Aflac Inc Earnings - Q4 2025 Analysis & Highlights
Aflac Incorporated reported solid Q4 2025 results with strong Japan sales growth driven by new product launches, maintained robust capital positions, and provided 2026 guidance reflecting continued strategic investments in growth initiatives while managing premium headwinds in Japan.
Key Financial Results
Adjusted earnings per diluted share increased 0.6% year-over-year to $1.57 in Q4 2025, excluding foreign currency effects.
Full-year 2025 adjusted earnings per diluted share reached $7.49, compared to net earnings per diluted share of $6.82.
Q4 2025 net earnings per diluted share were $2.64.
Adjusted book value per share increased 0.5%, excluding foreign currency remeasurement.
Adjusted return on equity (ROE) was 11.7% and 14.5% excluding foreign currency remeasurement, representing a solid spread to cost of capital.
Remeasurement gains on reserves totaled $36 million in Q4, reducing benefits.
Variable investment income ran $12 million below long-term return expectations.
Business Segment Results
Aflac Japan
Sales increased 15.7% in Q4 2025 and 16% for full-year 2025.
Cancer insurance product (Miraito) achieved a remarkable 35.6% sales increase following its March launch.
Medical product (Anshin Palette) received positive reception since its late December introduction.
Premium persistency remained strong at 93.1% for the year.
Net earned premiums in yen terms declined 1.9% for the quarter.
Underlying earned premiums (excluding deferred profit liability, paid-up policies, and reinsurance) declined 1.2%.
Total benefit ratio came in at 65% for the quarter, down 150 basis points year-over-year.
Reserve remeasurement gains provided approximately 110 basis points favorable impact to the benefit ratio in Q4 2025.
Expense ratio was 22% for the quarter, up 120 basis points year-over-year, driven primarily by sales promotion expenses.
Adjusted net investment income in yen terms was down 3.9%, primarily driven by lower floating rate income on the US dollar book.
Pre-tax margin was 31.3%, down 30 basis points year-over-year.
Aflac US
Generated nearly $1.6 billion in new sales in 2025, with over one-third coming from Q4.
Net earned premiums were up 4% in Q4.
Premium persistency was 79.2%, declining slightly by 10 basis points year-over-year.
Net earned premiums increased 2.9% for full-year 2025.
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 the individual voluntary block.
Reserve remeasurement gains impacted the benefit ratio by approximately 140 basis points in the quarter.
Expense ratio was 40.4%, up 10 basis points year-over-year.
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.
Adjusted net investment income was down 2.8% for the quarter, primarily driven by reduction in floating rate assets.
Pre-tax margin was 17.4%, a 230 basis points decrease compared with the prior year quarter.
Group benefits sales growth reached 14% when isolated, with network dental up 48.8% and life, absence and disability up 11.3%.
Capital Allocation
Share repurchases totaled $3.5 billion in 2025, repurchasing 33 million shares.
Dividend payments were $1.2 billion in 2025.
Combined shareholder returns (share repurchases and dividends) totaled nearly $4.8 billion in 2025.
First quarter 2026 dividend increased by 5.2%.
Company maintains 43 consecutive years of dividend increases.
Q4 2025 share repurchases were $800 million and dividend payments were $303 million.
Aflac Inc. unencumbered liquidity stood at $4.1 billion, which was $3.1 billion above the minimum balance at quarter-end.
Minimum liquidity balance at the holding company was lowered by $750 million to $1 billion following creation of two off-balance sheet pre-capital life trusts.
Capital Position and Solvency
Adjusted leverage was 21.4% for the quarter, within the target range of 20% to 25%.
SMR (Solvency Margin Ratio) ended the quarter above 970%.
Estimated regulatory ESR with undertaking specific parameter (USP) was 253%, with USP benefiting the regulatory ESR by 18 points.
Combined RBC was estimated at 575%.
Approximately 63% of debt is held in yen as part of the enterprise hedging program.
Industry Trends and Dynamics
Consumers continue to face financial hardships due to increasing out-of-pocket medical expenses in both Japan and the United States.
Long-term experience trends related to treatments of cancer and hospitalization continue to be favorable, leading to continued favorable underwriting experience in Japan.
Yen interest rates have increased significantly, with potential implications for interest-sensitive savings products.
Approximately 22 million Americans were affected by ACA changes in 2025.
Competitive Landscape
Aflac positioned as pioneer of cancer insurance and leader in the industry.
Broad distribution network across agencies, alliance partners, and banks provides competitive strength in Japan.
Strong brand recognition with the Aflac Duck marking its 25th anniversary in 2025.
High return on capital and low cost of capital positioning among companies with the highest and lowest in the industry, respectively.
Macroeconomic Environment
Inflationary rates, unemployment rates, and interest rates are monitored for material impacts on the business.
No material impact from macroeconomic factors on recruiting or operations in 2025.
Significant movements in dollar-yen exchange rates and yen interest rates have occurred since December 2024.
Company deliberately improved asset-liability management (ALM) leading to reduced exposure to interest rate risk.
Growth Opportunities and Strategies
New product launches driving sales growth, including Miraito cancer insurance and Anshin Palette medical product in Japan.
Tsumitasu first sector product repriced in September to respond to citizens' needs for asset formation and to encourage younger and middle-aged generations.
Ability to adjust premium rates on Tsumitasu in a timely manner with agility based on interest rate market conditions.
Unified experience initiative across group channels through platform, technology, and go-to-market improvements planned for 2026.
Enhanced enrollment platform released in Q1 2025 expected to benefit the traditional business channel.
Continued investment in traditional voluntary benefits business through product enhancement, recruitment, and technology improvements.
Direct-to-consumer channel increased 10.5% in 2025, providing access to consumers affected by ACA changes.
Career recruiting increased in 2025 with higher conversion rates of 16% into sellers.
Artificial intelligence investments being explored in Japan for enrollment processes, product distribution, and product innovation.
AI implementation in US focused on assisting employees rather than replacing them, with over 60% of claims in traditional business automated using machine learning.
Reinsurance strategy with Bermuda entity, having ceded roughly 6% of Aflac Japan balance sheet with a midterm target of 10%.
Financial Guidance and Outlook
Aflac Japan 2026
Underlying earned premiums expected to decline 1% to 2% in 2026.
Expense ratio expected in the 20% to 23% range.
Benefit ratio expected in the 60% to 63% range.
Pre-tax profit margin expected in the 33% to 36% range.
Lapses expected to remain greater than total sales even going into 2026.
Aflac US 2026
Net earned premium growth expected at the lower end of the 3% to 6% range.
Benefit ratio expected in the 48% to 52% range.
Expense ratio expected in the 36% to 39% range as new business lines continue to scale.
Pre-tax profit margin expected in the 17% to 20% range.
Capital Deployment Outlook
Company maintains flexibility and tactical approach to capital deployment to drive strong risk-adjusted ROE with meaningful spread to cost of capital.
M&A evaluation continues, though company operates in relatively narrow niches making operational and strategic targets difficult to find.
Significant capital available for M&A if strategic and operational criteria are met.
Investment Portfolio and Credit Quality
Commercial real estate portfolio recorded no charge-offs in Q4 2025 and no foreclosures.
First-lien senior secured middle market loans recorded charge-offs of $22 million in the quarter.
US statutory valuation allowance of $3 million recorded on mortgage loans as unrealized loss during the quarter.
Japan FSA basis recorded net realized gains of ¥380 million for securities impairments in Q4 and booked a valuation allowance of ¥87 million related to transitional real estate loans.
Software-related companies represent approximately 1.5% of total credit exposure, with about half in middle market loan portfolio and half in investment-grade exposure with A-minus rating.
Corporate Milestones
2025 marked three significant milestones: the 70th year since the company's founding, the 30th anniversary of the Aflac Cancer and Blood Disorders Center of Children's Healthcare of Atlanta, and the 25th anniversary of the Aflac Duck.
