Aflac(AFL) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Adjusted earnings per diluted share increased 0.6% year-over-year to $1.57, excluding foreign currency effects [1] - Adjusted book value per share increased 0.5%, with an adjusted ROE of 11.7% and 14.5% excluding foreign currency remeasurement [1] - Overall results for the quarter were viewed as solid [1] Business Line Data and Key Metrics Changes - In Japan, net earned premiums in yen terms declined 1.9%, while underlying earned premiums decreased 1.2% [2] - Japan's total benefit ratio improved to 65%, down 150 basis points year-over-year, with reserve remeasurement gains favorably impacting the ratio by approximately 110 basis points [2] - In the U.S., net earned premiums increased by 4%, but premium persistency declined slightly by 10 basis points to 79.2% [4] - The total benefit ratio in the U.S. was 48.6%, up 230 basis points year-over-year, driven by higher claims activity [4] Market Data and Key Metrics Changes - Japan's expense ratio was 22%, up 120 basis points year-over-year, primarily due to sales promotion expenses [3] - U.S. expense ratio was 40.4%, up 10 basis points year-over-year, influenced by timing of spend from previous quarters [4] - Adjusted net investment income in Japan decreased by 3.9%, while in the U.S. it was down 2.8% [3][5] Company Strategy and Development Direction - The company plans to continue managing its balance sheet flexibly and tactically to drive strong risk-adjusted ROE [11] - For 2026, the company expects underlying earned premiums in Japan to decline by 1%-2% and the expense ratio to be in the 20%-23% range [12] - In the U.S., net earned premium growth is expected to be at the lower end of the 3%-6% range, with a benefit ratio forecasted between 48%-52% [12] Management's Comments on Operating Environment and Future Outlook - Management expressed satisfaction with the performance of the investment portfolio, noting no charge-offs for the commercial real estate portfolio [6] - The company has improved its liquidity and capital flexibility, lowering the minimum liquidity balance at the holding company [8] - The capital position remains strong, with an SMR above 970% and an estimated regulatory ESR of 253% [9][10] Other Important Information - The company repurchased $800 million of its own stock and paid dividends of $303 million in Q4 [11] - Adjusted leverage was 21.4%, within the target range of 20%-25% [9] - The company recorded a pre-tax adjusted loss of $31 million in Corporate and Other [5] Q&A Session Summary Question: What is the outlook for Aflac Japan's earned premiums in 2026? - The company expects underlying earned premiums to decline by 1%-2% in 2026 [12] Question: How does the company plan to manage its expense ratios moving forward? - The company anticipates the expense ratio in Japan to be in the 20%-23% range and in the U.S. to be between 36%-39% as new business lines scale [12]