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Aflac Incorporated Announces First Quarter Results, Affirms 2016 Operating EPS and Sales Outlook, Declares Second Quarter Cash Dividend

COLUMBUS, Ga., April 26, 2016 /PRNewswire/ -- Aflac Incorporated today reported its first quarter results.

Benefiting from the stronger yen/dollar exchange rate, total revenues rose 4.3% to $5.5 billion during the first quarter of 2016, compared with $5.2 billion in the first quarter of 2015. Net earnings were $731 million, or $1.74 per diluted share, compared with $663 million, or $1.51 per share, a year ago.

Net earnings in the first quarter of 2016 included $50 million, or $.12 per diluted share, of after-tax net realized investment gains from securities transactions and impairments, compared with net after-tax gains of $40 million, or $.10 per diluted share, a year ago. Included in the net investment gains in the quarter are after-tax impairment losses of $10 million, or $.02 per diluted share. Hedging costs related to certain dollar investments of Aflac Japan on an after-tax basis were $29 million in the quarter, or $.07 per diluted share. Realized after-tax net investment gains from other derivative and hedging activities in the quarter were $12 million, or $.03 per diluted share. In addition, net earnings included a loss of $28 million, or $.07 per diluted share, from other and nonrecurring items.

Aflac believes that an analysis of operating earnings, a non-GAAP financial measure, is vitally important to an understanding of the company's underlying profitability drivers. Aflac defines operating earnings as the profits derived from operations, inclusive of interest cash flows associated with notes payable, but before realized investment gains and losses from securities transactions, impairments, and derivative and hedging activities, as well as other and nonrecurring items. Aflac's derivative activities are primarily used to hedge foreign exchange and interest rate risk in the company's investment portfolio as well as manage foreign exchange risk in certain notes payable and forecasted cash flows denominated in yen. Management uses operating earnings to evaluate the financial performance of Aflac's insurance operations because realized gains and losses from securities transactions, impairments, and derivative and hedging activities, as well as other and nonrecurring items, tend to be driven by general economic conditions and events or related to infrequent activities not directly associated with the company's insurance operations, and therefore may obscure the underlying fundamentals and trends in Aflac's insurance operations.

Furthermore, because a significant portion of Aflac's business is in Japan, where the functional currency is the yen, the company believes it is equally important to understand the impact on operating earnings from translating yen into dollars. Aflac Japan's yen-denominated income statement is translated from yen into dollars using an average exchange rate for the reporting period, and the balance sheet is translated using the exchange rate at the end of the period. However, except for certain transactions such as profit repatriation, settlements of reinsurance retrocessions, and the Aflac Japan dollar investment program, the company does not actually convert yen into dollars. As a result, Aflac views foreign currency translation as a financial reporting issue rather than an economic event for the company or its shareholders. Because changes in exchange rates distort the growth rates of operations, readers of Aflac's financial statements are also encouraged to evaluate financial performance excluding the impact of foreign currency translation. The chart toward the end of this release presents a comparison of selected income statement items with and without foreign currency changes to illustrate the effect of currency.

The average yen/dollar exchange rate in the first quarter of 2016 was 115.35, or 3.3% stronger than the average rate of 119.16 in the first quarter of 2015. Operating earnings in the first quarter were $726 million, compared with $678 million in the first quarter of 2015. Operating earnings per diluted share in the quarter increased by 12.3% from a year ago to $1.73. Included in first quarter operating earnings is an adjustment of $8 million after-tax, or $.02 per diluted share, accelerating the recognition of stock compensation expense associated with retirement-eligible employees. The stronger yen/dollar exchange rate increased operating earnings per diluted share by $.03 for the first quarter. Excluding the impact from the stronger yen, operating earnings per diluted share increased 10.4%.

Total investments and cash at the end of March 2016 were $114.3 billion, compared with $105.9 billion at December 31, 2015.

In the first quarter, Aflac repurchased $600 million, or 10.2 million of its common shares. At the end of March, the company had 38.2 million shares available for purchase under its share repurchase authorizations.

Shareholders' equity was $20.0 billion, or $48.22 per share, at March 31, 2016, compared with $17.7 billion, or $41.73 per share, at December 31, 2015. Shareholders' equity at the end of the first quarter included a net unrealized gain on investment securities and derivatives of $4.7 billion, compared with a net unrealized gain of $3.0 billion at the end of December 2015. The annualized return on average shareholders' equity in the first quarter was 15.5%. On an operating basis (excluding net realized investment gains/losses in net earnings as well as unrealized investment gains/losses and derivative gains/losses in shareholders' equity), the annualized return on average shareholders' equity was 19.3% for the first quarter of 2016, or 18.5%, excluding the impact of the yen.

AFLAC JAPAN

In yen terms, Aflac Japan's premium income rose .1% in the first quarter. Net investment income was down 1.7%. The decline in investment income was largely attributable to the stronger yen/dollar exchange rate because approximately 48% of Aflac Japan's investment income was dollar-denominated, which was consistent with a year ago. Total revenues were down .2% in the quarter. The pretax operating profit margin fell slightly in the quarter to 22.0% from 22.1% in the prior year. Pretax operating earnings in yen decreased .8% on a reported basis and increased .2% on a currency-neutral basis.

Aflac Japan's growth rates in dollar terms for the quarter were magnified as a result of the stronger yen/dollar exchange rate. Premium income increased 3.3% to $3.2 billion in the quarter. Net investment income was up 1.4% to $622 million. Total revenues increased 3.0% to $3.8 billion. Pretax operating earnings increased 2.4% to $838 million.

In the first quarter, total new annualized premium sales rose 15.5% to ¥31.2 billion, or $271 million. Third sector sales, which include cancer and medical products, increased 1.0% to ¥18.3 billion, or $158.6 million. First sector sales, which include WAYS and child endowment, increased 45.0% to ¥12.9 billion, or $112.3 million.

AFLAC U.S.

Aflac U.S. premium income increased 2.1% to $1.4 billion in the first quarter. Net investment income was up 5.1% to $174 million. Total revenues increased 2.3% to $1.5 billion. The pretax operating profit...


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