What Management Said
Read the full Q4 2025 transcript ↗For the fourth quarter of 2025, adjusted earnings per diluted share increased 0.6% year-over-year to $1.57, excluding effect of foreign currency in the quarter. The adjusted ROE was 11.7% and 14.5%, excluding foreign currency remeasurement, a solid spread to our cost of capital. Starting with our Japan segment, net earned premiums in yen terms for the quarter declined 1.9%. Japan's total benefit ratio came in at 65% for the quarter, down 150 basis points year-over-year.
We estimate the impact from reserve remeasurement gains to be approximately 110 basis points favorable to the benefit ratio in Q4 2025. With refreshed product introductions, we generally see an uptick in lapse and reissue activity, causing reported lapsation to increase. Lapses on our First Sector savings block remained low and in line with previous periods, despite the increase in yen interest rates. Our expense ratio in Japan was 22% for the quarter, up 120 basis points year-over-year, driven primarily by sales promotion expenses associated with higher sales.
The pre-tax margin for Japan in the quarter was 31.3%, down 30 basis points year-over-year, a very good result. Net earned premiums were up 4%, while premium persistency declined slightly by 10 basis points year-over-year. We estimate the reserve remeasurement gains impacted the benefit ratio by approximately 140 basis points in the quarter. was 40.4%, up 10 basis points year-over-year, primarily driven by timing of spend from previous quarters.
- Adjusted EPS rose 0.6% year-over-year to $1.57 (excluding foreign currency), with adjusted ROE of 11.7% (14.5% excluding FX remeasurement), a solid spread to cost of capital
- Aflac Japan delivered a strong quarter with the benefit ratio down 150 bps to 65%, persistency solid at 93.1%, and a pre-tax margin of 31.3%
- U.S. net earned premiums grew 4% year-over-year with persistency holding strong at 79.2%
- Capital position remained strong: SMR above 970%, estimated regulatory ESR of 253%, and combined RBC estimated at 575%
- Returned capital aggressively, repurchasing $800 million of stock and paying $303 million of dividends in the quarter; no CRE charge-offs and no foreclosures in the period
- Aflac Japan net earned premiums declined 1.9% in yen terms (underlying earned premiums down 1.2%)
- U.S. total benefit ratio rose 230 bps to 48.6%, driven by prior-year endorsements, higher claims on the individual voluntary block, and a higher group life and disability benefit ratio
- Variable investment income ran $12 million below long-term return expectations; adjusted net investment income fell in both Japan (-3.9% yen) and the U.S. (-2.8%) on lower floating-rate income
- U.S. segment pre-tax margin declined 230 bps to 17.4% against a stronger year-ago quarter
- Recorded $22 million of charge-offs on first-lien senior secured middle-market loans and a $31 million pre-tax adjusted loss in Corporate and Other
Guidance Changes
| Metric | Period | Current guidance |
|---|---|---|
| Aflac Japan underlying earned premiums | FY2026 | decline of 1%-2% |
| Aflac Japan benefit ratio | FY2026 | 60%-63% |
| Aflac Japan expense ratio | FY2026 | 20%-23% |
| Aflac Japan pre-tax profit margin | FY2026 | 33%-36% |
| U.S. net earned premium growth | FY2026 | lower end of the 3%-6% range |
| U.S. benefit ratio | FY2026 | 48%-52% |
| U.S. expense ratio | FY2026 | 36%-39% |
| U.S. pre-tax profit margin | FY2026 | 17%-20% |
Performance Breakdown
| Metric | YoY | Note |
|---|---|---|
| Adjusted EPS | +0.6% (ex-FX) to $1.57 | $36 million reserve remeasurement gains, partly offset by variable investment income $12 million below expectations |
| Aflac Japan net earned premiums (yen) | -1.9% | impact of paid-up policies, deferred profit liability, and reinsurance; underlying premiums down 1.2% |
| Aflac Japan benefit ratio | -150 bps to 65% | ~110 bps favorable reserve remeasurement plus continued favorable cancer and hospitalization underwriting experience |
| Aflac Japan pre-tax margin | -30 bps to 31.3% | characterized as a very good result |
| U.S. net earned premiums | +4% | growth despite persistency slipping 10 bps to 79.2% |
| U.S. total benefit ratio | +230 bps to 48.6% | prior-year endorsements, higher claims on individual voluntary block, and higher group life and disability benefit ratio |
| U.S. pre-tax margin | -230 bps to 17.4% | compared against a stronger quarter a year ago; growth initiatives added 60 bps to the expense ratio |
| Adjusted net investment income | Japan -3.9% (yen), U.S. -2.8% | lower floating-rate income and lower variable investment income |
Earnings Call Themes & Trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Enterprise hedging via yen-denominated debt | — | roughly 63% of debt held in yen intentionally hedges the economic value of Aflac Japan in U.S. dollar terms, though it raises reported adjusted leverage (21.4%, within the 20%-25% target) | — |
| Capital and liquidity flexibility | — | third-quarter creation of two off-balance-sheet PCAPS trusts added $2 billion of resources, allowing the holding-company minimum liquidity balance to be lowered by $750 million to $1 billion; unencumbered liquidity of $4.1 billion | — |
| Japan product refresh cycle | — | newly launched cancer insurance product drove an uptick in lapse and reissue activity, though overall lapses stayed within expectations | — |
| Scaling U.S. growth initiatives | — | group life and disability, network dental and vision, and direct-to-consumer added 60 bps to the U.S. expense ratio as these businesses continue to scale | — |
| ESR sensitivity update | — | refreshed ESR and combined RBC sensitivities ahead of the ESR taking effect March 31, reflecting deliberate ALM improvements that lowered market-risk exposure; characterized as in line with the December 2024 FAB | — |
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