Aflac Inc Earnings - Q2 2026 Analysis & Highlights
Aflac Incorporated reported solid Q2 2026 results with adjusted earnings per diluted share of $1.75, reflecting focused execution of its strategy across Japan and US operations. The company highlighted strong capital deployment, portfolio repositioning opportunities, and strategic initiatives in product innovation while navigating inflationary pressures and currency headwinds.
Key Financial Results
Adjusted earnings per diluted share increased 1.1% year-over-year to $1.80, excluding foreign currency effects in the quarter.
Net earnings per diluted share reported at $1.63, with adjusted earnings per diluted share of $1.75.
Adjusted book value per share decreased 4.1%, excluding foreign currency remeasurement.
Adjusted return on equity (ROE) was 12.7% and 16.6% excluding foreign currency remeasurement, representing a solid spread to cost of capital.
Remeasurement gains on reserves totaled $46 million, reducing benefits by $7 million or $0.01 per diluted share below plan.
Variable investment income ran $72 million or $0.11 per diluted share below long-term return expectations.
$26 million expense contingency was released, with lowered expenses in the US segment benefiting results by $0.04 per share.
Business Segment Results
Aflac Japan
Net earned premiums in yen terms declined 3.7% for the quarter.
Underlying earned premiums, excluding reinsurance and paid-up policies, declined 1.4%.
Sales declined 5.6% to ¥19.6 billion in the quarter, but sales were up 7% for the first half of the year.
Total benefit ratio came in at 64% for the quarter, down 250 basis points year-over-year.
Year-to-date benefit ratio is 63.4%, with expectations to be at the high end of the 60% to 63% guidance range for full year 2026, excluding the annual actuarial assumption review in Q3.
Premium persistency remained solid at 92.7%, in line with expectations.
Expense ratio in Japan was 20.2% for the quarter, down 40 basis points year-over-year, a strong result despite inflationary pressures.
Adjusted net investment income in yen terms was down 2.9%, primarily driven by lower call income and lower dollar-denominated floating rate income.
Pre-tax margin for Japan in the quarter was 34.3%, up 230 basis points year-over-year.
Tsumitasu and Anshin Palette delivered strong sales growth year-over-year, with Tsumitasu attracting younger customers and driving concurrent sales of cancer and medical insurance.
Aflac US
Net earned premiums were up 2.3% for the quarter.
Sales increased 2.6% year-over-year in the second quarter, with momentum in group business, especially group voluntary products and network dental and vision.
Premium persistency remained strong at 79.4%, up 20 basis points year-over-year.
Total benefit ratio came in at 49.5%, 220 basis points higher than Q2 2025, driven by an increase in incurred group disability claims.
Reserve remeasurement gains impacted the benefit ratio by about 30 basis points above plan.
Expense ratio in the US was 36.1%, down 20 basis points year-over-year.
Adjusted net investment income in the US was essentially flat, up 0.5% for the quarter.
Pre-tax margin of 20.9%, a 160 basis points decrease compared with a strong quarter a year ago.
Group life, absence and disability plus dental and vision products were up 7.1% for the second quarter, with earned premium up 13%.
Capital Allocation
$1.3 billion returned to shareholders in Q2 through share repurchases and dividends, with $2.6 billion returned for the first six months.
$983 million of stock repurchased in Q2 and $309 million in dividends paid.
43 consecutive years of dividend increases, with commitment to extend this record in 2026.
Aflac Incorporated unencumbered liquidity stood at $3.3 billion, which was $2.3 billion above the minimum balance of $1 billion at the end of the quarter.
Adjusted leverage was 21.8% for the quarter, within the target range of 20% to 25%.
Portfolio Repositioning and Investment Strategy
$4.8 billion of the portfolio repositioned through switch trades during the quarter to capture benefits of higher yields and strengthen overall portfolio quality.
Portfolio repositioning expected to increase net investment income by over $50 million on a run rate basis with very limited impact on capital levels.
Private credit portfolio, notably the middle market loan portfolio, continues to deliver strong risk-adjusted net yields.
$11 million of impairments on invested assets and $1 million valuation allowance on mortgage loans recorded on a US statutory basis during the quarter.
Securities impairments of ¥15.8 billion and additional valuation allowance of ¥33 million related to transitional real estate loans booked in Q2 on a Japan FSA basis.
Capital Position and Regulatory Ratios
Estimated regulatory ESR of 226% at the end of the quarter.
ESR with undertaking-specific parameter (USP) of 240%, adding 14 points to the regulatory ratio.
Combined RBC estimated to be slightly above 600%.
Decline in ESR quarter-over-quarter primarily driven by significant subsidiary dividends.
Macroeconomic Environment
Japan inflation running close to 3%, a function of domestic inflationary pressures and weakening yen leading to imported inflation.
Inflationary pressures in Japan impacting expense management, with revenue base slightly shrinking making expense management difficult.
Middle East situation not giving significant impact on insurance business in Japan at this point, though risks including financial market volatility and potential upward pressure on operating expenses are being monitored.
Potential deterioration in Middle East situation could raise downside risk to Japan's economy and upside risk to inflation through higher crude oil prices.
Consumers in both Japanese and US insurance markets feeling strain of increasing out-of-pocket medical expenses, where Aflac's products can help.
Yen weakened significantly, with moves from ¥164 to approximately ¥158, impacting portfolio and FX gains.
Growth Opportunities and Strategies
Tsumitasu first sector savings-type life insurance product promoting importance of third sector protection to new and younger customers.
Anshin Palette medical insurance product launched in December 2025 delivering strong sales growth year-over-year.
First sector in-force less than 20% of total in-force, with company starting to see very good returns on first sector business.
Concurrent sales of cancer and medical insurance with Tsumitasu largely exceeding initial 25% planning target.
Group voluntary products and network dental and vision showing strong momentum in Aflac US, with dental and vision property up 47% in Q2.
Dental and vision sold alongside voluntary benefits at $1.07 of voluntary benefits for every dollar of dental and vision sold in Q2.
Reinsurance initiative in Japan with internal target expanded from 10% of US GAAP assets to 30% of FSA reserves, allowing continued risk reduction and balance sheet efficiency improvement.
One external reinsurance transaction executed and progressing well, with reinsurance viewed as a significant market opportunity with competitive advantages.
Reinsurance business expected to be lumpy with annual cycle, building over time as supplemental business without overtaking primary US and Japan business.
Financial Guidance and Outlook
Aflac Japan sales expected to exceed 2025, with ¥80 billion in sales viewed as a challenge but remaining in realm of possibilities.
2026 net earned premium growth rate expected to be just below guidance range of 3% to 6%, versus previous guidance for low end of range.
2025 to 2027 net earned premium CAGR expected to be within range of 3% to 6%.
Japan benefit ratio expected to be at high end of 60% to 63% guidance range for full year 2026, excluding annual actuarial assumption review in Q3.
Long-term expense ratio range for Japan of 20% to 23% expected to be good operating range.
Aflac US expected to have stronger second half of year, heavily weighted in fourth quarter due to business seasonality.
Stronger year expected for traditional products in Aflac US, with growth higher than last year and big strong fourth quarter anticipated.
Lapse and reissue activity on recently launched products expected to normalize as Miraito matures beyond first year, with persistency rate expected to stabilize.
No significant changes to foreign exchange hedging program anticipated despite recent yen movements, as program is long-term in nature.
