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 the effect of foreign currency [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 [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 was down 3.9%, while in the U.S. it decreased by 2.8% [3][5] Company Strategy and Development Direction - The company plans to continue focusing on growth initiatives in group life and disability, network dental and vision, and direct-to-consumer segments [4] - For 2026, the company expects underlying earned premiums in Japan to decline by 1%-2% and anticipates a benefit ratio in the 60%-63% range [11][12] - In the U.S., net earned premium growth is expected to be in 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 [9] - Capital ratios remain strong, with an estimated combined RBC of 575% and an SMR above 970% [10] Other Important Information - The company repurchased $800 million of its own stock and paid dividends of $303 million in Q4, indicating strong capital management [11] - Adjusted leverage was 21.4%, within the target range of 20%-25%, influenced by currency exchange rates [9] Q&A Session Summary Question: What is the outlook for Aflac Japan's earned premiums? - The company expects underlying earned premiums in Japan to decline by 1%-2% in 2026 [11] Question: How does the company view its expense ratios moving forward? - The expense ratio in Japan is expected to be in the 20%-23% range, while the U.S. expense ratio is anticipated to be in the 36%-39% range [12]