Aflac Inc Earnings - Q4 2025 Analysis & Highlights
Aflac Incorporated's Q4 2025 earnings call highlighted strong financial results, including increased sales in Japan and the US, significant capital deployment through share repurchases and dividends, and a positive outlook for 2026 despite some anticipated declines in Japan's underlying earned premiums.
Key Financial Results
Aflac Incorporated reported Q4 net earnings per diluted share of $2.64 and adjusted earnings per diluted share of $1.57.
For the year, Aflac Incorporated reported net earnings per diluted share of $6.82 and adjusted earnings per diluted share of $7.49.
Adjusted earnings per diluted share increased 0.6% year-over-year to $1.57 in Q4 2025, excluding the effect of foreign currency.
Remeasurement gains on reserves totaled $36 million, reducing benefits.
Variable investment income ran $12 million below long-term return expectations.
Adjusted book value per share, excluding foreign currency remeasurement, increased 0.5%.
The adjusted ROE was 11.7% and 14.5% excluding foreign currency remeasurement.
Business Segment Results
Japan Segment
Aflac Japan sales increased by 15.7% for Q4 and 16% for 2025.
This was driven by a 35.6% sales increase primarily due to Miraito, a cancer insurance product launched in March.
Net earned premiums in yen terms for the quarter declined 1.9%.
Aflac Japan's underlying earned premiums, excluding the impact of deferred profit liability, paid-up policies, and reinsurance, declined 1.2%.
The total benefit ratio was 65% for the quarter, down 150 basis points year-over-year.
Reserve remeasurement gains favorably impacted the benefit ratio by approximately 110 basis points in Q4 2025.
Persistency remained strong at 93.1% for the year.
The expense ratio in Japan was 22% for the quarter, up 120 basis points year-over-year, mainly due to sales promotion expenses.
Adjusted net investment income in yen terms was down 3.9%, primarily due to lower floating rate income and variable investment income.
The pre-tax margin for Japan in the quarter was 31.3%, down 30 basis points year-over-year.
US Segment
Net earned premiums were up 4%.
Premium persistency declined slightly by 10 basis points year-over-year but remained strong at 79.2%.
The total benefit ratio was 48.6%, 230 basis points higher than Q4 2024, driven by prior-year endorsements and higher claims activity.
Reserve remeasurement gains impacted the benefit ratio by approximately 140 basis points in the quarter.
The expense ratio in the US 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.
Adjusted net investment income in the US was down 2.8% for the quarter.
Profitability in the US segment had a pre-tax margin of 17.4%, a 230 basis points decrease compared to Q4 2024.
Aflac US generated nearly $1.6 billion in new sales in 2025.
Net earned premiums increased by 2.9% for 2025.
Corporate and Other
A pre-tax adjusted loss of $31 million was recorded in the quarter.
Total premiums decreased on closed blocks of business.
Adjusted net investment income was $1 million higher than last year.
Tax credit investments negatively impacted net investment income by $43 million, with an associated credit to the tax line.
The total Q4 earnings benefit from tax credit investments was $13 million.
Capital Allocation
The board increased the Q1 2026 dividend by 5.2%.
In 2025, Aflac Incorporated deployed $3.5 billion to repurchase 33 million shares and paid dividends of $1.2 billion.
The company has a 43-consecutive-year record of dividend increases.
Nearly $4.8 billion was delivered back to shareholders in 2025 through share repurchases and dividends.
In Q4, $800 million of stock was repurchased and dividends of $303 million were paid.
Adjusted leverage was 21.4% for the quarter, within the target range of 20% to 25%.
Aflac Inc. unencumbered liquidity stood at $4.1 billion, which was $3.1 billion above the minimum balance.
The full P-Cap facility remains undrawn.
The SMR was above 970% and the estimated regulatory ESR with the undertaking specific parameter (USP) was 253%.
The USP benefits the regulatory ESR by 18 points.
The combined RBC was estimated to be 575%.
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.
The company aims to help policyholders fill the gap during challenging times by providing financial protection.
Aflac is positioned as the ideal partner for consumers navigating financial strain from medical costs due to its relevant products, financial strength, brand, and distribution network.
Competitive Landscape
Aflac is the pioneer of cancer insurance and a leader in the industry.
The company maintains its position among companies with the highest return on capital and the lowest cost of capital in the industry.
Aflac's broadened networks of distribution channels, including agencies, alliance partners, and banks, are a competitive strength in Japan.
Macroeconomic Environment
Inflationary rates, unemployment rates, and interest rates are monitored, but had no material impact on the US business this year.
Yen interest rates have risen significantly, which could lead to increased demand and lapsation of in-force policies in Japan, though this has not yet been experienced.
The decline in the USP impact on ESR is related to the level of yen interest rates.
Growth Opportunities and Strategies
Aflac Japan is excited about the positive reception of its newest medical product, Anshin Palette.
The company continues to emphasize third sector protection to new and younger customers with its innovative first sector product, Tsumitasu.
Tsumitasu sales are growing steadily after a rate revision in September.
The purpose of Tsumitasu is to respond to citizens' needs for asset formation, especially encouraging young and middle-aged generations to shift from saving to investment.
Tsumitasu is also gaining popularity from middle-aged to older affluent customers who prefer to pay with the Discounted Advanced Premium option.
Aflac US focuses on driving profitable growth through strong underwriting discipline and maintaining strong premium persistency.
The company is investing in a unified experience through platform and technology and how it goes to market for its group business.
Additional investment is being made in the traditional business to enhance products, recruit, and improve technology.
AI is being leveraged to assist in making people better in their work, particularly in the enrollment process and automating routine processes within claims.
AI is applied to give claims adjudicators advice, but no claim is fully adjudicated by automation without a final person making the decision.
Financial Guidance and Outlook
For Aflac Japan in 2026, underlying earned premiums are expected to decline 1% to 2%.
The expense ratio in Japan is expected to be in the 20% to 23% range.
The benefit ratio in Japan is expected to be in the 60% to 63% range.
The pre-tax profit margin in Japan is expected to be in the 33% to 36% range.
For the US in 2026, net earned premium growth is expected to be in the lower end of the 3% to 6% range.
The benefit ratio for the US in 2026 is expected to be in the 48% to 52% range.
The expense ratio for the US is expected to be in the 36% and 39% range.
The pre-tax profit margin for the US in 2026 is expected to be in the range of 17% to 20%.
The lower benefit ratio in Japan for 2026 is attributed to a 130 basis point reduction in the net premium ratio due to updated actuarial assumptions, increased lapse and reissue activity from new product introductions, and the shrinking of the old WAYS product block.
The higher benefit ratio in the US for 2026 is due to active increases in benefit ratios on products like cancer and accident policies, and a mix impact from the increasing proportion of group life and disability and dental and vision businesses which carry higher benefit ratios.
The company has a midterm target to cede 10% of its Aflac Japan balance sheet to Bermuda, having already ceded approximately 6%.
