What Management Said
Read the full Q2 2026 transcript ↗Then Max Brodén, Senior Executive Vice President and Chief Financial Officer of Aflac Incorporated, will provide more detail on this quarter's financial results, including our capital and liquidity. These topics are also addressed in the materials we posted with our earnings release, financial supplement, and quarterly Chief Financial Officer video update on investors.aflac.com. As I mentioned earlier, the earnings release with reconciliations of certain non-U.S. Aflac Incorporated reported net earnings per diluted share of $1.63 and adjusted earnings per diluted share of $1.75.
During this quarter, both the refreshed Tsumitasu product and Anshin Palette medical insurance product, which we launched in December 2025, delivered strong sales growth year-over-year. Turning to Aflac U.S., we continue to focus on pursuing profitable growth with an eye on maintaining strong underwriting discipline and premium persistency. We generated a 2.6% increase in year-over-year sales in the second quarter. We generated a 2.3% increase in net earned premium for the quarter and maintained strong premium persistency of 79.4%.
has continued its prudent approach to expense management and maintained a solid pre-tax margin of 20.9%. Our operations generated strong capital and cash flows on an ongoing basis as we remain committed to prudent liquidity and capital management. This financial strength is the foundation that backs up our promise to the policyholders, balanced with financial flexibility and tactical capital deployment. I am pleased with the company's financial strength, which supports our capital deployment.
What went well
- Net EPS of $1.63 and adjusted EPS of $1.75; adjusted EPS up 1.1% year-over-year to $1.80 excluding foreign currency
- Aflac Japan pre-tax margin rose 230 basis points to 34.3% and expense ratio improved 40 bps to 20.2% despite ~3% Japanese inflation
- Global Investments repositioned $4.8 billion of the portfolio via switch trades, expected to add over $50 million of net investment income on an annualized run-rate basis
- Returned $1.3 billion to shareholders in the quarter ($2.6 billion year-to-date) and remains committed to extending 43 consecutive years of dividend increases
- Strong capital position with estimated regulatory ESR of 226%, adjusted leverage of 21.8% (within 20%-25% target), and $3.3 billion unencumbered liquidity ($2.3 billion above minimum)
What went wrong
- Aflac Japan sales declined 5.6% to JPY 11 billion against a tough prior-year Miraito comparison
- U.S. total benefit ratio rose 220 bps to 49.5% on higher incurred group disability claims
- Variable investment income ran $72 million ($0.11/share) below long-term return expectations
- Japan year-to-date benefit ratio of 63.4% pushing full-year expectation to the high end of the 60%-63% range
- Corporate and other posted a $10 million pre-tax adjusted loss versus a $20 million gain a year ago; adjusted book value per share (ex-FX) fell 4.1%
Guidance Changes
| Metric | Period | Current guidance |
|---|---|---|
| Aflac Japan sales | FY2026 | expect to exceed 2025; JPY 80 billion remains a possibility but not assured |
| Japan total benefit ratio | FY2026 (ex-Q3 actuarial review) | high end of 60%-63% range |
| U.S. net earned premium growth | FY2026 | just below the 3%-6% range |
| U.S. net earned premium CAGR | 2025-2027 | 3%-6% |
| Japan expense ratio | long term | 20%-23% range, currently near low end |
| Reinsurance net investment income uplift | annualized run rate | over $50 million from portfolio repositioning |
Performance Breakdown
| Metric | YoY | Note |
|---|---|---|
| Adjusted EPS (ex-FX) | +1.1% to $1.80 | Focused execution of strategy; results viewed as solid |
| Aflac Japan sales | -5.6% to JPY 11 billion (first half +7%) | Tough comparison against 2025 Miraito Cancer Insurance launch; delayed direct mail campaigns now back on track |
| Aflac U.S. sales | +2.6% | Momentum in group voluntary products and network dental and vision |
| Aflac U.S. net earned premium | +2.3% | Group business growth; group earned premium up 13% |
| Japan net earned premiums (JPY) | -3.7% (underlying -1.4%) | Impact of reinsurance, paid-up policies and deferred profit liability |
| Japan total benefit ratio | -250 bps to 64% | Favorable trends in cancer and hospitalization; ~60 bps from reserve remeasurement gains |
| Japan pre-tax margin | +230 bps to 34.3% | Lower benefit and expense ratios |
| U.S. total benefit ratio | +220 bps to 49.5% | Increase in incurred group disability claims related to favorable results in the prior quarter |
| U.S. pre-tax margin | -160 bps to 20.9% | Compared against a strong quarter a year ago; prudent expense management |
| Japan adjusted net investment income (JPY) | -2.9% | Lower call income and lower dollar floating rate income, partly offset by weaker yen and higher dollar fixed rate income |
| U.S. adjusted net investment income | +0.5% | Higher call and fixed rate income offset by lower floating rate and short-term income |
| Japan premium persistency | 92.7% (in line with last quarter) | Somewhat elevated lapse and reissue on recently launched products |
| U.S. premium persistency | 79.4%, +20 bps | Prudent underwriting discipline |
Earnings Call Themes & Trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Reinsurance strategy expansion | ceding limit of up to 10% of U.S. GAAP assets | revised to up to 30% of FSA reserves to reduce risk, improve balance sheet efficiency and lift ROE; viewed as a significant long-term supplemental business | — |
| First sector / Tsumitasu growth in Japan | traditionally a third sector company; first sector in-force declining since 2016 WAYS exit | Tsumitasu ~20% of total sales, delivering strong risk-adjusted returns and expanding younger customer base with cross-sell into cancer/medical | — |
| Portfolio repositioning in higher-rate environment | — | harvested FX gains on dollar portfolio to offset losses on lower-yielding bonds; big forward opportunity, more work planned into Q3 | — |
| Capital deployment and shareholder returns | — | $1.3 billion returned in the quarter, 43 straight years of dividend increases, tactical opportunistic buybacks | — |
| M&A discipline | historically small deals | open to larger/strategic deals but must pass a strenuous test; pleased with turnaround of previously acquired small companies | — |
| Inflation and macro pressures in Japan | — | Japan inflation near 3% plus imported inflation from weak yen; expenses well-managed; monitoring Middle East-driven energy/inflation risks | — |
Q&A Summary
Details on the quarter's asset repositioning and scope for more going forward?
Brad Dyslin: Repositioned about 5% of the portfolio in one quarter, harvesting FX gains on the dollar portfolio to offset losses on older lower-yielding U.S. dollar and JGB bonds, mostly in Aflac Japan (also some U.S. and Bermuda). Sees a very big opportunity from higher rates and plans to keep going into Q3.
Is there a practical limit to how much of Japan sales you'd want from first sector products?
Max Brodén: No specific limit; the driver is risk-adjusted return, which is currently very good. First sector adds mortality/longevity risk that aids diversification in small portions but could increase risk if too high. First sector in-force is under 20% of total and has declined since 2016. Koide added Tsumitasu is ~20% of sales and strategically important for younger customers and cross-sell.
Will Aflac stay with small M&A deals or consider larger strategic ones?
Dan Amos: Continues to look at opportunities; if something's for sale it's usually for sale for a reason, so it must pass a strenuous test. Pleased with turnaround of small companies acquired; would look at bigger deals but will be careful with capital.
On the reinsurance limit move to 30% of FSA reserves, is it self-imposed, and will the cadence of transactions rise?
Max Brodén: It is an internally imposed limit but was shared with external constituents who gave feedback. Larger transactions lower cost per transaction; the company has built a strong internal and external track record and sees significant opportunities to improve risk and return via reinsurance.
Why were Japan medical sales down sequentially despite the December Anshin Palette launch?
Koichiro Yoshizumi: First-half 2026 sales exceeded prior year; the Q1-to-Q2 decline reflects launch timing, with heavy preparation driving strong Q1. Momentum exceeded expectations in Q2 and is expected to continue through Q3 and Q4.
How are U.S. sales tracking, and how are the traditional vs. brokerage channels performing?
Virgil Miller: In line with expectations, slightly at the low end, with a stronger second half expected weighted to Q4. Group life/absence/disability plus dental and vision plus group voluntary benefits were up 7.1% in sales (group earned premium up 13%). Dental and vision property up 47%, driven by agency force; every dollar of dental/vision sold pulled $1.07 of voluntary benefits.
Any change in Japan lapse, paid-up or surrender behavior given inflation and higher rates?
Max Brodén: No significant lapse uptick from inflation or rates; only a minor uptick on the first sector block from very low levels. The year-over-year persistency decline is driven mainly by product launches (more cancer than medical). With Miraito now past its first year, lapse and reissue should decline and persistency should stabilize.
How large could the reinsurance capital free-up be (estimated $5-7 billion)?
Max Brodén: Aflac Japan had FSA policy reserves of JPY 10.8 trillion at fiscal year-end, framing ceding capacity. Capital freed depends on blocks ceded (medical has the biggest FSA-vs-economic reserve gap, cancer less, first sector least), block aging and rates. No clean rule of thumb; pointed to the 2021 FAB presentation reserve-difference figures for a rough estimate.
How does the year-to-date Japan benefit ratio influence the Q3 reserve/assumption review?
Max Brodén: First-half benefit ratio was a bit higher than expected but still within the 60%-63% full-year range, now at the upper end. Driven by lapse mix (fewer older high-reserve policies lapsing, more recently issued ones) tied to the Miraito lapse-and-reissue program; expected to normalize in the second half. The Q3 actuarial assumption review is underway and will be reported then using best estimates.
What is the medium-term outlook and size for the reinsurance business?
Max Brodén: One external transaction executed so far and progressing well. It is a significant, lumpy market on roughly an annual cycle, not every quarter. Long term it should become a significant supplemental business that fits Aflac well but will not overtake the primary U.S. and Japan operations.
More on Aflac Inc
Reported 2026-08-07 · figures from the Aflac Inc Q2 2026 earnings call.
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