Aflac Incorporated reported its first quarter results.

Total revenues were $5.2 billion during the first quarter of 2020, compared with $5.7 billion in the first quarter of 2019. Net earnings were $566 million, or $0.78 per diluted share, compared with $928 million, or $1.23 per diluted share a year ago. The declines in total revenues and net earnings in the first quarter of 2020 were both driven primarily by an increase in net investment losses.

Net earnings in the first quarter of 2020 included pretax net investment losses of $448 million, or $0.62 per diluted share, compared with pretax net investment gains of $103 million, or $0.14 per diluted share a year ago. The net investment losses were driven by multiple factors, including: a decrease in the fair value of equity securities of $149 million;  losses from certain derivatives and foreign currency activities of $146 million; credit losses of $145 million, of which $65 million resulted from application of the new Current Expected Credit Losses (CECL) accounting standard; and losses from sales and redemptions of $7 million.

The average yen/dollar exchange rate* in the first quarter of 2020 was 108.84, or 1.3% stronger than the average rate of 110.24 in the first quarter of 2019.

Total investments and cash at the end of March 2020 were $137.0 billion, compared with $131.4 billion at March 31, 2019. In the first quarter, Aflac Incorporated repurchased $449 million, or 10.0 million of its common shares. At the end of March 2020, the company had 27.1 million remaining shares authorized for repurchase.

Shareholders' equity was $26.4 billion, or $36.75 per share, at March 31, 2020, compared with $26.0 billion, or $34.90 per share, at  March 31, 2019. Shareholders' equity at the end of the first quarter included a net unrealized gain on investment securities and derivatives of $6.0 billion, compared with a net unrealized gain of $6.5 billion at March 31, 2019. Shareholders' equity at the end of the first quarter also included an unrealized foreign currency translation loss of $1.5 billion, compared with an unrealized foreign currency translation loss of $1.8 billion at March 31, 2019. The annualized return on average shareholders' equity in the first quarter was 8.2%.

Adjusted earnings* in the first quarter were $882 million, compared with $849 million in the first quarter of 2019, reflecting an increase of 3.9%. Adjusted earnings  included $7.1 million of pretax variable investment income on alternative investments, in line with expectations. Adjusted earnings per diluted share* increased 8.0% to $1.21 in the quarter. The stronger yen/dollar exchange rate impacted adjusted earnings per diluted share by $0.01. Adjusted earnings per diluted share excluding the impact of foreign currency* increased 7.1% to $1.20.

Shareholders' equity excluding AOCI* was $22.2 billion, or $30.92 per share at March 31, 2020, compared with $21.6 billion, or $28.89 per share, at March 31, 2019. The annualized adjusted return on equity excluding foreign currency impact* in the first quarter was 15.7%.

AFLAC JAPAN

In yen terms, Aflac Japan's net premium income was ¥343.1 billion for the quarter, or 2.1% lower than a year ago, mainly due to limited-pay products reaching paid-up status. Net investment income, net of amortized hedge costs*, increased 4.0% to ¥69.8 billion . Total revenues in yen declined 1.1% to ¥414.0 billion. Pretax adjusted earnings in yen for the quarter increased 1.2% on a reported basis, reflecting strength in the benefit ratio and favorable net investment income. Pretax adjusted earnings increased 1.7% on a currency-neutral basis. The pretax adjusted profit margin for the Japan segment was 22.5%, compared with 21.9% a year ago.

In dollar terms, net premium income decreased 0.9% to $3.2 billion in the first quarter. Net investment income, net of amortized hedge costs, increased 5.2% to $642 million. Total revenues were flat at $3.8 billion. Pretax adjusted earnings increased 2.5% to $855 million.

For the quarter, new annualized premium sales (sales) for protection-type first sector and third sector products decreased 25.8% to ¥13.6 billion, and total sales decreased 25.4% to ¥14.0 billion, or $129 million. Results in the quarter were impacted primarily by a reduction in cancer insurance sales through Japan Post.

AFLAC U.S.

Aflac U.S. net premium income rose 1.5% to $1.5 billion in the first quarter. Net investment income remained flat at $177 million. Total revenues were up 2.9% to $1.7 billion. Pretax adjusted earnings were $326 million, 0.9% higher than a year ago, despite higher anticipated expenses in the quarter and reflecting a favorable benefit ratio. The pretax adjusted profit margin for the U.S. segment was 19.3%, compared with 19.7% a year ago.

Aflac U.S. sales decreased 5.2% in the quarter to $323 million. Results in the quarter reflect growth in group sales offset by weakness in individual sales.

CORPORATE AND OTHER

For the quarter, total revenue increased 9.5% to $104 million, reflecting net investment income of $53 million and lower corporate expenses. Net investment income, which increased $11 million, benefited primarily from a $29 million pretax contribution from the company's enterprise corporate hedging program. Pretax adjusted earnings were a gain of $2 million, compared with a loss of $18 million a year ago, primarily reflecting higher net investment income from the corporate enterprise hedging program.

DIVIDEND

The board of directors declared the second quarter dividend of $0.28 per share, payable on June 1, 2020 to shareholders of record at the close of business on May 20, 2020.

OUTLOOK

Commenting on the company's results, Chairman and Chief Executive Officer Daniel P. Amos stated: "Throughout this incredibly challenging and unprecedented time prompted by the global COVID-19 pandemic, I am very appreciative of the flexibility, compassion and spirit of our management, employees, and sales agents.  Their safety and health, along with that of our policyholders, is our greatest priority, and we strive each day to be there for our policyholders in their time of need.

"We ended the first quarter and entered this crisis with strong earnings, a strong, well-diversified portfolio, strong capital ratios and ample holding company liquidity further strengthened by recent debt offerings. However, sales production in both Japan and the U.S. did begin to fall off in March, and the decline accelerated in the month of April, impacted by a reduction in face-to-face activity. While our respective sales platforms and distribution partners are working to adapt to the new environment, we believe these trends point to depressed sales at least until we see COVID-19 restrictions subside.

"Recognizing challenges to production and the potential for volatility in core earnings drivers associated with the evolving nature of the global COVID-19 pandemic, it is challenging to forecast with reasonable accuracy the full duration, magnitude, and pace of recovery across our distribution and operations. Therefore, we believe it is prudent to withdraw adjusted earnings guidance for 2020. However, we will continue to provide color on the drivers of our earnings and any trends that we see for the remainder of the year.

"With this in mind, we also remain committed to prudent liquidity and capital management. We are understandably taking a tactical approach to capital allocation, leaving all of our options open for deployment and defense. In terms of repurchase guidance, we remain in the market at reduced levels, and are being tactical in our approach to repurchasing our stock. This will provide us additional flexibility to maintain strong capital ratios on behalf of our policyholders in both the U.S. and Japan. We remain committed to defending and extending our 37-year track record of annual dividend increases. We will also continue to invest opportunistically in our platform and strengthen our franchise through growth investments such as our recent definitive agreement to acquire Zurich North America's U.S. Corporate Life and Pensions (Group Benefits) business. By doing so, we look to emerge from this period in a continued position of strength and leadership."

*See Non-U.S. GAAP Financial Measures section for an explanation of foreign exchange and its impact on the financial statements and definitions of the non-U.S. GAAP financial measures used in this earnings release, as well as a reconciliation of such non-U.S. GAAP financial measures to the most comparable U.S. GAAP financial measures.