The American Family Life Assurance Company (AFLAC) (NYSE: AFL) sells medical and life insurance in the United States and Japan. 73% of the company's revenue comes from its Japanese segment, while the remaining 27% comes from its American operations. In both segments, AFLAC focuses on offering supplemental coverage to people who may already have insurance from their employer or their government. AFLAC also offers customizable cancer insurance packages and different 'rider' policies that can be attached to an individual's insurance policy as a supplement for more specified coverage.
The investment portfolio of an insurance company is as important as ever in light of the crisis at the largest life insurer by market share, American International Group (AIG). On concern about AFLAC's portfolio exposure, the company's stock fell more than 30% in mid January, 2009. This was partially in response to losses in AFLAC's investment portfolio.
Since almost three-quarters of AFLAC's revenue comes from Japan, the company's reported earnings in the US are subject to changes in the Yen/Dollar exchange rate. Increases in the Yen/Dollar exchange rate translate into higher reported earnings in the US. However, the management of AFLAC claim that they rarely actually exchange any of their own assets, meaning that changes in the exchange rate do not effect their real performance.
AFLAC has made the Standard & Poors Dividend Aristocrat list for 2009, and was one of 52 companies. Members of this list are companies on the S&P 500 (.SPX-E) that have raised their dividend every year for at least 25 years in a row.
Since 2001, AFLAC has had steadily increasing revenues. In 2009, its total revenues were $18.3 billion, compared to 2008's revenues of $ 16.6 billion. While its net income has remained positive, it has not had the same consistent and steady growth that AFLAC's revenues have had. In 2009, AFLAC's net income was $1.5 billion, compared to its net income of $1.25 billion in 2008.
AFLAC operates two main divisions: AFLAC Japan and AFLAC US. This means that earnings are calculated with a currency translation adjustment from Japanese Yen to US Dollars. However, AFLAC notes that they rarely actually convert assets between Yen and Dollars, so any exchange rate fluctuations do not materially affect the operations of the company.
AFLAC Japan provides insurance that supplements Japan's national health insurance coverage. Management claims that consumers are shifting from dependency on the national health care system to private insurance.
AFLAC US provides insurance that supplements primary medical coverage already has from their job or other provider.
73% of AFLAC's revenue comes from Japan. This means that all of AFLAC Japan's earnings are translated into dollars for financial reporting. An increase in the exchange rate increases AFLAC's reported revenues. The following chart shows the USD/JPY exchange rates.
AFLAC's investment portfolio is subject to risk from fluctuations in Interest Rates. In particular, AFLAC's bonds decrease in value with an increase in interest rates. According to AFLAC, an increase in interest rates of 1% decreases the fair value of the company's debt holdings from $54.7 billion to $48.9 billion.
The field of medicine changes fast. New technologies and treatment techniques are always being developed, and AFLAC address this by constantly updating its policies and tailoring them to new medical expenses. For example, AFLAC's many rider policies allow individuals with outstanding insurance policies to purchase additional insurance against costs associated with new treatments.
There are many insurance companies with which AFLAC competes in its different markets and insurance products. Three of the largest are:
|Competition||AFLAC||American International Group (AIG)||MetLife (MET)|
|Revenue from Premiums (millions of US$)||$12,973||$58,798||$27,895|
|Premiums Ceded (millions of US$)||$2,884||$11,731||$2,454|
|Investment Income (millions of US$)||$2,333||$28,619||-$738|