Aflac Incorporated reported its first quarter results.

Total revenues were $5.5 billion during the first quarter of 2018, compared with $5.3 billion in the first quarter of 2017. Net earnings were $717 million, or $0.91 per diluted share, compared with $592 million, or $0.73 per diluted share a year ago.

Net earnings in the first quarter of 2018 included pretax net realized investment losses of $98 million, or $0.13 per diluted share, compared with pretax net losses of $109 million, or $0.14 per diluted share a year ago. Pretax net realized losses for the first quarter of 2018 included $7 million of impairments and loan loss reserve changes. Pretax net realized losses now includes  $46 million from changes in the fair value of equity securities as a result of adopting new accounting guidance during the first quarter of 2018. Net earnings also included a pretax charge of $29 million, reflecting Japan branch conversion costs. The income tax benefit on these net earnings adjustments in the quarter was $24 million.

The average yen/dollar exchange rate in the first quarter of 2018 was 108.05, or 5.1% stronger than the average rate of 113.56 in the first quarter of 2017. Aflac Japan's growth rates in dollar terms for the first quarter were magnified as a result of the stronger yen/dollar exchange rate.

Adjusted earnings* in the first quarter were $821 million, compared with $676 million in the first quarter of 2017. Adjusted earnings per diluted share* increased 25.0% to $1.05 in the quarter, largely reflecting overall favorable pretax margins and a lower effective tax rate as a result of tax reform. The stronger yen/dollar exchange rate increased adjusted earnings per diluted share by $0.03 for the first quarter. Excluding the impact of the stronger yen, adjusted earnings per diluted share increased 21.4% to $1.02.

Total investments and cash at the end of March 2018 were $132.7 billion, compared with $120.5 billion at March 31, 2017. In the first quarter, Aflac repurchased $296 million, or 6.6 million of its common shares.  At the end of March, the company had 91.4 million shares available for purchase under its share repurchase authorizations.

Shareholders' equity was $24.3 billion, or $31.31 per share, at March 31, 2018, compared with $20.3 billion, or $25.55 per share, at March 31, 2017. Shareholders' equity at the end of the first quarter included a net unrealized gain on investment securities and derivatives of $5.2 billion, compared with a net unrealized gain of $4.5 billion at March 31, 2017. Shareholders' equity at the end of the first quarter also included unrealized foreign currency translation loss of $1.3 billion, compared with an unrealized foreign currency translation loss of $1.7 billion at March 31, 2017. The annualized return on average shareholders' equity in the first quarter was 11.7%.

Shareholders' equity excluding AOCI was $20.6 billion, or $26.56 per share at March 31, 2018, compared with $17.7 billion, or $22.25 per share, at March 31, 2017, primarily driven by the adoption of tax reform and the associated $1.9 billion reduction of deferred tax liability. The annualized adjusted return on equity excluding foreign currency impact* in the first quarter was 15.5%.

AFLAC JAPAN

In yen terms, Aflac Japan's premium income, net of reinsurance, was ¥353.3 billion, or 2.6% lower than a year ago, with growth in third sector premium more than offset by the reduction in first sector premium due to savings products reaching premium paid-up status. Net investment income, net of amortized hedge costs, remained stable at ¥63.7 billion. Total revenues in yen were down 2.2% to ¥418.2 billion. Pretax adjusted earnings in yen for the quarter increased 0.9% on a reported basis and 2.7% on a currency-neutral basis. The pretax adjusted profit margin for the Japan segment was 21.1%, compared with 20.5% a year ago.

In the first quarter, premium income in dollars was $3.3 billion, or 2.2% higher than a year ago. Net investment income, net of amortized hedge costs, increased 5.6% to $588 million, largely due to higher-yielding U.S. dollar investments. Total revenues were up 2.7% to $3.9 billion. Pretax adjusted earnings were $818 million, or 6.4% higher than a year ago.

Third sector sales, which include cancer, medical and income support products, decreased 10.4% to ¥17.6 billion in the quarter. Total new annualized premium sales decreased 13.0% to ¥19.2 billion, or $178 million.

AFLAC U.S.

In the first quarter, Aflac U.S. premium income increased 2.7% to $1.4 billion. Net investment income decreased 1.7% to $175 million, reflecting the drawdown of excess capital in the U.S. Total revenues were up 2.2% to $1.6 billion. Pretax adjusted earnings were $337 million, 8.7% higher than a year ago. The pretax adjusted profit margin for the U.S. segment was 21.0%, compared with 19.7% a year ago.

Aflac U.S. total new annualized premium sales increased 0.6% in the quarter to $335 million.

CORPORATE AND OTHER

In the first quarter, total revenue increased 17.9% to $79 million, reflecting an increase in net investment income of $14 million primarily generated by assets transferred as part of the drawdown of excess capital in the U.S. Pretax adjusted earnings were a loss of $46 million, compared with a loss of $52 million a year ago.

DIVIDEND

The board of directors declared the second quarter dividend of $0.26 per share, payable on June 1, 2018 to shareholders of record at the close of business on May 23, 2018.

OUTLOOK

Commenting on the company's results, Chairman and Chief Executive Officer Daniel P. Amos stated: "We are pleased with the company's overall performance for the first quarter. With respect to Aflac Japan's conversion to a subsidiary, I am very pleased that we completed this transaction on time and that it remains within budget. This new corporate structure aligns Aflac with global regulatory frameworks and enhances our financial and business flexibility, while remaining consistent with our current financial strength ratings and enterprise risk management framework.

"Turning to our Japan operations, Aflac Japan, our largest earnings contributor, generated strong financial results for the quarter. As expected, third sector sales faced difficult comparisons, due in part to the launch of our refreshed medical product in the first quarter of 2017 and the planned introduction of our new cancer insurance product following the completion of the branch conversion. Despite this challenge, Aflac Japan generated sales results that were modestly weaker than our expectations. We continue to believe we will see improvements in third sector sales in the second half of the year. As we said during our December outlook call, in 2018, we anticipate that third sector earned premium will continue its steady growth in the 2% to 3% range, reflecting Aflac's stable sales and high persistency.

"With respect to our U.S. operations, we are pleased with the financial performance and strong profitability of Aflac U.S. in the quarter. Our sales results were consistent with our expectation for the first quarter.  We continue to expect full year sales growth of 3% to 5%, with production skewed toward the fourth quarter. We believe we have the right strategy in place for growing our operations in the U.S. Ultimately, we believe our investments in distribution and customer experience objectives will yield strong sales and stable persistency, driving an earned premium growth outlook of 2% to 3% for the year.

"We remain committed to maintaining strong capital ratios on behalf of our policyholders and balancing our financial strength with increasing the dividend, repurchasing shares and reinvesting in our business. I am pleased with the Board's action to approve an increase in the first quarter cash dividend of 15.6%. The dividend increase is supported by the strength of our capital and cash flows. We continue to expect share repurchase will be in the range of $1.1 to $1.4 billion in 2018, which assumes stable capital conditions and the absence of compelling alternatives. At the same time, we recognize that prudent investment in our platform is also critical to our growth strategy and driving efficiencies that will impact the bottom line for the long term.

"Having benefited from the U.S. tax reform enacted in December 2017, we are leveraging the opportunity to accelerate and increase our investments in initiatives that reflect our company values and objectives. As we communicated, we expect to increase overall investment in the U.S. by approximately $250 million over three to five years. These strategic investments target continued growth in the company's U.S. operation, expanded employee benefits and training programs as well as investing in technology and digital businesses.

"I want to reiterate our 2018 earnings guidance. Our first quarter results reflect a strong start to the year and put us on track to produce stable adjusted earnings per diluted share of $3.72 to $3.88, assuming the 2017 weighted-average exchange rate of 112.16 yen to the dollar. If the yen averages 100 to 110 to the dollar for the second quarter, we would expect adjusted earnings, a non-U.S. GAAP measure, to be approximately $0.91 to $1.05 per diluted share in the second quarter. As always, we are working very hard to achieve our earnings-per-share objective while also ensuring we deliver on our promise to policyholders."