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Aflac's (AFL) Q3 Earnings Beat on Lower Benefits and Expenses
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Aflac Incorporated (AFL - Free Report) reported third-quarter 2022 adjusted earnings per share (EPS) of $1.23, which beat the Zacks Consensus Estimate by a whisker. However, the bottom line decreased 19.6% year over year.
AFL’s revenues dropped 8% year over year to $4,820 million in the quarter under review but the same was higher than our estimate of $4,644.1 million. The top line outpaced the consensus mark by 4.4%.
The quarterly results benefited from reduced benefits and expenses, partly offset by a variable investment income loss from alternative investments and a weaker contribution to revenues from its Japan and U.S. businesses.
Q3 Performance
Adjusted net investment income fell 9.5% year over year to $885 million.
Total net benefits and claims of $2,340 million declined 10.3% year over year in the third quarter, while our estimate for the metric stands at $2,529.3 million. Total acquisition and operating expenses dropped 9.1% year over year to $1,377 million.
Total benefits and expenses of $3,717 million fell 9.9% year over year, while our estimate for the metric also suggests a 6.6% year-over-year decline.
Aflac Incorporated Price, Consensus and EPS Surprise
The segment’s adjusted revenues decreased 21.4% year over year to $2,913 million in the quarter under review. The figure fell short of our estimate of $3,202 million.
Net earned premiums of $2,241 million dropped 23.6% year over year due to limited pay products attaining paid-up status and pandemic-linked adversities on sales. The figure, however, missed the Zacks Consensus Estimate of $2,361 million and our estimate of $2,459.1 million.
Adjusted net investment income plunged 13.1% year over year to $663 million. The figure was lower than our estimate of $733.9 million.
Pretax adjusted earnings of the segment amounted to $630 million, which tumbled 35.5% year over year in the third quarter. However, the figure lagged our estimate of $717.7 million.
New annualized premium sales of $100 million improved 10.2% year over year. Benefit ratio of the segment came in at 75% in the third quarter.
Aflac U.S.
The segment reported adjusted revenues of $1,598 million, which dipped 1.1% year over year in the quarter under review. The figure came higher than our estimate of $1,585.7 million.
Net earned premiums slid 1.3% year over year to $1,375 due to reduced year-to-date persistency. The figure fell short of the Zacks Consensus Estimate of $1,381 million but outpaced our estimate of $1,352.5 million.
Adjusted net investment income of $185 million slipped 3.1% year over year. The figure was lower than our estimate of $193.6 million.
Pretax adjusted earnings of the segment came in at $309 million, down 13.7% year over year in the third quarter due to higher general expenses and increased amortization of deferred acquisition costs. The figure surpassed our estimate of $292.2 million.
Aflac U.S. sales of $334 million grew 11.8% year over year. The third-quarter benefit ratio came in at 45.2%.
Financial Position (as of Sep 30, 2022)
Aflac exited the third quarter with total cash and cash equivalents of $4,710 million, which declined 24.1% year over year.
Total investments and cash of $114.5 billion declined 21.6% year over year.
Total assets dropped 20.2% year over year to $128.1 billion.
Adjusted debt decreased 11.8% year over year to $6,762 million at the third-quarter end.
Total shareholders' equity of $24,152 million plunged 28% year over year.
Adjusted debt to adjusted capitalization came in at 22.4%, which improved 160 basis points (bps) year over year.
While it has no debt maturities in less than a year, total debt maturities worth $1,732 million are expected within the next five years.
Adjusted book value per share increased 13.5% year over year to $44.34.
Adjusted return on equity of 10.6% deteriorated 540 bps year over year.
Capital Deployment
Aflac bought back 11.1 million shares worth $650 million during the third quarter. It had 25.6 million shares left for buyback as of Sep 30, 2022.
Management announced a dividend of 40 cents per share in the fourth quarter of 2022. The dividend will be paid out on Dec 1, 2022, to its shareholders of record as of Nov 16.
Outlook
Aflac estimates improved sales in its Japan business for the fourth quarter of 2022, buoyed by the expectation of productivity improvements at Japan Post and continuous execution of product introduction and refreshment plans. The benefit ratio is likely to have normalized in the fourth quarter as well.
Management also remains optimistic about strong sales results within its U.S. business in the fourth quarter of 2022.
Of the insurance industry players that have reported third-quarter results so far, Arch Capital Group Ltd. (ACGL - Free Report) , Chubb Limited (CB - Free Report) and RLI Corporation (RLI - Free Report) beat the respective Zacks Consensus Estimate for earnings.
Arch Capital reported a third-quarter 2022 operating income per share of 28 cents, which beat the Zacks Consensus Estimate by 16.7%. The bottom line, however, decreased 62.2% year over year. ACGL’s gross premiums written improved 20.4% year over year to $3.9 billion. Net premiums written climbed 31.2% year over year to $2.7 billion on higher premiums written across its Insurance and Reinsurance segments. Net investment income increased 45.9% year over year to $128.6 million and beat our estimate of $94.2 million.
Chubb’s third-quarter 2022 core operating income of $3.17 per share outpaced the Zacks Consensus Estimate by 4.9%. The bottom line also improved 20.1% from the year-ago quarter’s figure. Net premiums written improved 14.4% year over year to $12 billion in the quarter. Adjusted net investment income of CB was a record $1.05 billion, up 12.1%.
RLI reported third-quarter 2022 operating earnings of 50 cents per share, which beat the Zacks Consensus Estimate by 51.5% but declined 23.1% from the prior-year quarter’s level. Operating revenues of RLI were $312.7 million, up 15.3% year over year. The top line, however, missed the Zacks Consensus Estimate by 1.3%. RLI’s net investment income increased 19.2% year over year to $21.3 million.
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Aflac's (AFL) Q3 Earnings Beat on Lower Benefits and Expenses
Aflac Incorporated (AFL - Free Report) reported third-quarter 2022 adjusted earnings per share (EPS) of $1.23, which beat the Zacks Consensus Estimate by a whisker. However, the bottom line decreased 19.6% year over year.
AFL’s revenues dropped 8% year over year to $4,820 million in the quarter under review but the same was higher than our estimate of $4,644.1 million. The top line outpaced the consensus mark by 4.4%.
The quarterly results benefited from reduced benefits and expenses, partly offset by a variable investment income loss from alternative investments and a weaker contribution to revenues from its Japan and U.S. businesses.
Q3 Performance
Adjusted net investment income fell 9.5% year over year to $885 million.
Total net benefits and claims of $2,340 million declined 10.3% year over year in the third quarter, while our estimate for the metric stands at $2,529.3 million. Total acquisition and operating expenses dropped 9.1% year over year to $1,377 million.
Total benefits and expenses of $3,717 million fell 9.9% year over year, while our estimate for the metric also suggests a 6.6% year-over-year decline.
Aflac Incorporated Price, Consensus and EPS Surprise
Aflac Incorporated price-consensus-eps-surprise-chart | Aflac Incorporated Quote
Segmental Update
Aflac Japan
The segment’s adjusted revenues decreased 21.4% year over year to $2,913 million in the quarter under review. The figure fell short of our estimate of $3,202 million.
Net earned premiums of $2,241 million dropped 23.6% year over year due to limited pay products attaining paid-up status and pandemic-linked adversities on sales. The figure, however, missed the Zacks Consensus Estimate of $2,361 million and our estimate of $2,459.1 million.
Adjusted net investment income plunged 13.1% year over year to $663 million. The figure was lower than our estimate of $733.9 million.
Pretax adjusted earnings of the segment amounted to $630 million, which tumbled 35.5% year over year in the third quarter. However, the figure lagged our estimate of $717.7 million.
New annualized premium sales of $100 million improved 10.2% year over year. Benefit ratio of the segment came in at 75% in the third quarter.
Aflac U.S.
The segment reported adjusted revenues of $1,598 million, which dipped 1.1% year over year in the quarter under review. The figure came higher than our estimate of $1,585.7 million.
Net earned premiums slid 1.3% year over year to $1,375 due to reduced year-to-date persistency. The figure fell short of the Zacks Consensus Estimate of $1,381 million but outpaced our estimate of $1,352.5 million.
Adjusted net investment income of $185 million slipped 3.1% year over year. The figure was lower than our estimate of $193.6 million.
Pretax adjusted earnings of the segment came in at $309 million, down 13.7% year over year in the third quarter due to higher general expenses and increased amortization of deferred acquisition costs. The figure surpassed our estimate of $292.2 million.
Aflac U.S. sales of $334 million grew 11.8% year over year. The third-quarter benefit ratio came in at 45.2%.
Financial Position (as of Sep 30, 2022)
Aflac exited the third quarter with total cash and cash equivalents of $4,710 million, which declined 24.1% year over year.
Total investments and cash of $114.5 billion declined 21.6% year over year.
Total assets dropped 20.2% year over year to $128.1 billion.
Adjusted debt decreased 11.8% year over year to $6,762 million at the third-quarter end.
Total shareholders' equity of $24,152 million plunged 28% year over year.
Adjusted debt to adjusted capitalization came in at 22.4%, which improved 160 basis points (bps) year over year.
While it has no debt maturities in less than a year, total debt maturities worth $1,732 million are expected within the next five years.
Adjusted book value per share increased 13.5% year over year to $44.34.
Adjusted return on equity of 10.6% deteriorated 540 bps year over year.
Capital Deployment
Aflac bought back 11.1 million shares worth $650 million during the third quarter. It had 25.6 million shares left for buyback as of Sep 30, 2022.
Management announced a dividend of 40 cents per share in the fourth quarter of 2022. The dividend will be paid out on Dec 1, 2022, to its shareholders of record as of Nov 16.
Outlook
Aflac estimates improved sales in its Japan business for the fourth quarter of 2022, buoyed by the expectation of productivity improvements at Japan Post and continuous execution of product introduction and refreshment plans. The benefit ratio is likely to have normalized in the fourth quarter as well.
Management also remains optimistic about strong sales results within its U.S. business in the fourth quarter of 2022.
Zacks Rank
Aflac currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performances of Some Other Insurers
Of the insurance industry players that have reported third-quarter results so far, Arch Capital Group Ltd. (ACGL - Free Report) , Chubb Limited (CB - Free Report) and RLI Corporation (RLI - Free Report) beat the respective Zacks Consensus Estimate for earnings.
Arch Capital reported a third-quarter 2022 operating income per share of 28 cents, which beat the Zacks Consensus Estimate by 16.7%. The bottom line, however, decreased 62.2% year over year. ACGL’s gross premiums written improved 20.4% year over year to $3.9 billion. Net premiums written climbed 31.2% year over year to $2.7 billion on higher premiums written across its Insurance and Reinsurance segments. Net investment income increased 45.9% year over year to $128.6 million and beat our estimate of $94.2 million.
Chubb’s third-quarter 2022 core operating income of $3.17 per share outpaced the Zacks Consensus Estimate by 4.9%. The bottom line also improved 20.1% from the year-ago quarter’s figure. Net premiums written improved 14.4% year over year to $12 billion in the quarter. Adjusted net investment income of CB was a record $1.05 billion, up 12.1%.
RLI reported third-quarter 2022 operating earnings of 50 cents per share, which beat the Zacks Consensus Estimate by 51.5% but declined 23.1% from the prior-year quarter’s level. Operating revenues of RLI were $312.7 million, up 15.3% year over year. The top line, however, missed the Zacks Consensus Estimate by 1.3%. RLI’s net investment income increased 19.2% year over year to $21.3 million.