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Our conservative investment approach
provides the foundation for our strong
balance sheet. While we strive to maximize
investment income growth, we also work
very hard to mitigate investment risk. As
such, we emphasize liquidity, safety and
quality when we invest. Our investment real
estate and equity holdings represented less
than 1% of total investments at year-end
2005. To better match asset and liability
durations, we primarily own longer-dated,
yen-denominated debt securities. With this
orientation, our portfolio has performed
well throughout Japan's extended low-interest-rate environment. On a Japanese
regulatory reporting basis, our portfolio yield
has been consistently higher than the
industry average for the last 14 years. Some
Aflac Japan investment highlights for 2005
are listed below:
- Investments and cash declined 2.7% to $41.4
billion at the end of 2005. In yen, investments
and cash were up 10.3%.
- Net investment income increased 5.0% to
$1.6 billion. In yen, net investment income
rose 7.0%.
- The average yield on new investments
was 3.19% in 2005, compared with 3.13%
in 2004.
Aflac Japan's overall credit quality remained
high. At the end of 2005, 76.9% of our
holdings were rated A or better on an
amortized cost basis. Only 2.1% of our debt
securities were rated below investment
grade at the end of 2005. We believe that
our conservative investment approach serves
our customers and shareholders very well.
As we assess our past accomplishments and
our plans for the future, the competitive
strengths that have elevated Aflac to the
number one insurance company in terms of
individual policies in force are very much
alive and well. At the same time, we believe
consumers will continue to face the prospect
of higher out-of-pocket expenses for
medical care. As a result, we believe our
products are ideally suited to Japan's market
of aging consumers. We also believe our
competitive strengths position us to
capitalize on the opportunities in the
marketplace. To help us further tap into the
Japanese market, we will:
Strengthen our product line — We will
develop new policies and update existing
products to meet the changing needs of
Japanese consumers and help them cope with
the increasing burden of out-of-pocket health
care costs.
Promote our brand position —
We will emphasize our leading market
status to attract consumers in a more
competitive market.
Enhance our distribution system —
We will recruit more sales agencies, particularly
individual agencies, to tap into the vast market
of small- and medium-sized businesses and
provide convenience to our consumers, while
also working to improve the productivity of our
affiliated corporate agency channel.
Improve operational efficiency —
We will invest in new technologies and improve
business processes to increase our primary
competitive strength.
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