Aflac Incorporated has recently released its 10-K report, providing a comprehensive overview of its financial performance and operations. Aflac is a leading provider of supplemental health and life insurance products, operating primarily through its Aflac Japan and Aflac U.S. segments. In Japan, the company offers a range of insurance products including cancer, medical, nursing care, and life insurance, while in the United States, it provides products such as cancer, accident, and short-term disability insurance.
In the 10-K report, Aflac detailed its exposure to market risks, including currency risk, interest rate risk, credit risk, and equity risk. The company disclosed that a 100 basis point decrease in interest rates would result in an increase of $9.6 billion in its LFPB balance as of December 31, 2024, while a 100 basis point increase would lead to a $7.6 billion decrease in the same balance.
Aflac also provided insights into its income tax provisions and the factors that influence its effective tax rate. The report highlighted that an increase or decrease in the company's effective tax rate by one percentage point would result in a corresponding increase or decrease in its 2024 income tax expense of $49 million.
Furthermore, the 10-K report discussed the adoption of new accounting pronouncements, specifically the impact of the Long-Duration Targeted Improvements (LDTI) on the company's financial position and results of operations. Aflac adopted LDTI on January 1, 2023, resulting in a decrease in accumulated other comprehensive income (AOCI) of approximately $18.6 billion and a decrease in retained earnings of approximately $0.3 billion.
The report also delved into the company's exposure to currency risk, particularly in relation to its operations in Japan. Aflac Japan's functional currency is the Japanese yen, and the company engages in hedging activities to mitigate certain currency risks from holding U.S. dollar-denominated investments. The report detailed the potential impact of foreign currency fluctuations on the dollar values of Aflac's yen-denominated assets and liabilities at selected exchange rates.
Moreover, Aflac outlined its interest rate risk exposure, emphasizing the impact of changes in interest rates on the fair value of its investment portfolio. The company provided insights into the sensitivity of the fair values of its debt securities, derivatives, and notes payable to potential increases in interest rates as of December 31.
As a result of these announcements, the company's shares have moved -0.9% on the market, and are now trading at a price of $105.82. For the full picture, make sure to review Aflac's 10-K report.
