Aflac Incorporated has released its 10-K report, providing an overview of its business operations. The company operates in two segments, Aflac Japan and Aflac U.S., offering a range of supplemental health and life insurance products. Aflac Japan provides various insurance products in Japan, while Aflac U.S. offers insurance products in the United States through various distribution channels.
In its 10-K report, Aflac disclosed that it is exposed to market risks such as currency risk, interest rate risk, credit risk, and equity risk. The company highlighted its exposure to currency risk, particularly in Aflac Japan, where fluctuations in the yen/dollar exchange rate could impact the company's consolidated results of operations or financial condition. Aflac Japan's exposure to currency risk increases when its portfolio of unhedged U.S. dollar-denominated investments increases, and the company periodically reevaluates its currency hedging targets based on the fluctuation of the U.S. dollar-denominated investment portfolio.
Regarding interest rate risk, Aflac disclosed that significant increases in interest rates could cause declines in the values of its investment portfolio, impacting the company's overall evaluation of its deferred tax asset position. The company attempts to match the duration of its assets with the duration of its liabilities, and it periodically enters into derivative transactions to hedge interest rate risk, depending on general economic conditions.
Aflac also provided quantitative disclosures about the effect of foreign currency fluctuations, presenting the dollar values of its yen-denominated assets and liabilities at selected exchange rates. The company's consolidated yen-denominated net assets subject to foreign currency fluctuation were reported as negative, indicating exposure to potential losses from yen weakening against the U.S. dollar.
Furthermore, Aflac detailed the comparison of interest rates for future policy benefits and investment yields, highlighting the required interest on policy reserves and the new money yield on investments for policies issued during the year and policies in force at year-end. The company continues to monitor the spread between its new money yield and the required interest assumption for newly issued products in both the U.S. and Japan and periodically enters into derivative transactions to hedge interest rate risk.
In conclusion, Aflac's 10-K report provides insights into the company's exposure to market risks, particularly currency and interest rate risks, and the measures it takes to manage these risks. The quantitative disclosures offer a comprehensive view of the potential impact of market fluctuations on the company's financial position and results of operations. The market has reacted to these announcements by moving the company's shares 0.5% to a price of $79.64. For more information, read the company's full 10-K submission here.
