Aflac Profit Falls 31%, Missing Estimates, on Japan Sales

Aflac Inc. (AFL), the largest seller of supplemental health coverage, said third-quarter profit fell 31 percent as sales slowed in Japan. The firm increased its quarterly dividend.

Net income dropped to $702 million, or $1.50 a share, from $1 billion, or $2.16, a year earlier, the Columbus, Georgia-based insurer said today in a statement. Operating profit, which excludes some investment results, was $1.47 a share, missing the $1.48 average estimate of 21 analysts in a Bloomberg survey.

Aflac, which uses a talking duck in advertisements, counts Japan as its largest market. Chief Executive Officer Dan Amos, 62, has been working to increase revenue there through marketing partnerships such as with Japan Post Holdings Co., after higher prices for some products cut into sales. A decline in the yen also weighed on profit, as Aflac converts results from the Japanese currency to dollars for reporting purposes.

“They’ve been hurt somewhat by the weak yen,” Robert McMillan, an equity analyst at Standard & Poor’s Capital IQ, said by phone before results were announced. “There should be benefits from partnering” with Japan Post.

New annualized premium sales in Japan fell 42 percent in the quarter to 32.4 billion yen ($330 million), compared with a 32 percent increase a year earlier. In the U.S., sales fell 1.5 percent to $330 million.

Boosts Dividend

Aflac fell 1.5 percent to $66 at 4:57 p.m. in New York. The shares gained 26 percent this year through the end of regular trading today, outpacing the 24 percent advance of the Standard & Poor’s 500 Index. (SPX)

The firm increased its quarterly dividend 5.7 percent to 37 cents a share, matching the Bloomberg Dividend Forecast. Aflac said it may increase the pace of share repurchases after improvements in its solvency margin ratio, or SMR, a metric reviewed by regulators in Japan. The company now expects to buy back $800 million to $1 billion in stock next year, compared with a previous range of $600 million to $900 million.

A reinsurance agreement in Japan, which helps transfer risk, improved the SMR to about 730 percent on Sept. 30 from 585 percent three months earlier, Aflac said. The company also increased investments in Japanese government bonds, after announcing in July that it would limit investments in U.S. corporate debt amid volatility in fixed-income markets.

Book value, a measure of assets minus liabilities, rose to $31.47 a share, from $29.46 three months earlier. The yen traded at 98.27 per dollar on Sept. 30, weaker than the 77.96 level at the end of the third quarter of 2012.

The insurer reached a deal in July with Japan Post to sell policies in as many as 20,000 post offices. Aflac currently offers the coverage in about 1,000 locations. In September, Daido Life Insurance Co. agreed to sell Aflac’s cancer policies to members of an organization of small and mid-size companies.

To contact the reporter on this story: Zachary Tracer in New York at ztracer1@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

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