AFLAC Incorporated (NYSE:AFL) is the number one provider of worksite insurance in the United States, and their products are marketed at worksites and on TV (everyone knows the duck), intended to fill gaps in primary coverage. What a great deal of American investors don’t realize is that AFLAC is also the number one issuer of individual insurance policies in Japan, with over 50 million customers. In fact, about 80% of AFLAC’s earnings are derived from Japan.
AFLAC has done a very good job of expanding its customer base and revenues over the past decade (see chart). The company also has an excellent record of share repurchases and dividend increases. Currently yielding around 2.65%, AFLAC has raised its dividend each and every year over the past decade, even during the crisis years of 2008 and 2009, when every company with exposure to the financial sector seemed to be slashing their payouts.
AFLAC’s insurance products are unique and appealing to individuals because they pay cash directly to the insured in the event of financial challenges due to an accident or other life crisis. In Japan, a large portion of medical costs get reimbursed under the country’s national healthcare system.
In the U.S., AFLAC’s insurance products are divided into three categories: income loss protection (24% of U.S. total sales) which consists of short-term disability and life insurance, asset-loss protection (54%) which consists of accident and critical care insurance, and supplemental medical (22%) which consists of hospital indemnity, dental, and vision care.
In my opinion, AFLAC still has a ton of growing to do, particularly in the U.S. What makes an investment in AFLAC even more compelling is its extraordinarily cheap valuation, especially compared to forward growth estimates. AFLAC currently trades at just 7.7 times 2012’s earnings, and from 2013-2015, the company is projected to grow its earnings at an annual average rate of 8.6%. To make the point of how cheaply AFLAC is trading, take a look at this chart of AFLAC’s valuation over the past decade.
For comparison purposes, let’s take a quick look at two of the largest and most popular insurance companies in the market, Prudential Financial Inc (NYSE:PRU) and The Hartford Financial Services Group Inc (NYSE:HIG).
Prudential Financial is one of the largest financial services companies in the world, with $901 billion in assets under management as of last year. I chose this company as a good comparison to AFLAC because of its similar international exposure, with 23% of Prudential’s business coming from domestic insurance and 50% from international markets (the rest of Prudential’s business comes from the Retirement Solutions and Investment Management division).