Bloomberg News

Aflac Profit Misses Estimates as Insurer Forecasts Japan Slump

February 01, 2012

Jan. 31 (Bloomberg) -- Aflac Inc., the world’s biggest seller of supplemental health insurance, said sales in Japan probably will fall this year and posted fourth-quarter profit that missed analysts’ estimates.

Operating income, which excludes some investment results, was $1.48 a share in the three months ended Dec. 31, the Columbus, Georgia-based insurer said today in a statement. That’s short of the $1.51 average estimate of 19 analysts surveyed by Bloomberg.

Aflac, led by Chief Executive Officer Dan Amos, gets about three-quarters of its revenue from Japan. Sales in the country rose last year, helped by a push to sign up policyholders in bank branches and a strengthening of the yen against the dollar. Aflac, which uses a talking duck mascot to promote policies, said Japan sales may fall 2 percent to 5 percent this year.

“The stronger the numbers are,” Amos said of 2011 in an interview last week, “the harder it makes next year.”

Aflac declined 1.8 percent to $47.35 in extended New York trading after the results were announced. The shares had dropped 16 percent in the past year on the New York Stock Exchange.

Aflac’s premium income in Japan jumped 13.5 percent to $4.1 billion in the fourth quarter, or about 6 percent excluding the impact of currency fluctuations, the insurer said. Net income rose 25 percent to $546 million, or $1.17 a share.

Sales in the U.S. this year probably will increase 3 percent to 8 percent, Aflac said.

‘Ridiculously Strong’

“The sales in the fourth quarter in Japan were ridiculously strong,” said Steven Schwartz, an analyst at Raymond James & Associates Inc., who has an “outperform” rating on Aflac. “The sales were so strong in the fourth quarter that just looking at the decline in sales for 2012 takes it completely out of context.”

The yen gained more than 5 percent against the dollar last year, magnifying the value of premiums collected from Japanese policyholders. The yen advanced to 76.91 per dollar on Dec. 30, compared with 81.12 on the last trading day of 2010. The Japanese currency traded at a record 75.35 in October.

Shareholders’ equity per share rose to $28.96 as of Dec. 31 from $27.25 on Sept. 30, the company said. Profit for the full- year fell 16 percent to $1.96 billion as the company recorded investment losses. In the fourth-quarter, after-tax realized investment losses narrowed to $145 million from $191 million a year earlier.

Debt Crisis

Amos, 60, repositioned Aflac’s investment portfolio last year as Europe’s sovereign-debt crisis pushed the company to write down the value of some holdings and sell some securities at a loss. The company took impairments on yen-denominated bonds issued by Greek, Irish and Portuguese banks.

“The market changed faster than we could even keep up with,” Amos said on Jan. 26. “When it changes like that, that’s the responsibility of the CEO to fix it. And that’s what I plan to do.”

Amos hired Eric Kirsch in September to oversee Aflac’s $93 billion portfolio. Kirsch, previously head of insurance asset management at New York-based Goldman Sachs Group Inc., has said he’ll seek to add new asset classes to Aflac’s holdings.

Aflac sales were boosted in Japan last year by signing up new customers in banks. The company posted a 14 percent gain in Japanese sales for the nine months ended Sept. 30 as the country recovered from the March 11 earthquake and tsunami.

--Editors: Peter Eichenbaum, Dan Kraut

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net


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