Columbus-based supplemental insurance company Aflac reported solid first-quarter earnings today that were fueled by a significant jump in Japanese policy sales and the continued internal scrutiny of its investments.
The company reported net earnings of $785 million or $1.68 per diluted share — more than twice as much as a year ago — just after the New York Stock Exchange closed. That was 3 cents more per share than Wall Street analysts following the company projected, according to Thomson Financial. It compares favorably with the $389 million or 83 cents per share earnings reported for the same quarter a year ago.
The company’s total revenue, benefiting from a strong yen-to-dollar exchange rate, rose an impressive 21.9 percent over the 2011 first quarter. A year ago, Aflac reported revenues of $5.1 billion. This quarter, the revenues were $6.2 billion.
“A very good quarter; and very good start to the year,” is the way Aflac Senior Vice President of Investor and Rating Agency Relations Robin Wilkey termed the financials.
At the center of the good news was policy sales in Japan, where the Georgia company generates 75 to 80 percent of its earnings. Japanese sales were up 53.8 percent from the first quarter a year ago. There were two reasons for that, Wilkey said.
The Aflac policies are being sold in Japanese banks, which offer a broader range of financial and wealth management products than their U.S. counterparts.
Aflac is offering a new Japanese product that starts out as life insurance but can be converted to medical or health insurance as the policy holder ages.
The strong sales in Japan and the fact that Japanese banks have indicated they will continue to sell the Aflac products this year and into 2013 has led the company to change its forecast for Japanese sales. Originally projecting sales would be off 2 to 5 percent, Aflac is now calling for Japanese sales to increase 10 percent this year.
“The reason we talked about sales being down 2 to 5 percent is because of phenomenal results in 2011,” Wilkey said. “Based on the banks indicating they will continue to push our products, we think we will be up.”
The more complicated piece of the puzzle is Aflac’s continued divesting of risky securities, primarily European securities.
New Global Investment Officer Eric Kirsch, who is based in New York, joined the company Nov. 1 and made his first major move in the first quarter.
Kirsch identified $1.88 billion in European securities that the company wanted to sell.
“We sold over 85 percent of that bucket,” Wilkey said.
That took $1.63 billion of at-risk investments off the Aflac books. They were sold at a slight profit, Wilkey said.
“That is important,” Wilkey said, “Now we are in better shape to weather volatility. The first quarter has been smooth in Europe. Since the end of March, the volatility has gone up and Europe is a little more nervous. We are in better shape because we were able to unload risk off the books.”
The company reported $29 million in investment losses. That is compared to $376 million during the same period a year ago.
“I am encouraged by the initial results from our strategic business review of Aflac’s global investment capabilities,” Chairman and CEO Dan Amos said in a statement. “This review is certainly a first step on the path to achieving our goal of being a world-class investment organization.”
One of the positives of the derisking was a $23 million windfall from one of the investments that was unloaded, Wilkey said.
“The success of our derisking activities included the receipt of a deferred coupon that allows us to accelerate the funding of this critical global initiative, while still achieving our operating earnings-per-share objective this year,” Amos said.
The Aflac annual shareholders’ meeting will be 10 a.m. May 7 at the Columbus Museum on Wynnton Road.