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July 29, 2020 at 05:21 PM
Aflac did almost as well in the second quarter as in the comparable quarter in 2019, and it’s worried about a 12% drop in spending on claims and benefits.
But executives at the company say that, in some ways, the COVID-19 outbreak in the United States is starting to look like the company’s pandemic stress test scenario.
Fred Crawford, Aflac’s chief operating officer, today told securities analysts that, when Aflac has conducted pandemic stress tests, it has pictured the United States facing 6.5 million confirmed cases of a serious disease, with 1.5 million hospitalizations and close to150,000 deaths.
Statistics from the U.S. Centers for Disease Control and Prevention and Johns Hopkins suggest that COVID-19 has already caused about 4.3 million cases and about 150,000 deaths, Crawford said.
“In short, we are unfortunately tracking to our U.S. macro stress test assumptions,” Crawford said.
Resources
- Links to Aflac earnings documents are available here.
- An article about Aflac’s fourth-quarter earnings is available here.
So far, however, the level of actual Aflac COVID-19-related claims seems to be only about 40% of what the company would have expected, given the total size of the pandemic, Crawford said.
In the second quarter, Aflac recorded receiving about 5,000 COVID-19-related claims, with a total value of $31 million, or about $6,000 per claim, Crawford said.
About 80% of the claims were short-term disability insurance claims, and Aflac has not yet noticed any surge in COVID-19-related hospitalization or wellness claims.
The relatively low level of claims might be partly due to customers’ claim filing delays, but it might also be due to the relatively young age of typical Aflac insureds, Crawford said.
Crawford spoke at a conference call Aflac organized to go over the company’s earnings with securities analysts. The company has posted a recording of the call on its website.
Earnings
Aflac is reporting $805 million in net income for the second quarter on $5.4 billion in revenue, compared with $817 million in net income on $5.5 billion in revenue for the second quarter of 2019.
Revenue at the Columbus, Georgia-based insurer was down partly because investments produced a $170 million net loss, compared with a $66 million net loss in the year-earlier quarter.
The Aflac U.S. unit is reporting $426 million in pretax adjusted earnings for the latest quarter on $1.7 billion in revenue, up from $338 million in pretax adjusted earnings on $1.6 billion in revenue for the year-earlier quarter.
U.S. earnings increased partly because spending on benefits and claims fell 12%, to $646 million, due to COVID-19-related reductions in people’s use of health care.
Dan Amos, Aflac’s chief executive officer, said Aflac is trying to increase workers’ use of Aflac coverage by sending them explanations of how their coverage works, and reminders that they should file claims for qualified events.
Aflac is particularly eager to encourage the insureds to use their wellness benefits. Wellness benefits provisions typically reimburse the insureds for up to $60 for a covered routine doctor or dentist visit.
“The key time to do this is in fact typically in the third quarter, not just because of COVID dynamics, but because that’s also about the time when people are reviewing with their employer, their benefits and considering whether to sign up again,” Amos said.
The U.S. Economy
Aflac executives repeatedly talked about their uncertainty about how COVID-19 will affect the economy.
But Crawford did talk about the general shape of what U.S. economic strength line charts might look like.
“Our firm view is that we will experience a checkmark-shaped recovery, meaning a slow road to recovery, with pockets of volatility along the way,” Crawford said. “We have moved away from the notion of a V-shaped or even U-shaped recovery.”
Aflac’s Workers
About 50% of Aflac workers in Japan have already returned to working in Aflac offices.
In the United States, where case counts and hospitalization levels are increasing significantly in many areas, Aflac is being slower to return workers to their offices.
