Losses from investments in Europe continued to take a big bite out of Aflac in the fourth quarter, although the company’s net earnings still rose nearly 25 percent to $546 million.
For all of 2011, the Columbus-based supplemental insurance firm reported Tuesday that its net earnings slid more than 16 percent to $1.96 billion.
“Aflac Japan gets high marks for another great quarter and year,” Aflac Chairman and Chief Executive Officer Dan Amos said in a statement. “The tremendous sales momentum they generated this quarter, largely propelled by success in selling through banks, significantly exceeded our expectations for the year and especially for the quarter. In fact, Aflac Japan’s fourth-quarter production set an all-time quarterly record, which is especially remarkable considering 2011 was the year Japan was hit with the most devastating natural disaster in its history.”
The sizzling pace in Japan will be difficult to maintain, Amos conceded, with the company forecasting sales in the Asian nation will decline 2 percent to 5 percent this year. Sales in the United States, he said, should rise 3 percent to 8 percent. Aflac does about 75 percent of its business in Japan.
“We get a lot more premium income from renewals than we do new business,” Robin Wilkey, Aflac senior vice president of Investor Relations, said of the downward projection in Japan. “So it’s not going to impact the year’s earnings in that year About 90 percent of our premium income in Japan is from renewals.”
The fourth quarter capped a dramatic year for Aflac, which had to deal with the tragic earthquake and tsunami in Japan on top of the mounting investment losses, even if the company’s gushing cash flow eased the financial discomfort.
The health and life insurer, which has become famous in pop culture because of its duck advertising campaign, reported after-tax realized investment losses of $522 million, or $1.12 per share, in the period. That was mostly from its divestiture of securities in Europe. Greece, Portugal, Italy and Spain all have had a negative impact on the investment world due to their languishing financial problems.
“Part of these losses reflect the fact that the economic environment in Europe deteriorated in the fourth quarter,” Wilkey said. “Do we wish it hadn’t happened? Yes. But the thing is we won’t stick our head in the sand. If anything people have to give us credit for, it’s that we’re doing what we need to do based on -- I think -- the situation in Europe.”
Aflac did manage to offset some of its investment losses with gains from sales of securities and bonds related to the U.S. Treasury and the Japanese government. Reported gains totaled $377 million, or 81 cents per share.
The Columbus company has consistently said its financial picture is best digested by investors who take out any one-time investment gains and losses. If that is done, operating earnings for Aflac in the October-December quarter were a much more palatable $691 million, up 10 percent. For the year, they were $2.97 billion, an increase of 13.6 percent.
Those figures translate to operating earnings per share of $1.48 for the quarter and $6.33 for the entire year. However, both of those missed by 3 cents the expectations of nearly two dozen Wall Street analysts surveyed by investment research firm Thomson Financial.
“Looking ahead, I want to reiterate that our objective for 2012 is to increase operating earnings per diluted share 2 percent to 5 percent on a currency neutral basis,” said Amos, referring to the fluctuating impact of the Japanese yen-to-the-dollar rate on earnings. “This range reflects the impact of portfolio derisking and investing significant cash flows at low interest rates. We expect the rate of earnings growth in 2013 to improve over 2012.”
On the revenue side, the company reported that it took in $5.97 billion in the fourth quarter, nearly 13 percent higher than a year ago, while for all of 2011 revenue was $22.17 billion, or nearly 7 percent more.
Those numbers boiled down to total revenue in Japan of $4.9 billion for the quarter, an increase of 13 percent, and $18.4 billion for the year, nearly 15 percent higher. That led to pre-tax operating earnings of $920 million in the quarter and $3.9 billion for the year.
In the United States, Aflac posted total revenue of $1.3 billion in the quarter, up 4 percent, with pre-tax operating earnings coming in at $198 million, off nearly 12 percent. The firm said additional spending on advertising and information technology equipment cut into the earnings.
For 2011 overall, U.S. revenue climbed nearly 4 percent to $5.3 billion, with pre-tax operating earnings slipping less than 1 percent to $917 million.
“We had conveyed in the third quarter that following nine months of restrained expenditures, we planned to increase spending on IT and marketing initiatives in the fourth quarter to strengthen our business, and that’s exactly what we did,” said Amos, noting 2011 was the 22nd straight year the company had reached its projected earnings goal.
Aflac has been a model of consistency where it counts with many investors, paying a dividend of $1.23 per share in 2011, the 29th straight year it has done so and with an increase. The company said Tuesday its board of directors authorized a dividend of 33 cents per share. It is payable March 1 to those owning shares at the close of business Feb. 15.