Edgar Filing: AFLAC INC

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-07434

Aflac Incorporated

_________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

(Exact name of registrant as specified in its charter)



Georgia		58-1167100
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1932 Wynnton Road, Columbus, Georgia		31999
(Address of principal executive offices)		(ZIP Code)

706.323.3431

(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). þ Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer þ		Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)		Smaller reporting company ¨
		Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes þ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Class		April 17, 2019
Common Stock, $.10 Par Value		745,469,119

Aflac Incorporated and Subsidiaries

Quarterly Report on Form 10-Q

For the Quarter Ended March 31, 2019

Table of Contents



PART I.		FINANCIAL INFORMATION:	Page

	Item 1.	Financial Statements (Unaudited)

		Review by Independent Registered Public Accounting Firm	1

		Report of Independent Registered Public Accounting Firm	2

		Consolidated Statements of Earnings Three Months Ended March 31, 2019 and 2018	3

		Consolidated Statements of Comprehensive Income (Loss) Three Months Ended March 31, 2019 and 2018	4

		Consolidated Balance Sheets March 31, 2019, and December 31, 2018	5

		Consolidated Statements of Shareholders' Equity Three Months Ended March 31, 2019 and 2018	6

		Consolidated Statements of Cash Flows Three Months Ended March 31, 2019 and 2018	7

		Notes to the Consolidated Financial Statements	8

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	62

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	92

	Item 4.	Controls and Procedures	92

PART II.		OTHER INFORMATION:

	Item 1.	Legal Proceedings	93

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	93

	Item 6.	Exhibits	94

Items other than those listed above are omitted because they are not required or are not applicable.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Review by Independent Registered Public Accounting Firm

The March 31, 2019, and 2018, consolidated financial statements included in this filing have been reviewed by KPMG LLP, an independent registered public accounting firm, in accordance with established professional standards and procedures for such a review.

The report of KPMG LLP commenting upon its review is included on the following page.

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Aflac Incorporated:

Results of Review of Interim Financial Information

We have reviewed the consolidated balance sheet of Aflac Incorporated and subsidiaries (the Company) as of March 31, 2019, the related consolidated statements of earnings, comprehensive income (loss), shareholders' equity, and cash flows for the three-month periods ended March 31, 2019 and 2018, and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2018, and the related consolidated statements of earnings, comprehensive income (loss), shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 25, 2019, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2018, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

This consolidated interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our reviews in accordance with the standards of the PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ KPMG LLP

Atlanta, Georgia

April 26, 2019

Aflac Incorporated and Subsidiaries

Consolidated Statements of Earnings



	Three Months Ended March 31,
(In millions, except for share and per-share amounts - Unaudited)	2019				2018
Revenues:
Net premiums, principally supplemental health insurance		$	4,691			$	4,745
Net investment income		878				837
Realized investment gains (losses):
Other-than-temporary impairment losses realized		(2		)		(7		)
Other gains (losses)		73				(127		)
Total realized investment gains (losses)		71				(134		)
Other income (loss)		17				16
Total revenues		5,657				5,464
Benefits and expenses:
Benefits and claims, net		2,967				3,042
Acquisition and operating expenses:
Amortization of deferred policy acquisition costs		340				314
Insurance commissions		331				337
Insurance and other expenses		719				733
Interest expense		58				56
Total acquisition and operating expenses		1,448				1,440
Total benefits and expenses		4,415				4,482
Earnings before income taxes		1,242				982
Income taxes		314				265
Net earnings		$	928			$	717
Net earnings per share:
Basic		$	1.23			$	.92
Diluted		1.23				.91
Weighted-average outstanding common shares used in computing earnings per share (In thousands):
Basic		751,423				778,550
Diluted		755,790				783,852
Cash dividends per share		$	.27			$	.26

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)



	Three Months Ended March 31,
(In millions - Unaudited)	2019				2018
Net earnings		$	928			$	717
Other comprehensive income (loss) before income taxes:
Unrealized foreign currency translation gains (losses) during period		(1		)		824
Unrealized gains (losses) on fixed maturity securities:
Unrealized holding gains (losses) on fixed maturity securities during period		3,196				(1,931		)
Reclassification adjustment for realized (gains) losses on fixed maturity securities included in net earnings		(17		)		(2		)
Unrealized gains (losses) on derivatives during period		(3		)		6
Pension liability adjustment during period		7				(3		)
Total other comprehensive income (loss) before income taxes		3,182				(1,106		)
Income tax expense (benefit) related to items of other comprehensive income (loss)		852				(763		)
Other comprehensive income (loss), net of income taxes		2,330				(343		)
Total comprehensive income (loss)		$	3,258			$	374

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Consolidated Balance Sheets



(In millions, except for share and per-share amounts)	March 31, 2019 (Unaudited)				December 31, 2018
Assets:
Investments and cash:
Fixed maturity securities available for sale, at fair value (amortized cost $74,950 in 2019 and $73,007 in 2018)		$	83,381			$	78,429
Fixed maturity securities available for sale - consolidated variable interest entities, at fair value (amortized cost $3,756 in 2019 and $3,849 in 2018)		4,543				4,466
Fixed maturity securities held to maturity, at amortized cost (fair value $37,446 in 2019 and $36,722 in 2018)		30,163				30,318
Equity securities, at fair value		1,041				987
Commercial mortgage and other loans (includes $5,892 in 2019 and $5,528 in 2018 of consolidated variable interest entities)		7,180				6,919
Other investments (includes $374 in 2019 and $328 in 2018 of consolidated variable interest entities)		1,238				787
Cash and cash equivalents		3,892				4,337
Total investments and cash		131,438				126,243
Receivables		858				851
Accrued investment income		728				773
Deferred policy acquisition costs		9,892				9,875
Property and equipment, at cost less accumulated depreciation ⁽¹⁾		559				443
Other		2,204				2,221
Total assets		$	145,679			$	140,406
Liabilities and shareholders’ equity:
Liabilities:
Policy liabilities:
Future policy benefits		$	87,011			$	86,368
Unpaid policy claims		4,625				4,584
Unearned premiums		4,859				5,090
Other policyholders’ funds		7,185				7,146
Total policy liabilities		103,680				103,188
Income taxes		5,182				4,020
Payables for return of cash collateral on loaned securities		1,969				1,052
Notes payable and lease obligations ⁽¹⁾		5,900				5,778
Other		2,899				2,906
Total liabilities		119,630				116,944
Commitments and contingent liabilities (Note 12)
Shareholders’ equity:
Common stock of $.10 par value. In thousands: authorized 1,900,000 shares in 2019 and 2018; issued 1,348,600 shares in 2019 and 1,347,540 shares in 2018		135				135
Additional paid-in capital		2,208				2,177
Retained earnings		32,513				31,788
Accumulated other comprehensive income (loss):
Unrealized foreign currency translation gains (losses)		(1,848		)		(1,847		)
Unrealized gains (losses) on fixed maturity securities		6,561				4,234
Unrealized gains (losses) on derivatives		(26		)		(24		)
Pension liability adjustment		(206		)		(212		)
Treasury stock, at average cost		(13,288		)		(12,789		)
Total shareholders’ equity		26,049				23,462
Total liabilities and shareholders’ equity		$	145,679			$	140,406

⁽¹⁾See Note 1 of the Notes to the Consolidated Financial Statements for the adoption of accounting guidance on January 1, 2019 related to leases.

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Consolidated Statements of Shareholders’ Equity



(In millions, except for per share amounts - Unaudited)	Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Shareholders' Equity
Balance at December 31, 2018	$	135	$	2,177	$	31,788		$	2,151		$	(12,789	)	$	23,462
Net earnings	0		0		928			0			0			928
Unrealized foreign currency translation gains (losses) during period, net of income tax	0		0		0			(1		)	0			(1		)
Unrealized gains (losses) on fixed maturity securities during period, net of income taxes and reclassification adjustments	0		0		0			2,327			0			2,327
Unrealized gains (losses) on derivatives during period, net of income taxes	0		0		0			(2		)	0			(2		)
Pension liability adjustment during period, net of income taxes	0		0		0			6			0			6
Dividends to shareholders ($.27 per share)	0		0		(203		)	0			0			(203		)
Exercise of stock options	0		11		0			0			0			11
Share-based compensation	0		8		0			0			0			8
Purchases of treasury stock	0		0		0			0			(517		)	(517		)
Treasury stock reissued	0		12		0			0			18			30
Balance at March 31, 2019	$	135	$	2,208	$	32,513		$	4,481		$	(13,288	)	$	26,049


(In millions, except for per share amounts - Unaudited)	Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Shareholders' Equity
Balance at December 31, 2017	$	135	$	2,052	$	29,895		$	4,028		$	(11,512	)	$	24,598
Cumulative effect of change in accounting principles, net of income tax⁽¹⁾	0		0		(226		)	226			0			0
Net earnings	0		0		717			0			0			717
Unrealized foreign currency translation gains (losses) during period, net of income tax	0		0		0			447			0			447
Unrealized gains (losses) on fixed maturity securities during period, net of income taxes and reclassification adjustments⁽¹⁾	0		0		0			(984		)	0			(984		)
Unrealized gains (losses) on derivatives during period, net of income taxes	0		0		0			2			0			2
Pension liability adjustment during period, net of income taxes	0		0		0			(34		)	0			(34		)
Dividends to shareholders ($.26 per share)	0		0		(203		)	0			0			(203		)
Exercise of stock options	0		14		0			0			0			14
Share-based compensation	0		10		0			0			0			10
Purchases of treasury stock	0		0		0			0			(309		)	(309		)
Treasury stock reissued	0		13		0			0			16			29
Balance at March 31, 2018	$	135	$	2,089	$	30,183		$	3,685		$	(11,805	)	$	24,287

⁽¹⁾See Note 1 of the Notes to the Consolidated Financial Statements in the Company's 2018 Annual Report on Form 10-K

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Consolidated Statements of Cash Flows



	Three Months Ended March 31,
(In millions - Unaudited)	2019				2018
Cash flows from operating activities:
Net earnings		$	928			$	717
Adjustments to reconcile net earnings to net cash provided by operating activities:
Change in receivables and advance premiums		35				14
Capitalization of deferred policy acquisition costs		(357		)		(349		)
Amortization of deferred policy acquisition costs		340				314
Increase in policy liabilities