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Reserve adjustment pushes Aflac's operating income down YOY in Q4'16

Aflac Inc. reported fourth-quarter 2016 operating earnings of $630 million, or $1.54 per share, compared with $668 million, or $1.56 per share, a year ago.

The S&P Capital IQ consensus normalized EPS estimate for the quarter was $1.63.

The year-over-year decline in operating earnings reflected the impact of a pretax $52 million reserve adjustment on a closed block of business.

Net earnings for the period increased year over year to $751 million, or $1.84 per share, from $730 million, or $1.71 per share in the fourth quarter of 2015.

Net earnings included $116 million, or 29 cents per share, of pretax net realized investment gains, compared to $91 million, or 22 cents per share, a year earlier. Pretax net realized gains from securities transactions and impairments came to $114 million, or 28 cents per share. Hedging costs related to certain dollar investments of Aflac Japan on a pretax basis were $62 million, or 15 cents per share. Realized pretax net investment gains from other derivative and hedging actions were $64 million, or 16 cents per share. Net earnings in the most recent period also include a pretax gain of $70 million, or 17 cents per share, from other and nonrecurring items.

Total revenues for the final quarter of 2016 rose 12% year over year to $5.96 billion from $5.32 billion.

Aflac Japan premium income jumped 11.7% from the prior-year period to $3.4 billion, but the segment's pretax operating earnings fell 4.3% to $775 million. Total new annualized premium sales slid 18.5% to $236 million. Third sector sales, which includes cancer, medical and income support products, rose 1.6%, while first sector sales, which includes WAYS and child endowment, fell 60.2%.

For full year 2016, Aflac recorded operating earnings of $2.81 billion, or $6.79 per share, versus $2.67 billion, or $6.16 per share, a year earlier. Excluding the positive impact of the stronger yen, however, operating EPS was $6.45 for the year. Net earnings for 2016 was $2.66 billion, or $6.42 per share, versus $2.53 billion, or $5.85 per share, in 2015.

The S&P Capital IQ consensus normalized EPS estimate for full year 2016 was $6.84.

The company's outlook is unchanged since its December 2016 outlook call. Aflac continues to aim for operating EPS of $6.40 to $6.65 for 2017. It expects to repurchase between $1.3 billion and $1.5 billion of shares over the course of the year.