Strong Performance by this Insurance Company

AFL - Aflac

Aflac Incorporated is a leading insurance provider to more than 50 million people worldwide. The company develops relevant voluntary insurance products and sells them through its large distribution channels primarily in the U.S. and Japan.

Aflac is the No. 1 provider of voluntary insurance at work sites in the U.S. and a leading provider of medical and cancer insurance in Japan. The company insures one in every four households in Japan. As a leading supplemental insurer, Aflac is known for providing instant cash when policyholders get sick or injured. The company operates through large and diversified distribution channels. It is also improving its digital platforms to further expedite the processes.

Aflac’s insurance business consists of two segments: Aflac Japan is the largest earnings contributor and accounts for almost 70% of revenues, followed by Aflac U.S (30%). Its product offerings can be classified into income-loss protection, asset-loss protection and supplemental medical.

Investment Data

Revenue Growth & Market Exposure

Aflac’s two main sources of revenue are income from premiums and investments. The company has a decent pace of policy renewals and new policy issues. It is in a good position to benefit from its huge presence in two of the world’s largest insurance markets – the U.S. and Japan. Aflac is a leading provider of cancer and general medical indemnity plans, care plans, ordinary life insurance plans, and annuities in Japan, and insures people against depletion of assets as a result of any critical illness, accident, cancer, hospital indemnity, etc. in the U.S

With more than six decades of experience, Aflac has established a strong reputation for product innovation and high-quality service. The company has evolved with changing market preferences and opportunities. Today, Aflac U.S. can process and disburse payment for a claim in just one business day through its One Day Pay initiative. Fast claim redressal is highly appreciated by clients especially when undergoing a difficult time. These services have made Aflac a preferred choice amongst customers.

Product differentiation and prompt service are of utmost importance in the insurance industry and Aflac’s investments on innovation help it stay relevant in the competitive market. The company is trusted by millions of customers worldwide for keeping its promise at a time when the policyholders and insureds most need it. The company has been continually investing in its IT infrastructure for improving productivity and long-term efficiency. It is also focusing on leveraging venture investments to enhance the overall customer experience.
Aflac’s powerful brand, leading market share, diverse distribution, and financial strength are its key competitive strengths. The company is expecting future revenue growth on the back of ongoing investment in its platform, distribution network and customer experience.


Aflac is a dividend aristocrat and has a long dividend streak of 36 years, which means that it has increased its annual dividend for 36 years in a row. The company returned over $2 billion to its shareholders in the last year including share repurchase of $1.3 billion. Aflac raised its dividend by 19.5% in 2018 and last raised it by 3.85% for the latest quarter.

Aflac’s annual dividend yield stands at 1.9% and it has a very low payout ratio of 26% which provides enough room for future expansion. The company has compounded its dividend growth by 9.6% CAGR over the last three years. Though the pace of growth has slowed down in recent years, investors can expect dividends to keep increasing given the company’s ongoing investment to capture additional market share both digitally as well as physical expansion.

Aflac’s Q1’19 earnings got a boost from favorable effective tax rate and timing of expenses during the period. The management is expecting 2019 EPS to range in between $4.10 and $4.30.
Aflac has a strong capital position recognized by stable earnings and cash flows. It also has a sound track record of disciplined underwriting in both its leading markets and has maintained a relatively low combined ratio of around 80% historically. It is further anticipating to repurchase shares worth of $1.3 to $1.7 billion in 2019.


The insurance industry is highly competitive. Aflac suffers from intense competition from large and small insurance companies selling identical products. Colonial Life, American Fidelity Assurance Co., Allstate Insurance Company, Unum, etc are Aflac’s top competitors. Both Colonial Life and Unum have a large presence in the U.S. However, Aflac’s size provides it the much needed financial stability and administrative efficiency to stay ahead of the competition. Its long history, strong brand recall and large distribution network differentiate it from peers.

Bottom Line

Aflac’s relevant products, multifaceted distribution channels, and a huge customer base form a deep moat around its business. The company is in a good position to leverage its industry leading market share and scale in Japan and the U.S. and keep adding new customers. Its investment in building IT infrastructure should help drive long-term digital growth in the future. Aflac’s future dividends should be supported by the strength of its capital and cash flows.

I have paid attention to Aflac over the years but stayed away primarily due to not being able to understand its business in Japan and whether it can grow or not. Clearly, it has not been an issue but since I select investment I can only understand, I stayed away. The yield is not really for income investors so you have to believe in the growth story.

AFL vs Indexes

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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