Aflac Q4 Earnings Call Highlights

Key Points

• Adjusted EPS rose 0.6% year‑over‑year to $1.57 (ex‑FX); management said remeasurement gains of $36 million reduced benefits and variable investment income was about $12 million below long‑term expectations, with adjusted ROE ~11.7% (14.5% ex‑FX).
• In Japan, underlying earned premiums declined roughly 1–2% with persistency steady at 93.1%; the benefit ratio improved by about 150 bps (≈110 bps from reserve remeasurement) while the expense ratio rose to 22% due to higher sales promotion.
• Aflac repurchased $800 million of stock and paid $303 million in dividends, maintains $4.1 billion of unencumbered liquidity and adjusted leverage of 21.4%, and reiterated 2026 guidance ranges (modest U.S. growth and a slight decline in Japan premiums).

Aflac NYSE: AFL provided a financial update on its fourth-quarter 2025 results, reporting modest growth in adjusted earnings and describing segment-level underwriting trends, investment income headwinds, and continued capital deployment through buybacks and dividends.

Quarterly earnings and returns

For the fourth quarter of 2025, the company said adjusted earnings per diluted share increased 0.6% year-over-year to $1.57, excluding the effect of foreign currency in the quarter. Management also noted that remeasurement gains on reserves totaled $36 million, which reduced benefits during the period. Variable investment income was $12 million below the company’s long-term return expectations.

Adjusted book value per share, excluding foreign currency remeasurement, increased 0.5% in the quarter. Adjusted return on equity (ROE) was 11.7%, and 14.5% excluding foreign currency remeasurement, which management described as “a solid spread” to its cost of capital.

Japan segment: premium declines, favorable benefit trends

In Japan, net earned premiums in yen terms declined 1.9% for the quarter. Aflac Japan’s “underlying earned premiums”—which exclude the impact of deferred profit liability, paid-up policies, and reinsurance—declined 1.2%, a metric the company said provides a clearer view of long-term premium trends.

Japan’s total benefit ratio was 65% in the quarter, down 150 basis points year-over-year. The company estimated reserve remeasurement gains contributed approximately 110 basis points of favorability to the benefit ratio in the quarter. Management said long-term experience trends tied to cancer and hospitalization treatments “continue to be in place,” supporting favorable underwriting experience.

Persistency in Japan remained solid at 93.1% and in line with expectations, according to the update. Management added that refreshed product introductions can drive an uptick in lapse and reissue activity; it said an uptick occurred following the launch of a cancer insurance product, though overall lapses remained within expectations. Lapses on the First Sector savings block were described as low and consistent with prior periods despite higher yen interest rates.

Japan’s expense ratio was 22% for the quarter, up 120 basis points year-over-year, primarily driven by sales promotion expenses tied to higher sales. Adjusted net investment income in yen terms fell 3.9%, mainly due to lower floating rate income on the U.S. dollar book and lower variable investment income, partially offset by higher U.S. dollar fixed income due to increased volume. Japan’s pre-tax margin was 31.3%, down 30 basis points year-over-year, which management characterized as “a very good result.”

U.S. segment: premium growth, higher benefit ratio

In the U.S., net earned premiums increased 4% for the quarter. Premium persistency declined slightly by 10 basis points year-over-year, but management said it remains strong at 79.2%.

The U.S. total benefit ratio was 48.6%, up 230 basis points from the fourth quarter of 2024. Management attributed the increase to prior year endorsements and higher claims activity on the individual voluntary block, as well as a higher benefit ratio on group life and disability. The company estimated reserve remeasurement gains impacted the U.S. benefit ratio by approximately 140 basis points in the quarter.

The U.S. expense ratio was 40.4%, up 10 basis points year-over-year, driven primarily by the timing of spending from previous quarters. Growth initiatives—including group life and disability, network dental and vision, and direct-to-consumer—added 60 basis points to the expense ratio in the quarter, which the company said was in line with expectations as those businesses scale.

Adjusted net investment income in the U.S. decreased 2.8%, mainly due to a reduction in floating rate assets and corresponding rates. U.S. segment profitability was described as solid, with a pre-tax margin of 17.4%, a 230 basis point decline compared with a stronger quarter a year earlier.

Corporate items, investment portfolio, and capital position

In Corporate and Other, Aflac recorded a pre-tax adjusted loss of $31 million in the quarter. The company said total premiums decreased on closed blocks of business. Adjusted net investment income was $1 million higher than last year, reflecting a combination of lower volume of tax credit investments and higher asset balances.

Management also detailed the accounting impact of tax credit investments, noting they reduced net investment income under U.S. GAAP 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 in Corporate and Other declined due to lower revenues and higher adjusted expenses, primarily from higher operating costs and higher interest expense, partially offset by lower net benefits and claims.

On the investment portfolio, the company said it recorded no charge-offs in the commercial real estate portfolio and did not foreclose on any properties during the quarter. Within its portfolio of first lien senior secured middle market loans, Aflac recorded $22 million of charge-offs. For U.S. statutory reporting, it recorded a $3 million valuation allowance on mortgage loans as an unrealized loss. On a Japan FSA basis, management reported net realized gains of JPY 380 million for securities impairments in the fourth quarter and booked a valuation allowance of JPY 87 million related to transitional real estate loans, which it said was within expectations and had a limited impact on regulatory earnings and capital.

The company also discussed liquidity and leverage following actions taken earlier in the year. In the third quarter of 2025, Aflac said it enhanced liquidity and capital flexibility by $2 billion through two off-balance sheet pre-capitalized trusts (PCAPS). With increased off-balance sheet capital resources and improved liquidity flexibility, the company lowered its minimum holding company liquidity balance by $750 million to $1 billion. At quarter-end, unencumbered liquidity stood at $4.1 billion, or $3.1 billion above the minimum balance, and the full PCAP facility remained undrawn.

Adjusted leverage was 21.4%, within the company’s 20% to 25% target range. Management noted that because approximately 63% of debt is held in yen, the leverage ratio is affected by yen-dollar exchange rate movements, which it said is intentional and part of its enterprise hedging program designed to protect the economic value of Aflac Japan in U.S. dollar terms.

Capital ratios cited in the update included an SMR above 970%, an estimated regulatory ESR with the Undertaking Specific Parameter (USP) of 253%, and an estimated combined RBC of 575%. The company said it estimates the USP benefits regulatory ESR by 18 points. Management added that it updated ESR sensitivity estimates ahead of ESR taking effect on March 31, citing significant moves in dollar/yen and yen interest rates since its December 2024 Financial Analysts Briefing, and said it has improved asset-liability management, reducing exposure to interest rate risk and lowering sensitivities to market risk factors.

During the quarter, Aflac repurchased $800 million of its own stock and paid $303 million in dividends. Management said it intends to remain flexible and tactical in managing the balance sheet and deploying capital to drive risk-adjusted ROE with a meaningful spread to its cost of capital.

2026 outlook ranges reiterated with select updates

Looking ahead, management said the segment ranges it provided at its 2024 Financial Analysts Briefing for 2025 through 2027 “remain substantially intact” for 2026, with a few exceptions and clarifications.

• Japan: underlying earned premiums expected to decline 1% to 2% in 2026; expense ratio expected at 20% to 23%; benefit ratio expected at 60% to 63%; pre-tax profit margin expected at 33% to 36%.
• U.S.: net earned premium growth expected at the lower end of the 3% to 6% range; benefit ratio expected at 48% to 52%; expense ratio expected at 36% to 39% as new business lines scale; pre-tax profit margin expected at 17% to 20%.

The company said it would discuss results in further detail on the following day’s earnings call.

About Aflac NYSE: AFL

Aflac Incorporated (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.

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