Aflac (AFL) Q2 Earnings Beat on Strong U.S. Business, Lower Costs

Aflac Incorporated AFL reported second-quarter 2022 adjusted earnings per share (EPS) of $1.46, which beat the Zacks Consensus Estimate by 13.2% and our estimate of $1.30. The bottom line, however, declined 8.2% year over year.

Total revenues of Aflac amounted to $5,400 million, which decreased 2.9% year over year in the second quarter. Yet, the top line surpassed the consensus mark by 12.3% and our estimate of $4,939.2 million.

The quarterly results benefited from better returns from alternative investments resulting in strong variable investment income. Improved sales in the Aflac U.S. segment resulting from productivity gains and continued growth-related investments, and reduced benefits and expenses contributed to the upside. However, the results were partly offset by softness in the Japan segment, which has been grappling with persistent weakness in sales recovery stemming from volatilities inflicted by the COVID-19 pandemic.

Q2 Performance

Adjusted net investment income of $920 million fell 6.4% year over year in the quarter under review.

Total net benefits and claims decreased 13.4% year over year to $2,298 million. Meanwhile, total acquisition and operating expenses of $1,401 million fell 8.9% year over year.

Total benefits and expenses were $3,699 million, down 11.7% year over year during the second quarter. The figure was lower than our estimate of $4,040.7 million.

Aflac Incorporated Price, Consensus and EPS Surprise

Aflac Incorporated Price, Consensus and EPS Surprise

Aflac Incorporated price-consensus-eps-surprise-chart | Aflac Incorporated Quote

Aflac Japan

The segment reported adjusted revenues of $3,151 million, which plunged 16.8% year over year. The figure, however, fell short of the Zacks Consensus Estimate of $3,221 million and our estimate of $3,399.7 million.

Net earned premiums of $2,419 million decreased 19% year over year in the second quarter on account of limited pay products attaining paid-up status and pandemic-induced adversities on sales. The figure, however, lagged the Zacks Consensus Estimate of $2,502 million and our estimate of $2,602.5 million.

Adjusted net investment income fell 8.7% year over year to $723 million due to increased floating rate income. The figure was lower than our estimate of $788.4 million.

Pretax adjusted earnings of the segment totaled $860 million, down 14.3% year over year in the quarter under review. The figure, however, outpaced the Zacks Consensus Estimate of $771 million and our estimate of $777.9 million.

New annualized premium sales declined 6.4% year over year to $98 million. Second-quarter benefit ratio of the segment came in at 67.4%.

Aflac U.S.

Total adjusted revenues of the segment inched up 1% year over year to $1,628 million during the second quarter. The figure, however, exceeded the Zacks Consensus Estimate of $1,614 million and our estimate of $1,588.5 million.

Net earned premiums amounted to $1,394 million, which dipped 1% year over year due to reduced year-to-date persistency. The figure beat the Zacks Consensus Estimate of $1,378 million and our estimate of $1,339 million.

Adjusted net investment income improved 2.1% year over year to $193 million in the quarter under review. The figure was lower than the consensus mark of $194 million and our estimate of $214.3 million.

Pretax adjusted earnings of $349 million slumped 15.5% year over year due to elevated incurred benefits and higher expenses. The figure surpassed the Zacks Consensus Estimate of $306 million and our estimate of $296.7 million.

Aflac U.S. sales of $305 million improved 15.6% year over year. Second-quarter benefit ratio came in at 45.4%.

Financial Position (as of Jun 30, 2022)

Aflac exited the second quarter with total cash and cash equivalents of $5,173 million, which decreased 5.4% year over year.

Total investments and cash of $121.4 billion declined 17.2% year over year. Total assets fell 16% year over year to $135.6 billion.

Adjusted debt totaled $7,089 million at the end of the second quarter, which decreased 8.1% year over year.

Total shareholders' equity of $26.4 billion plunged 21.8% year over year.

Adjusted debt to adjusted capitalization improved 130 basis points (bps) year over year to 22.9% at the second-quarter end.

While it has no debt maturities in less than one year, $2,466 million of total debt maturities is expected within the next five years.

Adjusted book value per share increased 10.9% year over year to $42.45. Adjusted return on equity declined 200 bps year over year to 14.9%.

Capital Deployment

Aflac bought back 11.2 million shares worth $650 million. As of Jun 30, 2022, it had 36.6 million shares left for buyback.

Management announced a dividend of 40 cents per share  in the third quarter of 2022. The dividend will be paid out on Sep 1, 2022, to shareholders of record as of Aug 24.

Outlook

Aflac anticipates improved sales within its Aflac Japan segment in the second half of 2022, with the expectation of moderation of pandemic-linked volatilities, productivity improvements at Japan Post and continuous execution of product introduction and refreshment plans.

Zacks Rank

Aflac has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Some Other Insurers

Of the insurance industry players that have reported second-quarter results so far, the bottom lines of The Travelers Companies, Inc. TRV, AXIS Capital Holdings Limited AXS and RLI Corporation RLI beat the respective Zacks Consensus Estimate for earnings.

Travelers’ core income of $2.57 per share beat the Zacks Consensus Estimate by 28.5% but decreased 26% year over year. Total revenues of Travelers increased 7% year over year, primarily due to higher premiums and beat the consensus estimate by 1.8%. Net written premiums of TRV increased 11% year over year in the second quarter.

AXIS Capital Holdings posted second-quarter 2022 operating income of $1.74 per share, beating the Zacks Consensus Estimate by about 13%. However, the bottom line decreased 13% year over year. AXIS Capital’s total operating revenues of $1.4 billion beat the Zacks Consensus Estimate by 5.5%. The top line rose 7.8% year over year on higher net premiums earned. The combined ratio of AXS deteriorated 280 bps to 93.4.

RLI’s operating earnings of $1.49 per share beat the Zacks Consensus Estimate by 6.1% and improved 36.7% from the prior-year quarter. Operating revenues of RLI were $301.3 million, up 16.9% year over year. The top line beat the Zacks Consensus Estimate of $276 million by 0.9%. RLI’s underwriting income of $56 million increased 53%, primarily due to the strong performance of the Property and Surety segments.

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