Aflac Q3 2025 Pre Recorded Earnings Report

Aflac EPS Results

• Actual EPS: $2.49
• Consensus EPS: $1.77
• Beat/Miss: Beat by +$0.72
• One Year Ago EPS: $2.16

Aflac Revenue Results

• Actual Revenue: $4.41 billion
• Expected Revenue: $4.36 billion
• Beat/Miss: Beat by +$48.27 million
• YoY Revenue Growth: +59.40%

Aflac Announcement Details

• Quarter: Q3 2025 Pre Recorded
• Date: 11/4/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, November 4, 2025
• Conference Call Time: 7:00AM ET

Aflac (NYSE:AFL) (American Family Life Assurance Company of Columbus) is a provider of supplemental insurance products designed to help policyholders manage out-of-pocket health care and living expenses. The company underwrites a range of individual and group policies that typically pay cash benefits directly to insureds when covered events occur, enabling greater financial flexibility for medical treatment, hospital stays, critical illness, and related costs. Aflac’s product mix includes supplemental health insurance, life insurance and other specialty coverages intended to complement primary medical plans.

Founded in the mid-20th century and headquartered in Columbus, Georgia, Aflac distributes its products through a combination of employer-sponsored programs, independent brokers and agents, and direct marketing. Its sales and service model emphasizes convenience for employers and clear, cash-based benefit payments for consumers. Over time the company has expanded product offerings to address changing health-care needs and has developed business processes and claim-payment systems suited to high-volume supplemental policies.

Aflac is best known for its strong presence in both the United States and Japan, with Japan representing a major market for individual medical and life-related insurance products. The company has built broad brand recognition through national advertising campaigns, notably featuring the Aflac Duck, and through longstanding relationships with employers and distribution partners. Leadership at Aflac has historically included members of the Amos family, and the company’s management and board emphasize insurance underwriting, claims management, and international diversification as core strategic priorities.

Aflac Q3 2025 Pre Recorded Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Adjusted EPS rose 15.3% to $2.49, with Q3 assumption remeasurements adding approximately $0.76 per share and reserve remeasurement gains of about $580,000,000, which materially boosted profit in the quarter.
• Positive Sentiment: Aflac strengthened liquidity and capital flexibility by creating $2.0 billion of off‑balance sheet PCAP trusts, held $4.5 billion of unencumbered holding company liquidity (about $2.7 billion above minimum), repurchased $1.0 billion of stock, and reports very strong regulatory capital metrics (SMR >900%, estimated ESR >250%, combined RBC >600%).
• Neutral Sentiment: Aflac Japan saw net earned premiums decline ~4% (underlying -1.2%) but reported a sharply improved benefit ratio (39.3%) driven largely by reserve unlocks (estimated ~26.6 percentage points favorable), and guided 2025 Japan pretax margin to ~35–38%.
• Positive Sentiment: U.S. segment premiums grew ~2.5% with persistency improving and a stronger pretax margin (21.7%); the quarter absorbed a one‑time $21 million contract termination fee tied to a cloud migration but management expects downstream cost savings and efficiency gains.
• Negative Sentiment: Management increased CECL reserves for commercial real estate ($28 million net) and middle‑market loans ($7 million), and recorded Japan securities impairments and real estate loan losses—signals of continued stress in CRE that required additional reserves.

Presentation

[Max Brodén, Senior EVP and CFO at Aflac Incorporated]

Thank you for joining me as I provide a financial update on Aflac Incorporated's results. For the third quarter of 2025, adjusted earnings per diluted share increased 15.3% year-over-year to $2.49, with no impact from FX in the quarter. In this quarter, remeasurement gains on reserves totaled $580 million, reducing benefits and also increasing the deferred profit liability in the earned premium line by $55 million. The total net impact from the Q3 assumption update increased EPS by $0.76. Variable investment income ran in line with our long-term return expectations. In our U.S. business, as part of our strategic technology plan, as we optimize efficiencies and migrate to the cloud, we terminated a services contract early, which led us to book a one-time termination fee of $21 million in the quarter. Adjusted book value per share, excluding foreign currency remeasurement, increased 6.3%.

[Max Brodén, Senior EVP and CFO at Aflac Incorporated]

The adjusted ROE was 19.1% and 22.1%, excluding foreign currency remeasurement, a solid spread to our cost of capital. Overall, we view these results in the quarter as very good. Starting with our Japan segment, net earned premiums for the quarter declined 4%. Aflac Japan's underlying earned premiums, which excludes the impact of deferred profit liability, paid-out policies, and reinsurance, declined 1.2%. We believe this metric better provides insight into our long-term premium trends. Japan's total benefit ratio came in at 39.3% for the quarter, down nearly 10 percentage points year-over-year. The third sector benefit ratio was 27.8% for the quarter, down approximately 14 percentage points year-over-year. We estimate the impact from reserve remeasurement gains to be 26.6 percentage points favorable to the benefit ratio in Q3 2025.

[Max Brodén, Senior EVP and CFO at Aflac Incorporated]

Long-term experience trends, as they relate to treatments of cancer and hospitalization, continue to be in place, leading to continued favorable underwriting experience. Persistency remains solid year-over-year and in line with our expectations at 93.3%. With refreshed product introductions, we generally see an uptick in lapse and reissue activity, causing reported lapsation to increase. We did experience this uptick with our recently launched cancer product, but overall lapsation remains within our expectations. Our expense ratio in Japan was 19.8% for the quarter, down 20 basis points year-over-year, driven primarily by an increase in expense capitalization rates resulting from higher sales. For the quarter, adjusted net investment income in yen terms was relatively flat at JPY 98 billion. The pre-tax margin for Japan in the quarter was 52.2%, up 750 basis points year-over-year, notably driven by the unlock of actuarial assumptions. But even adjusting for that, a very good result.

[Max Brodén, Senior EVP and CFO at Aflac Incorporated]

Turning to U.S. results, net earned premium was up 2.5%. Persistency increased 10 basis points year-over-year to 79%. Our total benefit ratio came in at 45.6%, 200 basis points lower than Q3 2024, driven by the unlock. We estimate that the reserve remeasurement gains impacted the benefit ratio by 480 basis points in the quarter, largely driven by the assumption unlock and claims remaining below our previous long-term expectations. Our expense ratio in the U.S. was 38.9%, up 90 basis points year-over-year, primarily driven by the one-time early contract termination fee of $21 million that I referred to earlier and the timing of advertising spend. Even though we incurred a one-time fee as part of our overall strategy, we anticipate reduced costs and improved efficiency, which will offset the termination fee over the next few years.

[Max Brodén, Senior EVP and CFO at Aflac Incorporated]

Our growth initiatives, Group Life and Disability, Network Dental and Vision, and Direct-to-Consumer, had no impact to our total expense ratio in the quarter. This is in line with our expectations as these businesses continue to scale. Adjusted net investment income in the U.S. was up 1.9% for the quarter, primarily driven by higher variable investment income compared to a year ago. Profitability in the U.S. segment was very strong, with a pre-tax margin of 21.7%, a 90 basis points increase compared with a strong quarter a year ago. In Corporate and Other, we recorded pre-tax adjusted earnings of $69 million. Adjusted net investment income was $66 million higher than last year due to a combination of lower volume of tax credit investments and higher asset balances, which included the impact of the internal reinsurance transaction in Q4 2024.

[Max Brodén, Senior EVP and CFO at Aflac Incorporated]

Our tax credit investments impacted the net investment income line for U.S. GAAP purposes negatively by $6 million in the quarter, with an associated credit to the tax line. The net impact to our bottom line was a positive $2 million in the quarter. Higher total adjusted revenues were offset by higher total benefits and adjusted expenses of $64 million, driven primarily by internal reinsurance activity, higher costs pertaining to business operations, and higher interest expense. We continue to be pleased with the performance of our investment portfolio. During the quarter, we increased our CECL reserves associated with our commercial real estate portfolio by $28 million net of charge-offs, reflecting continued distressed property values. We did not foreclose on any properties in the period.

[Max Brodén, Senior EVP and CFO at Aflac Incorporated]

Our portfolio of first lien, senior secured, middle market loans continues to perform well, with increased CECL reserves of $7 million in the quarter net of charge-offs. For U.S. statutory, we recorded a $7 million valuation allowance on mortgage loans as an unrealized loss during the quarter. On a Japan FSA basis, there were securities impairments of JPY 476 million in Q3, and we booked a net realized loss of JPY 189 million related to transitional real estate loans. This is well within our expectations and has limited impact on regulatory earnings and capital. During the quarter, we also enhanced our liquidity and capital flexibility by $2 billion with the creation of two off-balance sheet pre-capitalized trusts that issued securities commonly referred to as P-Caps. Unencumbered holding company liquidity stood at $4.5 billion, which was $2.7 billion above our minimum balance.

[Max Brodén, Senior EVP and CFO at Aflac Incorporated]

Our leverage was 22% for the quarter, which is within our target range of 20%-25%. As we hold approximately 64% of our debt in yen, this leverage ratio is impacted by moves in the yen/dollar exchange rate. This is intentional and part of our enterprise hedging program protecting the economic value of Aflac Japan in U.S. dollar terms. Our capital position remains strong. We ended the quarter with an SMR above 900% and an estimated regulatory ESR with the undertaking specific parameter, or USP, above 250%. While not finalized, we estimate our combined RBC to be greater than 600%. These are strong capital ratios, which we actively monitor, stress, and manage to withstand credit cycles as well as external shocks.

[Max Brodén, Senior EVP and CFO at Aflac Incorporated]

Given the strength of our capital and liquidity, we repurchased $1 billion of our own stock and paid dividends of $309 million in Q3, offering good relative IRR on these capital deployments. We will continue to be flexible and tactical in how we manage the balance sheet and deploy capital in order to drive strong risk-adjusted ROE with a meaningful spread to our cost of capital. For 2025, we now expect that the benefit ratio in Japan will be in the 58%-60% range, and we continue to expect the expense ratio to be at the lower end of the 20%-23% range as we pursue various growth and strategic initiatives. As a result, we expect Aflac Japan's pre-tax profit margin to be in the 35%-38% range.

[Max Brodén, Senior EVP and CFO at Aflac Incorporated]

In the U.S., we continue to expect the benefit ratio for 2025 to be at the lower end of the 48%-52% range and the expense ratio to be in the mid to upper end of the 36%-39% range as we continue to scale new business lines. At the same time, we expect pre-tax profit margin for 2025 in the U.S. to be at the upper end of the 17%-20% range. Thank you, and I look forward to discussing our results in further detail on tomorrow's earnings call.

Participants

Executives

• Max Brodén, Senior EVP and CFO