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Aflac (AFL) Down 13% in 2020: Will It Bounce Back in 2021?

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Zacks Equity Research
·4 min read
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The year 2020 has been lackluster for Aflac Inc. AFL as it saw business declines due to the impact of COVID-19 and some company-specific factors.

Its results for the first nine months of 2020 suffered from a decline in sales of insurance products at Aflac Japan due to the impact of COVID-19 and lower sales at its largest distribution agent - Japan Post.

The U.S segment also saw declines due to COVID-led social distancing efforts, which limited face-to-face sales opportunities beginning mid-March 2020. Also, low interest rates weighed on investment income.

Investors, thus, became cautious on the company, as is evident from its stock price decline of 13% year to date compared with the industry’s 7.9% fall.

Other companies in the same space such as The Allstate Corp. ALL, MetLife, Inc. MET, Unum Group UNM declined 3.1%, 4.4% and 19.2%, respectively, in the said period.

However, efforts made by the company to increase sales in Japan and the United States should aid its performance in 2021.  

In Japan, the company promoted a simplified cancer rider in the fourth quarter and will launch a refreshed medical product in first-quarter 2021. In late October, it rolled out a technology to pivot from face-to-face to virtual sales and provide an entirely digital experience to customers. The company is also continuing with direct mail. The combination of product development, a recovery in pandemic conditions, and its alliance with Japan Post are supposed to be important growth drivers in 2021. Aflac has also undertaken paperless initiatives across all operations in Japan. It is also working to increase marketing for spreading awareness about new products.

Its U.S. segment is likely to gain in 2021 from the buyout of Argus Dental & Vision, which has a strong reputation for servicing Medicare and Medicaid dental and vision members. In the United States, the build-out of network dental and vision remains on track. The company successfully filed its new network products in 48 states, with approvals received in 37 states. It is up and running with sales in 10 states and expects to ramp up the same moving into 2021.

The company's acquisition of Zurich North America's U.S. Corporate Life and Pensions (Group Benefits) business (completed in November 2020) will further enhance its position in the broker distribution network in the United States. While the acquisition had a little effect on its fourth-quarter performance, it positions the company for an expanded capacity in 2021.

Its consumer markets platform remains on track for growth, with hospital, accident and cancer product filings expected to be completed in early 2021. The company also plans to include life insurance in 2021. The addition of life insurance will further aid in sales increase.

Aflac’s cost-saving initiative is also likely to aid margins. The company offered a voluntary separation plan to eligible employees, which will reduce its U.S. insurance and corporate workforce by approximately 9%. The company expects run-rate annual savings in the range of $45-$50 million and will record a one-time expense associated with the separation plan of approximately $45 million in the fourth quarter. Though these costs will drain margins in the near term, a more agile workforce will increase the segment’s efficiency over medium-to-long term.

Given the numerous initiatives, the year 2121 is likely to be better for the company.

Aflac currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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The Allstate Corporation (ALL) : Free Stock Analysis Report
 
Aflac Incorporated (AFL) : Free Stock Analysis Report
 
Unum Group (UNM) : Free Stock Analysis Report
 
MetLife, Inc. (MET) : Free Stock Analysis Report
 
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