With significant capital flexibility, will ESR finalization change your M&A or capital deployment strategy, and what would be incremental for you?

Management confirms significant capital availability but emphasizes that M&A is primarily an operational and strategic question. They operate in a narrow niche, making suitable targets difficult to find, and are currently content with existing businesses. “But the fact of the matter is, do we have capital available if we wanted to do something? That is absolutely true. But I would also acknowledge that we are operating in a relatively narrow niche, both in the United States and in Japan and to sort of find operational and strategic targets within those niches is relatively difficult to find.”

The uplift from the USP for ESR declined from 30 points to 18 points. What caused this decline?

Max explained that the main driver for the decline in the USP uplift is related to the higher level of yen interest rates. “The main driver of that decline is related to the level of yen interest rates. So as yen interest rates go higher, the impact from the USP tends to -- will decline a little bit.”

AFL

Aflac (AFL) Q4 FY25 earnings call: guidance and Q&A

Q: Can you elaborate on the factors contributing to the lower benefit ratio embedded in the Japan guidance for 2026?

Max outlined three main factors: a 130 basis point reduction in the net premium ratio from Q3 2025 actuarial assumption updates, increased lapse and reissue activity with new product introductions, and the shrinking of the old 'waste' product block which had a very high GAAP benefit ratio. “So I will characterize those 3 factors as the main factors for the lower benefit ratio expected in 2026.”

Earnings call· Dec 2025 (Q4 FY25)· Financials· Feb 5, 2026

Source: earnings call transcript

Executive summary

Aflac Q4 FY25 — Strong Japan Sales and Capital Returns Amidst Shifting Premium Trends

Aflac reported strong Q4 FY25 results, highlighted by robust sales growth in Japan, particularly from new cancer insurance products, and significant capital returns to shareholders. While the U.S. segment also saw solid new sales, both segments faced pressures on earned premiums and benefit ratios. The company is actively managing its product portfolio and distribution channels to adapt to market shifts and maintain financial strength, with a focus on capital efficiency and strategic investments in growth initiatives.

Highlights

Aflac Japan sales increased 15.7% for Q4 and 16% for FY25, driven by the Miraito cancer insurance product.
Aflac U.S. generated nearly $1.6 billion in new sales in 2025, with over one-third coming from Q4.
Aflac Incorporated deployed a record $3.5 billion to repurchase 33 million shares and paid $1.2 billion in dividends in 2025, totaling nearly $4.8 billion returned to shareholders.
Aflac Japan achieved a solid pretax margin of 31.3% for the quarter, despite a 30 basis point year-over-year decrease.
The Board approved a 5.2% increase in the first quarter of 2026 dividend, marking 43 consecutive years of increases.

Concerns

Aflac Japan's net earned premiums in yen terms declined 1.9% for the quarter, with underlying earned premiums down 1.2%.
Aflac U.S. premium persistency declined slightly by 10 basis points year-over-year to 79.2%.
Aflac U.S. total benefit ratio increased 230 basis points to 48.6% compared to Q4 2024, driven by prior year endorsements and higher claims.
Underlying earned premiums in Japan are expected to decline 1% to 2% in 2026, indicating continued pressure on in-force premium growth.
The expense ratio in Aflac U.S. increased 10 basis points to 40.4%, primarily due to timing of spend and scaling new business lines.

Guidance & targets

Category	Target	Timeline	Confidence
Aflac Japan Underlying Earned Premiums	decline 1% to 2% high materiality	FY26 · 2026	High
Aflac Japan Expense Ratio	20% to 23% medium materiality	FY26 · 2026	High
Aflac Japan Benefit Ratio	60% to 63% high materiality	FY26 · 2026	High
Aflac Japan Pretax Profit Margin	33% to 36% high materiality	FY26 · 2026	High
Aflac U.S. Net Earned Premium Growth	lower end of 3% to 6% range high materiality	FY26 · 2026	High
Aflac U.S. Benefit Ratio	48% to 52% high materiality	FY26 · 2026	High
Aflac U.S. Expense Ratio	36% to 39% medium materiality	FY26 · 2026	High
Aflac U.S. Pretax Profit Margin	17% to 20% high materiality	FY26 · 2026	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Aflac Japan Sales driven by new cancer insurance product Miraito. Persistency remains strong despite an uptick in lapse and reissue activity from new product introductions. Pretax margin was solid despite a slight year-over-year decrease. Sales increase Q4: 15.7%Sales increase FY25: 16%Miraito sales increase: 35.6%Premium persistency: 93.1% (for the year)Underlying earned premiums decline: 1.2%Benefit ratio: 65% (down 150 bps YoY)Expense ratio: 22% (up 120 bps YoY)Adjusted net investment income (yen terms): down 3.9%	declined 1.9%	-1.9%	—	31.3% pretax margin
Aflac U.S. Strong new sales for the year, with significant growth in group and direct-to-consumer channels. Benefit ratio increased due to prior year endorsements and higher claims. Expense ratio increased due to timing of spend and scaling new business lines. New sales FY25: nearly $1.6 billionPremium persistency: 79.2% (down 10 bps YoY)Total benefit ratio: 48.6% (up 230 bps YoY)Expense ratio: 40.4% (up 10 bps YoY)Adjusted net investment income: down 2.8%Group life and disability sales FY25: up 11.3%Network dental product sales FY25: up 48.8%Direct-to-consumer sales FY25: up 10.5%Traditional group benefits sales (Aflac Group chassis) FY25: up 11.7%Total group sales: 14%	up 4%	4%	—	17.4% pretax margin
Corporate and Other Pretax adjusted loss recorded, with total premiums decreasing on closed blocks of business. Net investment income improved due to lower volume of tax credit investments and higher asset balances. Adjusted net investment income: $1 million higher than last year	—	—	—	pretax adjusted loss of $31 million

AFL operating KPIs by quarter

AFL operating KPIs stated on its earnings calls, by fiscal quarter
KPI	Dec 2024 Q4 FY24	Mar 2025 Q1 FY25	Jun 2025 Q2 FY25	Sep 2025 Q3 FY25	This call Dec 2025 Q4 FY25	Mar 2026 Q1 FY26	Change vs prior quarter
Policy retention rate Aflac Japan	93.4% Persistency remained solid at 93.4%, which was unchanged year-over-year and in line with our expectations. Source: earnings call transcript	93.8% Persistency remained solid at 93.8%, which is up 40 basis points year-over-year and in line with our expectations. Source: earnings call transcript	93.7% Persistency remained solid at 93.7%, which was up approximately 40 basis points year-over-year, in line with our expectations. Source: earnings call transcript	93.3% Persistency remained solid year-over-year and in line with our expectations at 93.3%. Source: earnings call transcript	93.1% Persistency remained solid year-over-year and in line with our expectations at 93.1%. Source: earnings call transcript	92.8% While persistency was down, it remains strong and in line with our expectations at 92.8%. Source: earnings call transcript	-0.3 pt
Policy retention rate US	79.3% Persistency increased 70 basis points year-over-year to 79.3%. Source: earnings call transcript	79.3% Net earned premium was up 1.8%, persistency increased 60 basis points year-over-year to 79.3%. Source: earnings call transcript	79.2% Persistency increased 50 basis points year-over-year to 79.2%. Source: earnings call transcript	79% More importantly, we maintained strong premium persistency of 79% and increased net earned premiums 2.5%. Source: earnings call transcript	79.2% It remains strong at 79.2%. Source: earnings call transcript	79.3% More importantly, we maintain strong premium persistency of 79.3% and increased net earned premium of 3.5% for the quarter. Source: earnings call transcript	+0.1 pt

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Deals & partnerships

N/A Creation of two off-balance sheet precapitalized trusts (PCAPs) $2 billion

The full PCAP facility remains undrawn. These trusts issued securities commonly referred to as PCAPs.

Risks & headwinds

Potential for increased surrenders of interest-sensitive savings products in Japan Ongoing

Not quantified, but acknowledged as a risk

Mitigation:Closely monitoring and preparing the company for potential impacts from rising yen interest rates.

Uptick in lapse and reissue activity in Japan Q4 FY25

Caused reported lapsation to increase

Mitigation:Overall lapses remain within expectations; tied to new product introductions like Miraito.

Higher claims activity on individual voluntary block in U.S. Q4 FY25

Contributed to 230 basis point increase in total benefit ratio

Mitigation:Partially managed through prior year endorsements and active increases in benefit ratios for certain products.

Increased expense ratio in U.S. due to scaling new business lines Q4 FY25 and ongoing

Increased expense ratio by 60 basis points in Q4 FY25

Mitigation:In line with expectations as these businesses (group life and disability, network dental and vision, direct-to-consumer) continue to scale.

Flat to negative performance of traditional U.S. business Past few years and ongoing

Flat to negative for the past few years

Mitigation:Investing in enhancing products, recruiting, and improving technology and enrollment platforms for the traditional business. Impact from COVID on producer force is being addressed through recruitment.

What to watch in Q1 FY26

Japan Underlying Earned Premiums

within a reasonable future

Current expected to decline 1% to 2% in 2026

Target Positive growth (sales exceeding lapses)

Why it matters

This metric indicates the inflection point for Japan's core business growth, crucial for long-term profitability.

But even going into 2026, we still expect that lapses will be greater than total sales. ... once that turns positive, it is eventually when we are going to have net earned premium growth in Japan.

Find out whether AFL delivers this. Inve re-checks your case every morning.

Q&A highlights

Given the rise in yen yields, do you expect higher surrenders of interest-sensitive savings products in Japan?

Management acknowledges the significant rise in yen yields and the potential for increased surrenders or demand, but states they have not experienced this yet and are closely monitoring the situation.

“We have not experienced that yet, but obviously, it's something that we closely monitor and prepare the company for.”

asked by Wesley Carmichael · answered by Max Broden

2 min read 6 chapters

Detailed narrative

Japan Product Innovation and Sales Momentum

Aflac Japan achieved significant sales growth in Q4 and FY25, largely propelled by the success of its Miraito cancer insurance product, which saw a 35.6% sales increase. The recent introduction of the Anshin Palette medical product in late December has also received positive reception.

The company continues to leverage its Tsumitasu first sector product, repriced in September, to target younger demographics and promote asset formation, with flexibility to adjust premium rates based on interest rate market conditions.

U.S. Sales Strategy and Channel Performance

Aflac U.S. generated nearly $1.6 billion in new sales for 2025, with a substantial portion in Q4. While the core traditional voluntary benefits business has been flat to negative, growth initiatives like group life and disability (up 11.3%), network dental (up 48.8%), and direct-to-consumer (up 10.5%) are driving overall sales.

The company is investing in unifying these channels through technology and platform enhancements to provide a consistent customer experience and improve agent efficiency.

Capital Management and Shareholder Returns

Aflac demonstrated strong capital deployment in 2025, returning nearly $4.8 billion to shareholders through $3.5 billion in share repurchases (33 million shares) and $1.2 billion in dividends. The company maintains robust capital ratios, including an SMR above 970%, an estimated regulatory ESR of 253% (benefiting 18 points from USP), and a combined RBC of 575%.

Unencumbered holding company liquidity stands at $4.1 billion, significantly above the $1 billion minimum.

Drivers of Japan's Benefit Ratio Improvement

The expected lower benefit ratio in Japan for 2026 is attributed to three main factors: a 130 basis point reduction in the net premium ratio following actuarial assumption updates in Q3 2025, an increase in lapse and reissue activity associated with new product introductions, and the shrinking of the old 'waste' product block which carried a very high GAAP benefit ratio.

Two-thirds of this improvement is expected to be economically driven, not just GAAP accounting.

U.S. Benefit Ratio Dynamics and Mix Shift

The U.S. benefit ratio is projected to increase in 2026, driven by active management decisions to increase benefits on certain products (e.g., cancer and accident policies) that saw very low utilization during the pandemic. Additionally, the growing proportion of higher benefit ratio group products (life, disability, dental) in the overall in-force mix contributes to this upward trend, reflecting the success of new business lines.

Technology and AI Integration

Aflac is actively exploring and investing in AI to enhance operational efficiency and product innovation. In Japan, AI is being considered for enrollment processes and product development. In the U.S., AI assists in automating over 60% of routine claims processes in the traditional business, providing advice to adjudicators without fully automating final decisions.

AI also played a role in accelerating the development of enhanced enrollment platforms for agents.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.