Aflac Incorporated reported its fourth quarter results.

Total revenues were $5.1 billion during the fourth quarter of 2018, compared with $5.4 billion in the fourth quarter of 2017. Net earnings were $525 million, or $0.69 per diluted share, compared with $2.6 billion, or $3.27 per diluted share a year ago. Net earnings for both the fourth quarter and full year of 2017 also included a $1.9 billion benefit from the U.S. Tax Cut and Jobs Act ("Tax Reform").

Net earnings in the fourth quarter of 2018 included pretax net realized investment losses of $322 million, or $0.42 per diluted share, compared with pretax net gains of $58 million, or $0.07 per diluted share a year ago. Included in those net losses were $64 million of losses related to impairments and loan loss reserve changes. Pretax net realized losses also included $130 million in losses from changes in the fair value of equity securities and $136 million in losses from certain derivatives and foreign currency activities. The income tax benefit on these net earnings adjustments in the quarter was $77 million.

The average yen/dollar exchange rate* in the fourth quarter of 2018 was 112.87, or 0.1% stronger than the average rate of 112.98 in the fourth quarter of 2017. For the full year, the average exchange rate was 110.39, or 1.6% stronger than the rate of 112.16 a year ago, which increased Aflac Japan's growth rates in dollar terms.

Adjusted earnings* in the fourth quarter were $779 million, compared with $633 million in the fourth quarter of 2017. Adjusted earnings per diluted share* increased 27.5% to $1.02 in the quarter, largely reflecting the impact of Tax Reform on the effective tax rate, overall strong net investment income and favorable benefit ratios. The slightly stronger yen/dollar exchange rate did not impact adjusted earnings per diluted share.

For the full year of 2018, total revenues were up 0.4% to $21.8 billion, compared with $21.7 billion for the full year of 2017. Net earnings were $2.9 billion, or $3.77 per diluted share, compared with $4.6 billion, or $5.77 per diluted share, for the full year of 2017. Adjusted earnings for the full year of 2018 were $3.2 billion, or $4.16 per diluted share, compared with $2.7 billion, or $3.40 per diluted share, in 2017. Excluding the positive impact of $0.04 per share from the stronger yen/dollar exchange rate, adjusted earnings per diluted share increased 21.5% for the full year of 2018.

Total investments and cash at the end of December 2018 were $126.2 billion, compared with $123.7 billion at December 31, 2017. In the fourth quarter, Aflac repurchased $378 million, or 8.5 million of its common shares. For the full year, Aflac repurchased $1.3 billion, or 28.9 million of its common shares. At the end of December, the company had 69.0 million remaining shares authorized for repurchase.

Shareholders' equity was $23.5 billion, or $31.06 per share, at December 31, 2018, compared with $24.6 billion, or $31.50 per share, at December 31, 2017. Shareholders' equity at the end of the fourth quarter included a net unrealized gain on investment securities and derivatives of $4.2 billion, compared with a net unrealized gain of $5.9 billion at December 31, 2017. Shareholders' equity at December 31, 2018 and 2017 also included an unrealized foreign currency translation loss of $1.8 billion respectively. The annualized return on average shareholders' equity in the fourth quarter was 9.0%.

Shareholders' equity excluding AOCI was $21.3 billion, or $28.22 per share at December 31, 2018, compared with $20.6 billion, or $26.34 per share, at December 31, 2017. The annualized adjusted return on equity excluding foreign currency impact* in the fourth quarter was 14.6%.

AFLAC JAPAN

In yen terms, Aflac Japan's premium income, net of reinsurance, was ¥351.4 billion for the quarter, or 0.8% 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 7.2% to ¥68.0 billion, primarily driven by higher income from dollar-denominated floating rate assets. Total revenues in yen increased 0.4% to ¥420.6 billion. Pretax adjusted earnings in yen for the quarter increased 6.4% on both a reported and 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 21.4%, compared with 20.2% a year ago.

For the full year, premium income in yen was ¥1.4 trillion, or 1.5% lower than a year ago, reflecting the impact of certain policies reaching paid-up status. Net investment income, net of amortized hedge costs, increased 5.5% to ¥265.5 billion. Total revenues in yen were down 0.5% to ¥1.7 trillion. Pretax adjusted earnings were ¥354.2 billion, or 3.1% higher than a year ago.

For the quarter in dollar terms, premium income, net of reinsurance, decreased 0.7% to $3.1 billion in the fourth quarter. Net investment income, net of amortized hedge costs, increased 7.7% to $602 million. Total revenues increased by 0.5% to $3.7 billion. Pretax adjusted earnings increased 6.8% to $798 million.

For the full year in dollar terms, premium income, net of reinsurance, was $12.8 billion, or 0.1% higher than a year ago. Net investment income, net of amortized hedge costs, increased 7.5% to $2.4 billion. Total revenues were up 1.2% to $15.2 billion. Pretax adjusted earnings were $3.2 billion, or 5.0% higher than a year ago.

For the quarter, third sector sales, which include cancer, medical and income support products, increased 1.0% to ¥22.2 billion and total new annualized premium sales (sales) increased 2.2% to ¥24.2 billion, or $214 million.

For the full year, third sector sales increased 1.6% and total sales increased 1.1% to ¥95.9 billion, or $869 million.

AFLAC U.S.

Aflac U.S. premium income rose 2.7% to $1.4 billion in the fourth quarter. Net investment income increased 0.5% to $183 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 2.4% to $1.6 billion. Pretax adjusted earnings were $274 million, 4.9% lower than a year ago, driven by anticipated increases in expenses in the quarter. The pretax adjusted profit margin for the U.S. segment was 17.0%, compared with 18.3% a year ago.

For the full year, premium income rose 2.6% to $5.7 billion. Net investment income increased 0.8% to $727 million. Total revenues were up 2.4% to $6.4 billion and pretax adjusted earnings were $1.3 billion, 3.2% higher than a year ago.

Aflac U.S. sales increased 4.3% in the quarter to $537 million. For the full year, sales increased 3.2% to $1.6 billion.

CORPORATE AND OTHER

For the quarter, total revenue increased 36.8% to $93 million, reflecting net investment income of $38 million. Net investment income, which increased $27 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 $26 million, compared with a loss of $64 million a year ago.

For the full year, total revenue increased 24.6% to $339 million, reflecting net investment income of $113 million. Net investment income, which increased $78 million, benefited from a $36 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 $139 million, compared with a loss of $214 million a year ago.

DIVIDEND

The board of directors declared the first quarter dividend of $0.27 per share, payable on March 1, 2019 to shareholders of record at the close of business on February 20, 2019.

OUTLOOK

Commenting on the company's results, Chairman and Chief Executive Officer Daniel P. Amos stated: "We are pleased with the company's overall performance for the year. Total pretax adjusted earnings increased 6.6% driven by increased pretax profit margins in both the U.S. and Japan segments. Improved profitability is particularly impressive when considering we have stepped-up investment in our core technology platforms and growth initiatives. Investing in growth and innovation is a critical strategic focus for 2019. I am pleased with the Board's decision to increase the dividend, coming off our 36th consecutive year of dividend increases and a recognition of the stability of our earnings and capital generation. It also demonstrates our commitment to rewarding our shareholders.

"Aflac Japan, our largest earnings contributor, converted from a branch to a subsidiary at the beginning of April and generated strong financial performance. As we enter a new year, we expect to see a slight decline in Aflac Japan's total earned premium in 2019 mainly due to limited-pay policies reaching paid-up status. We expect net earned premium of third sector and first sector protection products combined to grow in the 1% to 2% range. Sales are expected to decline in the low-to-mid single digits coming off the highest third sector sales year in recent history, which included the very successful launch of our new cancer insurance products.

"Turning to our U.S. operations, we are pleased with a year of strong financial performance from Aflac U.S. in 2018, which includes  elevated expenses as a result of accelerated investments in the platform post U.S. Tax Reform. In line with what we said on the most recent outlook call, we expect Aflac U.S. to deliver continued solid results in 2019 with earned premium growth of 2% to 3% and stable sales growth.

"We remain committed to maintaining strong capital ratios on behalf of our policyholders and maintaining a strong risk-based capital ratio in the U.S. and solvency margin ratio in Japan. We will also continue to reinvest in our business recognizing that prudent investment in our platform is also critical to our growth strategy and driving efficiencies that ultimately will impact the bottom line. We balance reinvestment with a focus on increasing the dividend and repurchasing shares. We expect share repurchase will be in the range of $1.3 to $1.7 billion in 2019, with the range allowing us to be more tactical in our deployment strategy. As always, this assumes stable capital conditions and the absence of compelling alternatives.

"As we look to 2019, our objective is to produce stable adjusted earnings per diluted share of $4.10 to $4.30, assuming the 2018 weighted-average exchange rate of 110.39 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."