Leaning heavily on its business in Japan, supplemental health and life insurer Aflac today reported a profit of $2.3 billion in 2010, or $4.95 per share, an increase of 56 percent over 2009.
In the fourth quarter of last year, the Columbus-based firm posted a profit of $437 million, or 92 cents per share, a jump of nearly 74 percent over the same October-December period the previous year.
Dan Amos, Aflac’s chairman and chief executive officer, called the performance “solid” despite challenges that remain in the economy, particularly in the United States.
“Our strategy of offering relevant products through an expanding distribution system contributed to sales results that exceeded our targets for two consecutive years,” he said of Japan. “2010 was the year of the bank channel, having secured buy-in from more than 90 percent of banks in Japan who’ve agreed to sell Aflac products.”
Amos pointed out the firm’s operating earnings — which takes out one-time items such as investment gains and losses — were in line with the 9 to 12 percent increase Aflac had projected before the impact of foreign currency, which in the case of Japan, the yen, has done well of late.
Operating earnings in 2010 were $2.6 billion, or $5.53 per share, 15 percent higher than in 2009. For the fourth quarter, they were $628 million, or $1.33 per share, an increase of nearly 13 percent.
Wall Street analysts who follow the company were expecting an average of $5.56 per share for the year and $1.35 in the quarter.
Major one-time items affecting the company’s financials in the fourth quarter included a $263 million impairment from its investments in Allied Irish Banks, Irish Life and Permanent and Aiful Corp. Aflac sold its investments in the troubled firms before the end of 2010.
To increase revenue, the insurer uses money it takes from premiums paid by clients to invest in securities ranging from corporations to governments. The Irish losses come on the heels of impairments from investments in Greece.
Robin Wilkey, senior vice president of Aflac’s Investor Relations department, said the company has no investments in Egypt, which has been rattled over the last week by protests against President Hosni Mubarak.
“We have no sovereign debt, we have no corporate debt in that area,” said Wilkey, explaining the Columbus company has a team of researchers who work to minimize risks in its investment portfolio amid an often volatile global economy.
“I think we’ve done a good job in de-risking the portfolio somewhat,” she said. “What we don’t want to do is just go out and try to unload these large positions. Then what are you going to invest in? You’re looking at securities that are earning in the 4-percent range and you’re going to replace them with something in the 2.5-percent range? It has to be prudent de-risking.”
The profits, or earnings, reported today by Aflac came on healthy advances in revenue. In the fourth quarter, total revenue was nearly $5.3 billion, an increase of more than 15 percent. For full-year 2010, total revenue came in at $20.7 billion, up nearly 14 percent.
The Asian nation of Japan was the driver, with new annualized premium sales surging 6.5 percent to $448 million in the quarter and 11 percent to $1.6 billion for the year. More than 90 percent of banks there now sell Aflac policies to their customers. The company also expanded its line of products there.
“The bank channel for us has been a huge positive,” said Wilkey, who noted Japanese women tend to be homemakers, taking care of the family’s finances and shopping for insurance, including at banks, making it a cultural phenomenon. “It’s much more community oriented.”
The U.S., on the other hand, continued to struggle with new annualized premium sales dipping 2.3 percent to $409 million in the quarter. They were off nearly 5 percent to $1.4 billion for the year.
The company, which sells primarily in the workplace in the U.S., continued to recruit independent sales agents. Recruiting dived 25 percent in the first nine months of 2010, but rebounded somewhat in the final quarter, with recruitment off 8.5 percent. The company currently has 72,500 agents peddling its policies in the U.S.
Offering earnings guidance for the current year, Amos said the company likely will be on the lower end of a projected 8 to 12 percent range for operating earnings growth. Both the U.S. and Japan will impact the numbers, he said.
“As we look ahead to 2011 sales opportunities in the United States, with the unemployment rate showing little sign of improvement and the confidence of consumers and employers remaining relatively low, we expect sales to be flat to up 5 percent for Aflac U.S.,” Amos said. “In Japan, with two consecutive years of strong sales results, we expect sales to be in the range of down 2 percent to up 3 percent.”
In the case of Japan, Wilkey said the boom sales years of 2009 and 2010 will make earnings comparisons more difficult in 2011.
“They have had tremendous sales results over the last two years, I mean phenomenal,” she said. “The difficult comparisons is the reason we’re at minus 2 to plus 3. It has nothing to do with what is going on over there or how we feel about that business.”
Aflac, in its report today, said it repurchased 2 million shares of its stock, with plans to buy back between 6 million and 12 million this year.
The company also reported a shareholder cash dividend of 30 cents per share for the fourth quarter and $1.14 for the full year, up 7 percent and nearly 2 percent respectively. It marks the 28th straight year Aflac has increased its dividend.
“If you looked at that kind of statistic maybe five years ago, it wouldn’t be that remarkable,” Wilkey said. “But given what’s happened in the market and global economy over the last three years, that is a tremendous record.”
During the Great Recession, the company acknowledged Amos was under pressure from investors and analysts to cut or even halt the dividend to preserve capital reserves until better times.
As for the firm’s stock, it rose 95 cents, or 1.6 percent, to $58.53 in trading today on the New York Stock Exchange. The stock’s 52-week range is $39.91 to $58.99 per share. Aflac released its report after the market's close.