Aflac Q4 2024 Earnings Report

Aflac EPS Results

• Actual EPS: $1.56
• Consensus EPS: $1.63
• Beat/Miss: Missed by -$0.07
• One Year Ago EPS: N/A

Aflac Revenue Results

• Actual Revenue: $3.95 billion
• Expected Revenue: $4.16 billion
• Beat/Miss: Missed by -$215.10 million
• YoY Revenue Growth: N/A

Aflac Announcement Details

• Quarter: Q4 2024
• Date: 2/5/2025
• Time: After Market Closes
• Conference Call Date: Thursday, February 6, 2025
• Conference Call Time: 8:00AM 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 Q4 2024 Earnings Call Transcript

Key Takeaways

• Aflac reported net earnings per diluted share up 23.8% to $9.63 and adjusted EPS up 15.7% to $7.21 for full‐year 2024.
• Aflac Japan drove over 70% of pretax adjusted earnings with a record 36% pretax profit margin, 93.4% premium persistency and 5.6% sales growth, and plans to launch a new cancer insurance product in March–April.
• In the U.S., premium persistency improved 70 bps to 79.3%, net earned premiums rose 2.7% and the pretax margin was 21.1%, though Q4 sales fell 1% amid dental & vision platform disruptions.
• Capital deployment included $2.8 billion in share buybacks, 42nd consecutive annual dividend increase and $3.9 billion returned to shareholders in 2024, supported by strong capital ratios (SMR > 1150%, ESR > 270%, RBC > 650%).
• 2025 guidance targets Japan’s pretax margin at the low end of 30–33% and the U.S. margin at the high end of 17–20%, with corresponding benefit and expense ratios toward the edges of their ranges.

Presentation

[Operator]

Good day and welcome to the Aflac Incorporated Fourth Quarter 2024 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to hand the call over to David Young, Vice President of Capital Markets. Please go ahead.

[David Young, VP at Capital Markets]

Good morning and welcome. Thank you for joining us for Aflac Incorporated's fourth quarter earnings call. This morning, Dan Amos, Chairman CEO of Aflac Incorporated, will provide an overview of our 2024 results and operations in Japan and the United States. Then Max Brodén, Senior Executive Vice President and CFO of Aflac Incorporated, will provide an update on our fourth quarter and 2024 financial results, current capital and liquidity, as well as some color on our outlook for 2025. These topics are also addressed in the materials we posted with our earnings release and financial supplement on investors.aflac.com. In addition, Max provided his quarterly video update, which also includes information about the outlook for 2025. We also posted under financials on the same site updated slides of investment details related to our commercial real estate and middle market loans.

[David Young, VP at Capital Markets]

For Q&A today, we are also joined by Virgil Miller, President of Aflac Incorporated and Aflac U.S., Charles Lake, Chairman and Representative Director, President of Aflac International, Masatoshi Koide, President and Representative Director, Aflac Life Insurance Japan, and Brad Dyslin, Global Chief Investment Officer, President of Aflac Global Investments. Before we begin, some statements in this teleconference are forward-looking within the meaning of federal securities laws. Although we believe these statements are reasonable, we can give no assurance that they will prove to be accurate because they are prospective in nature. Actual results could differ materially from those we discuss today. We encourage you to look at our annual report on Form 10-K for some of the various risk factors that could materially impact our results. As I mentioned earlier, the earnings release is available on investors.aflac.com and includes reconciliations of certain non-U.S. GAAP measures.

[David Young, VP at Capital Markets]

I'll now hand the call over to Dan. Dan?

[Dan Amos, Chairman and CEO at Aflac Incorporated]

Thank you, David, and good morning, everyone. We're glad you joined us. Before Max provides a more detailed view of our financial results, I'd like to reflect on what was another very good year. Aflac Incorporated delivered very strong earnings for the year, with net earnings per diluted share up 23.8% to $9.63, and adjusted earnings per diluted share up 15.7% to $7.21. Aflac Japan represented more than 70% of pre-tax adjusted earnings and three-quarters of the company's consolidated balance sheet in 2024. Aflac Japan also generated a 15.5% increase in pre-tax adjusted earnings and a record 36% pre-tax profit margin in 2024. I am pleased with Aflac Japan's 93.4% premium persistency and 5.6% year-over-year sales increase, which included a 9% sales increase in the fourth quarter. By maintaining strong persistency and adding new premium through sales, we are partially offsetting the impact of reinsurance and policies reaching paid-up status.

[Dan Amos, Chairman and CEO at Aflac Incorporated]

This will be integral to the future growth of Aflac Japan. Taking into account Japan's demographics, our product strategy is to fit the needs of customers throughout all stages of life. Acquiring younger customers is critical to our success. We believe Tsumitas appeals to younger customers in Japan. Our strong sales in Japan reflect the success of our agencies that have had selling Tsumitas. As the pioneer of cancer insurance and leading third-sector insurer, we also aim to sell these Tsumitas policyholders a medical policy or cancer policy. Our last cancer insurance, Wings, was launched in stages in 2022. Therefore, we are planning a staged launch through our distribution channels of our new cancer insurance product between March and April. This new product includes our unique Yorisou cancer consultation support service, along with insurance coverage that offers enhanced protection before, during, and after cancer treatment.

[Dan Amos, Chairman and CEO at Aflac Incorporated]

This product also features a flexible coverage and introduces a new plan for children, thus providing comprehensive protection for customers. We will also maintain our focus on being where the customers want to buy insurance through our broad network of distribution channels, including agencies, alliance partners, and banks. This reach continually optimizes opportunities to help provide financial protection to Japanese consumers. Turning to Aflac U.S., we have focused on updating our products to ensure that our policyholders understand the value of our products provided. When people experience the value of our products, we believe it enhances product persistency, which both benefits our policyholders and lowers our expenses. In the U.S., I continue to be pleased with our 70 basis points improvement in premium persistency to 79.3%. We also generated a 2.7% increase in net earned premiums, a measure we continue to focus on improving.

[Dan Amos, Chairman and CEO at Aflac Incorporated]

Additionally, our pre-tax profit margin for the year was strong at 21.1%. Sales were lower than expected in the fourth quarter, leading to a 1% decline for the year. We continue to focus on more profitable growth through our stronger underwriting discipline. At the same time, we are engaging agents and brokers following the stabilization of our network dental operation. As always, we continue our prudent approach to expense management and maintaining a strong pre-tax margin. I believe that the need for our products and the solutions we offer is as strong or stronger than they have ever been before in both Japan and the United States. We are leveraging every opportunity and avenue to share this message with consumers.

[Dan Amos, Chairman and CEO at Aflac Incorporated]

Knowing our products help lift the people up when they need it most is something that makes all of us at Aflac very proud and inspires us to reach more people. We continue to reinforce our leading position and build on that momentum. We continue to generate strong capital and cash flows while maintaining our commitment to prudent liquidity and capital management. We have been very pleased with our investments, which have continued to produce strong net investment income. As an insurance company, our primary responsibility is to fulfill the promises that we make to our policyholders while being responsive to the needs of our shareholders. Our solid portfolios support our promise to our policyholders, as does our commitment to maintain strong capital ratios. We balance this financial strength with tactical capital deployment.

[Dan Amos, Chairman and CEO at Aflac Incorporated]

I am very happy with how management has handled capital deployment and liquidity, and specifically how well we've adapted to this environment. Year to date, Aflac Incorporated's deployment of $2.8 billion in capital to repurchase more than 30 million shares of Aflac stock. Additionally, we treasure our track record of what is now 42 consecutive years of dividend growth. At the same time, we have maintained our position among companies with the highest return on capital and the lowest cost of capital in the industry. Combined with dividends, this means that we delivered $3.9 billion back to the shareholders in 2024. We believe in the underlying strengths of our business and our potential for continued growth in Japan and the United States, two of the largest life insurance markets in the world. I'll now turn the program over to Max to cover more details of the financial results. Max?

[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 fourth quarter of 2024. For the quarter, adjusted earnings per diluted share increased 24.8% year-over-year to $1.56, with a $0.01 negative impact from FX in the quarter. In this quarter, remeasurement gains on reserves totaled $43 million, reducing benefits. Variable investment income ran $17 million above our long-term return expectations. Adjusted book value per share, excluding foreign currency remeasurement, increased 3.2%. The adjusted ROE was 12% and 14.5%, excluding FX remeasurement, an acceptable spread to our cost of capital. Overall, we view these results in the quarter as solid. Starting with our Japan segment, net earned premiums for the quarter declined 5.4%. This decline reflects a JPY 7.2 billion negative impact from an internal cancer reinsurance transaction executed in the fourth quarter of 2024, and a JPY 4.4 billion negative impact from paid-up policies.

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

In addition, there's a JPY 300 million positive impact from deferred profit liability. At the same time, policies enforced declined 2.3%. Japan's total benefit ratio came in at 66.5% for the quarter, up 40 basis points year-over-year, and 62.5% for the year. The third sector benefit ratio was 56.9% for the quarter, up approximately 70 basis points year-over-year. We estimate the impact from remeasurement gains to be approximately 100 basis points favorable to the benefit ratio in Q4 2024. 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 at 93.4%, which was unchanged year-over-year and in line with our expectations. Our expense ratio in Japan was 20.8% for the quarter, down 30 basis points year-over-year, driven primarily by a decline in expenses. For the year, the expense ratio in Japan was 19.1%.

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

For the quarter, adjusted net investment income in yen terms was up 3.7%. As a transfer of assets to Aflac Re Bermuda, associated with reinsurance and lower floating rate income was more than offset by higher returns from structured private credit, infrastructure, and our alternatives portfolio. Adjusted net investment income was up 12.1% for the year. The pre-tax margin for Japan in the quarter was 31.6%, up 120 basis points year-over-year, a very good result. For the full year, the pre-tax margin was even stronger, 36%, which is also the highest in 30 years. Turning to U.S. results, net earned premium was up 2.7%. Persistency increased 70 basis points year-over-year to 79.3%. Our U.S. total benefit ratio came in at 46.3%, 170 basis points higher than Q4 2023, driven by lower remeasurement gains than a year ago.

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

We estimate that the remeasurement gains impacted the benefit ratio by approximately 170 basis points in the quarter. Claims utilization has rebounded from depressed levels during the pandemic and are now more in line with our long-term expectations. For the full year, the U.S. total benefit ratio was 46.8%. Our expense ratio in the U.S. was 40.3%, down 310 basis points year-over-year, primarily driven by platforms improving scale and strong expense management. For the year, the U.S. expense ratio was 38.5%. Our growth initiatives, Group Life and Disability, Network Dental and Vision, and Direct-to-Consumer, increased our total expense ratio by 170 basis points for the quarter. This is in line with our expectations, and we would expect this impact to decrease going forward as these businesses grow to scale and improve their profitability. Adjusted net investment income in the U.S.

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

was up 0.9% for the quarter, mainly driven by high returns from alternatives and 3.3% for the year. Profitability in the U.S. segment was solid, with a pre-tax margin of 19.7%, also a good result, as was the 21.1% for the full year. We continue managing through the worst commercial real estate downturn in decades. During the quarter, we increased our CECL reserves associated with our commercial real estate portfolio by $40 million net of charge-offs as property values remain at distressed valuations. We also foreclosed on two loans, adding them to our real estate-owned portfolio. We continue to believe that the current distressed market does not reflect the true intrinsic value of our portfolio, which is why we are confident in our ability to take ownership of these assets, manage them through the cycle, and maximize our recoveries.

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

Our portfolio of First Lien, Senior Secured, and Middle Market loans continued to perform well, with losses below our expectations for this point in the cycle. In our corporate segment, we recorded a pre-tax loss of $4 million. Adjusted net investment income was $153 million higher than last year due to a combination of continued lower volume of tax credit investments, higher rates, and asset balances, which included the impact of the reinsurance transaction in Q4 2024, which was similar in structure and economics in yen terms to our October 2023 transaction. These tax credit investments impacted the corporate net investment income line for U.S. GAAP purposes negatively by $46 million in the quarter, with an associated credit to the tax line. The net impact to our bottom line was a positive $4 million in the quarter. To date, these investments are performing well and in line with our expectations.

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

Our capital position remains strong, and we ended the quarter with an SMR above 1150%, an estimated ESR above 270%. Our combined RBC, while not finalized, we estimate to be greater than 650%. These are strong capital ratios, which we actively monitor, stress, and manage to withstand credit cycles as well as external shocks. U.S. statutory impairments were $3 million, and there was JPY 700 million of Japan FSA impairments in Q4. This is well within our expectations and with limited impact to both earnings and capital. Our leverage was 19.7% for the quarter, which is just below our target range of 20%-25%. As we hold approximately 60% 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.

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

Unencumbered holding company liquidity stood at $4.1 billion, $2.3 billion above our minimum balance. We repurchased $750 million of our own stock and paid dividends of $277 million in Q4, 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. On December 3rd, we shared estimated ranges for annual key metrics for both segments for 2025 through 2027 at our financial analysts' briefing, and we continue to stand by these ranges.

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

However, for 2025, we expect the benefit ratio in Japan to be toward the higher end of the 64%-66% 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 at the lower end of the 30%-33% range. In the U.S., we expect the benefit ratio for 2025 to be at the lower end of the 48%-52% range, and the expense ratio to be at the upper end of the 36%-39% range as we continue to scale new business lines. At the same time, we expect the pre-tax profit margin for 2025 in the U.S. to be at the upper end of the 17%-20% range. Thank you.

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

I'll now hand it back to David to begin Q&A.

[David Young, VP at Capital Markets]

Thank you, Max. Before we begin our Q&A, we ask that you please limit yourself to one initial question and a related follow-up. You may then rejoin the queue. We will now take the first question.

[Operator]

We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble the roster. And our first question will come from Joel Hurwitz of Dowling & Partners. Please go ahead.

[Joel Hurwitz, Lead Analyst of Life Insurance and Retirement Services Research at Dowling & Partners]

Hey, good morning. Wanted to start on U.S. sales. Virgil, can you just provide some more color of what you're seeing in the competitive environment that's impacting your sales? Is it specific products or specific areas of the market?

[Virgil Miller, President at Aflac U.S.]

Hey, thank you, Joel. Good morning. Yeah, first, let me set the stage for going into the fourth quarter. We knew going through the fourth quarter, Joel, that we were up against one of the tougher comparisons for Q4. In Q4 of 2023, that was one of the largest sales quarters we've had in the history of Aflac, so we knew we had to have strong, solid performance. The second thing I would say is that we also knew that we would stick to the underwriting discipline we have put forth in our Group VB products. What that really means is that we're not going to be bringing business on board that does not fit our profit profile. Therefore, businesses that have high turnover, businesses that you have low claims filing, we're not going to accept those because they're not good for the company longer term.

[Virgil Miller, President at Aflac U.S.]

The stronger underwriting discipline helps set us up for profitable business and profitable growth in the long-term vision that we have at Aflac. Then the third thing I would say is we knew that the market needed to respond to the improvements we've made with our dental and vision platform. I had disclosed prior and prior conversations that we had a failed system implementation that we were recovering from. I'm very pleased with the recovery that we've seen, though. A partnership that we formed with one of the industry-leading third-party administrators out there has helped substantially move the needle on improvements, and we are open for business. We needed to get the brokers and our veteran agents to come back on board and really put that product back in the market. It's a very competitive product, and quite frankly, we did not get the response that we needed.

[Virgil Miller, President at Aflac U.S.]

We saw a 33% decline in our dental sales for Q4. Along with the dental sales themselves, though, there's the impact that we call halo, which means that on a general consensus, we get additional voluntary benefit sales when we sell the dental product. Those are really the things that we add them up that impacted how we really performed in that Q4. I would say, Joel, that I'm disappointed with the softer sales, but I'm very pleased with our overall performance. We did demonstrate, though, solid financial management. As you heard from Max and you heard from Dan, they mentioned that our pre-tax earnings were up 9.3%. Our margins were up 1.3%. Earned premiums up 2.7%. Persistency up 0.7%. Overall, very pleased with that. That tells you, though, this management discipline of making sure that we're looking at profitable business is generating the response that we need.

[Virgil Miller, President at Aflac U.S.]

We reduced expenses by 3.1%, and then overall, we were able to give additional value to our policyholders with an increased benefit ratio. Now, we're watching that very closely, but very solid performance based on that discipline we put out there in the market.

[Joel Hurwitz, Lead Analyst of Life Insurance and Retirement Services Research at Dowling & Partners]

All right. Very helpful. Thank you. And then for my second one, just wanted to move to the 2025 outlook comment area that Max provided. So for Japan, you guided to the pre-tax margin to be at the low end of the range, which is below where I was, and I think most were. I think it's largely on net investment income, and there's some misunderstanding on how the accounting works on the floating rate security hedges. Could you just provide more color on how the benefits from those hedges flow through earnings?

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

Yes. Thank you, Joel. So we obviously have a floating rate book in the Japan segment that is a little bit less than $9 billion of notional balance. Also, at the corporate segment, we have a little bit over $4 billion of cash that is invested at the short end of the curve. That means that all these asset balances are very sensitive to SOFR, and that is both the one-month and the three-month SOFR that they reprice at. As we go into 2025, obviously, we had a rate cut in December, and there's an expectation about further rate cuts in 2025 when you look at the forward curves. When we just inject the forward curves onto our projected yields for 2025, that means that they are likely to be lower than what they were in 2024. So that is why our floating rate income is expected to be lower.

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

As it relates to our interest rate swap, this is really a tail hedge swap that made sure that we protected our floating rate income from any significant declines in interest rates at the short end of the curve. That means that, obviously, we are at higher rates now than when this swap was entered into. That means that it is out of the money and somewhat ineffective at this point, and that's why you see the full brunt of any relative, even relatively small declines of interest rates at the short end immediately flows through and impacts our net investment income in 2025. Also, the mark-to-market component of the interest rate swap, that falls below the line in the realized gains and losses, i.e., outside of adjusted earnings, but obviously included in our U.S. GAAP earnings. I hope that's helpful.

[Joel Hurwitz, Lead Analyst of Life Insurance and Retirement Services Research at Dowling & Partners]

It is. Thank you.

[Operator]

The next question comes from Jimmy Bhullar of JPMorgan. Please go ahead.

[Jimmy Bhullar, Equity Research Analyst at JPMorgan]

Hey, good morning. So first, just had a question either for Dan or for Charles. On Japan sales, you obviously grew at a strong pace this quarter, but if you look at where sales are versus where they used to be pre-pandemic, they're still fairly depressed. So just wondering what's changed in the market and what's your optimism of being able to get to, in an absolute sense, the sales levels that you had before that will allow you to potentially grow your in force as opposed to reported declining premium growth?

[Virgil Miller, President at Aflac U.S.]

Koide, do you want to start with that or let Yoshizumi?

[Masatoshi Koide, President and Representative Director at Aflac Life Insurance Japan]

Yes. Yes. This is Koide from Aflac Japan.

[Masatoshi Koide, President and Representative Director at Aflac Life Insurance Japan]

パンデミック後の保険市場の回復という点では、もう人々の活動は戻ってきていますので、それの影響というのはもうほとんどないと思います。

[Masatoshi Koide, President and Representative Director at Aflac Life Insurance Japan]

After the pandemic, most of several activities among the public have recovered, so we see that it has recovered, and that is it.

[Masatoshi Koide, President and Representative Director at Aflac Life Insurance Japan]

ただ、パンデミックの2、3年の間、活動が低調だった分、募集人の営業の活動というののレベルが落ちた分、回復後は募集人の営業活動のレベルの回復というのに努めてきています。

[Masatoshi Koide, President and Representative Director at Aflac Life Insurance Japan]

So we have been focusing on making a recovery as a solicitor's activity because during the two, three years of the COVID, the sales activities have been stagnant. So that has been a focus point, which is to make a recovery activity.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

This is Yoshizumi from Aflac Japan. 私からお答えします。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

Let me answer. This is Yoshizumi.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

まずですね、この1月に大きなマーケティング営業体制の変革をしました。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

First of all, we have gone through this marketing and sales transformation starting January.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

これはお客様のニーズに応えていくべく、がん、医療、資産形成、介護といったブランドごとに一気通貫のマーケティングを活動を行います。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

This is to conduct integrated or end-to-end marketing activities based on the different brand group pipelines, starting with medical, cancer, asset formation, and nursing care.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

それともう一つは、当社のコア商品であるがん保険や医療保険をはじめとして、競争力の高い商品を継続的に投入します。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

We will be continuously injecting our competitive products centered around our main products, cancer and medical insurance.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

がん保険は3月から4月にかけて、チャネルに応じて段階的にお客様のニーズの変化に対応した新商品を発売予定です。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

We plan to launch a new cancer insurance product in stages from March to April in order to respond to changing customer needs.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

さらに、2024年6月に発売したツミタスにより、商品ラインナップが充実したことで、アプローチ可能なお客様の範囲が拡大し、第3分野商品の販売を推進しています。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

Now, with the launch of the new product Tsumitas, which was launched last June, June 2024, we have managed to expand our product lineup and now been able to approach more greater customer audience.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

最後に、主力であるアソシエイトチャネルの採用、育成を継続強化し、しっかりと稼働させるための取り組みを実行していきます。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

We will be executing measures in order to develop and enhance the potential of the solicitor or agent.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

これによりコロナ前に確実に戻していきたいというように考えています。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

With these efforts, we would like to recover our performance on the pre-COVID level.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

以上です。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

That's all.

[Jimmy Bhullar, Equity Research Analyst at JPMorgan]

Maybe for Virgil, in the U.S. business, I think there have been a couple of reasons that you've cited for sales being weak in 2024. One is just the dental TPA issues, and then secondly, competition and margins in supplemental products or in the voluntary market. I'm assuming that the competition and market issue is something that's not going to change, and if that is the case, assuming that that'll be an ongoing headwind to your sales. But then on the dental rollout, is that starting to get to normal, or is that more of a 2026 event?

[Virgil Miller, President at Aflac U.S.]

No, thank you for the question. We absolutely want everyone listening to know we're open for business. We've invested time, resources, and dollars to make sure we've got a strong platform. We went through a very diligent process to get the right partner who is an industry-leading partner to make sure that we're prepared to deliver on the customer experience that we need. So we are confident in our dental platform the way we have it now. The concern, though, is making sure that the brokers and the agents are back in market with it and that they're on board to sell it. I expected to see a stronger return for them in the fourth quarter, but I'm looking forward to see how we deliver on that this year. We're out meeting with them. We'll let them know about how the process works.

[Virgil Miller, President at Aflac U.S.]

We're eager to say, "Come back and sell the product." I would also say, though, what's going well for us is you look at the investments we made in our life and absence and disability platform. We term it PLADS. We exceeded our sales expectations there. We are strong in that large case market now, very competitive against some very known brands that have been in that space for a long time. Our disability products are competitive. We have a world-class absence management discipline where we're doing it for one state in particular, and we're delivering well on that, and then we are also selling what we would call our paid-up life or employee life products. We also invested in a direct-to-consumer platform we term as Consumer Markets. We saw a better-than-expected sales year there, so those are the things that are going well.

[Virgil Miller, President at Aflac U.S.]

We get our dental platform back in line this year, and I expect it to demonstrate an increase in sales over last year.

[Dan Amos, Chairman and CEO at Aflac Incorporated]

And this is Dan. I am encouraged about what I'm seeing. Virgil talked to me early on in the first quarter and said, "There's some ways we can make this sales number, but I've got to push some areas," and I said, "Don't push lower profits for the sake of making a sales number. That's the wrong way. I want to look at earned premium. I want to look at what's going on," and I think our model for the future is much stronger today than it was a year ago, especially on the dental and Vision side, and we are expecting that to come through for the full year.

[Jimmy Bhullar, Equity Research Analyst at JPMorgan]

Okay. Thank you.

[Operator]

The next question comes from Mike Ward of UBS. Please go ahead.

[Mike Ward, Senior Analyst at UBS]

Thank you. Good morning. I was just wondering just on the contribution to the Japan sales growth from Tsumitasu. It seems like a primary driver of the growth. I guess, how fair is it to assume that we might be relying on first sector sales maybe more heavily than we previously thought in order to reach the Japan sales targets?

[Dan Amos, Chairman and CEO at Aflac Incorporated]

Like that?

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

This is Koichiro Yoshizumi of Aflac Japan.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

ツミタスに関してはですね、具体的な販売割合というのは今公表はしておりませんが、そもそもアフラックジャパンというのは第3分野中心の会社であります。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

For Tsumitas, to begin with, we do not announce or disclose the sales percentage or contribution. However, Aflac is a company centered around the third sector insurance product.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

現在の販売のやり方も、この第1分野であるツミタスを販売すると同時に、がん保険、医療保険、これを併売していくということを主としてやっております。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

The main way to conduct our sales activity today is to also offer medical or cancer insurance whenever first sector product Tsumitasu is being offered.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

一定のボリュームにはツミタスは当然寄与しますけれども、これによって第3分野がまたさらに伸びていくということを期待しているものであります。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

So although it is true that Tsumitasu will make a certain contribution to our first sector performance, our goal is to grow our third sector performance.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

昨年は新商品を発売直後は販売実績が大きく増加しました。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

Last year, right after the launch of this Tsumitasu, we have enjoyed a significant growth in sales.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

今年からは2024年と比較して実績は落ち着いてくると見込んでいます。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

We expect sales to settle compared to 2024.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

ただ、引き続き一定の販売を期待しております。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

However, we believe the product will continue to generate solid results.

[Masatoshi Koide, President and Representative Director at Aflac Life Insurance Japan]

こいでですけど、ちょっと追加のコメントをしたいです。

[Masatoshi Koide, President and Representative Director at Aflac Life Insurance Japan]

This is Koide. May I add?

[Masatoshi Koide, President and Representative Director at Aflac Life Insurance Japan]

ツミタスは伝統的な第1分野商品と異なって、特に若中年層の資産形成ニーズに応える商品です。

[Masatoshi Koide, President and Representative Director at Aflac Life Insurance Japan]

Tsumitasu is unlike the traditional product featured in the first sector product. It is developed to respond to the needs of the younger generation who are looking to accumulate their assets.

[Masatoshi Koide, President and Representative Director at Aflac Life Insurance Japan]

資産形成に加えて、介護保障も持ち合わせているという特徴があります。

[Masatoshi Koide, President and Representative Director at Aflac Life Insurance Japan]

Another nature of this product is that in addition to the asset formation nature, it also carries a nursing care feature.

[Masatoshi Koide, President and Representative Director at Aflac Life Insurance Japan]

保険料払い込み完了後は医療や損害の補償に変更できるという特徴も持ち合わせているという商品です。

[Masatoshi Koide, President and Representative Director at Aflac Life Insurance Japan]

Another characteristic is that after the premiums are paid up, they can convert it to the medical insurance or other type of insurance product.

[Masatoshi Koide, President and Representative Director at Aflac Life Insurance Japan]

こういった非常に特徴のある商品で、先ほど吉住が言ったように、第3分野との併売に加え、若中年層の新規の顧客を獲得することで当社の顧客基盤も拡大するという戦略的な目的も持ち合わせている商品です。

[Masatoshi Koide, President and Representative Director at Aflac Life Insurance Japan]

It also carries a strategic objective, which is to expand our customer base by capturing the younger generation and concurrently offering this product together with a third sector product. This is a very unique product.

[Masatoshi Koide, President and Representative Director at Aflac Life Insurance Japan]

はい、以上です。

[Masatoshi Koide, President and Representative Director at Aflac Life Insurance Japan]

That's all.

[Dan Amos, Chairman and CEO at Aflac Incorporated]

Thank you. I just wanted to add a few comments as well, Mike. We do not have a sales cap on our Tsumitasu sales, and the reason why is that, number one, we do believe that we get very good profitability out of this product. This is both on a GAAP basis, but also on an IRR basis post-reinsurance, and what it means is that we also now have a very good hook product that ultimately will drive higher third sector sales as well, so we definitely see ourselves as a third sector company, but this is an additional product that will help grow both our first sector business and the third sector business while also giving another tool to our distribution to sell more and make more commissions.

[Dan Amos, Chairman and CEO at Aflac Incorporated]

I do want to say that the reason why now is because interest rates are higher in yen terms, but more importantly, we have built reinsurance expertise in and around the company, which means that we can now conduct these operations and get the better capital efficiency associated with these products so we can really make them work.

[Virgil Miller, President at Aflac U.S.]

And I will add that I have been so impressed with the job that Koide and his team has done in monitoring this through the guidance of Max and Steve Beaver and what we've done to watch this. And every Sunday night, I get a report when we have our call on what is taking place and how interest rates are going and where the lines are, and our actuarial department is on it. And it's just, I think you'd be proud if you saw the inner workings of what has taken place over the last couple of years with reinsurance. It shows that we're a company that's evolving over time and just getting stronger in what we're doing and having better financial controls over the things that are taking place.

[Operator]

The next question comes from Wes Carmichael of Autonomous Research. Please go ahead.

[Wes Carmichael, Senior Analyst at Autonomous Research]

Hey, good morning. My first question just on remeasurement gains and losses. It appears the gains benefit has been flowing, which is perhaps not surprisingly given a pretty sizable unlocking in the third quarter. But when you look at trends going forward, would you expect that to continue, Max, or should that be relatively muted?

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

We obviously have experienced very significant remeasurement gains and also favorable gains from unlock of our actuarial assumptions in the U.S. in 2023 and in Japan in 2024. As it relates to our assumptions going forward, we do feel that we obviously have realistic and very good assumptions by definition. Otherwise, we would have to change it. This is something that we look at every quarter, and if something material were to change, we will unlock assumptions, but our deep dive study occurs in the third quarter of every year. Each quarter, though, there is a remeasurement gains losses that are coming through our results as we true up for the experience in that quarter, and that has continued to be favorable as we have come out of the pandemic.

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

That being said, I do want to be a little bit cautious as we are seeing higher claims come through, especially on products, for example, in the U.S. on our accident and our hospital products, and to some extent also cancer. And that means that our remeasurement gains may not be as strong going forward as they have been in the past. But generally speaking, we are a company that takes a cautious approach to our underwriting to make sure that we get good results. And I think that the remeasurement gains that you have seen are a testament to that of very good underwriting decisions that a company has taken in the past.

[Wes Carmichael, Senior Analyst at Autonomous Research]

No, thank you. And in my follow-up, I guess in the press release, Dan, you mentioned efforts on reengaging agents in the U.S. Can you just talk about the recruiting environment in the U.S.? Are you seeing progress there, or is that kind of slowed?

[Virgil Miller, President at Aflac U.S.]

Hey, good morning. This is Virgil. Let me give you a little color on that. I mentioned last year, I said, "We're in a new regime out here." So definitely, there's a lot of competition. There are things like the economy that will impact recruiting from time to time. But overall, I'm sticking to the point that we're going to always be around the 10,000 mark with our recruiting. We've demonstrated that now back to back, although it's a little bit down from year over year. We're still right around that 10,000 mark. Here's what I would say is that the core strength of Aflac has always been in our distribution. When you think about that, we will continue to go out, recruit agents, convert them, and make the field force strong and dominant in that small market. I've added some new levels of leadership where we continue that focus.

[Virgil Miller, President at Aflac U.S.]

Our compensation plans are built around recruitment and conversion, average week of production, and opening new small accounts. We continue to be strong in our partnership with brokers in the mid-market, and then, as I mentioned earlier, very strong in the upper-case market now with the relationships we've formed in our life and accident disability discipline, so we've got the market covered when it comes to distribution. I expect to recruit another 10,000, around 10,000 this year, and continue to invest in what we're doing in that field force.

[Wes Carmichael, Senior Analyst at Autonomous Research]

Thank you.

[Operator]

The next question comes from Elyse Greenspan of Wells Fargo. Please go ahead.

[Elyse Greenspan, Managing Director of Equity Research at Wells Fargo]

Hi, thanks. Good morning. I guess my first one's on capital. Buyback picked up $750 million in the quarter. You guys obviously have pretty healthy capital positions in both the U.S. and Japan. Does that $750 feel like a good runway run rate, or how should we think about share repurchase in 2025?

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

Thank you, Elise. Your observation is correct that we obviously have a very healthy capital position around the company. Together with that, we also have a very good free cash flow generation overall as well, and that is what gives us the opportunity to reinvest into our operations and to redeploy capital back to our shareholders as well. We are very IRR-driven, and as of right now, I would say that we get by far the best IRR on selling another policy, so as it relates to capital, that is the number one area that our capital is going to, so we're looking for areas to grow our business organically. On top of that, we obviously have increased our dividends quite significantly over the last five years where we've almost doubled our dividend per share.

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

And on top of that, we want to be opportunistic and tactical in the way we redeploy capital back to shareholders through share repurchase. We stepped that up a little bit in the fourth quarter by $750 million, which I believe is the most that we've done in a single quarter. So that's a meaningful return back to shareholders. But going forward, we will continue to obviously evaluate all the opportunities that we have and make sure that we get good IRRs on all the deployments that we do.

[Elyse Greenspan, Managing Director of Equity Research at Wells Fargo]

Thanks. And then my second question, I believe there was a data sharing issue with Japan Post, not related to Aflac, I believe, right? But in general, if you could just comment on that, and then did that have any impact on your sales in the fourth quarter? Would you expect there to be an impact in 2025?

[Masatoshi Koide, President and Representative Director at Aflac Life Insurance Japan]

Because I found Koide this.

[Masatoshi Koide, President and Representative Director at Aflac Life Insurance Japan]

This is Koide speaking from Aflac Japan.

[Masatoshi Koide, President and Representative Director at Aflac Life Insurance Japan]

今、質問の中にもありますけど、まず最初に明確にしたいのは、この件は当社のがん保険の販売に関しては全く問題はなかったということを明確にしたいと思います。

[Masatoshi Koide, President and Representative Director at Aflac Life Insurance Japan]

First of all, let me be clear, but there were no issues with the sales of Aflac Japan's cancer insurance upon this incident.

[Masatoshi Koide, President and Representative Director at Aflac Life Insurance Japan]

日豊郵便は自身の過去の経験を踏まえて、本件に関しては保守的に対応しています。

[Masatoshi Koide, President and Representative Director at Aflac Life Insurance Japan]

Given its past experience, Japan Post is taking a conservative approach to addressing this matter.

[Masatoshi Koide, President and Representative Director at Aflac Life Insurance Japan]

日豊郵政グループは当社の商品販売に尽力していまして、当社は従来通り日豊郵政グループのあらゆる階層レベルで密接に連携しています。

[Operator]

The Japan Post Group is committed to selling good products, and for our standard practice, Aflac Japan is in close communication with Japan Post Group at all levels of the organization.

[Masatoshi Koide, President and Representative Director at Aflac Life Insurance Japan]

当社は引き続き日豊郵政グループと密接に協力して販売支援を行っていきます。

[Masatoshi Koide, President and Representative Director at Aflac Life Insurance Japan]

We'll continue to work closely with Japan Post Group in support of its sales of Aflac cancer insurance.

[Masatoshi Koide, President and Representative Director at Aflac Life Insurance Japan]

以上です。

[Masatoshi Koide, President and Representative Director at Aflac Life Insurance Japan]

That's all.

[Elyse Greenspan, Managing Director of Equity Research at Wells Fargo]

Thank you.

[Operator]

The next question comes from John Barnidge of Piper Sandler. Please go ahead.

[John Barnidge, Managing Director at Piper Sandler]

Good morning. Thank you for the opportunity. Virgil, in your comments, you talked about a failed implementation that was corrected. In how much of the market was dental and vision not present?

[Virgil Miller, President at Aflac U.S.]

Hey, John, great to hear from you. Ask me that question one more time. I didn't catch the last part, please.

[John Barnidge, Managing Director at Piper Sandler]

Yeah, you talked about a failed implementation that was corrected. In how much of the market was dental and vision not present to be offered by brokers as a result of the failed implementation?

[Virgil Miller, President at Aflac U.S.]

Oh, no, I have it. Thanks, John. Yeah, we were available, John, so I would tell you this, though, that we had some service degradation earlier in the year. That definitely impacts the perception of trust and making sure that the brokers and the agents will come back and sell it, so during the fourth quarter, we were open for business and ready to go. We have tested all of our processes. We work with a partner who has a strong reputation and who's doing a good job with Aflac. Our network of dentists is one of the largest out in the industry. We do a rented network, and we also have a proprietary network both to offer. What I would say to you, though, is that in this business where agents and brokers have choices to go with their business, we have to earn trust.

[Virgil Miller, President at Aflac U.S.]

That's what we're focused on, getting back that trust and demonstrating that the processes work. If you look again, just to mention, Q4 sales from prior year were down 33%. Now, although they don't make up a large part of our overall sales right now, I would say to you, though, that we get the additional voluntary benefits alongside. It's not just impacting dental. It also has this halo effect where you're not bringing other business that you normally would have. Seeing progress here as we look into January, we're regaining some confidence. We are going around to all of our broker partners, and we put all types of messages out demonstrating confidence to our agents. I'm looking forward to seeing them come back and sell the product. It is a competitive product.

[Virgil Miller, President at Aflac U.S.]

We spent a lot of time developing it, and I think it's good for our consumers out there to give it a try.

[John Barnidge, Managing Director at Piper Sandler]

Thank you for that, and my follow-up question remains on distribution. Ahead of the anticipated new cancer product launch, should we expect more modest sales in the near term for that?

[Dan Amos, Chairman and CEO at Aflac Incorporated]

Yoshizumi-san, will you take that?

[Operator]

Yoshizumi-Yoshizumi speaking.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

これは2025年の商品に関して3月にローンチするんですけれども、このがん保険は。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

This new cancer insurance will be launched in March 2025.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

これは大きなドライバーになるというふうに期待しています。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

We're expecting this to be a big driver.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

これまで当社は先進的ながん保険をマーケットにローンチしてきたわけなんですけれども。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

We have been introducing innovative cancer insurance to the market so far.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

これまでの保障に加えて、他社にはない当社ならではのコンシェルジュサービスである寄り添うがん相談サポートを統合的に提供して他社と差別化します。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

This time, in addition to the insurance coverage, we'll be integrating our Aflac Yorisou cancer consultation support, which is our unique concierge service, into the coverage.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

特徴としては3点簡単に申し上げます。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

I would like to mention three characteristics.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

充実かつシンプルな保障であるということ。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

It carries a very rich and simple coverage structure.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

これは治療中だけじゃなくって、治療前、治療後の保障の強化も加えて。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

Not only during the treatment, but there will be a coverage that will be enhanced before and after the treatment.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

この保険金の給付金の支払い条件を非常に分かりやすく変更しました。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

We have changed the payment conditions for the benefit to be more easy to understand.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

次に、非契約や他の商品との組み合わせを実現する柔軟な保障設計であります。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

The next major is the fact that it has a very flexible coverage design that allows us to combine the existing policies and other products.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

さらに、治療が長期間にわたり家族の負担が大きくなることが多い小児がんの方、低廉な保険料で備えることができる子ども向けプランを新設いたしました。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

We have also newly established a child plan with lower premium to support pediatric cancer patient family whose economic burden tends to be high with longer treatment period.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

このニュープロダクトをチャネル段階的にローンチしていくことによって、大きな成果を上げていきたいというふうに期待しています。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

We expect to see a big increase in the performance by introducing this product to various channels in stages.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

以上です。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

That's all.

[Dan Amos, Chairman and CEO at Aflac Incorporated]

Let me add one thing that I think is part of your question is that anytime we introduce a new product, or revised product, we'll call it, there's a little dip in sales waiting for the new product, and then the product should take off with the excitement of it being introduced throughout the country. So I just want to be clear on that. You can see a little dip and then a strong growth.

[John Barnidge, Managing Director at Piper Sandler]

Thank you.

[Operator]

The next question comes from Wilma Burdis of Raymond James. Please go ahead.

[Wilma Burdis, Equity Research Analyst at Raymond James]

Hey, good morning. First question, could you talk a little bit about any change in your thinking regarding the 10% reinsurance of the Japan block to Bermuda, and also just maybe touch on how you would reevaluate that, if at all? Thanks.

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

Thank you, Will. We currently have no change in our thinking. To date, we have ceded roughly 6% of our asset base of Aflac Japan to Bermuda. We have significant capacity as it relates to our internal cap of 10%. I want to stress that this is not an external cap, but it's an internal cap. I think it's a good risk management practice to have these kind of caps in place because it means that we now have an opportunity to evaluate what we have done. Once we get closer to that 10%, then obviously all legal entities involved will make their own evaluation of if it makes sense to then move forward and increase that level for reasons where it may make sense for that legal entity.

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

That applies to Aflac Bermuda, that applies to Aflac Japan, and obviously to Aflac Inc as well. To date, we are very pleased with the outcomes of our reinsurance operations, both in how they are being conducted, but also the overall outcomes of it as it relates to improved balance sheet efficiency, and as you can see, improved return on equity overall for the group, and in fact, it has also reduced the risk of our Aflac Japan operations as well, so overall, we're quite pleased with where we are, and as we get closer to that 10% level, we will reassess.

[Wilma Burdis, Equity Research Analyst at Raymond James]

Okay, thank you. And then are there any dynamics of the weaker yen that could impact Aflac's operations or results aside from, I guess, the repatriation impacts? Thank you.

[Dan Amos, Chairman and CEO at Aflac Incorporated]

So Will, obviously, the yen-dollar exchange rate does have an impact on our GAAP financials. As you know, we do not hedge our GAAP financials. So as you translate our yen-denominated earnings into U.S. dollars, it does have an impact. And you obviously have seen that, especially over the last three years when you have experienced a significant depreciation of the yen versus the dollar. That being said, we do believe, and we have the philosophy that we protect the economic value of Aflac Japan through an enterprise hedging program. And this is, as you know, three components to it where we hold U.S. dollar assets on the Aflac Japan balance sheet. It is us at Aflac Inc. We are borrowing in yen, and we also have an overlay of FX forwards at the holding company as well.

[Dan Amos, Chairman and CEO at Aflac Incorporated]

You add that up, and we believe that gives us very good protection on an economic basis to any moves, both small and significant, to the yen-dollar rate.

[Wilma Burdis, Equity Research Analyst at Raymond James]

Okay, thank you.

[Operator]

The next question comes from Tom Gallagher of Evercore ISI. Please go ahead.

[Tom Gallagher, Senior Managing Director at Evercore ISI]

Morning. Max, how much of the Japan margin coming in at the low end of the guide is floating rate impact on NII, and how much of it is more limited benefit ratio improvement if you can unpack that?

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

I would say that the vast majority of it is obviously driven by net investment income. And I'll let Brad comment a little bit on that because obviously we're coming off a very good base here in 2024. That being said, when you think about the components of the benefit ratio, I would expect that over the forecast period of 2025 to 2027, that as we travel through that forecast period, the benefit ratio, all things being equal, we would expect to decline. So it will start at the high end of the range and end at the lower end of the range.

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

The reason for that is that as our in force mix is changing and it's each year tilting a little bit more towards Japan sector and a little bit less towards U.S. sector, that means that the Japan sector lower benefit ratio business makes up a bigger component. The mix impact of that is going to push us from the higher end of the benefit ratio range towards the lower end of the benefit ratio range. What it also means is that from a pre-tax margin standpoint, it means that we expect to travel throughout the forecast period starting at the lower end of the range and then travel higher towards the higher end of the range throughout the forecast period. Let Brad give some more color on net investment income as we go into 2025.

[Brad Dyslin, Global Chief Investment Officer and President at Aflac Global Investments]

Yeah, Tom, you're right that we are definitely facing some headwinds with the floating rate portfolio. As discussed, this is driven by the decrease in short rates, the 100 basis points decline we saw last year in SOFR. It does hit our $9 billion floating rate portfolio, but it also impacts our cash holdings and other short-term opportunities that we can see throughout the year, which we were able to take advantage of in 2024. We also had a couple of one-off items that had a strong contribution last year that we're facing this year. One was a rather large make-whole, and then we were also able to accelerate deployment in certain asset classes that had very attractive spreads earlier in the year.

[Brad Dyslin, Global Chief Investment Officer and President at Aflac Global Investments]

So there was a variety of things that contributed to a very strong 2024 that puts us up against some very difficult comps for 2025 that is the source of that headwind.

[Tom Gallagher, Senior Managing Director at Evercore ISI]

Gotcha. And then just for a follow-up, looking at your capital position in Japan, it looks like you have about 4 billion of excess under the new ESR framework anyway. Would you anticipate getting an extraordinary dividend out of that entity? And any updated thoughts on what you might do with that much level of excess? I guess it's a high-class problem, but still, without robust growth opportunities, I can't imagine it makes a lot of economic sense to leave that much excess in Japan.

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

Tom, I would characterize our capital position in Japan as very strong. We are still going through the transition of the capital regime framework from SMR to ESR. While ESR has not formally been implemented yet, I think it would not be very smart to go and try to right-size your capital base on a future capital regime basis. Step one is we would expect to certainly wait and fully evaluate this until after the ESR has been implemented. As you know, that is at the end of the first quarter of 2026. That means that over time, we would expect to be in the target operating range of 170%-230%. For the time being, I would not expect any special dividend in the near term.

[Tom Gallagher, Senior Managing Director at Evercore ISI]

Okay, thanks.

[Operator]

The next question comes from Josh Shanker of Bank of America. Please go ahead.

[Josh Shanker, Managing Director at Bank of America]

Yeah, thanks for fitting in. I guess this is for Virgil. I was wondering with the elevated expense ratio in Aflac U.S., how long do you expect the investments in the work you're doing to accelerate growth weighs on the expense ratio?

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

Yeah, thanks, Josh. I would say we've started to be in that curve. We had one time been up to around 41% with the expense ratio. This year, we came in around 30%, not looking at the exact number, about 38.5%, I think to be exact. So very, very pleased with that performance that we are been in that. And that is why we're still, as you pointed out, investing in the buy-to-builds. The key is to get these buy-to-builds to scale. And we are experiencing a solid, better than expected growth on the PLADS platform, better than expected growth on the consumer markets platform. And like I said, it sounds like I'm a broken record, but we've got to turn the curve with the Dental and Vision platform. We're doing all the right things to get that done.

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

If we do that, right, that will help not only contribute to the top end by bringing in additional new sales revenue that we need to offset that expense ratio, but we will continue to do a strong, though disciplined expense management. I expect the curve to come down even further this year in 2025.

[Josh Shanker, Managing Director at Bank of America]

If we think out more long term, 2026, 2027, are we thinking it's on the margin or this is several hundred basis points?

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

Yeah, so I would tell you that at Aflac, we put forth a range on the margin between 17%-20%. We're going to stay within our range because we're going to make sure that our disciplined expense management hits those marks. If you look at 25, 26, and 27, I am showing a decrease though in expense margin, in expense ratio incrementally year over year over year.

[Josh Shanker, Managing Director at Bank of America]

Okay. Thank you very much.

[Dan Amos, Chairman and CEO at Aflac Incorporated]

I think the important factor to get from this sales part of Dental and Vision is we got it right and we want that business. We just didn't execute to the level we needed to and made a mistake and have got that now on target, and we've just got to now come through with it, so it's something I think we can achieve and will achieve.

[Josh Shanker, Managing Director at Bank of America]

Appreciate it. Appreciate it. Thank you.

[Operator]

The next question comes from Alex Scott of Barclays. Please go ahead.

[Alex Scott, Insurance Research Analyst at Barclays]

Hey, good morning. First question I had is just on the competitive environment a bit, and going back to some of the comments you all made around sales and your remaining discipline, you could have shown better sales, but you were remaining disciplined, and I just want to dig into that a bit. I mean, when I think about the signposts that I look at, I mean, it seems like, well, you're doing reinsurance to Bermuda. The new money yields were in excess of 9% in the U.S. and 8% in Japan this quarter. I'm just trying to understand, are you getting those targeted IRRs because of some of the levers you're pulling, or do you still feel like there's the same opportunity here that you've had in the past?

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

Let me address our life insurance business in Japan in particular because I think that's what you're really driving at. Obviously, higher yields, they matter, especially in yen terms as we sell yen-denominated products. But it's really the new business strain associated with these products and the high reserving levels still puts the IRRs under significant pressure. But if you look at it on a post-reinsurance basis, we get very, very good IRRs. And that's why we feel very confident selling both our WAYS and our Tsumitasu product into the marketplace.

[Alex Scott, Insurance Research Analyst at Barclays]

Okay. And maybe as a follow-up, I mean, one of the themes we've seen in group benefits this quarter from some of the peers is, there seems to be sort of a have versus have nots in terms of capabilities on the platform and having that translate to sales growth being favorable or less favorable. And I guess I just pose the question to you. I mean, how do you feel about the capabilities in your group benefits platform, the scale? Do you have what you need? Is there more that you could go out and acquire, whether inorganically or things that you may need to invest in?

[Virgil Miller, President at Aflac U.S.]

I would say this is Virgil. I would say this: that when we acquired the life and disability business, we had invested to make sure we got the right platform for that business line. I'm being very technical on this, meaning that we have the right technology, we have the right resources to talent to scale. On our group VB, we've made significant investments over the years to get the same with talent, with technology, and then we're doing it, and we just did the same with our dental platform. Where I'm going with this is we have put forth what I would call a market segmentation strategy. We've got the right products for each segment. We've got the right distribution for each segment.

[Virgil Miller, President at Aflac U.S.]

What we're investing in right now is the ability to bring those things together so we're able to be more competitive with the ability to bundle and to present one unique experience to the market. Each platform stands strong independently. The talent stands strong independently. The product stands strong independently. Our core strategy will be bringing those things together. So there will be little additional investment to do that over the next couple of years. We're currently doing it right now. We respond to RFPs in the market as one Aflac, and we're going to really demonstrate the ability to be best in class with the technology and the discipline to have those things fit together going forward.

[Alex Scott, Insurance Research Analyst at Barclays]

Got it. Thank you.

[Operator]

The next question comes from Jack Matten of BMO Capital Markets. Please go ahead.

[Jack Matten, VP of Equity Research at BMO Capital Markets]

Hi, good morning. I think most of mine have been answered, but maybe just one on commercial real estate. Could you just talk a little bit more about trends in that market and how you expect things to develop on Aflac's portfolio in 2025?

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

Sure. Thank you. Thank you, Jack, for the question. As you're undoubtedly aware, the market remains pretty difficult. It does seem that we may have hit the bottom, but we're very slow to recover. We continue working through our portfolio. Our preference is to work with borrowers to find a solution, but if the best way to protect our interest is to foreclose, we've demonstrated we're willing to do that to maximize our recoveries. We do expect this to be a long recovery. We have seen some early signs that things are moving the right way, but it's very early and values remain still quite depressed. At this point, we expect 2025 to largely play out much like 2024. We'll continue working through our watch list. We will manage our REO portfolio to maximize our long-term returns.

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

We expect it is going to take quite some time for this recovery to happen, but that's our general outlook at this point. We do think it's going to be a manageable process, but it's one that's going to take time to work through.

[Jack Matten, VP of Equity Research at BMO Capital Markets]

Thank you. And then just a quick follow-up on the Japan sales outlook. I guess other than the major kind of cancer product launch you have coming in a couple of months, are there any kind of other either launches or refreshes that you have planned this year that could impact the cadence of sales in 2025?

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

はい、吉住からお答えします。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

So Yoshizumi will answer that question.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

今おっしゃったがん保険はこの3月から4月にかけて段階的に発売していきます。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

For the new product, we'll be launching the new cancer insurance in stages from March to April.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

医療保険に関しては昨年の8月に実施した商品名称変更とサービス強化によるリブランディング。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

For the medical insurance, we have rebranded and improved the service last August.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

それと同じく2024年の9月に展開した中高齢層向けの新プランにより販売を強化しています。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

We have also been strengthening our sales with a new plan targeting the middle-aged and older customers that was launched September 2024.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

これをブランドごとのマーケティング体制に変えましたので、さらにエンドツーエンドでお客様のニーズに合ったデザイン思考の商品をお届けしていくとプロモーションしていくということになります。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

We'll be able to provide more strengthened promotions through our end-to-end structure that has been developed recently. This structure is developed by each brand.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

ツミタスに関しましては24年までと比較し実績は落ち着いてくるとは見込んでいるんですけれども、一定の販売が期待できるというふうに考えてます。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

In terms of the Tsumitas, in comparison to the sales volume of 2024, this year will settle down. However, we believe that this will continue to generate solid results.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

チャネルに関して言うと。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

As regards to the channel.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

昨年一昨年から非常に募集人を増強していってます。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

We started an effort two years ago to enhance and increase the agents.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

2023年には600人の募集人を採用しました。代理店の募集人が採用されました。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

In 2023, we have hired approximately 600 agents.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

それが昨年2024年大きな活躍をしてくれたんですけれども。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

They have made a great deal of contribution to our activities last year in 2024.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

その2024年はですね、その600人を大きく超える募集人の採用に成功しました。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

But we have succeeded in hiring much more than 600 people in 2024.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

その募集人たちが今年大きく活躍してくれると思います。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

We expect these new agents to be more active in 2025.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

先ほど申しましたように。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

As I said earlier.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

第一分野をフックとしながら。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

We will be utilizing the first sector product as a hook.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

第三分野を大きく伸ばしていくと。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

To expand the third sector business largely.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

そういうトレーニングを強化しています。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

Such training is being implemented and strengthened.

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

以上です。

[Koichiro Yoshizumi, EVP at Aflac Life Insurance Japan]

That's all.

[Jack Matten, VP of Equity Research at BMO Capital Markets]

Thank you.

[Operator]

This concludes our question and answer session. I'd like to turn the call back over to David Young for any closing remarks.

[David Young, VP at Capital Markets]

Thank you, Andrea, and thank you all for joining us on today's call. Just want to say, if there are any follow-up questions, please reach out to Investor and Rating Agency Relations. We look forward to hearing from you and seeing you soon. Have a good day.

[Operator]

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.

Participants

Executives

• Brad Dyslin, Global Chief Investment Officer and President
• Virgil Miller, President
• Masatoshi Koide, President and Representative Director
• Dan Amos, Chairman and CEO
• Max Brodén, Senior EVP and CFO
• Koichiro Yoshizumi, EVP

Analysts

• John Barnidge, Managing Director at Piper Sandler
• David Young, VP at Capital Markets
• Mike Ward, Senior Analyst at UBS
• Translator
• Jack Matten, VP of Equity Research at BMO Capital Markets
• Elyse Greenspan, Managing Director of Equity Research at Wells Fargo
• Jimmy Bhullar, Equity Research Analyst at JPMorgan
• Joel Hurwitz, Lead Analyst of Life Insurance and Retirement Services Research at Dowling & Partners
• Wilma Burdis, Equity Research Analyst at Raymond James
• Alex Scott, Insurance Research Analyst at Barclays
• Josh Shanker, Managing Director at Bank of America
• Tom Gallagher, Senior Managing Director at Evercore ISI
• Wes Carmichael, Senior Analyst at Autonomous Research