Aflac Incorporated (AFL Quick QuoteAFL - Free Report) reported second-quarter 2023 adjusted earnings per share of $1.58, which beat the Zacks Consensus Estimate by 11.3%. The bottom line increased 7.5% year over year.

The strong second-quarter earnings were supported by higher sales, reduced benefits and claims, and improved profit levels from U.S. businesses. However, the positives were partially offset by lower net investment income and tepid performance in the Japan unit.

Aflac’s revenues dropped 2.7% year over year to $5,172 million in the quarter under review. The top line, however, beat the consensus mark by 14.5%.

Notable Q2 Performance

Adjusted net investment income fell 3% year over year to $892 million.

Total net benefits and claims of $2,098 million declined 7.7% year over year in the second quarter but remained above our model estimate of $2,037.3 million. Total acquisition and operating expenses dropped 6.3% year over year to $1,249 million and remained below our estimate of $1,262.3 million.

Inside AFL’s Segments

Aflac Japan

The segment’s adjusted revenues decreased 11.6% year over year to $2,710 million in the quarter under review but remained higher than our estimate of $2,614.8 million. Total net earned premiums of $2,064 million dropped 11.6% year over year because of limited pay products attaining paid-up status and implementation of a reinsurance transaction earlier. The figure beat our estimate by 4.2%.

Adjusted net investment income decreased 11.9% year over year to $637 million due to reduced variable investment income, increased hedge costs and asset transfers, but beat our estimate of $626.1 million. Pretax adjusted earnings of the segment amounted to $822 million, which tumbled 5.8% year over year in the second quarter, but comfortably beat our estimate.

New annualized premium sales of $117 million improved 26.6% year over year. The benefit ratio of the segment was 65.7% in the second quarter.

Aflac U.S.

The segment reported adjusted revenues of $1,663 million, which climbed 2.1% year over year in the quarter under review and beat our estimate of $1,616.8 million. Total net earned premiums climbed 2.2% year over year to $1,425 million and beat our estimate of $1,379.4 million due to its growth initiatives.

Adjusted net investment income of $203 million climbed 5.2% year over year and beat our estimate of $195.7 million, on the back of increased floating rate income. Pretax adjusted earnings of the segment were $369 million, which increased 7.6% year over year in the second quarter and beat our estimate of $345.4 million thanks to reduced benefits recognized.

Aflac U.S. sales of $324 million grew 6.4% year over year. The second-quarter benefit ratio came in at 45.3%.

Financial Position (as of Jun 30, 2023)

Aflac exited the second quarter with total cash and cash equivalents of $4,720 million, which increased from $3,943 million at 2022-end. Total investments and cash of $116.5 billion decreased from $117.4 billion at 2022-end. Total assets fell to $130.6 billion from $131.7 billion at 2022-end.

Adjusted debt decreased to $6,779 million at the second quarter-end from $7,105 million at 2022-end.

Total shareholders' equity of $20,439 million increased from $20,140 million at 2022-end.

Adjusted debt to adjusted capitalization, excluding accumulated other comprehensive income, came in at 19.4%, which improved 150 basis points (bps) from 2022-end.

While it has no debt maturities in less than a year, total debt maturities worth $1,280 million are expected within the next five years.

Adjusted book value per share increased 11.5% year over year to $46.61.

Adjusted return on equity, excluding foreign currency impact of 14.3%, deteriorated 10 bps year over year.

Capital Deployment

Aflac bought back 10.5 million shares worth $700 million in the second quarter. It had 95.8 million shares left for buyback as of the second-quarter end.

Management announced dividends of 42 cents per share for the third quarter of 2023, sequentially flat. The dividend will be paid out on Sep 1, 2023, to shareholders of record as of Aug 23.

Outlook

Aflac estimates improved sales in its Japan business for 2023, buoyed by product launches, product updates and Japan Post performance.

Management also remains optimistic about strong sales results within its U.S. business. Improving productivity, contributions from platforms like network dental and vision and group life, and disability are expected to continue supporting the results.

Zacks Rank & Key Picks

Aflac currently has a Zacks Rank #3 (Hold). Investors interested in the broader finance space can consider better-ranked companies like Employers Holdings, Inc. (EIG Quick QuoteEIG - Free Report) , Marsh & McLennan Companies, Inc. (MMC Quick QuoteMMC - Free Report) and Ryan Specialty Holdings, Inc. (RYAN Quick QuoteRYAN - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Based in Reno, NV, Employers Holdings has vast operations in the commercial property and casualty insurance industry. The Zacks Consensus Estimate for EIG’s current-year bottom line is pegged at $3.23 per share, indicating a 10.2% jump from a year ago.

New York-based Marsh & McLennan is a globally leading insurance broker. The Zacks Consensus Estimate for MMC’s current-year earnings implies 12.7% year-over-year growth. MMC beat earnings estimates in all the last four quarters, with an average of 3.4%.

Headquartered in Chicago, Ryan Specialty offers specialty products and solutions for different types of clients in the insurance industry. The Zacks Consensus Estimate for RYAN’s current year earnings indicates a 16.5% year-over-year increase. It beat earnings estimates in two of the past four quarters, met once and missed on the other occasion, with an average surprise of 2.7%.