Aflac Q4 2025 Pre Recorded Earnings Report

Aflac EPS Results

• Actual EPS: $1.57
• Consensus EPS: $1.69
• Beat/Miss: Missed by -$0.12
• One Year Ago EPS: $1.57

Aflac Revenue Results

• Actual Revenue: $4.28 billion
• Expected Revenue: $4.45 billion
• Beat/Miss: Missed by -$178.33 million
• YoY Revenue Growth: -9.60%

Aflac Announcement Details

• Quarter: Q4 2025 Pre Recorded
• Date: 2/4/2026
• Time: After Market Closes
• Conference Call Date: Wednesday, February 4, 2026
• Conference Call Time: 4:00PM 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 2025 Pre Recorded Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Adjusted EPS rose 0.6% year-over-year (ex-FX) to $1.57, adjusted book value per share increased 0.5%, and adjusted ROE was 11.7% (14.5% ex-FX), which management characterized as a solid quarterly performance.
• Negative Sentiment: Aflac Japan showed underlying earned premiums down ~1.2% in Q4 and management expects a further 1–2% decline in 2026, with higher expense ratios from sales promotion and product-related lapse activity.
• Neutral Sentiment: U.S. net earned premiums grew 4% and persistency remained strong at 79.2%, but benefit ratios widened to 48.6% and the company is intentionally increasing expenses to scale growth businesses, guiding to a 17–20% pre-tax margin for 2026.
• Positive Sentiment: Strong capital and liquidity actions — creation of $2 billion in off-balance-sheet PCAP capacity, holding-company unencumbered liquidity of $4.1 billion, adjusted leverage at 21.4% within target, plus $800 million in share repurchases and $303 million in dividends in Q4.

Presentation

[Frederick Crawford, President and COO at Aflac Incorporated]

Thank you for joining me as I provide a financial update on Aflac Incorporated's results. For the fourth quarter of 2025, adjusted earnings per diluted share increased 0.6% year-over-year to $1.57, excluding effect of foreign currency in the quarter. In this quarter, remeasurement gains on reserves totaled $36 million, reducing benefits. Variable investment income ran $12 million below our long-term return expectations. Adjusted book value per share, excluding foreign currency remeasurement, increased 0.5%. The adjusted ROE was 11.7% and 14.5%, excluding foreign currency remeasurement, a solid spread to our cost of capital. Overall, we view these results in the quarter as solid. Starting with our Japan segment, net earned premiums in yen terms for the quarter declined 1.9%.

[Frederick Crawford, President and COO at Aflac Incorporated]

Aflac Japan's underlying earned premiums, which excludes the impact of deferred profit liability, paid up policies, and reinsurance, declined 1.2%. We believe this metric provides a clearer insight into long-term premium trends. Japan's total benefit ratio came in at 65% for the quarter, down 150 basis points year-over-year. We estimate the impact from reserve remeasurement gains to be approximately 110 basis points favorable to the benefit ratio in Q4 2025. 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 93.1%. With refreshed product introductions, we generally see an uptick in lapse and reissue activity, causing reported lapsation to increase.

[Frederick Crawford, President and COO at Aflac Incorporated]

We did experience this uptick with our recently launched cancer insurance product, but overall lapses remained within our expectations. Lapses on our First Sector savings block remained low and in line with previous periods, despite the increase in yen interest rates. Our expense ratio in Japan was 22% for the quarter, up 120 basis points year-over-year, driven primarily by sales promotion expenses associated with higher sales. For the quarter, adjusted net investment income in yen terms was down 3.9%, primarily driven by lower floating rate income on our U.S. dollar book and lower variable investment income, partially offset by higher U.S. dollar fixed income due to higher volume. The pre-tax margin for Japan in the quarter was 31.3%, down 30 basis points year-over-year, a very good result. Now, turning to U.S. results.

[Frederick Crawford, President and COO at Aflac Incorporated]

Net earned premiums were up 4%, while premium persistency declined slightly by 10 basis points year-over-year. It remains strong at 79.2%. Our total benefit ratio came in at 48.6%, 230 basis points higher than Q4 2024, driven by prior year endorsements and higher claims activity on our individual voluntary block, as well as a higher benefit ratio on group life and disability. We estimate the reserve remeasurement gains impacted the benefit ratio by approximately 140 basis points in the quarter. Our expense ratio in the U.S. was 40.4%, up 10 basis points year-over-year, primarily driven by timing of spend from previous quarters. Our growth initiatives, group life and disability, network dental and vision, and direct-to-consumer, increased the expense ratio by 60 basis points in the quarter.

[Frederick Crawford, President and COO at Aflac Incorporated]

This is in line with our expectations as these businesses continue to scale. Adjusted net investment income in the U.S. was down 2.8% for the quarter, primarily driven by a reduction in floating rate assets and corresponding rates. Profitability in the U.S. segment was solid, with a pre-tax margin of 17.4%, a 230 basis points decrease compared with a stronger quarter a year ago. In Corporate and Other, we recorded a pre-tax adjusted loss of $31 million in the quarter. Total premiums decreased on closed blocks of business. Adjusted net investment income was $1 million higher than last year due to a combination of lower volume of tax credit investments and higher asset balances.

[Frederick Crawford, President and COO at Aflac Incorporated]

Our tax credit investments impacted a net investment income line for US GAAP purposes negatively by $43 million in the quarter, with an associated credit to the tax line. The total fourth quarter earnings benefit from tax credit investments was $13 million. Adjusted earnings declined due to lower revenues and higher adjusted expenses, driven primarily by higher costs pertaining to business operations and higher interest expense, partially offset by lower net benefits and claims. We continue to be pleased with the performance of our investment portfolio. During the quarter, we did not record any charge-offs for the commercial real estate portfolio. Additionally, we did not foreclose on any properties in the period. On our portfolio of first lien senior secured middle market loans, we recorded charge-offs of $22 million in the quarter.

[Frederick Crawford, President and COO at Aflac Incorporated]

For U.S. statutory, we recorded a $3 million valuation allowance on mortgage loans as an unrealized loss during the quarter. On a Japan FSA basis. There were net realized gains of JPY 380 million for securities impairments in Q4, and we booked a valuation allowance of JPY 87 million related to transitional real estate loans. This is well within our expectations and has a limited impact on regulatory earnings and capital. In the third quarter of 2025, we enhanced our liquidity and capital flexibility by $2 billion with the creation of two off-balance sheet pre-capitalized trusts, the issued securities commonly referred to as PCAPS. With increased off-balance sheet capital resources and improved liquidity flexibility, we have lowered our minimum liquidity balance at the holding company by $750 million to $1 billion. This means that Aflac Inc.

[Frederick Crawford, President and COO at Aflac Incorporated]

Unencumbered liquidity stood at $4.1 billion, which was $3.1 billion above our minimum balance at the end of the quarter. The full PCAP facility remains undrawn. Our adjusted leverage was 21.4% for the quarter, which is within our target range of 20%-25%. As we hold approximately 63% 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 US dollar terms. Our capital position remains strong. We ended the quarter with an SMR above 970% and an estimated regulatory ESR with the Undertaking Specific Parameter, or USP, of 253%. We estimate that the USP benefits the regulatory ESR by 18 points.

[Frederick Crawford, President and COO at Aflac Incorporated]

We estimate our combined RBC to be 575%. These are strong capital ratios, which we actively monitor, stress, and manage to withstand market volatility and credit cycles, as well as external shocks. We last updated our ESR sensitivities at our Financial Analysts Briefing in December 2024. Since then, we have seen significant movements in both the dollar/yen and yen interest rates. So we wanted to provide an updated estimates before the ESR comes into effect on March 31st. We have deliberately improved our ALM during this time, which has led to reduced exposure to interest rate risk. We generally have lowered our sensitivities to market risk factors. We've also refreshed the sensitivity analysis related to our combined RBC ratio in the U.S. I will characterize these refreshed estimates also as being in line with what we shared at FAB in December 2024.

[Frederick Crawford, President and COO at Aflac Incorporated]

Given the strength of our capital and liquidity, we repurchased $800 million of our own stock and paid dividends of $303 million in Q4, offering good relative IRR on these capital deployments. We will continue to be flexible and tactical in the way 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. Before concluding, I would like to address our 2026 outlook. At our 2024 Financial Analyst Briefing, I provided ranges for net earned premiums, benefits and expense ratios, and pre-tax profit margin for each segment for 2025 through 2027. These ranges remain substantially intact for 2026, but with a couple of exceptions. For Aflac Japan, we expect underlying earned premiums to decline 1%-2% in 2026.

[Frederick Crawford, President and COO at Aflac Incorporated]

We also expect the expense ratio to be in the 20%-23% range. However, we expect the benefit ratio in Japan to be in the 60%-63% range and the pre-tax profit margin to be in the 33%-36% range. In the US, we continue to expect net earned premium growth to be in the lower end of the 3%-6% range. We also expect the benefit ratio for 2026 to be in the 48%-52% range and the expense ratio to be in the 36%-39% range as we continue to scale new business lines. At the same time, we expect pre-tax profit margin for 2026 to be in a range of 17%-20%. Thank you, and I look forward to discussing our results in further detail on tomorrow's earnings call.

Participants

Executives

• Frederick Crawford, President and COO