Detailed narrative
Japan: strong sales, still-declining in-force premium
Aflac Japan sales rose 25.5% YoY in Q1, driven by the new Onsen Tallett medical product and the Miraito cancer product, with every distribution channel (agencies, alliance partners, banks) posting increases. Yet net earned premium fell 3.8% in yen terms and underlying earned premium (excluding reinsurance, paid-up policies and deferred profit liability) declined 1.3%.
Management explained the disconnect: annual lapsation runs about JPY 90B, so sales must reach roughly that level for in-force to hold flat; FY26 sales are guided 'closer to JPY 80 billion' (Dan Amos), above FY25's JPY 74B but still short of breakeven.
The mid-term strategy is to grow new business to arrest earned-premium stagnation (Koide). Persistency remained strong at 92.8%, though lapse-and-reissue on the cancer product continued to tick up.
US: group momentum offsets a flat core agent channel
Aflac US sales rose 2.9% YoY with net earned premium up 3.5% and premium persistency solid at 79.3%. Growth is concentrated in group: group products (dental/vision, Core VB, group life & absence/disability) rose 12.4%, the broader 'buy-the-bill' grouping (adding consumer-markets direct-to-consumer) rose ~25%, and the group life/absence/disability property (invested in over a year ago) rose 52%.
The traditional core agent business remained flat to slightly down; management is investing in recruiting (16% Q1 conversion rate, ~8% productivity) and a streamlined enrollment/onboarding process, targeting new-agent success of ~$25,000 production and 3 accounts in the first 3 months (metric up 8%).
US pretax margin was 20.4%, down 40 bps against a strong prior-year quarter.
Reserve remeasurement and benefit-ratio dynamics
Both segments benefited from favorable reserve remeasurement. Group-wide remeasurement gains on reserves totaled $82M, $23M ($0.04/share) above plan. Japan's total benefit ratio was 62.9%, down 290 bps YoY, of which ~70 bps came from remeasurement gains exceeding plan, alongside favorable cancer and hospitalization trends.
The US benefit ratio was 47.2%, down 50 bps, with ~230 bps of remeasurement impact (~80 bps above plan) and favorable individual voluntary and group-disability claims; adding back the 80 bps of over-plan gains puts the US underlying ratio at ~48%, the low end of the 48-52% range management sees for the year.
A shift toward lapsation of more recently-issued (lower-reserve) Japan policies dampened the reported GAAP benefit-ratio release this quarter.
Capital, liquidity and leverage
Aflac returned $1.3B to shareholders in Q1 ($1B buyback, $315M dividends) while maintaining strong ratios: estimated regulatory ESR of 227% (243% including the USP) and combined RBC ~560%. Holdco unencumbered liquidity was $3.4B, $2.4B above the $1B minimum. Adjusted leverage was 21.2%, within the 20-25% target; roughly two-thirds (~65%) of debt is yen-denominated as part of an enterprise FX hedging program that protects the US-dollar economic value of Aflac Japan but exposes the leverage ratio to yen-dollar moves.
Management has no near-term plans to raise debt, citing ample holdco capital plus the ability to use reinsurance to create additional capital and liquidity. ESR dipped modestly versus year-end, driven mainly by subsidiary dividends moving from Aflac Japan up to the holding company; higher yen rates raise the mass-lapse capital charge (a slight ESR negative) partly offset by yen weakening.
Investment portfolio and commercial real estate
Adjusted net investment income was up 4% in yen in Japan (higher USD fixed-rate income on volume and higher variable NII, partly offset by lower dollar floating-rate income and reduced call income) but down 0.5% in the US on lower short-term rates.
Corporate & Other adjusted NII was $17M lower YoY. On credit, Aflac recorded $19M of loan charge-offs (no property foreclosures) and $24M of impairments on real estate owned reflecting depressed commercial-real-estate valuations, which management believes understate intrinsic value and intends to work through the cycle.
US statutory impairments were $12M plus a $1M mortgage-loan valuation allowance; Japan FSA saw a net realized gain of JPY 66M from impairment reversals and a JPY 201M valuation allowance on transitional real estate loans, within expectations. Tax-credit investments reduced GAAP NII by $5M (offset in the tax line), with no earnings benefit in Q1.
External reinsurance strategy — a new growth lever
Effective March 31, Aflac Re Bermuda assumed a block of whole-life annuities from Japan Post Insurance — immaterial to Aflac Inc.'s Q1 financials but a strategic milestone in building an external reinsurance franchise targeting the Japan market. Management (Dan Amos) framed it as 'evolution, not revolution,' progressing from earlier reinsurance with another company, to internal transactions, now to a deal with its 'biggest and closest partner.' Max Broden said such blocks can be sizable and immediately earnings-accretive, leveraging Aflac's AA-rated balance sheet and Japanese-market expertise, and would add mortality, longevity and spread risk that diversifies the company's risk and earnings profile.
The strategy consumes capital but is not expected to alter shareholder capital returns; over time⏳ it could be material. Management pushed back on the read that reinsurance signals weaker core Japan growth, reaffirming continued organic opportunity.