Source: ALF Q$13 press release

Operating an international financial firm can be difficult, especially when your results are mired by exchange rate impacts. This is precisely what insurer AFLAC (AFL -0.10%) is experiencing this week, following the release of its fourth-quarter and full year 2013 earnings report. But investors should be sure that they're comparing apples to apples before shaking a feather at the insurer.

On the surface
At first glance, AFLAC's fourth-quarter results were nothing to celebrate. Revenue was down nine percent year over year and earnings only benefited from lower expenses, claims, and benefits payouts. With its US operations contributing a small boost to revenues and net investment income, there was a huge drag on AFLAC's earnings that investors couldn't ignore -- but maybe they should have.

Exchange Rates
A significant portion of AFLAC's business is in Japan, where the company transacts its business in the Yen. With a weakening Yen, the insurer has found that the exchange rates have skewed its quarterly results, making its financial picture look much bleaker than reality. For example, here are some select data points from AFLAC's Japanese operations, comparing the fourth-quarter 2013 results versus the prior year, with and without the effect of exchange rates:

MetricIncluding Exchange EffectExcluding Exchange Effect
Premium Income (13%)


Net Investment Income (5.7%) 4.4%
Benefits and Expenses (13.1%) 2%

Operating Earnings

(6.8%) 5.4%
Operating Earnings per dilutes share (5.4%) 6.8%

Source: AFL Q413 Earnings press release

It's clear from the table above that by comparing operations without the effect of exchange rates, investors can get a clearer picture of how AFLAC's operations continue to grow.

Excluding the impact of the weakened yen, AFLAC's CEO, Daniel Amos, highlighted the fact that the company continues to meet its goals, with total operating income per diluted share improving by over 5%, which was the insurer's goal and expectation.

Source: Flickr, Martin Deutsch

Not all bad
There was one area that benefited significantly from the weakened yen -- AFLAC's Japanese investment portfolio. Because of the low interest rate environment in Japan, the company had designated a larger portion of its portfolio to dollar-denominated investments. With 45% of its investments (up from 38% in 2012) allocated to these types, the Japanese segment reported a 15.7% increase in net investment income for the fourth quarter.

Apples and oranges
During the earnings season, investors need to be careful not to skim the financial reports without understanding the context of what they're reading. In the case of AFLAC, the company may have experienced a slight drop initially following the report's release, but investors soon found that the impact of the yen exchange rate was not that concerning after all. For more coverage on AFLAC and the insurance industry's earnings season, keep checking out