Aflac 2012 Annual Report Download - page 6

DELIVERING OUR PROMISE
Aflac has the privilege of providing financial protection to more than
50 million people in Japan and the United States. We know those
we insure are policyholders now, but they may become a claimant
at any time should they get sick or hurt. When that time comes,
we’ll be there for them to help pay for everyday bills, copayments,
and other out-of-pocket expenses as we promised.
We see each policy on our books as an opportunity – a chance to
fulfill our pledge. But behind each promise, there are thousands of
Aflac employees and agents working like a duck swims: effortless
on the surface, but paddling relentlessly underneath.
2012 was a year in which Aflac extended its record of success and
furthered its opportunities. In both Japan and the United States, we
successfully launched new products, focused on our distribution
systems, and strategically promoted our brand – while also making
significant progress in enhancing our global investment function.
These efforts represent just some of the achievements that made
2012 another year in which we met or exceeded our operating
earnings-per-share objective* – one of the principal financial metrics
we use internally to evaluate management’s performance.
We believe that operating earnings per diluted share, excluding
currency effects, continues to be one of the best measures of our
success and has been a key driver of shareholder value for many
years. As 2012 progressed, our operating earnings per share were
better than expected, and we finished the year toward the high end
of our objective of a 3% to 6% increase before the impact of the yen.
This achievement reflects our ability to remain focused on a proven
growth strategy in good times and bad:
Aflac offers relevant products that help protect consumers
against income and asset loss, reaching them through expanded
distribution channels.
Net earnings in 2012 rose 48.0% over 2011 to $2.9 billion. This
substantial increase is largely due to significantly lower realized
investment losses in 2012 versus 2011 when the company actively
took measures to enhance its investment portfolio.
STRONG CAPITAL PROFILE
As we have communicated over the past several years, maintaining
strong capital ratios remains a top priority for us. The strength
of our capital adequacy ratios demonstrates our commitment
to maintaining financial strength and flexibility on behalf of all of
our stakeholders, particularly our policyholders, bondholders and
shareholders. Our capital strength reflects the quality of our balance
sheet and is driven by huge, steady cash flows from our operations,
especially in Japan. Through strong surplus growth, an improved
portfolio risk profile, and a weaker yen, our capital ratios improved
significantly in 2012. We previously conveyed that our goal was
to end 2012 with an RBC ratio in the range of 400% to 500%. At
the end of 2012, our RBC ratio was 630%, which was significantly
higher than our 2011 RBC ratio of 493%. Capital adequacy in Japan
is principally measured by our solvency margin ratio. Aflac Japan’s
solvency margin ratio at December 31, 2012, was 669%, which was
well above our targeted range of 500% to 600% and a substantial
increase above our 2011 solvency margin ratio of 547%.
While we are pleased by the strength of our capital ratios, we
continue to test our capital adequacy by applying rigorous stress
tests under extreme scenarios. We’re proud the rating agencies
continue to recognize the strength of our platform and balance
sheet. Our financial strength, which exemplifies our ability to pay
claims, is rated A+ (Superior) by A.M. Best, Aa3 by Moody’s, and
AA- by S&P.
It is our longstanding belief that when it comes to deploying capital
for the benefit of our shareholders, growing the cash dividend and
repurchasing our shares are the most attractive means, and that is
something we will continue to pursue. We repurchased $100 million
(1.9 million) of Aflac’s shares in 2012. Additionally, we are very proud
that 2012 marked the 30th consecutive year in which Aflac has
increased the cash dividend. Our objective is to grow the dividend
at a rate that’s generally in line with operating earnings-per-share
growth before the impact of the yen. In 2012, we exceeded that
objective by paying dividends that were 8.9% higher than in 2011,
compared with the 5.1% increase in operating earnings per share
before the impact of currency.
While maintaining a sharp focus on our financial objectives, we also
concentrated on efforts to enhance our business. Combined, we
generated more than $4.0 billion in total new annualized premium
sales in the United States and Japan in 2012. Total revenues rose
14.4% to $25.4 billion, reflecting solid growth in premium income and
net investment income as well as lower realized investment losses.
INVESTMENTS FORTIFY OUR PROMISE
Our vision is to have a best-in-class investment organization that
pays particular attention to the needs of the insurance operation.
We establish this through effective asset/liability management
and capital adequacy management, while also taking into account
investment income needs. Without a doubt, it is our investment
portfolio that fortifies what I believe is the most important promise
an insurance company makes to policyholders – to protect them
MESSAGE FROM MANAGEMENT
Daniel P. Amos, Chairman and CEO
*Aflac defines operating earnings as the profits derived from operations before realized investment gains and losses
from securities transactions, impairments, and derivative and hedging activities, as well as nonrecurring items.
4 AFLAC INCORPORATED 2012 YEAR IN REVIEW