When investors consider a company, it makes sense to look for both strengths and weaknesses. The company’s strengths need to be examined to determine if they are sustainable. On the other hand, if a company has a weakness, this could either be a problem to keep an eye on, or an area for improvement in the future. When I look at a company like AFLAC Incorporated (NYSE:AFL), I see a great organization, but I also know that they can do better.
It’s Hard to Duck a Challenge Like This
Domestically, most people know Aflac from their commercials featuring the iconic Aflac duck. However, Aflac’s most important market in terms of revenue and earnings is Japan. The Japanese know Aflac for a lot of things, and most aren’t the duck from the advertisements. In fact, Aflac Japan has a unique competitive advantage, in that 90% of the banks in the country market the company’s products.
Aflac also has several unique products in the country. Specifically, their WAYS product allows policyholders to convert part of their life insurance to medical, nursing care, or a fixed annuity. In Japan, the company saw new product sales increase more than 30%, and premium growth in Yen was more than 11%. Given this strong growth, Aflac should be doing very well right?
Not quite, Aflac’s results are being hurt by the valuation difference between the U.S. dollar and the Yen. Though AFLAC Incorporated (NYSE:AFL) Japan collected 11% more premiums in Yen, when converted to dollars the total was actually down 0.27%. The good news is Aflac is growing, the bad news is it’s being hidden by the strength of the Yen.
What About the Rest of the Company?
Aflac U.S. competes in the very competitive domestic market, with such giants as American International Group Inc (NYSE:AIG), The Allstate Corporation (NYSE:ALL), and Travelers Companies Inc (NYSE:TRV). Each of these companies offer insurance products and services that go head to head with Aflac.
Aflac is trying to move beyond just being known for supplemental insurance, but large insurance brokers are the name of the game stateside. Large insurance brokers prefer to stick to what they know, and Aflac knows that it will take time and perseverance to break into this market. In the current quarter, Aflac made slow progress with total premiums up 5.07%, but new sales growth was just 0.81%. However, with over 76,000 licensed sales associates, Aflac is poised to keep fighting for domestic sales.