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 generation, continued dividend growth, and strategic portfolio repositioning, while managing inflationary pressures and navigating product mix dynamics in Japan.
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.
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.
Adjusted book value per share excluding foreign currency remeasurement decreased 4.1%.
Adjusted ROE was 12.7% and 16.6% excluding foreign currency remeasurement, representing a solid spread to cost of capital.
$26 million expense contingency was released, with lowered US segment expenses benefiting results by $0.04 per share.
Business Segment Results
Aflac Japan
Net premiums in yen terms declined 3.7% for the quarter, while underlying earned premiums excluding reinsurance, paid-up policies, and deferred profit liability 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.
Premium persistency remained solid at 92.7%, in line with the previous quarter.
Total benefit ratio came in at 64% for the quarter, down 250 basis points year-over-year.
Reserve remeasurement gains were estimated at approximately 60 basis points under plan.
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 medical insurance product delivered strong sales growth year-over-year.
First sector products account for less than 20% of total in-force, having declined since 2016 when the company exited the WAYS business.
Aflac US
Net earned premiums were up 2.3% for the quarter.
Sales increased 2.6% year-over-year in the second quarter.
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 approximately 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 the prior year quarter.
Group business momentum continued, especially in group voluntary products and network dental and vision.
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 and $309 million in dividends paid in Q2.
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 quarter-end.
$4.8 billion of portfolio repositioned through switch trades during the quarter to capture benefits of higher yields and strengthen overall portfolio quality.
Portfolio repositioning program expected to increase net investment income by over $50 million on a run rate basis with very limited impact on capital levels.
Industry Trends and Dynamics
Consumers in both Japan and the United States are feeling the strain of increasing out-of-pocket medical expenses, which is where Aflac's products can help.
Japan inflation is running close to 3%, a function of domestic inflationary pressures and the weakening yen leading to imported inflation.
Favorable trends continue in cancer and hospitalization in Japan.
Demand is generally increasing for first sector-type products given the higher rate environment in Japan.
Brokers have gone more heavily into voluntary benefits, selling more group products.
Competitive Landscape
Aflac positions itself as a pioneer in cancer insurance and leader in the industry, with employees and sales teams providing financial protection with genuine compassion and care.
Wide-ranging network of distribution channels including agencies, alliance partners, and banks continually leverage opportunities to help provide financial protection to Japanese consumers.
Company evaluates and supports each distribution channel with unique opportunities to help provide Japanese citizens with financial protection.
Dental and vision property sales were up 47% in the second quarter, heavily driven by the agency force.
Macroeconomic Environment
Japan inflation is running close to 3% at the moment, driven by both domestic inflationary pressures and the weakening yen.
Middle East situation is not giving any significant impact on the insurance business in Japan at this point.
Middle East situation remains highly uncertain, and any deterioration could raise downside risk to Japan's economy and upside risk to inflation through higher crude oil prices.
Japanese government is implementing supplementary budget to address Middle Eastern energy price surges and has advanced alternative procurement of critical minerals.
Yen-dollar exchange rate moved approximately 4%, with the yen weakening to near ¥164 and hovering around ¥158.
US dollar portfolio is part of a larger strategy designed to protect the economic value of Aflac Japan against moves in foreign exchange.
Growth Opportunities and Strategies
Tsumitasu first sector savings-type life insurance product continues to promote the importance of third sector protection to new and younger customers.
Tsumitasu is attracting younger and middle-aged customers seeking to accumulate assets in yen and prepare for cancer and medical protection.
Concurrent sales of cancer and medical insurance with Tsumitasu are largely exceeding the initial 25% planning target.
Aflac Japan set an internal reinsurance target of up to 30% of FSA reserves, revised from the previous 10% of US GAAP assets target.
Reinsurance initiative allows the company to continue to reduce risk, improve balance sheet efficiency, and ultimately generate higher ROE for Aflac Japan and the group.
One external reinsurance transaction has been executed and is progressing well, with the reinsurance market viewed as significant with particular competitive advantages.
Reinsurance business is expected to be a significant supplemental business long term but will not overtake the primary US and Japan business.
Company continues to pursue profitable growth with an eye on maintaining strong underwriting discipline and premium persistency.
Prudent approach to expense management has been maintained with a solid pre-tax margin of 20.9% in the US.
Financial Guidance and Outlook
Aflac Japan sales expected to exceed 2025, with strong sales results of Tsumitasu and products in line with expectations for the first half.
Year-to-date benefit ratio of 63.4% leads to expectation of being at the high-end of guidance range of 60% to 63% for the full year 2026, excluding the annual actuarial assumption review in Q3.
Net earned premium growth rate for 2026 expected to be just below the guidance range of 3% to 6% versus previous guidance for the low-end of this range.
2025 to 2027 net earned premium CAGR expected to be within the range of 3% to 6%.
Expense ratio range of 20% to 23% is expected to be a good range for Aflac Japan to operate long term.
Benefit ratio expected to come back inside the 60% to 63% range in the second half as Miraito matures and lapse and reissue activity normalizes.
Company will continue to be flexible and tactical in managing the balance sheet and deploying capital to drive strong risk-adjusted ROE.
Capital Position and Liquidity
Estimated regulatory ESR of 226% at quarter-end.
ESR with undertaking-specific parameter (USP) of 240%, adding 14 points to the regulatory ratio.
Combined RBC estimated to be slightly above 600%.
Adjusted leverage was 21.8% for the quarter, within the target range of 20% to 25%.
Approximately 63% of debt held in yen, with leverage ratio impacted by yen-dollar exchange rate moves as part of enterprise hedging program.
Strong capital ratios actively monitored, stressed, and managed to withstand market volatility, credit cycles, and external shocks.
Reserve and Investment Management
US statutory recorded $11 million of impairments on invested assets and $1 million valuation allowance on mortgage loans as unrealized loss during the quarter.
Japan FSA basis booked securities impairments of ¥15.8 billion and an additional valuation allowance of ¥33 million related to transitional real estate loans in Q2.
Impairments well within expectations with limited impact on regulatory earnings and capital.
Private credit portfolio, notably the middle market loan portfolio, continues to deliver strong risk-adjusted net yields.
Portfolio repositioning captured foreign currency gains to minimize market losses on lower-yielding assets, reduce risk of future FSA impairments, improve ALM, and boost net investment income.
