Aflac Incorporated reported its first quarter results.

Total revenues were $5.9 billion in the first quarter of 2021, compared with $5.2 billion in the first quarter of 2020. Net earnings were $1.3 billion, or $1.87 per diluted share, compared with $566 million, or $0.78 per diluted share a year ago, driven by higher net investment gains.

Net earnings in the first quarter of 2021 included pretax adjusted net investment gains* of $304 million, or $0.44 per diluted share, compared with pretax adjusted net investment losses of $448 million, or $0.62 per diluted share a year ago, which are excluded from adjusted earnings. The adjusted net investment gains were driven by net gains from certain derivatives and foreign currency activities of $361 million and a decrease in the allowances associated with the company's estimate of current expected credit gains (CECL) of $22 million, offset by a decrease in the fair value of equity securities of $68 million and net losses of $11 million from sales and redemptions.

The average yen/dollar exchange rate* in the first quarter of 2021 was 105.88, or 2.8% stronger than the average rate of 108.84 in the first quarter of 2020.

Total investments and cash at the end of March 2021 were $143.3 billion, compared with $137.0 billion at March 31, 2020. In the first quarter, Aflac Incorporated repurchased $650 million, or 13.4 million of its common shares. At the end of March 2021, the company had 85.7 million remaining shares authorized for repurchase.

Shareholders' equity was $32.1 billion, or $47.16 per share, at March 31, 2021, compared with $26.4 billion, or $36.75 per share, at March 31, 2020. Shareholders' equity at the end of the first quarter included a net unrealized gain on investment securities and derivatives of $8.8 billion, compared with a net unrealized gain of $6.0 billion at March 31, 2020. Shareholders' equity at the end of the first quarter also included an unrealized foreign currency translation loss of $1.7 billion, compared with an unrealized foreign currency translation loss of $1.5 billion at March 31, 2020. The annualized return on average shareholders' equity in the first quarter was 15.8%.

Adjusted earnings* in the first quarter were $1.1 billion, compared with $882 million in the first quarter of 2020, reflecting an increase of 20.0% driven by lower-than-expected benefit ratios in the United States and favorable effective tax rates. Adjusted earnings included pretax variable investment income of $34 million on alternative investments, which was $25 million above long-term return expectations. Adjusted earnings per diluted share* increased 26.4% to $1.53 in the quarter. The stronger yen/dollar exchange rate impacted adjusted earnings per diluted share by $0.02.

Shareholders' equity excluding AOCI* was $25.3 billion, or $37.16 per share at March 31, 2021, compared with $22.2 billion, or $30.92 per share, at March 31, 2020. The annualized adjusted return on equity excluding foreign currency impact* in the first quarter was 16.7%.

AFLAC JAPAN

In yen terms, Aflac Japan's net premium income was ¥330.6 billion for the quarter, or 3.6% lower than a year ago, mainly due to limited-pay products reaching paid-up status and constrained sales from the impact of pandemic conditions. Adjusted net investment income* increased 6.9% to ¥74.6 billion, mainly due to lower hedge costs and higher alternative and floating rate income. Total revenues in yen declined 1.8% to ¥406.5 billion. Pretax adjusted earnings in yen for the quarter increased 0.9% on a reported basis, due in part to a decline in the third sector benefit ratio from a reserve release resulting from lower claims activity associated with pandemic conditions. Pretax adjusted earnings increased 2.1% on a currency-neutral basis. The pretax adjusted profit margin for the Japan segment was 23.1%, compared with 22.5% a year ago.The increase in the profit margin is largely due to the improvements in the benefit ratio and net investment income.

In dollar terms, net premium income decreased 0.9% to $3.1 billion in the first quarter. Adjusted net investment income increased 9.8% to $705 million. Total revenues increased by 1.0% to $3.8 billion. Pretax adjusted earnings increased 3.7% to $887 million.

For the quarter, total new annualized premium sales (sales) decreased 0.2% to ¥14.0 billion, or $132 million. This essentially flat result reflects the introduction of a medical product and the ongoing impact of reduced activity associated with ongoing pandemic conditions.

AFLAC U.S.

Aflac U.S. net premium income declined 4.1% to $1.4 billion in the first quarter, mainly due to constrained sales as a result of ongoing pandemic conditions. Adjusted net investment income decreased 0.6% to $176 million primarily as a result of lower yields on the fixed-rate portfolio offset by higher variable net investment income. Total revenues were down 3.5% to $1.6 billion, largely due to a decline in earned premium from reduced sales activity. Pretax adjusted earnings were $445 million, 36.5% higher than a year ago, which was primarily driven by lower-than-expected benefit ratios due to lower incurred claims related to pandemic conditions and excludes $6 million of group benefits business integration costs. The pretax adjusted profit margin for the U.S. segment was 27.3%, compared with 19.3% a year ago.

Aflac U.S. sales decreased 22.1% in the quarter to $251 million, reflecting the continued impact of pandemic conditions.

CORPORATE AND OTHER

For the quarter, total adjusted revenue decreased 20.2% to $83 million, primarily due to a $20 million decline in adjusted net investment income driven by lower hedge income and short-term interest rates. Pretax adjusted earnings were a loss of $26 million, compared with a gain of $2 million a year ago, primarily reflecting higher interest expense associated with debt issuances and lower adjusted net investment income.

DIVIDEND

The board of directors declared the second quarter dividend of $0.33 per share, payable on June 1, 2021 to shareholders of record at the close of business on May 19, 2021.

OUTLOOK

Commenting on the company's results, Chairman and Chief Executive Officer Daniel P. Amosstated: "While earnings are off to a strong start for the year, they are largely supported by low benefit ratios associated with pandemic conditions. In addition, pandemic conditions in the first quarter continued to impact our sales results both in the United States and Japan, as well as earned premium and revenues. We continue to expect these pandemic conditions to remain with us through the first half of 2021, but look for improvement in the second half of the year as communities and businesses open up, allowing more face-to-face interactions. We are encouraged by the production and distribution of COVID-19 vaccines, but we also recognize that vaccination efforts are still in the early stages around the world. In the interim, we are cautiously optimistic and remain vigilant, and our thoughts and prayers are with everyone affected.

"Looking at our operations in Japan, sales were essentially flat for the first quarter with the launch of our new medical product, offset by continued pandemic conditions. While we continue to navigate evolving pandemic conditions in Japan, we expect continued strength in medical sales. In addition, Japan Post Group's announcement to resume proactive sales in April paves the way for gradual improvement in Aflac cancer insurance sales in the second half of the year. In the U.S., small businesses are still in recovery mode, and we expect that they will be for most of 2021. At the same time, larger businesses remain focused on returning employees to the worksite, rather than modifying the benefits for their employees. As a result, we continue to work toward reinforcing our position and a recovery in U.S. sales in the second half of 2021.

"As always, we remain committed to prudent liquidity and capital management. We issued our first sustainability bond in March as we seek to allocate proceeds from that issuance to reinforce our commitment to social and environmental initiatives. Additionally, we continue to maintain strong capital ratios on behalf of our policyholders in both the U.S. and Japan. We treasure our 38-year track record of dividend growth and remain committed to extending it, supported by the strength of our capital and cash flows. At the same time, we will continue to tactically repurchase shares, focused on integrating the growth investments we have made in our platform. 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.