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1 March 13, 2015 Aflac Inc. Current Recommendation Prior Recommendation Underperform Date of Last Change 07/17/2013 Current Price (03/12/15) $62.65 Target Price $66.00 NEUTRAL SUMMARY (AFL-NYSE) Aflac s fourth-quarter earnings underperformed the Zacks Consensus Estimate and the year-ago results despite lower share count and expense control. Top line decelerated owing to reduced sales and premiums along with unfavorable dollar/yen exchange rate in Japan. These were partially offset by marginal improvement in the U.S. operations. We remain cautious of the tepid earnings guidance and investment returns, given the sluggish economy faced in Japan. Yet, Aflac s product expertise, healthy capital ratios, dividend hike, accelerated buybacks and better-thanexpected profit repatriation in 2014 boost confidence. Overall, a stable economy and investment restructuring should help gather momentum in the long run, negate interest and currency risks, and enhance financials. SUMMARY DATA 52-Week High $ Week Low $55.80 One-Year Return (%) 0.11 Beta 1.58 Average Daily Volume (sh) 1,875,066 Shares Outstanding (mil) 439 Market Capitalization ($mil) $27,503 Short Interest Ratio (days) 3.07 Institutional Ownership (%) 61 Insider Ownership (%) 4 Annual Cash Dividend $1.56 Dividend Yield (%) Yr. Historical Growth Rates Sales (%) 4.9 Earnings Per Share (%) 3.8 Dividend (%) 7.2 P/E using TTM EPS 10.2 P/E using 2015 Estimate 10.4 P/E using 2016 Estimate 9.7 Zacks Rank *: Short Term 1 3 months outlook 3 - Hold * Definition / Disclosure on last page Risk Level * Low, Type of Stock Large-Value Industry Ins-Acc & Hlth Zacks Industry Rank * 14 out of 267 ZACKS CONSENSUS ESTIMATES Revenue Estimates (In millions of $) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) ,208 A 6,044 A 5,886 A 5,801 A 23,939 A ,640 A 5,838 A 5,736 A 5,514 A 22,728 A ,372 E 5,406 E 5,428 E 5,357 E 21,563 E ,104 E Earnings Per Share Estimates (EPS is operating earnings before non-recurring items, but including employee stock options expenses) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) 2013 $1.69 A $1.62 A $1.47 A $1.40 A $6.18 A 2014 $1.69 A $1.66 A $1.51 A $1.29 A $6.15 A 2015 $1.54 E $1.55 E $1.50 E $1.45 E $6.04 E 2016 $6.43 E Projected EPS Growth - Next 5 Years % Zacks Investment Research, All Rights reserved S. Riverside Plaza, Chicago IL 60606

2 OVERVIEW Founded in 1955 and headquartered in Columbus, GA, Aflac Inc., through its subsidiary American Family Life Assurance Company of Columbus, provides supplemental health and life insurance. The company was incorporated in 1973 under the laws of the state. Aflac offers voluntary insurance policies in Japan and the U.S., all of which provide financial protection against income and asset loss. The company sells its products through sales associates, independent corporate/individual agencies and affiliated corporate agencies. Aflac insurance products provide protection to more than 50 million people across the U.S. and Japan. As of Dec 31, 2014, Aflac Japan had 4,526 employees and Aflac U.S. had 4,709 employees. Aflac s other operations include a printing subsidiary, which had 290 employees at 2014-end. The company primarily derives its revenues from premiums (principally supplemental health insurance), net investment income, realized investment gains or losses and other income. Aflac primarily operates in the U.S. and Japan. Aflac U.S. (accounted for 28% of total revenue in 2014) markets and administers group products through Continental American Insurance Company (CAIC). It also offers insurance products, including accident/disability plans, cancer plans, short-term disability plans, sickness and hospital indemnity plans, hospital intensive care plans, fixed-benefit dental plans, vision care plans, longterm care plans and life insurance products. Aflac Japan (72%) is a branch of Aflac that offers supplemental insurance products including cancer plans, general medical indemnity plans, medical/sickness riders, care plans, living benefit life plans, ordinary life insurance plans and annuities. In 2009, Aflac purchased South Carolina-based Continental American Insurance Group Inc. (CAIC) and its wholly owned subsidiary for $100 million. Post the acquisition, CAIC has been renamed as Aflac Group Insurance. Aflac has achieved global acclaim over a short span of time. This year, Aflac was recognized by Ethisphere magazine as one of the world s most ethical companies, for the ninth consecutive year. In 2015 itself, the Fortune magazine recognized Aflac as one of the 100 best companies operating in America for the 17 th consecutive year. Fortune also put Aflac on its global list of the most admired companies in the Life and Health Insurance category for the 14 th time in REASONS TO BUY Aflac has been achieving its earnings target for the past 25 years, reflected in its consistent dividend increment for the past 32 years. Maintaining this trend, Aflac hiked its quarterly dividend by 5.4% in Oct Amid nominal economic recovery, Aflac has also been able to improve its persistency and expense ratio that resulted in consistent profit margin expansion. Lower claims and operating expenses (down 9% in 2013 and 4.6% in 2014) as well as lower loss ratios further supported growth of margins in these periods. As a result of the reinsurance agreements in Sep 2013 and Oct 2014, shift to newer products, lower loss ratios, favorable claim trends and disciplined management of existing accounts and expenses, we expect the benefit ratio to continue improving in the upcoming years as it did in 2013 and in 2014, after marginal increments in 2011 and Once the economy stabilizes, we believe Aflac will be able to gain from the increased client activity and enhanced group product platform, which will be eventually reflected in the financial growth. Meanwhile, most of the decline in investment due to Japan's consumption tax hike, from 5% to 8% effective Apr 2014, has started to bottom out. Based on these factors, management also expects earnings growth to gradually rebound beyond Equity Research AFL Page 2

3 Given the slow and steady improvement in financials based on the ongoing economic recovery, Aflac has been able to maintain a strong balance sheet position, along with minimized risk exposure and strong solvency ratio. These factors have helped the company resume its 32.4 million share buyback program that it had shelved in 2008, at the peak of the financial crisis. With the expansion of the share repurchase program by 40 million shares in Nov 2013, Aflac had about 29.6 million shares available for buyback at 2014-end, while stock worth $1.2 billion was repurchased in Management further aims to accelerate its share repurchase target by another $1.3 billion in 2015, now that most of the de-risking program has been successfully completed. Meanwhile, profit from repatriation outperformed the management target of 127 billion yen from Japan to the U.S. in 2014, and rose to $1.7 billion in 2014 (181.4 billion yen) from $771 million (76.8 billion yen) in 2013, $422 (33.1 billion yen) million in 2012 and $143 million in As well, Aflac restructured its hedging strategy with a new 52.5 billion yen foreign exchange forward contract on the profit repatriation, which was received in Jul 2014, while another 50 billion yen was received in Dec 2014, overall resulting in $52 million of additional funds. As of Dec 2014, about billion yen of foreign exchange forwards were hedged for future profit repatriation. Going ahead, part of these funds will likely facilitate share repurchases. Aflac s strong brand name and solid business model enabled it to improve earnings considerably faster than other life and health insurers. Most significantly, the company is a prime insurer in Japan in terms of individual policies in force. Japan s revenues accounted for 72% of the company s total revenue in 2014, while Aflac continues to strengthen its Japanese operations and premium income through new product introductions to meet the market demand, new agent recruitments, intensified training, payroll account growth, targeted advertising and faster claim payments and cash benefits. In addition, Aflac continued to be the number one seller of cancer and medical insurance policies in Japan since Its third sector cancer and medical product sales, covering a strong franchise in Japan, have generated steady revenues in the last few years and are expected to benefit despite the continued cost pressure on Japan s healthcare system. In this regard, the company launched the New Cancer DAYS product in Sep 2014 with multiple cancer occurrence benefits and lower premiums, which primary led to 176% growth in cancer insurance sales in fourth-quarter Subsequently, third sector sales in Japan improved 6.1% in 2014, also within the targeted 2 7% range. Going ahead, third sector sales are projected to grow by about 15% in the first nine months of 2015, while some tapering is expected in fourth-quarter 2015 due to difficult comps. Aflac has also been capitalizing on the sales of its new medical product range that targets the underpenetrated age group within years, and expects sales to pick up in the upcoming quarters. Management anticipates improvements in the coming quarters banking on growth from third sector, particularly, from medical and cancer products, while validating improved results and market position from the strategic alliance with Japan Post. Aflac has expanded its network base from about 3,000 postal outlets at Sep 2014-end to 10,000 post offices in Oct 2014, and eventually targets 20,000 locations by first-quarter Despite the challenging economic conditions that have marred the insurance industry in both Japan and the U.S., Aflac continues to enjoy a fairly liquid position. The company s investments and cash position of $ billion at 2014-end experienced steady growth with overall CAGR of 10.3% for , thereby providing ample operating leverage and flexibility to the balance sheet. Further, the National Association of Insurance Commissioners (NAIC) estimated risk-based capital ratio of 945% at 2014-end, significantly higher than 786% generated at 2013-end, 630% in 2012 and 493% in 2011 by Aflac. Even solvency ratio in Japan of +850% at 2014-end stood higher than 750% at 2013-end. This reflects the company s stable capital returns and appears impressive amid the ongoing de-risking program, which further improved the annualized operating return on average shareholder equity (ROE) in 2013 and Meanwhile, Aflac has come a long way in its attempt to get rid of its problem investments in Europe through its proactive de-risking process initiated since Jan We believe that Aflac is quite Equity Research AFL Page 3

4 capable of sustaining losses from these investments. Working on a flexible asset-allocation strategy, the company is also taking initiatives to divert its investments toward the U.S. bond market from Japan. Aflac s proactive investments in the high-yielding U.S. dollar-dominated fixed income securities are also expected to improve return on investments in Japan. Going ahead, the company s modest cash and capital position further enhances its scope for both inorganic and organic growth. Aflac s stability and healthy risk-based capital continue to imbibe confidence among ratings agencies as well. In the May of 2013 and 2014, A.M. Best affirmed the issuer credit rating (ICR) of a- on Aflac s senior unsecured debt and bbb+ rating on subordinated debt and senior debentures. The ratings agency also reiterated its financial strength rating (FSR) of A+ (Superior) and ICR of aaon all the subsidiaries of Aflac. The outlook for all remains stable. In Mar 2015, Moody s further reaffirmed Aflac s senior debt at A3 and IFS at Aa3 with a stable outlook. Going ahead, the current sluggish market feature contrastingly induces Aflac to retain long-term government securities until maturity, thereby increasing the operating leverage without posing much risk to the capital. Interest-coverage is also expected to remain stable at above 12x in Furthermore, the recent $1 billion notes issue will facilitate reduction of borrowing costs given its low interest rates, thereby maintaining modest financial leverage around 25% in the near- to mid-term, according to the ratings agencies. REASONS TO SELL Given the ongoing weak consumption levels, sluggish credit markets and currency fluctuations that affected both the institutional and individual clients, Aflac s top line remains sufficiently exposed to a challenging operating environment, primarily in Japan that accounted for about 72% of revenues in Japan s contribution to top line also deteriorated from 74% in 2013, 78% in 2012 and 83% in As a result, new annualized premium sales in dollars plunged 29.8% in 2014 and 41.7% in 2013, after growing around 30% in both 2012 and Particularly, its banks channel sales that cover more than 90% of the banks in Japan, WAYS life policies and other third sector cancer and medical products (together contributing about 75% to Japan s top line) have decelerated significantly in 2013 and 2014, signaling tepid growth going forward. Despite the re-pricing initiatives taken in Apr 2013, Aflac continued to pose sharp downward trends in the WAYS sales in 2014 as well, after over 124% growth in Declining sales of WAYS products also led to the decline in bank channel sales of 51.3% in 2013 and 47.3% in 2014 (accounting for 21.5% of new premium sales), indicating a tough phase in the upcoming quarters, also given the launch of revised medical product in Japan in Aug Aflac s expenses continue to pose an increasing trend while significantly negating top-line growth and slicing margins. The devastating earthquake and tsunami that hit Japan in 2011 resulted in higher catastrophe losses and higher benefits and claims, which increased 11.5% in 2012, 13.6% in 2011 and 7.1% in Although benefits and claims decreased in 2013 and 2014, Aflac is expected to be burdened with more claim commitments going ahead. Further, Aflac s indulgence in de-risking activities has shifted its portfolio toward investments with less risk and lower yields, which will further diminish investment income. Despite 48% of its investments being dollar-denominated, the total portfolio yield in the U.S. declined to 5.89% in 2014 from 6.01% in 2013 and 6.28% in These factors along with strong sales of low-margin general health products in Japan have deteriorated the benefit ratio in the past couple of years, thereby adversely affecting margins. Higher spending due to incremental sales initiatives are also anticipated to deteriorate benefit ratio in the coming quarters. Even operating cash flow plunged 30% to $10.5 billion in 2013 and 37% to $6.6 billion in 2014, after growing at a 5-year (until 2012) CAGR of 26.1%, primarily due to lower net income and tax liabilities. Equity Research AFL Page 4

5 Aflac continues to be harshly hit by the intense economic volatility, continued fluctuation of the yen against the dollar, changes in interest rates, changes in credit spreads and defaults, market liquidity and declines in equity price. Although most of the portfolio de-risking has been completed, increased losses in the investment portfolio, higher hedging in currency and interest rates along with tempered growth of margins and capital volatility in Japan are expected to hurt earnings repatriation to the U.S. Moreover, both S&P Ratings and Fitch s negative outlook on Japan s sovereign rating raise economic concern, also evident from the maintenance of a negative outlook on Aflac s debt (in Jun 2014 and Oct 2014, respectively), which is significantly comprised of Japan Government Bonds (JGBs) that are adversely impacted by the historically low interest-rate environment. These have also adversely affected the new money yield in Japan, declining to 2.16% in 2014 from 2.48% in 2013 and 2.40% in The past few quarters have witnessed significant weakness in yen as well, which when translated into dollars causes fewer dollars to be reported. The yen/dollar exchange rate was weak by 18.2% year over year in 2013 and 7.5% in 2014, implying that deterioration is expected in the upcoming quarters as well. Consequently, economic volatility and weak exchange rates reflect low earnings visibility and signals further investment losses, which may limit Aflac's liquidity and financial flexibility in the future. The global market crisis has significantly impacted the investment returns of the company, which restricts growth opportunities. Moreover, the company s exposure to European and Japanese financial institutions hybrid securities, below-investment-grade debt and perpetual securities is resulting in statutory investment losses and lower reinvestment yields, thereby escalating the financial and capital risk. This is also validated by the company s return on average invested assets in Japan, net of investment expenses, which deteriorated to 2.8% in 2014 from 2.86% in 2013, 2.89% in 2012, 3.18% in 2011, 3.48% in 2010 and 3.65% in Additionally, total portfolio yield in Japan slipped to 2.80% in 2013 from 2.87% in 2012, 3.29% in 2011 and 3.56% in Although it improved to 2.83% in 2014, a trend reversal seems unlikely at this point. Increasing expenses, sluggish sales, portfolio de-risking, tough comps and the prevalent low interest rate environment have further impelled management to tighten its earnings growth guidance of 2 7% growth in The guidance reflects the negative impact of difficult comps, low interest rate environment, higher capital expenditures and currency fluctuations. Aflac U.S. continues to experience sluggish life insurance sales due to low demand, recent healthcare reforms and reduced client activity from larger businesses that has created a sense of caution on both macro and micro levels. Over 90% of the company s products in the U.S. are sold to the small businesses that are least resistant to absorb the market volatility. The company s insurance brokerage distribution initiative has been incapable of generating any significant growth given poor recruitment and inadequate training infrastructure. While these factors also reduce the company s market competence, Aflac competes with major organizations such as Blue Cross and Blue Shield (BCBS) in the U.S., which further adds to its woes. Additionally, loss of a large payroll account, persistent weakness in confidence from small businesses and a few sales associates cast a cautious outlook on the sales opportunities in the U.S. in Total annualized new sales in the U.S. continue to fluctuate as it improved mere 0.7% in 2014 after declining 4.3% in 2013, preceded by growth of 0.8% in 2012 and 6.8% in Prior to that, sales declined 4.9% in 2010 and 6.4% in 2009, overall depicting restricted growth. Although management projects new annualized sales in the U.S. to witness a growth of 3 7% in 2015, we remain cautious owing to difficult comps and sales turnaround in the large-case market. Equity Research AFL Page 5

6 RECENT NEWS Notes Update Mar 9, 2015 Aflac issued long-term fixed rate notes at a price of $1 billion in two tranches. The first set of five-year notes worth $550 million are issued at a price of $ carry an interest rate of 2.40%, slated to mature in The expected yield for the notes is pegged at 2.406%. The remaining $450 million of 10-year notes, scheduled to mature in 2025, bear an interest rate of 3.25% and are issued at $ with an expected yield of 3.297%. Ratings agencies Moody s and A.M. Best have assigned a long-term debt rating of A3 and a-, respectively, on the issued notes. The outlook for both remains stable. Management plans to use the proceeds from the sale of these notes to pre-redeem 10-year notes worth $850 million that carry an interest rate of 8.5% and were scheduled to mature in The remaining will be utilized to enhance liquidity and operating leverage. Aflac Q4 Earnings Lags on Low Japan Sales Feb 3, 2015 Aflac reported fourth-quarter 2014 operating earnings per share of $1.29 that missed the Zacks Consensus Estimate of $1.30 by a penny. The reported figure also came at the lower-end of management s guided range of $ per share but deteriorated from $1.40 in the year-ago quarter. Meanwhile, operating earnings plunged 10.7% year over year to $581 million due to lower revenues. A weak yen/dollar exchange rate had a negative impact of $0.08 per share on operating earnings. Including one-time items, however, Aflac s GAAP net income in the reported quarter rose to $703 million or $1.57 per share from $675 million or $1.45 per share in the year-ago period. Total acquisition and operating expenses dipped 0.4% year over year to $1.37 billion, while benefits and claims fell 9.6% to $3.07 billion. Further, total revenue shrank 4.9% year over year to $5.51 billion, also marginally lower than the Zacks Consensus Estimate of $5.52 billion. A weak yen and the low interest rate environment further weighed on the results. While Aflac Japan contributed about 73% to total revenue, Aflac U.S. contributed the remaining 27%. Detailed Analysis Total revenue in Japan plummeted 10.7% year over year to $3.8 billion, primarily owing to decelerated sales from the WAYS products along with a weak average yen, which led to a 37.6% plunge in bank channel sales. Premium income, in terms of dollars, also decreased 12% to $3.2 billion. However, sales of cancer and other medical products (third-sector sales) increased 28.5% in the reported quarter. Meanwhile, net investment income from the Japanese operations dropped 3.2% year over year to $643 million, as about 48% of these were dollar-denominated. The growth was primarily mitigated by a weak yen/dollar exchange rate, which was , or 12.2% weaker than the average rate of in the year-ago quarter. Consequently, pre-tax operating earnings were $770 million in Japan, down 9.7% from the prior-year quarter. Operating margin rose marginally to 20.1% from 19.9% a year-ago. On the other hand, Aflac U.S. generated revenues of $1.5 billion, up 1.2% from the prior-year quarter. Net investment income grew 1.8% to $161 million, while premiums rose 1.2% to $1.3 billion. Notably, Equity Research AFL Page 6

7 total new annualized sales jumped 14.1% to $454 million, reflecting the effects of organizational changes made in the sales channel during However, pre-tax operating earnings in the U.S. dipped 2.2% year over year to $201 million, while operating margin fell to 13.7% from 14.2% in the year-ago period. Highlights of 2014 For 2014, Aflac reported operating earnings per share of $6.16, a penny higher than the Zacks Consensus Estimate but dipped from $6.18 recorded in Operating earnings declined 3.1% year over year to $2.8 billion. The weak yen/dollar exchange rate had a negative impact of $0.26 on operating earnings in Including one-time items, GAAP net income dropped to $2.95 billion or $6.50 per share in 2014 versus $3.16 billion or $6.76 per share in The average yen/dollar exchange rate stood at in 2014, 7.5% weaker than the average rate of in Total revenue for the reported quarter decreased 5.1% year over year to $22.73 billion, lagging the Zacks Consensus Estimate of $22.95 billion. Total acquisition and operating expenses dipped 0.2% year over year to $5.3 billion in 2014, while benefits and claims plummeted 6.3% to $12.94 billion. Financial Update As of Dec 31, 2014, total investment and cash were $ billion compared with $108.5 billion at end, while shareholder equity totaled $18.72 billion against $14.62 billion in During the reported quarter, net unrealized gain on investment securities and derivatives was $4.7 billion against $3.4 billion in the prior quarter. At the end of Dec 2014, Aflac projected its risk-based capital ratio to be higher than +775% at Sep end and +750% at 2013-end, while its solvency ratio in Japan is expected to be +850%, up from 750% at 2013-end. Meanwhile, annualized return on average shareholder equity for the reported quarter was 15.4% versus 15.9% in the prior quarter. On an operating basis (excluding realized investment losses and the impact of ASC 815 on net earnings, and unrealized investment gains/losses in shareholder equity), Aflac s return on average shareholder equity came in at 16.3%, down from 18.8% in the previous quarter. On Nov 4, 2014, Aflac issued long-term fixed rate notes at a price of $750 million. These 10-year fixed rate senior notes worth $750 million are issued at a price of $ and carry a coupon rate of 3.625%. Moreover, the expected yield for the notes are pegged at 3.637%. Ratings agency A.M. Best has cast an a- debt rating on the issued notes with a stable outlook. Management plans to use the proceeds from the sale of these notes to enhance liquidity and operating leverage. Aflac may also make capital contributions to its operating subsidiaries, from the new debt issuance, thereby gaining capital flexibility. Share Repurchase Update Aflac bought back about 8.6 million shares worth $510 million during the reported quarter. For 2014, about 19.7 million shares were repurchased for $1.2 billion, in line with the guidance. Equity Research AFL Page 7

8 On Nov 13, 2013, the company s board had sanctioned a new share repurchase program for 40 million shares, to commence with immediate effect. Including these, about 29.6 million shares were available for repurchase at the end of Dividend Update Concurrently, Aflac declared a regular cash dividend of $0.39 per share, which is payable on Mar 2, 2015, to shareholders of record as on Feb 17. In Oct 2014, the board hiked its regular cash dividend by 5.4% to $0.39 per share from the prior $0.37, marking an increase for the 32 nd consecutive year. The raised dividend was paid on Dec 1, 2014 to shareholders of record as on Nov 19. Guidance for 2015 Along with the release of fourth-quarter results, Aflac detailed its 2015 outlook. Excluding currency fluctuations, the company continues to anticipate operating earnings growth of 2 7% in 2015, unchanged from the prior projection, based on neutral currency and stability in both Japan and the U.S. Earnings per share are expected to benefit from higher share buybacks, which are now projected to be about $1.3 billion in Furthermore, Aflac Japan s third-sector cancer and medical products sales are now likely to exhibit growth of about 15% in the first nine months of 2015, although fourth-quarter 2015 could witness a sharp fall due to difficult comps. Sales in the U.S. are now projected to grow 3 7% in 2015, targeting the mean 5%. The guidance reflects the negative impact of difficult comps, low interest rate environment, difficulty in investing cash flows at attractive yields and currency fluctuations. Business Update On Oct 1, 2014, Aflac entered into a reinsurance treaty that released regulatory reserves worth 55 billion yen from Aflac Japan. Half of this transaction was retroceded to the company s subsidiary at the end of The treaty is similar to one implemented in Sep At the same time, the company launched a new cancer product (New Cancer DAYS) in Japan and expanded Japan Post s network to 10,000 locations from 3,000. Equity Research AFL Page 8

9 VALUATION The shares of Aflac currently trade at 10.4x our earnings estimate for 2015, at 21% discount to the 12.3x industry average. On a price-to-book basis, the shares trade at 1.5x, at 7% discount to the 1.6x industry average. The valuation on a price-to-book basis looks attractive, given a trailing 12-month ROE of 16.1% that is substantially above the negative industry average. Our six-month target price of $66.00 per share equates to about 10.9x our earnings estimate for Combined with the quarterly dividend of $1.56 per share, this target price implies an expected total return of 6.6% over that period. Additionally, the quantitative Zacks Rank for Aflac is currently 3, indicating no clear directional pressure on the shares over the near term. Short interest is currently 3.1 days. Key Indicators P/E F1 P/E F2 Est. 5-Yr EPS Gr% P/CF P/E P/E 5-Yr High P/E 5-Yr Low Aflac Inc. (AFL) Industry Average S&P Unum Group (UNM) Employers Holdings Inc. (EIG) NA NA 11.2 TTM is trailing 12 months; F1 is 2015 and F2 is 2016, CF is operating cash flow P/B Last Qtr. P/B 5-Yr High P/B 5-Yr Low ROE D/E Last Qtr. Div Yield Last Qtr. EV/EBITDA Aflac Inc. (AFL) Industry Average S&P NA 2.0 NA Equity Research AFL Page 9

10 Earnings Surprise and Estimate Revision History Equity Research AFL Page 10

11 DISCLOSURES & DEFINITIONS The analysts contributing to this report do not hold any shares of AFL. The EPS and revenue forecasts are the Zacks Consensus estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts personal views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the securities it covers. Outperform- Zacks expects that the subject company will outperform the broader U.S. equity market over the next six to twelve months. Neutral- Zacks expects that the company will perform in line with the broader U.S. equity market over the next six to twelve months. Underperform- Zacks expects the company will under perform the broader U.S. Equity market over the next six to twelve months. The current distribution of Zacks Ratings is as follows on the 1129 companies covered: Outperform %, Neutral %, Underperform 8.9%. Data is as of midnight on the business day immediately prior to this publication. Our recommendation for each stock is closely linked to the Zacks Rank, which results from a proprietary quantitative model using trends in earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The model assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of a company s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. In determining Risk Level, we rely on a proprietary quantitative model that divides the entire universe of stocks into five groups, based on each stock s historical price volatility. The first group has stocks with the lowest values and are deemed Low Risk, while the 5 th group has the highest values and are designated High Risk. Designations of Below-Average Risk, Average Risk, and Above-Average Risk correspond to the second, third, and fourth groups of stocks, respectively. Equity Research AFL Page 11