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Conservative investing has always been Aflac's approach. We believe that adhering to a conservative philosophy is the best, most responsible way to manage our financial assets so we can honor the promises we have made to our policyholders. It also allows us to earn a stable source of investment income. Some investing highlights from 2004 include:
- Investments reached $6.2 billion at the end of 2004, an increase of 9.4%, compared with 2003.
- Net investment income increased 9.4%, from $362 million in 2003 to $396 million in 2004.
- The average yield on new investments was 6.30% in 2004, compared with 6.52% the previous year.
Corporate debt securities again accounted for the majority of our U.S. investments in 2004. At year end, we owned no real estate or mortgage loans. Based on amortized cost, 71.7% of our holdings were rated "A" or better, and only 2.1% were rated below investment grade.
We feel a deep obligation to give back to the communities that support our business. One commitment we take very seriously is to the Aflac Cancer Center and Blood Disorders Service of Children's Healthcare of Atlanta. Aflac's employees, executives and sales associates have embraced the center's efforts to find a cure for blood disorders and childhood cancers. Over the years, the Aflac family has pledged approximately $25 million to the center. As one of the leading pediatric cancer centers in the United States, it annually treats more than 300 newly diagnosed cancer patients and nearly 1,500 patients with blood disorders.
Proceeds from the sales of plush Aflac Ducks, which are sold primarily through aflac.com, go to the Aflac Cancer Center. During the 2004 holiday season, Aflac again partnered with Federated Department Stores to sell special limitededition Aflac Holiday Ducks with proceeds benefiting eight regional pediatric hospitals throughout the country. As in previous years, the sale was a tremendous success. Since the Aflac Holiday Duck program began in 2001, sales of these special limited-edition plush Aflac Ducks have raised more than $800,000 to fight pediatric cancer.
We believe the strengths that have positioned Aflac as the leading producer of supplemental insurance products at the worksite are firmly intact. Aflac offers a broad product line that provides valuable and affordable benefits that make a difference in consumers' lives. Our sales force specializes in distributing products through the worksite. Our 320,700 payroll accounts at year end represent less than 6% of the roughly 5.6 million small businesses in the United States, which suggests that there remains a vast untapped market of potential payroll accounts.
Looking ahead, we expect out-of-pocket expenses for consumers to continue to rise, resulting in greater financial burdens for families who experience serious health events. And because consumers still express an overwhelming concern about health care costs, we believe Aflac products are perfectly suited to the U.S. market because they offer a measure of financial security. We remain committed to providing valued products and services to our customers and solid growth for our shareholders.
We believe the need for Aflac's products in the sizable U.S. market will bring about stronger sales and financial results in the coming years. To accomplish that, we will:
- Expand our product line – We will concentrate on meeting consumers' needs by continually developing new products and revising existing ones.
- Enhance our distribution system – Continued expansion and development of our coordinator base is essential to building our distribution capabilities, enabling us to reach more potential consumers.
- Move from brand recognition to brand definition – While brand awareness remains important, a shift to better brand definition will help make our products more relevant to employers and their workers.
- Improve efficiency through technology – We will continue to employ technology to control operating expenses and enable us to efficiently handle our ever-growing business.
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