Aflac Incorporated reported its third quarter results.

Total revenues were $5.6 billion during the third quarter of 2018, compared with $5.5 billion in the third quarter of 2017. Net earnings were $845 million, or $1.09 per diluted share, compared with $716 million, or $.90 per diluted share a year ago.

Net earnings in the third quarter of 2018 included pretax net realized investment gains of $88 million, or $0.11 per diluted share, compared with pretax net gains of $71 million, or $0.09 per diluted share a year ago. Included in those net gains were $5 million of losses related to impairments and loan loss reserve changes. Pretax net realized gains also included $27 million from changes in the fair value of equity securities. Net earnings also included a pretax charge of $3 million, primarily reflecting Japan branch conversion costs. The income tax expense on these net earnings adjustments in the quarter was $21 million.

The average yen/dollar exchange rate in the third quarter of 2018 was 111.48, or 0.4% weaker than the average rate of 111.03 in the third quarter of 2017. For the first nine months, the average exchange rate was 109.54, or 2.1% stronger than the rate of 111.89 a year ago, which increased Aflac Japan's growth rates in dollar terms.

Adjusted earnings* in the third quarter were $792 million, compared with $676 million in the third quarter of 2017. Adjusted earnings per diluted share* increased 21.2% to $1.03 in the quarter, largely reflecting overall favorable pretax margins and a lower effective tax rate as a result of tax reform. Adjusted earnings in the quarter also included a favorable tax item of $8 million, or $0.01 per diluted share. The slightly weaker yen/dollar exchange rate did not have an impact on adjusted earnings per diluted share.

For the first nine months of 2018, total revenues were up 2.4% to $16.6 billion, compared with $16.2 billion in the first nine months of 2017. Net earnings were $2.4 billion, or $3.08 per diluted share, compared with $2.0 billion, or $2.52 per diluted share, for the first nine months of 2017. Adjusted earnings for the first nine months of 2018 were $2.4 billion, or $3.15 per diluted share, compared with $2.1 billion, or $2.60 per diluted share, in 2017. Excluding the positive impact of $0.03 per share from the stronger yen/dollar exchange rate, adjusted earnings per diluted share increased 19.6% for the first nine months of 2018.

Total investments and cash at the end of September 2018 were $124.2 billion, compared with $122.5 billion at September 30, 2017. In the third quarter, Aflac repurchased $322 million, or 7.0 million of its common shares.  At the end of September, the company had 77.6 million remaining shares authorized for repurchase.

Shareholders' equity was $23.2 billion, or $30.45 per share, at September 30, 2018, compared with $22.0 billion, or $27.90 per share, at September 30, 2017. Shareholders' equity at the end of the third quarter included a net unrealized gain on investment securities and derivatives of $4.2 billion, compared with a net unrealized gain of $5.4 billion at September 30, 2017. Shareholders' equity at the end of the third quarter also included unrealized foreign currency translation loss of $2.1 billion, compared with an unrealized foreign currency translation loss of $1.7 billion at September 30, 2017. The annualized return on average shareholders' equity in the third quarter was 14.4%.

Shareholders' equity excluding AOCI was $21.3 billion, or $27.94 per share at September 30, 2018, compared with $18.4 billion, or $23.42 per share, at September 30, 2017, primarily driven by the adoption of tax reform and the associated $1.9 billion reduction of deferred tax liability. The annualized adjusted return on equity excluding foreign currency impact* in the third quarter was 15.0%.

AFLAC JAPAN

In yen terms, Aflac Japan's premium income, net of reinsurance, was ¥352.0 billion for the quarter, or 0.9% lower than a year ago, with growth in third sector premium more than offset by the reduction in first sector premium due to savings products reaching premium paid-up status. Net investment income, net of amortized hedge costs, increased 8.3% to ¥67.7 billion, driven by higher income from dollar-denominated floating rate assets. Total revenues in yen increased 0.4% to ¥420.9 billion. Pretax adjusted earnings in yen for the quarter increased 1.4% on a reported basis and 1.3% on a currency-neutral basis, driven largely by higher-yielding U.S. dollar investments and a favorable third sector benefit ratio. The pretax adjusted profit margin for the Japan segment was 20.1%, compared with 19.9% a year ago.

For the first nine months, premium income in yen was ¥1.1 trillion, or 1.8% lower than a year ago. Net investment income, net of amortized hedge costs, increased 4.9% to ¥197.5 billion. Total revenues in yen were down 0.8% to ¥1.3 trillion. Pretax adjusted earnings were ¥264.1 billion, or 2.0% higher than a year ago.

For the quarter in dollar terms, premium income, net of reinsurance, decreased 1.3% to $3.2 billion in the third quarter. Net investment income, net of amortized hedge costs, increased 8.0% to $606 million. Total revenues increased by 0.1% to $3.8 billion. Pretax adjusted earnings increased 1.1% to $756 million.

For the first nine months in dollar terms, premium income, net of reinsurance, was $9.6 billion, or 0.3% higher than a year ago. Net investment income, net of amortized hedge costs, increased 7.5% to $1.8 billion. Total revenues were up 1.4% to $11.5 billion. Pretax adjusted earnings were $2.4 billion, or 4.5% higher than a year ago.

For the quarter, third sector sales, which include cancer, medical and income support products, decreased 2.6% to ¥21.6 billion and total new annualized premium sales decreased 0.7% to ¥23.6 billion, or $212 million.

For the first nine months, third sector sales increased 1.8% and new annualized premium sales increased 0.7% to ¥71.7 billion, or $655 million.

AFLAC U.S.

Aflac U.S. premium income rose 2.4% to $1.4 billion in the third quarter. Net investment income increased 3.3% to $187 million, driven by higher income from floating rate assets partially offset from the drawdown of excess capital in the U.S.  segment. Total revenues were up 2.6% to $1.6 billion. Pretax adjusted earnings were $334 million, 5.7% higher than a year ago, driven by higher net investment income and a favorable benefit ratio in the quarter. The pretax adjusted profit margin for the U.S. segment was 20.7%, compared with 20.1% a year ago.

For the first nine months, premium income rose 2.6% to $4.3 billion. Net investment income increased 0.9% to $544 million. Total revenues were up 2.5% to $4.8 billion and pretax adjusted earnings were $1.0 billion, 5.8% higher than a year ago.

Aflac U.S. total new annualized premium sales increased 3.3% in the quarter to $359 million. For the first nine months of the year, total new sales increased 2.6% to $1.1 billion.

CORPORATE AND OTHER

For the quarter, total revenue increased 18.8% to $82 million, reflecting net investment income of $27 million. Net investment income, which increased $17 million, benefited from a $9 million pretax contribution from the company's corporate yen hedging program and invested assets transferred as part of the drawdown of excess capital in the U.S. segment beginning in the fourth quarter of 2017.

Pretax adjusted earnings were a loss of $29 million, compared with a loss of $50 million a year ago.

For the first nine months of the year, total revenue increased 20.1% to $245 million, reflecting net investment income of $74 million. Net investment income, which increased $50 million, benefited from an $18 million pretax contribution from the company's corporate yen hedging program and invested assets transferred as part of the drawdown of excess capital in the U.S. segment beginning in the fourth quarter of 2017. Pretax adjusted earnings were a loss of $113 million, compared with a loss of $150 million a year ago.

DIVIDEND

The board of directors declared the fourth quarter dividend of $0.26 per share, payable on December 3, 2018 to shareholders of record at the close of business on November 21, 2018.

OUTLOOK

Commenting on the company's results, Chairman and Chief Executive Officer Daniel P. Amos stated: "We are pleased that our third quarter results in both Japan and the United States reflected solid performance overall and advanced our progress toward achieving the company's objectives for 2018.

"Aflac Japan, our largest earnings contributor, generated strong financial results for the quarter and first nine months of the year. In yen terms, results on an adjusted basis were better than expected for the quarter, resulting primarily from strong investment income and benefit ratios. Third sector sales in the quarter performed in line with our expectations, including sales growth in our new cancer insurance offset by a natural decline in medical insurance sales. We anticipate similar results in the fourth quarter, which would result in low-single- digit third sector sales growth for the year. Additionally, we continue to expect that third sector earned premium will maintain steady growth in the 2% to 3% range for the year, reflecting Aflac's stable sales and continued high persistency.

"Turning to our U.S. operations, we are pleased with the financial performance and continued strength in profitability. Our results on an adjusted basis reflect higher investment income and a lower benefit ratio. Consistent with our guidance, we expect expenses to increase in the fourth quarter of the year as we accelerate investment in the platform and follow through on our commitment to reinvest tax savings back into the business. Our third quarter new annualized premium sales results, together with our sales outlook, put us on track to come in toward the lower end of our anticipated 2018 new annualized premium sales growth of 3% to 5%. We believe we have the right strategy in place for continuing to grow our franchise in the U.S. We believe that our investments in distribution and our customer experience objectives will continue to yield sales growth and stable persistency, driving an earned premium growth outlook of 2% to 3% for the year.

"We remain committed to maintaining strong capital ratios on behalf of our policyholders and balancing our financial strength with increasing the dividend, repurchasing shares and reinvesting in our business. We continue to anticipate share repurchase will be in the range of $1.1 to $1.4 billion in 2018. At the same time, we recognize that prudent investment in our platform is also critical to our growth strategy as well as driving efficiencies that will impact the bottom line for the long term. It goes without saying that we treasure our record of dividend growth. With this quarter's declaration, 2018 will mark the 36th consecutive year of dividend increases. As we communicated earlier this year, the Board reserves the right to look at the dividend on a quarterly basis, but we have reset our review cycle for the dividend increase to the first quarter.

"Consistent strong performance in the first nine months of the year puts us on track to achieve the high end of our revised 2018 adjusted earnings per diluted share guidance of $3.90 to $4.06, assuming the 2017 weighted-average exchange rate of 112.16 yen to the dollar. As always, we are working very hard to achieve our earnings-per-share objective while also ensuring we deliver on our promise to policyholders."