (1) The numbers in
this table are presented on an operating basis, as previously
described. (2) Amounts excluding currency changes were determined
using the same yen/dollar exchange rate for the current period as
the comparable period in the prior year. 2009 OPERATING EARNINGS
PER SHARE SCENARIOS Average Annual Exchange Operating % Growth Yen
Rate EPS Over 2008 Impact 85 $5.04 - 5.12 26.3 - 28.3% $.53 90 4.87
- 4.96 22.1 - 24.3 .37 95 4.73 - 4.81 18.5 - 20.6 .22 103.46* 4.51
- 4.59 13.0 - 15.0 - 105 4.47 - 4.55 12.0 - 14.0 (.04) 110 4.37 -
4.44 9.5 - 11.3 (.15) *Actual 2008 weighted-average exchange rate
The Private Securities Litigation Reform Act of 1995 provides a
"safe harbor" to encourage companies to provide prospective
information, so long as those informational statements are
identified as forward-looking and are accompanied by meaningful
cautionary statements identifying important factors that could
cause actual results to differ materially from those included in
the forward-looking statements. We desire to take advantage of
these provisions. This document contains cautionary statements
identifying important factors that could cause actual results to
differ materially from those projected herein, and in any other
statements made by company officials in communications with the
financial community and contained in documents filed with the
Securities and Exchange Commission (SEC). Forward-looking
statements are not based on historical information and relate to
future operations, strategies, financial results or other
developments. Furthermore, forward-looking information is subject
to numerous assumptions, risks, and uncertainties. In particular,
statements containing words such as "expect," "anticipate,"
"believe," "goal," "objective," "may," "should," "estimate,"
"intends," "projects," "will," "assumes," "potential," "target" or
similar words as well as specific projections of future results,
generally qualify as forward-looking. Aflac undertakes no
obligation to update such forward-looking statements. We caution
readers that the following factors, in addition to other factors
mentioned from time to time could cause actual results to differ
materially from those contemplated by the forward-looking
statements: legislative and regulatory developments, including
changes to health care and health insurance delivery; assessments
for insurance company insolvencies; competitive conditions in the
United States and Japan; new product development and customer
response to new products and new marketing initiatives; ability to
attract and retain qualified sales associates and employees;
ability to repatriate profits from Japan; changes in U.S. and/or
Japanese tax laws or accounting requirements; credit and other
risks associated with Aflac's investment activities; significant
changes in investment yield rates; fluctuations in foreign currency
exchange rates; deviations in actual experience from pricing and
reserving assumptions including, but not limited to, morbidity,
mortality, persistency, expenses and investment yields; level and
outcome of litigation; downgrades in the company's credit rating;
changes in rating agency policies or practices; subsidiary's
ability to pay dividends to the parent company; ineffectiveness of
hedging strategies; catastrophic events; and general economic
conditions in the United States and Japan, including increased
uncertainty in the U.S. and international financial markets. (Logo:
http://www.newscom.com/cgi-bin/prnh/20041202/CLTH019LOGO ) Analyst
and investor contact - Kenneth S. Janke Jr., 800.235.2667 - option
3, FAX: 706.324.6330, or Media contact - Laura Kane, 706.596.3493,
FAX: 706.320.2288, or
http://www.newscom.com/cgi-bin/prnh/20041202/CLTH019LOGO
http://photoarchive.ap.org/ DATASOURCE: Aflac Incorporated CONTACT:
Analyst and Investors: Kenneth S. Janke Jr., +1-800-235-2667,
option 3, fax: +1-706-324-6330, , Media: Laura Kane,
+1-706-596-3493, fax: +1-706-320-2288, , both of Aflac Incorporated
Web site: http://www.aflac.com/
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