Aflac(AFL) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Adjusted earnings per diluted share increased 15.3% year over year to $2.49 with no impact from foreign exchange in the quarter [1] - Adjusted book value per share, excluding foreign currency remeasurement, increased 6.3% [2] - Adjusted return on equity (ROE) was 19.1% to 22.1%, indicating a solid spread to the cost of capital [2] Business Line Data and Key Metrics Changes - In Aflac Japan, net earned premiums declined 4%, while underlying earned premiums decreased 1.2% [3] - The total benefit ratio for Japan was 39.3%, down nearly 10 percentage points year over year [3] - In the U.S., net earned premium increased 2.5%, with a total benefit ratio of 45.6%, which is 200 basis points lower than the previous year [6] Market Data and Key Metrics Changes - Persistency in Japan remained solid at 93.3% year over year [4] - In the U.S., persistency increased by 10 basis points year over year to 79% [6] - The expense ratio in Japan was 19.8%, down 20 basis points year over year, while the U.S. expense ratio was 38.9%, up 90 basis points year over year [5][7] Company Strategy and Development Direction - The company is optimizing efficiencies and migrating to the cloud, which included a one-time termination fee of $21 million [2] - Growth initiatives in Group Life and Disability, Network, Dental and Vision, and Direct to Consumer are expected to scale without impacting the total expense ratio [7] - The company plans to manage the balance sheet and deploy capital to drive strong risk-adjusted ROE with a meaningful spread to the cost of capital [14] Management's Comments on Operating Environment and Future Outlook - Management expects the benefit ratio in Japan for 2025 to be in the 58% to 60% range, with the expense ratio at the lower end of the 20% to 23% range [15] - In the U.S., the benefit ratio for 2025 is expected to be at the lower end of the 48% to 52% range, with the expense ratio in the mid- to upper end of the 36% to 39% range [16] - The pretax profit margin for Japan is anticipated to be in the 35% to 38% range, while for the U.S., it is expected to be at the upper end of the 17% to 20% range [15][16] Other Important Information - The company enhanced liquidity and capital flexibility by $2 billion through the creation of two off-balance-sheet pre-capitalized trusts [12] - The leverage ratio was 22%, within the target range of 20% to 25% [13] - The company repurchased $1 billion of its own stock and paid dividends of $9 million in Q3 [14] Q&A Session Summary Question: What is the outlook for the benefit ratio in Japan? - Management expects the benefit ratio in Japan to be in the 58% to 60% range for 2025 [15] Question: How does the company plan to manage expenses moving forward? - The company anticipates reduced costs and improved efficiency to offset the one-time termination fee over the next few years [7] Question: What are the expectations for the U.S. market in 2025? - The benefit ratio for the U.S. is expected to be at the lower end of the 48% to 52% range, with a pretax profit margin in the upper end of the 17% to 20% range [16]