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    AFL
    Earnings call· Sep 2025(Q3 FY25)

    AFLAC INC AFL

    Nov 5, 2025 Source

    Executive summary

    Aflac Q3 FY25 — Strong Sales in Japan and U.S. with Record Capital Deployment

    Aflac delivered strong Q3 FY25 results, marked by robust sales growth in both Japan and the U.S., particularly in cancer insurance and group products. The company maintained strong profitability and deployed a record $1.3 billion to shareholders through buybacks and dividends, underscoring its financial strength and commitment to capital management. Management highlighted strategic product repricing in Japan and ongoing U.S. growth initiatives, while acknowledging the need for continued agent recruitment and scaling of newer business lines.

    Highlights

    5

    • Aflac Japan sales increased 11.8% year-over-year, driven by a 42% increase in cancer insurance sales.

    • Aflac U.S. new sales increased 2.8% year-over-year to $390 million, with net earned premiums up 2.5%.

    • Adjusted EPS increased 15.3% year-over-year to $2.49, with no FX impact.

    • Deployed a record $1 billion in capital to repurchase 9.3 million shares and paid $309 million in dividends, totaling $1.3 billion returned to shareholders.

    • Adjusted ROE was 19.1% (22.1% excluding FX remeasurement), a solid spread to cost of capital.

    Concerns

    3

    • A one-time termination fee of $21 million was booked in Aflac U.S. for early services contract termination.

    • CECL reserves increased by $28 million for the commercial real estate portfolio and $7 million for middle market loans.

    • Japan FSA recorded securities impairments of JPY 476 million and a net realized loss of JPY 189 million related to transitional real estate loans.

    Guidance & targets

    6
    CategoryTargetConfidence
    Japan benefit ratio
    58% to 60% range
    medium materiality
    High
    Japan expense ratio
    lower end of the 20% to 23% range
    medium materiality
    High
    Aflac Japan pretax profit margin
    35% to 38% range
    high materiality
    High
    U.S. benefit ratio
    lower end of the 48% to 52% range
    medium materiality
    High
    U.S. expense ratio
    mid- to upper end of the 36% to 39% range
    medium materiality
    High
    U.S. pretax profit margin
    upper end of the 17% to 20% range
    high materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Aflac Japan
    Strong sales driven by Miraito cancer insurance and repriced Tsumitasu. Favorable underwriting experience from long-term trends in cancer treatment and hospitalization. Expense ratio improved due to higher sales.
    Sales growth: 11.8% YoYCancer insurance sales growth: 42% YoYPremium persistency: 93.3%Underlying earned premiums growth: -1.2%Total benefit ratio: 39.3%Third sector benefit ratio: 27.8%Expense ratio: 19.8% (down 20 bps YoY)Adjusted net investment income: JPY 98 billion (flat YoY)
    		—Sales up 11.8%—52.2% pretax margin
    Aflac U.S.
    Strong profitability. Expense ratio impacted by one-time $21 million contract termination fee and advertising timing. Growth initiatives (group life/disability, dental/vision, D2C) scaling as expected.
    New sales: $390 millionNew sales growth: 2.8% YoYPremium persistency: 79% (up 10 bps YoY)Net earned premium growth: 2.5%Total benefit ratio: 45.6%Expense ratio: 38.9% (up 90 bps YoY)Adjusted net investment income growth: 1.9%
    		$390 million new salesNew sales up 2.8%—21.7% pretax margin

    Operational metrics

    33
    Adjusted EPS
    $2.49up 15.3% YoY
    Q3 FY25

    No impact from FX in the quarter.

    EPS impact from Q3 assumption update
    $0.76
    Q3 FY25

    Total net impact from the Q3 assumption update.

    Adjusted book value per share growth
    6.3%
    Q3 FY25

    Excluding foreign currency remeasurement.

    Adjusted ROE
    19.1%
    Q3 FY25
    Adjusted ROE (ex-FX remeasurement)
    22.1%
    Q3 FY25
    One-time contract termination fee
    $21 million
    Q3 FY25

    Booked as part of strategic technology plan to optimize efficiencies and migrate to the cloud.

    Japan benefit ratio impact from reserve remeasurement gains
    26.6favorable
    Q3 FY25
    U.S. benefit ratio impact from reserve remeasurement gains
    480favorable
    Q3 FY25

    Largely driven by assumption unlock and claims remaining below previous long-term expectations.

    Japan expense ratio change
    20down YoY
    Q3 FY25

    Driven primarily by an increase in expense capitalization rates resulting from higher sales.

    U.S. expense ratio change
    90up YoY
    Q3 FY25

    Primarily driven by the one-time early contract termination fee of $21 million and timing of advertising spend.

    Corporate & Other pretax adjusted earnings
    $69 million
    Q3 FY25
    Adjusted net investment income increase
    $66 millionhigher than last year
    Q3 FY25

    Due to a combination of lower volume of tax credit investments and higher asset balances, including the impact of the internal reinsurance transaction in Q4 2024.

    Tax credit investments impact on NII (U.S. GAAP)
    -$6 million
    Q3 FY25

    Negatively impacted the net investment income line for U.S. GAAP purposes, with an associated credit to the tax line.

    Net impact to bottom line from tax credit investments
    $2 millionpositive
    Q3 FY25
    CECL reserves increase (commercial real estate)
    $28 millionnet of charge-offs
    Q3 FY25

    Reflecting continued distressed property values.

    CECL reserves increase (middle market loans)
    $7 millionnet of charge-offs
    Q3 FY25

    Portfolio of first lien senior secured middle market loans continues to perform well.

    Valuation allowance on mortgage loans (U.S. statutory)
    $7 million
    Q3 FY25

    Recorded as an unrealized loss.

    Unencumbered holding company liquidity
    $4.5 billion
    Q3 FY25
    Unencumbered holding company liquidity above minimum
    $2.7 billion
    Q3 FY25
    Leverage ratio
    22%
    Q3 FY25

    Impacted by moves in the yen-dollar exchange rate as 64% of debt is held in yen, part of enterprise hedging program.

    Capital deployed to repurchase stock
    $1 billion
    Q3 FY25
    Shares repurchased
    9.3 million
    Q3 FY25
    Dividends paid
    $309 million
    Q3 FY25
    Total capital returned to shareholders
    $1.3 billion
    Q3 FY25
    Dividend increase streak
    43consecutive
    Q3 FY25
    Tsumitasu discounted advanced premium rate
    1%up from 25 bps
    Q3 FY25

    Increased as yields have increased throughout the year.

    U.S. lab business growth
    24%increase
    Q3 FY25

    Achieved during the quarter, part of buy-to-bills investments.

    U.S. dental operations growth
    40%increase
    first 9 months

    Stabilized dental operations showing strong growth.

    U.S. producer conversion rate
    8%increase
    Q3 FY25

    Increase in converting recruits into producers.

    U.S. producer productivity
    16%
    Q3 FY25

    Overall productivity.

    U.S. sales
    $1 billion
    first 9 months
    Japan FSA securities impairments
    JPY 476 million
    Q3 FY25
    Japan FSA net realized loss (transitional real estate loans)
    JPY 189 million
    Q3 FY25

    Well within expectations and limited impact on regulatory earnings and capital.

    Industry KPIs

    7
    MetricValueDetails
    Capital returns$1.3 billionUSD
    ROE operating ROE19.1% (Adjusted ROE); 22.1% (Adjusted ROE ex-FX remeasurement)%
    Book value per share6.3%%
    Net investment incomeJPY 98 billion (Japan); Up 1.9% (U.S.); Up $66 million (Corporate & Other)JPY / % / USD
    Retention persistency93.3% (Japan); 79% (U.S.)%
    Net premiums written earnedDeclined 4% (Japan); Up 2.5% (U.S.)%
    Statutory regulatory capitalAbove 900% (SMR); Above 250% (Estimated regulatory ESR with USP); Greater than 600% (Estimated combined RBC)%

    Product announcements

    3
    ProductTypeDetails
    Miraito (cancer insurance)launch
    Tsumitasuupdate
    New medical insurance (Japan)launch

    Deals & partnerships

    1
    State of MaineProvide claims administration for their paid family medical leave program.

    Aflac U.S. won the contract to administer the program.

    Risks & headwinds

    5
    Pressure on individual product sales in U.S.Current quarter

    Not explicitly quantified as a decline, but implied by broker shift to group products.

    Mitigation: Focus on increasing average weekly producers, improving recruiting/conversion, and bundling products to create unified solutions for brokers.

    One-time contract termination fee in U.S.Q3 FY25

    $21 million

    Mitigation: Anticipated reduced costs and improved efficiency over the next few years will offset the fee as part of a strategic technology plan.

    Increased CECL reserves for commercial real estate and middle market loansQ3 FY25

    $28 million (CRE), $7 million (middle market loans)

    Mitigation: Portfolio of first lien senior secured middle market loans continues to perform well; no foreclosures on properties, and disciplined underwriting is in place.

    Securities impairments and realized losses (Japan FSA)Q3 FY25

    JPY 476 million impairments, JPY 189 million net realized loss

    Mitigation: These figures are well within expectations and have limited impact on regulatory earnings and capital.

    Potential for decline in sales of older products when new products are launched (Japan)Ongoing with new product launches

    Not quantified, but acknowledged by management.

    Mitigation: New products have "bells and whistles" to excite the sales force; alliance partner (Japan Post Group) sells only cancer reinsurance, so not impacted by new medical launch.

    What to watch in Q4 FY25

    5

    Aflac U.S. individual product sales

    Next quarter
    CurrentUnder pressure due to broker shift to group products.
    TargetImprovement in sales, driven by increased average weekly producers and recruiting.

    Why it matters

    Indicates effectiveness of U.S. sales force rebuilding and strategy to counter broker trends, crucial for long-term growth.

    Yes, what we're seeing is in the market as the brokers have become more involved with selling supplemental benefits, they are leaning toward group products. So therefore, we are seeing some pressure on our individual products. I will tell you, though, that our focus is to continue to grow our average weekly producers and looking for an increase in recruiting this year.

    Q&A highlights

    7

    Inquired about the decline in core voluntary product sales despite overall U.S. sales growth, and what Aflac is seeing across its product offerings.

    Virgil Miller explained that brokers are leaning towards group products, impacting individual sales. However, investments in "buy-to-bills" (lab business up 24%, dental up 40% for 9 months) are showing strong production. Focus is on increasing average weekly producers and improving recruiting/conversion rates for individual products.

    “Yes, what we're seeing is in the market as the brokers have become more involved with selling supplemental benefits, they are leaning toward group products. So therefore, we are seeing some pressure on our individual products.”

    asked by Joel Hurwitz · answered by Virgil Miller

    2 min read6 chapters

    Detailed Narrative

    01

    Japan Sales Momentum

    Aflac Japan achieved an 11.8% year-over-year sales increase, significantly boosted by a 42% rise in cancer insurance sales, particularly from the new Miraito product launched in March. The repricing of the Tsumitasu product in September, driven by increased assumed interest rates, is also contributing to solid sales growth, attracting a younger demographic (over 50% in 30s-40s) which is positive for long-term cross-selling.

    02

    U.S. Growth Initiatives

    Aflac U.S. reported a 2.8% year-over-year increase in new sales to $390 million, with net earned premiums growing 2.5%. Growth was strong in the lab business (up 24%) and dental operations (up 40% for the first 9 months), indicating positive traction from investments in "buy-to-bills" and group products, despite some pressure on individual product sales due to brokers leaning towards group offerings.

    03

    Capital Deployment & Shareholder Returns

    The company demonstrated strong capital management by deploying a record $1 billion to repurchase 9.3 million shares and paying $309 million in dividends during Q3, totaling $1.3 billion returned to shareholders. This reflects Aflac's financial strength and commitment to enhancing shareholder value, alongside its 43-year streak of dividend increases and maintaining high return on capital.

    04

    Actuarial Assumption Unlock Impact

    A Q3 assumption update resulted in remeasurement gains on reserves totaling $580 million, which increased EPS by $0.76. This unlock significantly impacted benefit ratios, reducing Japan's by 26.6 percentage points and U.S.'s by 480 basis points, reflecting favorable long-term experience trends in cancer treatment and hospitalization, with claims remaining below previous long-term expectations.

    05

    Strategic Technology & Cost Management

    Aflac U.S. incurred a one-time📎 $21 million fee for early termination of a services contract as part of its strategic technology plan to optimize efficiencies and migrate to the cloud. Management anticipates this will lead to reduced costs and improved efficiency over the next few years, offsetting the termination fee, and noted that growth initiatives had no impact on the total expense ratio in the quarter.

    06

    Private Credit Portfolio Performance

    Aflac's private credit portfolio, including first lien senior secured middle market loans, is performing well, with no systemic credit issues or discernible trend in downgrades. The company maintains a cautious approach, focusing on strong credit management capabilities and liquidity stress testing, and had no exposure to recent distressed names in the news, expressing confidence in its disciplined underwriting.

    AI-generated summary of the company’s earnings call. Not investment advice.