Aflac Incorporated (NYSE: AFL) today reported its second quarter results.

Total revenues were $5.4 billion in the second quarter of 2022, compared with $5.6 billion in the second quarter of 2021. Net earnings were $1.4 billion, or $2.16 per diluted share, compared with $1.1 billion, or $1.62 per diluted share a year ago.

Net earnings in the second quarter of 2022 included net investment gains of $564 million, or $0.88 per diluted share, compared with net investment gains of $89 million, or $0.13 per diluted share a year ago. The net investment gains were driven by net gains from certain derivatives and foreign currency activities of $618 million and net gains from sales and redemptions of $115 million, both driven by foreign exchange. These gains were partially offset by an increase in the allowance associated with the company's estimate of current expected credit losses (CECL) and impairments of $34 million. These net investment gains included a decrease of $135 million in the fair value of equity securities.

Adjusted earnings* in the second quarter were $939 million, compared with $1.1 billion in the second quarter of 2021, reflecting a decrease of 13.1%. Adjusted earnings per diluted share* decreased 8.2% to $1.46 in the quarter. It included variable investment income from alternative investments, which was $0.06 per share above return expectations. Adjusted earnings per diluted share excluded adjusted net investment gains* of $0.88 per share. The weaker yen/dollar exchange rate impacted adjusted earnings per share by $0.09.

The average yen/dollar exchange rate in the second quarter of 2022 was 129.39, or 15.4% weaker than the average rate of 109.48 in the second quarter of 2021. For the first six months, the average exchange rate was 122.79, or 12.2% weaker than the rate of 107.79 a year ago.

Total investments and cash at the end of June 2022 were $121.4 billion, compared with $146.7 billion at June 30, 2021. In the second quarter, Aflac Incorporated deployed $650 million in capital to repurchase 11.2 million of its common shares. At the end of June 2022, the company had 36.6 million remaining shares authorized for repurchase.

Shareholders' equity was $26.4 billion, or $41.59 per share, at June 30, 2022, compared with $33.7 billion, or $50.20 per share, at June 30, 2021. Shareholders' equity at the end of the second quarter included a net unrealized gain on investment securities and derivatives of $2.9 billion, compared with a net unrealized gain of $10.0 billion at June 30, 2021. Shareholders' equity at the end of the second quarter also included an unrealized foreign currency translation loss of $3.3 billion, compared with an unrealized foreign currency translation loss of $1.7 billion at June 30, 2021. The annualized return on average shareholders' equity in the second quarter was 19.9%.

For the first six months of 2022, total revenues were down 6.7% to $10.7 billion, compared with $11.4 billion in the first half of 2021. Net earnings were $2.4 billion, or $3.73 per diluted share, compared with $2.4 billion, or $3.49 per diluted share, for the first six months of 2021. Adjusted earnings for the first half of 2022 were $1.9 billion, or $2.88 per diluted share, compared with $2.1 billion, or $3.11 per diluted share, in 2021. Excluding the negative impact of $0.15 per share from the weaker yen/dollar exchange rate, adjusted earnings per diluted share decreased 2.9% to $3.02 for the first six months of 2022.

Shareholders' equity excluding AOCI (or adjusted book value*) was $26.9 billion, or $42.45 per share at June 30, 2022, compared with $25.7 billion, or $38.27 per share, at June 30, 2021. The annualized adjusted return on equity excluding foreign currency impact* in the second quarter was 14.9%.

In yen terms, Aflac Japan's net earned premiums were ¥313.2 billion for the quarter, or 4.2% 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 8.4% to ¥94.0 billion, mainly due to higher floating rate income as well as the impact of a weaker yen on the dollar-denominated investment income. Total adjusted revenues in yen declined 1.6% to ¥408.3 billion. Pretax adjusted earnings in yen for the quarter increased 1.6% on a reported basis to ¥111.7 billion, due to higher reserve releases and adjusted net investment income. Pretax adjusted earnings decreased 7.0% on a currency-neutral basis. The pretax adjusted profit margin for the Japan segment increased to 27.4%, compared with 26.5% a year ago.

For the first six months, net earned premiums in yen were ¥629.6 billion, or 4.3% lower than a year ago. Adjusted net investment income increased 7.3% to ¥173.0 billion. Total adjusted revenues in yen were down 2.0% to ¥804.9 billion. Pretax adjusted earnings were ¥211.9 billion, or 4.0% higher than a year ago.

In dollar terms, net earned premiums decreased 19.0% to $2.4 billion in the second quarter. Adjusted net investment income decreased 8.7% to $723 million. Total adjusted revenues declined by 16.8% to $3.2 billion. Pretax adjusted earnings declined 14.3% to $860 million.

For the first six months, net earned premiums in dollars were $5.1 billion, or 15.8% lower than a year ago. Adjusted net investment income decreased 6.3% to $1.4 billion. Total adjusted revenues were down 14.0% to $6.6 billion. Pretax adjusted earnings were $1.7 billion, or 8.9% lower than a year ago.

For the quarter, total new annualized premium sales (sales) decreased 6.4% to ¥12.7 billion, or $98 million, reflecting the January 2021 launch of a new medical product and continued weakness in sales recovery, in part constrained by pandemic conditions. For the first six months, total new sales decreased 10.7% to ¥24.7 billion, or $201 million.

Aflac U.S. net earned premiums declined 1.0% to $1.4 billion in the second quarter, impacted by lower year-to-date persistency. Adjusted net investment income increased 2.1% to $193 million. Total adjusted revenues were up 0.1% to $1.6 billion. Pretax adjusted earnings were $349 million, 15.5% lower than a year ago, which was driven by higher incurred benefits and elevated expenses reflecting, in part, platform and growth investments. The pretax adjusted profit margin for the U.S. segment was 21.4%, compared with 25.4% a year ago.

For the first six months, net earned premiums declined 0.8% to $2.8 billion. Adjusted net investment income increased 3.0% to $377 million. Total adjusted revenues were up 0.4% to $3.3 billion. Pretax adjusted earnings were $674 million, or 21.5% lower than a year ago.

Aflac U.S. sales increased 15.6% in the quarter to $305 million, reflecting continued investment in growth initiatives as well as productivity gains. For the first half of the year, total new sales increased 17.2% to $604 million.

For the quarter, total adjusted revenues decreased 16.0% to $42 million. Pretax adjusted earnings were a loss of $75 million, compared with a loss of $76 million a year ago. These results reflect higher adjusted net investment income from higher interest rates offset by lower amortized hedge income and the impact of federal tax credit investments as tax benefits are recognized in a corresponding lower income tax expense. These results also reflect the impact of foreign currency on total net earned premiums and the corresponding benefits.

For the first six months, total adjusted revenues decreased 12.8% to $116 million. Pretax adjusted earnings were a loss of $120 million, compared with a loss of $102 million a year ago.

The board of directors declared the third quarter dividend of $0.40 per share, payable on September 1, 2022 to shareholders of record at the close of business on August 24, 2022.

Commenting on the company's results, Chairman and Chief Executive Officer Daniel P. Amos stated: "The company generated solid earnings for the first six months, supported in part by the continuation of low benefit ratios associated with pandemic conditions and better-than-expected returns from alternative investments, despite the weakening yen. We continue to remain cautiously optimistic as our efforts focus on growth and efficiency initiatives amid this evolving pandemic backdrop.

"Looking at our operations in Japan, persistency remained strong in the second quarter, but sales were constrained as we continued to operate in evolving pandemic conditions. This impacted our ability to meet face-to-face with customers, which continues to be key to a recovery in sales. Within this context, we continue to expect stronger sales in the second half of the year assuming that those conditions subside, productivity continues to improve at Japan Post, and we execute on our product introduction and refreshment plans.

"In the U.S., I am pleased with the continued momentum in our core voluntary business and contribution from newly acquired growth platforms of dental, vision, and group benefits. We continue to work toward reinforcing our position and generating stronger sales for the year, while we keep an eye on potential headwinds. 

"As always, we are committed to prudent liquidity and capital management. We continue to generate strong investment results while remaining in a defensive position as we monitor evolving economic conditions. In addition, we have taken proactive steps in recent years to defend cash flow and deployable capital against a weakening yen. We treasure our 39-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 remain in the market repurchasing shares with a tactical approach, 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.