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Our three decades in Japan bear witness to
significant changes in the economy,
demographics, competition, and the
national health care system. Low interest
rates, concerns about companies' financial
strength, and skeptical consumers have
posed continual challenges for the insurance
industry. Despite that complex environment,
Aflac has been able to navigate a secure
course and steadily grow its business.
Reflecting that success, Aflac Japan was
named the Life Insurance Company of the
Year in 2005 at the Asia Industry Awards,
sponsored by the Asia Insurance Review.
Aflac Japan's results were solid and
consistent with our expectations for 2005.
Our persistency improved, and new money
investment yields were in line with our
target. Aflac Japan also maintained its
position as the number one insurance
company in terms of individual policies in
force and the leading seller of both cancer
life and medical insurance policies. Total new
annualized premium sales were up 5.1% to
¥128.8 billion, which was in line with our
target of 5% to 10% growth. Following are
some financial highlights from 2005:
- Premium income rose 6.3% to ¥962.6 billion,
compared with ¥905.2 billion in 2004.
- Total revenues increased 6.6% to ¥1.15 trillion,
compared with ¥1.08 trillion a year ago.
- Pretax operating earnings rose 11.5% from
¥149.3 billion in 2004 to ¥166.4 billion
in 2005.
Aflac Japan collects premiums in yen, pays
benefits and expenses in yen, and primarily
holds yen-denominated assets to support
yen-denominated liabilities. With the
exception of a limited number of
transactions, we do not convert yen into
dollars. Therefore, currency changes do not
affect Aflac in economic terms. However,
for financial reporting purposes, we are
required to translate Aflac Japan's income
statement from yen into dollars using an
average exchange rate. And since Aflac
Japan is responsible for the majority of
consolidated revenues and pretax operating
earnings, fluctuations in the value of the yen
can significantly affect our results as
reported in dollars.
Translating Aflac Japan's results from yen
into dollars means that growth rates are
magnified in dollar terms when the average
yen/dollar exchange rate is stronger than
the preceding year. Conversely, growth rates
in dollar terms are lower when the yen is
weaker to the dollar in comparison with the
preceding year. In 2005, the yen averaged
109.88 to the dollar, or 1.5% weaker than
the average of 108.26 in 2004, suppressing
our reported results.
- Premium income rose 4.5% to $8.7 billion, up
from $8.4 billion in 2004.
- Total revenues were up 4.7% to $10.4
billion, compared with $9.9
billion in 2004.
- Pretax operating earnings
increased 9.9% to $1.5 billion from
$1.4 billion in 2004.
The burden of providing health care to
an aging population has increased for
many years in Japan. In addition, the cost
of advances in medical technology and
treatments have put Japan's health care
system under even greater pressure. These
circumstances have combined to prompt a
steady cost shift to consumers in the form
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