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Aflac's Q1 2018: I'm Sleeping Well With My Shares

May 02, 2018 11:23 PM ETAflac Incorporated (AFL)9 Comments


  • Last week, Aflac Inc. reported its results for the first quarter of 2018.
  • As expected, the net profit grew, boosted by the lower corporate tax in the U.S. and a favorable yen/dollar exchange rate.
  • However, these effects should not overshadow the slight improvement in the margins.
  • With a well-monitored business, an increasing dividend and an active share repurchase program, I am keeping my shares and sleeping well.

Executive Summary

Last week, Aflac Inc. (NYSE:AFL), a general business holding company operating in Japan and the United States which sells voluntary supplemental insurance products, shared its results for the first quarter of 2018. Its net income grew by 21% to $717 million, benefiting from the lower tax rate in the U.S., revenue growth and a slight improvement in margins both in the U.S. and Japan. As a shareholder of the company, I am confident about the ability of the insurer to reach its 2018 targets and sleep well with my shares accordingly.

Revenues Boosted By A Favorable Yen/USD Exchange Rate

Being a market leader can become problematic when a company wants to grow its business. When you are a giant like Aflac, investors cannot expect 10% growth per year. However, the increase in premiums could be in the range of 2-5%.

In Q1 2018, net earned premiums increased by 2.3% to $4.7 billion. The growth in premium revenues was mainly related to the favorable yen/dollar exchange rate. Excluding the foreign exchange rate, premiums in Japan declined by 2.6% to ¥353 billion ($3.3 billion).

As during 2017, the Japanese subsidiary continued to focus on cancer products and medical products during the first quarter of 2018, and reduced its exposure to other products (e.g., child endowment products and life insurance products). However, the commercial trend remains negative for all the segments, as the new annualized premium sales declined everywhere (-4.5% from cancer products and -20% from the medical segment on a YoY basis).

Fortunately, U.S. sales grew and offset the premium decline observed in Japan partially. In the first quarter, Aflac's U.S. premium income increased 2.7% to $1.4 billion. Furthermore, the new annualized premium sales and annualized in-force premiums grew by 0.6% and 2.7% respectively.

On the segment side, the relative size

This article was written by

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Analyst’s Disclosure: I am/we are long AFL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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