Aflac Inc Earnings - Q1 2026 Analysis & Highlights
Aflac Incorporated reported strong Q1 2026 results driven by successful marketing transformation in Japan, solid US segment performance, and robust capital deployment, with management emphasizing long-term value creation through disciplined execution and strategic reinsurance expansion.
Key Financial Results
Net earnings per diluted share of $1.98 and adjusted earnings per diluted share of $1.75 for Q1 2026.
Adjusted earnings per diluted share increased 6.6% year-over-year to $1.77, excluding foreign currency effects.
Remeasurement gains on reserves totaled $82 million, reducing benefits, with $23 million or $0.04 per diluted share above plan.
Variable investment income ran $14 million or $0.02 per diluted share, below long-term return expectations.
Adjusted book value per share, excluding foreign currency remeasurement, increased 0.2%.
Adjusted ROE was 12.8% and 16.4%, excluding foreign currency measurement, representing a solid spread to cost of capital.
Business Segment Results
Japan Segment
Sales increased 25.5% for the first quarter, driven largely by the newest medical product Anshin Palette and Miraito, the latest cancer insurance product.
Net earned premiums in yen terms for the quarter declined 3.8%.
Aflac Japan's underlying earned premiums, which excludes the impact of reinsurance, paid-up policies, and deferred profit liability, declined 1.3%.
Japan's total benefit ratio came in at 62.9% for the quarter, down 290 basis points year-over-year.
Reserve remeasurement gains exceeding plan estimated at approximately 70 basis points.
Persistency was down but remains strong and in line with expectations at 92.8%.
Expense ratio in Japan was 19.5% for the quarter, down 10 basis points year-over-year.
Adjusted net investment income in yen terms was up 4%, primarily driven by higher US dollar fixed rate income on higher volume and higher variable net investment income compared to last year.
Pre-tax margin for Japan in the quarter was 35%, up 320 basis points year-over-year.
US Segment
Net earned premiums were up 3.5%.
Premium persistency remained solid at 79.3%.
Total benefit ratio came in at 47.2%, 50 basis points lower than Q1 2025, driven by favorable incurred claims for individual voluntary benefits products and group disability.
Reserve remeasurement gains impacted the benefit ratio by approximately 230 basis points in the quarter, which is about 80 basis points above plan.
Expense ratio in the US was 38.3%, up 70 basis points year-over-year, primarily driven by higher DAC amortization and commissions, along with timing of advertising and investment spent.
Adjusted net investment income in the US was down 0.5% for the quarter, primarily driven by lower short-term rates, offset by higher variable net investment income.
Pre-tax margin of 20.4%, a 40 basis points decrease compared with a strong quarter a year ago.
Sales increase of 2.9% year-over-year with momentum in all areas of group business, especially group voluntary products.
Group products (dental, vision, core VB, group life and absence disability) up about 12.4% for the quarter.
Dental and vision property up 52% for the quarter.
Capital Allocation
$1.3 billion delivered back to shareholders in the first quarter combining share repurchase and dividends.
$1 billion of stock repurchased in Q1.
$315 million in dividends paid in Q1.
43 consecutive years of dividend increases with commitment to extending this record.
Aflac Inc. unencumbered liquidity stood at $3.4 billion, which was $2.4 billion above the minimum balance of $1 billion at the end of the quarter.
Adjusted leverage was 21.2% for the quarter, within the target range of 20% to 25%.
Approximately 65% of debt held in yen as part of enterprise hedging program protecting the economic value of Aflac Japan in US dollar terms.
Investment Portfolio Performance
$19 million of charge-offs recorded on loan portfolio during the quarter.
No foreclosures on properties in the period.
$24 million of impairments recorded on real estate owned portfolio to reflect continued depressed valuations in commercial real estate markets.
For US statutory, $12 million of impairments on invested assets and $1 million valuation allowance on mortgage loans recorded as unrealized loss during the quarter.
On Japan FSA basis, securities impairments reversals led to a net realized gain of ¥66 million in Q1, and a valuation allowance of ¥201 million related to transitional real estate loans was booked.
Regulatory Capital Position
Estimated regulatory ESR of 227% at quarter end.
With undertaking specific parameter (USP), ESR with USP of 243%, adding 16 points to the regulatory ratio.
Combined RBC estimated at approximately 560%.
Industry Trends and Dynamics
Consumers feeling increasing burden of out-of-pocket medical expenses across Japan and the United States.
Aflac positioned as pioneer in cancer insurance and leader in the industry, helping ease the burden with financial protection and genuine compassion.
All distribution channels in Japan generated increases in sales, including agencies, alliance partners and banks.
Market trending toward group products with smaller employee groups down to 100 and below 100 lines.
Competitive Landscape
Aflac stands out as a trusted partner combining relevant products, financial strength, a powerful brand, and broad distribution to help consumers manage financial strain of out-of-pocket medical expenses.
Company maintains position among companies with highest return on capital and lowest cost of capital in the industry.
Macroeconomic Environment
Higher yen rates has slightly negative impact to ESR because of increased capital charge associated with mass lapse risk.
Yen weakening benefiting the ESR, with relatively small impact from capital markets inputs to the ESR.
Lower short-term rates impacting US adjusted net investment income.
Growth Opportunities and Strategies
Aflac Japan implemented marketing and sales transformation which helped deliver strong results and sales momentum in 2025 and Q1 2026.
Three new products driving sales growth: Anshin Palette (medical), Miraito (cancer insurance), and Tsumitasu (first-sector product) being promoted to new and younger customers.
Maintaining strong persistency while adding new premium through sales to offset impact of lapses, reissue, and policies reaching paid-up status.
Broad network of distribution channels including agencies, alliance partners and banks continually leveraging opportunities to provide financial protection.
Aflac Re Bermuda entered into transaction assuming block of whole life annuities from Japan Post Insurance, marking strategic milestone as company expands reinsurance franchise targeting Japan market.
External reinsurance strategy expected to be material to the company over time, with selective approach targeting specific niches and product types.
Reinsurance transactions can add mortality, longevity risk, and spread risk to balance sheet, attractive from risk management standpoint.
Focus on recruiting agents and converting new agents, with 16% conversion rate of new agents in first quarter.
Agent productivity up about 8% in first quarter.
New Agent Success metric up 8%, measuring ability to get agent to produce about $25,000 in first three months and add three new accounts.
Investments in improving and enhancing enrollment process to make it easier for new agents to be onboarded with tools to sell quickly.
Paid family leave administrative services business providing services for more than 3 million constituents, with approximately $40 million in premium and $90 million in administrative services fees.
Financial Guidance and Outlook
Japan benefit ratio outlook of 60% to 63% for full year, with management confident in this range.
US benefit ratio guidance for full year remains 48% to 52%.
Japan underlying earned premiums expected to hover in range of negative 1% to 2% for full year.
Approximately ¥90 billion of yen sales required annually to achieve flat in-force period on annual basis and reach zero or flat earned premium growth.
Expected 2026 Japan sales closer to ¥80 billion, compared to ¥74 billion in 2025.
Cancer insurance Miraito's momentum continuing, with 2026 sales expected to be equivalent to 2025.
Corporate and other segment expected to be slightly negative in terms of pre-tax earnings in Q2, given current volumes and rates and reinsurance block run-off.
No plans to increase leverage per se at this point in time, with significant capital and liquidity at holding company to deploy into operations and back to shareholders.
External reinsurance strategy not expected to consume capital that would alter capital deployment back to shareholders, positioned as add-on strategy.
