Aflac Inc

Aflac Inc., AFL 59.53 Financials

Stuart HatlenDevin Mabra

Carson ScovinJohn Budreau

Uyen Tran

We aim to hedge its portfolio’s volatility as well as to diversify into a foreign industry. We view a $2000

investment in Aflac Inc. as a Dividend Play as well as a Value Play.

Thesis

Finances- Health/Life InsuranceBusiness Holding Company

American Family Life Assurance of Columbus

Japan- 1974#1 in policies in force since 2003

Cancer, Life, Medical

United States- 1955#1 in supplemental insurance

Corporation SummaryNov 17th, 1955

John Amos, Paul Amos, Bill AmosColumbus, GA

Accident/Disability PlansCancer Expense Plans

Short Term Disability PlansSickness Hospital Indemnity Plans

Fixed Benefit Dental Plans...

Term, Whole, Hybrid

CEO and Chairman: Daniel Amos, since 1990Risk Management B.S. U Georgia. Grew Net Revenues from $2.7b to $23.9b to date since 1990Has met or exceeded operating earning per share all 24 years as CEOFortune 100 best companies 16 year consecutive to dateFortune most admired companies since 2001Ethisphere Magazine most ethical companies 8 times to date.

CFO and Treasurer: Kriss Cloninger IIIActuary Society and Bus Mgmt B.S. UT AustinCFO since 1992

President: Paul Amos IIEconomics B.s. Duke UCOO to President in 2006. 10 year Board Exp. at AflacJapan relations

Majority Shareholders

Management and Ownership

Additional Quant Summary

Income Sheet

Balance Sheet

Baby Boomer Statistics● may boost demand for income protection products.

Big PlayersUSD vs Yen- Overview of relationship over time

Affordable Care Act- US

Japan- Bonds, QE, Rates and FutureU.S.- Bonds, QE ending, Future

Macro to Micro Analysis

● Median Age in Japan: 84 (1st in world)

Credit Ratings

● Regulation- Dodd-Frank Act○ Not believed to be part of Systemically important

institutions

SWOT- Strengths

High cancer insurancemarket share in Japan

Affordable Care Act has helped spur growth insupplemental insurance dueto gaps in coverage

SWOT- Strengths (Cont.)

● Life Insurance Industry average ROE has been below cost of equity since 3Q 2008 due to low interest rates○ Aflac ROE has been above WACC since then○ fixed Income hurting from lower rates

● High concentration of business in Japan increases business risk

Weaknesses

● Industry leader and pioneer for cancer insurance in Japan○ partnership with Japan Post and

expanding cancer insurance from 3,000 outlets to 10,000 this year

○ expect demand to continue to rise■ 80% of Japanese publicly traded

companies use Aflac

Opportunities

● Yen exchange rate very volatile○ opened positions in foreign exchange forwards and

options to hedge some risk● Ease of getting supplemental insurance in U.S.

○ growing demand led to Jan14 bill passed to ease access to insurance

● Japan’s economy and new QE○ consumption tax hike

Threats

Premium Income: Rose 6.8% to 1.46 trillion Yen Vs. a 12.7% decline in US Dollars to 15 Billion

Total Revenue: Rose 7.8% to 1.73 trillion Yen Vs. a decline of 11.8% to 17.7 billion US Dollars

Pretax Operating Earnings: Rose 13.6% to 359.9 trillion Yen Vs. a decline of 7.1% to 3.6 billion in US Dollars

Premiums, benefits & expenses, and most assets & liabilities in Japan business denominated in Yen!

Growth Yen vs Growth Dollars

Product Use and Overview● Insures more than 50 million people via worksite, retail, and home● Insures against asset loss, income loss, and supplemental medical● Founded in 1955, Japan 1974● Concentrated in voluntary supplemental products

Empirical Analysis● Long-term liabilities = long term investments in life insurance industry, low-interest rate environment impacts

fixed-income marketQuant Analysis

● Excluding Yen, 5.2% increase on operating earnings per diluted share, 2% ahead of target in 2012● Exceedingly strong RBC & SMR ratios● Dividends expected to grow at rate of EPDS, excluding Yen impact● 2.9 billion in new annualized premium sales● Revenues grew at 5.7% in 2013, excluding yen impact. ● ROE in 2013 was 25.8% exceeding target. Comparable in next section. ● Generally locked into fixed-income assets (bonds) difficulties in low interest rates environments● Volatility and uncertainty still surround implementation of ACA, making small businesses hesitate to change

plans● Excluding Yen, metrics beat objectives● Expanded share repurchase to increase liquidity in low interest rate environment (800m share repurchase in

2013)

Fundamental Analysis

Fundamentals Chart

● 1,600 new sales agencies in 2013● Sales alliances with Dai-ichi Life, Bank Channel, Japan Post Group, Daido

Life● Product offerings: Life (term, whole, Hybrid) Child Endowment, Fixed

Annuity● Supplemental offerings: Cancer, Medical (DAYS & EVER)● Market leader of cancer and medical insurance

Aflac Japan

● New premiums of $1.4 billion sold in 2013- Blamed on ACA implementation

● Product categories: Income-Loss protection, Asset-Loss protection, and supplemental medical

● Growth 2013: Premiums 3.1%, revenues 2.9%, pretax operating earnings 4.1%

● Sell group and individual insurance to all sizes of business, but focus on <100 employees

Aflac U.S.

The past decade...

ComparablesDvd, P/e, ROE focus

Charting Com

parables

*Revenue, EPS, Dvd Paid

Financial Modeling DCFAssumptions:

Forecasted year over year convergence to past 5 year average (revenue, EBITDA, EBIT)Conservative Liabilities Growth rate due to Other Liabilities volatility (overall conservative)Tax Rate conservatively above effective year over year rates

Valued: 82.30 pps with 7.80% (current) wacc and 3.5% long term growth rateSensitivity Analysis

9% wacc 12% wacc (10’) 15 %wacc (08’) 18%wacc

2% LTGR $51.15 $34.69 $24.76 $20.08

4% LTGR $74.48 $41.40 $29.01 $22.04

6% LTGR $124.11 $52.55 $35.11 $24.69

8% LTGR $190.89 $74.75 $41.79 $28.38

Assumptions:Aflac will always give off growing Dividends without Dividend-less quarterAFL Beta and Expected Market Return have corresponding time frames

Value: 76.00 pps 7% Dividend Growth Rate to $1.52 2014 Dividend, 9% Discount RateVariable Analysis

Financial Modeling DDM+CAPM

4% 5% 6% 7% 8% 9% 10% 11%

5% $159.60 $79.80 $53.20 $39.90 $31.92 $26.60

6% $161.20 $80.56 $53.25 $40.28 $32.22

7% $162.64 $81.32 $54.21 $40.66

8% $164.16 $82.08 $54.72

9% $168.68 $82.84

10% $167.20

~$59$83.51

DR

DGR

Weighted Average Price Target:50% Weight to DCF

$82.3030% Weight to DDM-CAPM

$76.0020% to professional 12 year PT

$66.00

Price Target of $77.15

Financial Forecasting

AFL Beta .92 (SPX)Old Financials Port Beta:

1.261 (SPX)New Financials Port Beta:

1.194 (SPX)Old Financial Portfolio Weight: 13.8%New Financial Portfolio Weight: 17.2%

12mth professional PT:MS +2.5% BX +32% WRB -1.2% CYN +.8%Weighted 12mth Growth Projections: 12.82%

*The closer Beta is to 1, the more it follows (SPX). (Higher- More Volatile)

Portfolio Forecasting

Technical Reading 3 Year

5 Year

Dividend PlayValue Play

Diversify PortfolioHedge Volatility

...again