Aflac notes: $77 per share, health exchange, Japan Post, Abe’s efforts, duck ‘plays’ golf

tadams@ledger-enquirer.comFebruary 5, 2014 

The Aflac tower on Wynnton Road.

JOE PAULL — jpaull@ledger-enquirer.com

The day after reporting a $675 million profit in the fourth quarter and $3.1 billion in 2013, here are a few takeaways from Columbus-based Aflac’s performance and the supplemental health and life insurer’s future activities:

$77 per share?

Sterne Agee market analyst John Nadel, after digesting Tuesday’s financial information, rated Aflac shares a “buy” Wednesday, putting a 52-week price target of $77 on them. Shares closed Thursday at $61.73.

“Earnings were ahead of our expectations, (stock) buybacks were in line, the balance sheet was stable, and capital levels improved,” wrote Nadel in an Aflac brief, saying sales in Japan “grew nicely,” but also lamenting weak sales in the U.S. market.

The latter, he said, “will likely be a focal point particularly given several peers are beginning to demonstrate growth following (Affordable Care Act)-driven distraction the past several quarters.”

An Aflac-operated health exchange

Speaking of the Affordable Care Act (ACA), Aflac is in the process of rolling out its own exchange for small businesses with fewer than 100 employees.

The pilot now includes exchanges in three states — Georgia, Texas and Illinois — said Robin Wilkey, Aflac’s senior vice president of Investor and Rating Agency Relations. The next deadline for feedback from those markets is March 31.

“We have assigned specific agents and we get feedback from them on what’s right or wrong” with the exchanges, she said. “It’s very much in a test phase. We’re making the punch list, like you would if you were (building) your house, of what’s right and wrong, etc.”

The exchanges, Wilkey said, will include Aflac’s various supplemental insurance policies. But there also will be vision, dental and major medical policies offered.

Thus far, there is no tentative timetable for full rollout across the U.S.

“That’s because we want to do it slow and do it right, and make sure we meet each mark in that plan,” she said. “We don’t want to box ourselves in to a final date until we’re further along.”

Ramping up the post office

Aflac signed a major contract last year to sell its insurance policies through Japan Post Holdings, the Asian nation’s postal service. Aflac derives about 80 percent of its sales there.

The contract calls for Japan Post to peddle the Aflac products through 20,000 offices. But a few months into the launch, only 1,500 post offices are now doing so, with Wilkey saying, once again, it will be a slow, methodical process, although the company is pleased with how things are going thus far.

“But it is a multi-year rollout and it will probably take up to four years for us to be in all 20,000 post offices,” she said. “When you’re first training the people before they start selling, it’s usually a slower rollout at the beginning.”

Doing business the Abe way

Wilkey, who has been with Aflac since 1990, knows Japan pretty well. And she’s certainly up to speed on the country’s latest leader, Prime Minister Shinzo Abe, and his efforts to pull Japan out of an economic slump since entering office in December 2012.

The nation had been experiencing deflation for several years, which is toxic to an economy. The Abe (pronounced “ah-bay”) government has been trying to generate inflation of about 2 percent. It’s now around 1.5 percent.

“They’re also flooding the market with yen, the central bank there, just like they did over here ... to try to get the economy going,” said Wilkey. There’s also a consumption tax on various businesses, including Aflac and its agents’ commissions, to help reduce debt.

It’s a dynamic environment in which Aflac will have to live with and, ultimately, hope everything works out in the long run because of the Columbus company’s dependence on Japan for its revenue stream and cash flow.

Abe has at least one thing going for him, said Wilkey. He’s very popular so far, with the Japanese backing his efforts, although that shouldn’t be surprising, she said.

“I will tell you, too, that people over there tend to follow the leader and they tend not to complain or show dissension the way that we do over here,” Wilkey said. “But only time will tell if all of this works out — the pouring of money into the economy, the consumption tax, stimulating inflation. We’ll just have to wait and see if it works.”

And then there’s the duck

You’ve just released a solid earnings report, delivered your 31st straight year of dividend growth, and prognosticated that operating earnings will increase a respectable 2 percent to 5 percent this year.

So, now what are you going to do?

Release another TV commercial starring the Aflac duck, of course.

The company plans to debut its latest spot, titled “Fore! Days,” Thursday on the Golf Channel during coverage of the PGA’s annual Pro Am at Pebble Beach. It will run nationwide after that, particularly during PGA events. And it’s a fair bet the wildly popular Masters in Augusta, Ga., in April will be a prime moment in the campaign.

The new ad features the rascally duck frustrating a couple of fellow golfers during a round with errant play, negotiating a sand trap and water before using his sneaky web-footed “wedge” to sink a shot.

The gist of the commercial is that Aflac pays those people purchasing its insurance policies cash fast — sometimes within just four days — in cases of accidents and illnesses.

For the record, Aflac paid out benefits and claims of just under $14 billion in 2013. That was out of total revenues of nearly $24 billion last year.

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