Aflac Incorporated reported its second quarter results.

Total revenues were $5.6 billion during the second quarter of 2018, compared with $5.4 billion in the second quarter of 2017. Net earnings were $832 million, or $1.07 per diluted share, compared with $713 million, or $.89 per diluted share a year ago.

Net earnings in the second quarter of 2018 included pretax net realized investment gains of $35 million, or $0.04 per diluted share, compared with pretax net losses of $19 million, or $0.02 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 $18 million from changes in the fair value of equity securities. Net earnings also included a pretax charge of $41 million, primarily reflecting Japan branch conversion costs. The income tax benefit on these net earnings adjustments in the quarter was $4 million.

The average yen/dollar exchange rate in the second quarter of 2018 was 109.14, or 1.8% stronger than the average rate of 111.10 in the second quarter of 2017. For the first six months, the average exchange rate was 108.61, or 3.4% stronger than the rate of 112.31 a year ago. Aflac Japan's growth rates in dollar terms for the second quarter and first six months were magnified as a result of the stronger yen/dollar exchange rate.

Adjusted earnings* in the second quarter were $835 million, compared with $731 million in the second quarter of 2017. Adjusted earnings per diluted share* increased 16.3% to $1.07 in the quarter, largely reflecting overall favorable pretax margins and a lower effective tax rate as a result of tax reform. The stronger yen/dollar exchange rate increased adjusted earnings per diluted share by $0.01 for the second quarter. Excluding the impact of the stronger yen/dollar exchange rate, adjusted earnings per diluted share increased 15.2% to $1.06.

For the first six months of 2018, total revenues were up 3.0% to $11.1 billion, compared with $10.7 billion in the first half of 2017. Net earnings were $1.6 billion, or $1.98 per diluted share, compared with $1.3 billion, or $1.62 per diluted share, for the first six months of 2017. Adjusted earnings for the first half of 2018 were $1.7 billion, or $2.12 per diluted share, compared with $1.4 billion, or $1.75 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 18.9% for the first six months of 2018.

Total investments and cash at the end of June 2018 were $127.9 billion, compared with $121.9 billion at June 30, 2017. In the second quarter, Aflac repurchased $306 million, or 6.8 million of its common shares.  At the end of June, the company had 84.6 million remaining shares authorized for repurchase.

Shareholders' equity was $23.8 billion, or $30.94 per share, at June 30, 2018, compared with $21.5 billion, or $27.15 per share, at June 30, 2017. Shareholders' equity at the end of the second quarter included a net unrealized gain on investment securities and derivatives of $4.8 billion, compared with a net unrealized gain of $5.2 billion at June 30, 2017. Shareholders' equity at the end of the second quarter also included unrealized foreign currency translation loss of $1.8 billion, compared with an unrealized foreign currency translation loss of $1.6 billion at June 30, 2017. The annualized return on average shareholders' equity in the second quarter was 13.8%.

Shareholders' equity excluding AOCI was $20.9 billion, or $27.23 per share at June 30, 2018, compared with $18.1 billion, or $22.86 per share, at June 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 second quarter was 15.9%.

AFLAC JAPAN

In yen terms, Aflac Japan's premium income, net of reinsurance, was ¥351.9 billion for the quarter, or 1.7% 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 6.4% to ¥66.1 billion, driven by higher income from floating rate assets. Total revenues in yen declined 0.5% to ¥419.3 billion. Pretax adjusted earnings in yen for the quarter increased 3.6% on a reported basis and 4.3% 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 21.8%, compared with 20.9% a year ago.

For the first six months, premium income in yen was ¥705.2 billion, or 2.2% lower than a year ago. Net investment income, net of amortized hedge costs, increased 3.2% to ¥129.8 billion. Total revenues in yen were down 1.4% to ¥837.4 billion. Pretax adjusted earnings were ¥179.7 billion, or 2.2% higher than a year ago.

Aflac Japan's growth rates in dollar terms for the second quarter were magnified as a result of the stronger yen/dollar exchange rate. Premium income, net of reinsurance, increased 0.2% to $3.2 billion in the second quarter. Net investment income, net of amortized hedge costs, increased 8.8% to $606 million. Total revenues increased by 1.5% to $3.8 billion. Pretax adjusted earnings increased 5.7% to $836 million.

For the first six months, premium income in dollars was $6.5 billion, or 1.2% higher than a year ago. Net investment income, net of amortized hedge costs, increased 7.1% to $1.2 billion. Total revenues were up 2.1% to $7.7 billion. Pretax adjusted earnings were $1.7 billion, or 6.0% higher than a year ago.

For the quarter, third sector sales, which include cancer, medical and income support products, increased 16.0% to ¥27.5 billion and total new annualized premium sales increased 14.0% to ¥29.0 billion, or $265 million.

For the first six months, third sector sales increased 4.1% and new annualized premium sales increased 1.4% to ¥48.1 billion, or $443 million.

AFLAC U.S.

Aflac U.S. premium income rose 2.7% to $1.4 billion in the second quarter. Net investment income increased 1.1% to $182 million, driven by higher income from floating rate assets and an offset from the drawdown of excess capital in the U.S.  segment. Total revenues were up 2.5% to $1.6 billion. Pretax adjusted earnings were $340 million, 3.0% higher than a year ago, driven by higher net investment income and a favorable expense ratio in the quarter. The pretax adjusted profit margin for the U.S. segment was 21.1%, compared with 21.0% a year ago.

For the first six months, premium income rose 2.7% to $2.9 billion. Net investment income decreased 0.3% to $357 million. Total revenues were up 2.4% to $3.2 billion and pretax adjusted earnings were $677 million, 5.8% higher than a year ago.

Aflac U.S. total new annualized premium sales increased 3.9% in the quarter to $370 million. For the first half of the year, total new sales increased 2.3% to $705 million.

CORPORATE AND OTHER

For the quarter, total revenue increased 21.4% to $85 million, reflecting net investment income of $27 million. Net investment income, which increased $19 million, was primarily generated by invested assets transferred as part of the drawdown of excess capital from the U.S. segment beginning in the fourth quarter of 2017. Pretax adjusted earnings were a loss of $38 million, compared with a loss of $48 million a year ago.

For the first six months of the year, total revenue increased 18.8% to $164 million, reflecting net investment income of $48 million. Net investment income, which increased $33 million, was primarily generated by 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 $84 million, compared with a loss of $100 million a year ago.

DIVIDEND

The board of directors declared the third quarter dividend of $0.26 per share, payable on September 1, 2018 to shareholders of record at the close of business on August 22, 2018.

OUTLOOK

Commenting on the company's results, Chairman and Chief Executive Officer Daniel P. Amos stated: "We are pleased that our second 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 half 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 improved benefit ratios. For the second half of 2018, we anticipate our benefit ratio to perform within our previously stated annual guidance. Additionally, third sector sales in the quarter performed well above our expectations, driven by the successful launch of our new cancer insurance product in April. The quarter's results set the stage for another strong year of third sector sales. As we said during our December outlook call, we anticipate that third sector earned premium will continue its steady growth in the 2% to 3% range in 2018, 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 expense ratio. Our favorable expense ratio is largely timing-related, and we expect the pace of investment to increase in the second half of the year. Our second quarter sales results advanced our progress in achieving our annual sales growth of 3% to 5%, with production skewed toward the fourth quarter. We believe we have the right strategy in place for continuing to grow our operations in the U.S. Ultimately, we believe our investments in distribution and our customer experience objectives will yield strong sales 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.

"Consistent strong performance in the first half of the year puts us on track to exceed our previously communicated adjusted EPS guidance for the year. Therefore, we are upwardly revising our 2018 adjusted earnings per diluted share guidance from $3.72 to $3.88 to the range of $3.90 to $4.06, assuming the 2017 weighted-average exchange rate of 112.16 yen to the dollar. If the yen averages 110 to 115 to the dollar for the third quarter, we would expect adjusted earnings to be approximately $0.87 to $1.02 per diluted share in the third quarter. As always, we are working very hard to achieve our earnings-per-share objective while also ensuring we deliver on our promise to policyholders."