AFLAC (AFL)

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See all Bulls Reasons Bulls: Reasons To Buy AFLAC is growing its distribution and making operations more efficient 100% agree AFLAC is growing its distribution and making operations more efficient Strong Growth-AFLAC is growing its distribution line and making its operating mechanism more efficient, which will help increase its growth. View or Edit Reason 1 votes 100% agree AFLAC is the leading company in its field and has a strong track record 100% agree AFLAC is the leading company in its field and has a strong track record Leader-AFLAC is the leading company in its field and has a strong track record to back it up. This includes awards for excellence, as well as being awarded Forbes America's Most Ethical Company award 7 consecutive years. View or Edit Reason 1 votes 100% agree AFLAC duck has been a great hit with consumers 0% agree AFLAC duck has been a great hit with consumers Strong Brand Name-the AFLAC duck has been a great hit with consumers and is one of the most recognizable logos, thus making AFLAC's name stick with potential customers. View or Edit Reason 1 votes 0% agree See all Bears Reasons Bears: Reasons To Sell Deceleration of growth in the U.S. 100% agree Deceleration of growth in the U.S. Growth-while AFLAC as a whole has experienced growth, there has been a deceleration of growth in the U.S. market, while the Japanese market has been even slower. View or Edit Reason 1 votes 100% agree Low Japanese consumer confidence have slowed growth 0% agree Low Japanese consumer confidence have slowed growth Japanese Market-due to the low consumer confidence and crowded insurance industry, growth in this area is low and sales have slightly gone done. View or Edit Reason 1 votes 0% agree Send the authors a comment or suggestion make it easier to cite this page... look to wikipedia as an example [Dismiss] [Done] See All Suggestions

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To stay competitive, AFLAC has focused on restructuring its infrastructure to create better efficiency and make it more streamlined. This has meant expansion of distribution lines, more training of new employees, as well as restructuring current products to take advantage of new efficiency of administration. These changes have helped AFLAC to make strong growth in 2006, and while it experience a burst of growth between 2000 and 2002, the changes in infrastructure and changes in products helped. Part of this growth can be seen in the revenue for the year at $14.6 billion, an increase from $14.3 billion in 2005. Total investment went from $48.9 billion to $51.9 billion. Total assets rose from $56.3 billion to $59.8 billion.

AFLAC has been considered one of the top companies in the fields of life and health insurance, with Fortune magazine ranking it seven times in a row as the America's Most Admired Company in the field of life and health insurance. AFLAC currently insures 40 million people worldwide and is the number one insurer of guaranteed renewable insurance (insurance which requires the policy to be renewed for specified amount of time and that premiums must be paid on time, regardless of the health of the insured).

[edit] Business Overview

AFLAC is divided between two groups: AFLAC U.S. and AFLAC Japan

[edit] AFLAC U.S

This division is the U.S. branch of AFLAC and provides health and life insurance. It has seen steady growth in the past year and has accounted for 25% of total revenue. Inn addition to offering traditional accident and disability policies, this branch also sells specialty policies, such as cancer/specified disease, specified health event, and long-term care, among others. These policies are marketed through individual sellers and are tailored for the consumer.

In depth on the policies themselves, cancer policies are tailored to cover the medical as well as non-medical costs that major providers may not take care of, including benefits that cover first diagnosis, treatments, hospitalization, and certain diagnostic tests. On the accident/disability side, there are benefits for disability policies that last for up to two years and insurance that covers accidental death, and protection for losses due to accidents.

Dental policies are also offered, covering various dental procedures, and vision policies are offered in its new Vision Now package. New health care packages rolled out in 2006 include the Life Protector Series, an insurance portfolio to cover life policies and have more benefits. Revised insurance also brought out were new policies with three new benefit and premium levels that the consumer could choose from.

This division has seen a lot of growth, going from $3.7 billion in 2005 to $4 billion in 2006. Some of this was due to the above mentioned new product roll outs, as well as increase in sales force. Increasing efficiency in operations helped as well, this was helped in part by rigorous training that employees had to go through. Expanding use of technology has helped in the endeavour, with the updated version of AFLAC's SmartApp Next Generation, which helped in the enrollment process. Billing Transformation Program (BTP), is another example of this use of technology, this system is used in billing process, as well as payroll accounts.

The outlook on this division is bright for the coming year, as AFLAC continues to build its distribution lines, strengthen connections with enrolled consumers, improving efficiency through technology, and improving products.

[edit] AFLAC Japan

While the U.S. division has enjoyed success, AFLAC Japan has not had the same success. This division of AFLAC specializes in cancer plans, care plans, general medical, living benefits (to be discussed more below), ordinary life insurance, and annuities. The medical product that AFLAC Japan provides is EVER, a basic hospitalization package, but one that comes in two versions: EVER Half and EVER Bonus. EVER Half cuts premium in half when consumer reaches the ages 60 to 65, while EVER Bonus is the same thing except the added bonus is that it adds a bonus payment every 10 years, unless there has been hospitalization benefit was payed for 10 days or more consecutive days. Cancer insurance provides benefits upon diagnosis and daily benefits for hospitalization, treatments, and terminal care. Life products that are offered are death benefits, as well as WAYS a new product that came out in 2006 that allows consumer to convert portion of life insurance for any medical care before benefits are allowed at predetermined age.

This division has not performed well in Japan, even though it accounted for 72% of the companies total revenue. Due to crowding in the industry, along with poor consumer confidence, there has been a drop in new insurance policies. An aging population has resulted in more "living" benefits than "death" benefits (life benefits become available when companies offering viatical settlements (purchase of terminally ill person's life insurance policy for a percentage of policies face value) purchase life insurance policy of terminally ill person from the person's insurance company. After the purchaser company purchases the purchasees life insurance, the company will extract the costs for expenses and profit, the remainder of the death benefit policy will be giving to the terminally ill person). This has increased the competition in an already crowded market.

Also a factor in the poor performance in Japan is that several of the insurance company players in the industry have had errors in claim payments. AFLAC, like others in the field, have suffered from some of the scandals and errors and thus consumer confidence has been brought down. AFLAC has a strong record and with many Japanese having poor confidence in their health care system, this temporary setback will not hurt AFLAC Japan in the long term.

To help deal with this late trend, AFLAC has been working to set up more shops to allow for more face to face interaction than the traditional mailing way. Though sales were down 8.8%, the total revenue for this division rose from $8.7 billion in 2005, to $8.8 billion in 2006.

[edit] Trends and Forces

• Aflac is heavily dependent on its Japanese operations. In 2007, operations in Japan accounted for 71% of Aflac’s total revenue and 82% of total assets. A slowdown in the Japanese economy could have a large impact on Aflac’s earnings. Furthermore, if the Yen depreciates with respect to the dollar, Aflac will report lower earnings in dollar terms. The opposite is also true if the Yen appreciates.

• Aflac’s business is monitored closely by state, federal, and overseas national entities. In order to conduct business, Aflac must conform to all of these entities’ regulations. This could have a negative impact on its business since it must price quotes differently in different markets, and must therefore also measure its risk on a market-by-market basis, which increases costs.

• General market conditions affect Aflac’s investment portfolio. Like most insurance companies, Aflac invests the majority of the insurance premiums it collects. Overexpose to markets or sectors in decline may cause their financial position to weaken. A decline in interest rates could severely impact Aflac’s investment yields.

• Miscalculations on future policy payments may weaken Aflac’s financial position. Aflac holds in its reserves a certain amount of what they expect future policy payouts should be. If this amount is overstated, Aflac’s financial position will weaken since the additional amount was not invested. Furthermore, if this amount is too little, then Aflac will experience a decrease in earnings since the difference will be charged to its current-year earnings.

[edit] Consumer Confidence

The insurance industry in Japan has had low consumer confidence due several cash payment errors, but this appears to be a short term trend as many Japanese are dissatisfied with national health care system, private health insurance in high demand. For the time being, however, growth in this area has slowed down.

[edit] Weakening Yen

The Yen as of now is depreciating to the dollar, thus affecting results of sales in Japan, though they may appear as huge earnings, this may be deceptive as the dollar continues to get stronger.

[edit] Increased competition in Japanese market

Between 2001 and 2005, amount of insurance companies offering policies doubled, this has led to an overkill of information, thus making it hard for consumers to choose which company is the best for them. Also, depending on how big the insurance company is or how efficient, may pose a threat to AFLAC's market share, or how much of the industry AFLAC controls.

[edit] Interest Rates

AFLAC is sensitive to interest rates, due to fact that when they invest, depending on what they invest on, there is an interest rate. If the interest rate, say on a bond, is high then more money will come back to AFLAC and they can afford to lower premiums, but if interest rates are low then premiums will not be lowered.

[edit] Credit Risk

Bond issuers may not be able to pay to repay principal or interest, in which case they default on the payment. AFLAC is not immune to this and the securities in their investment portfolios can be subject to defaults.Credit Default Swaps in Aflac's portfolio are particularly vulnerable to such risk.

[edit] References