Q1 2025 Aflac Inc Earnings Call - Pre-Recorded

April 30, 2025

[music]. Thank you for joining me as ill provide a financial update on Aflac Incorporated's results for the first quarter of 2020 five.

Unknown Executive: Thank you for joining me as I provide a financial update on Aflac Incorporated's results for the first quarter of 2025. For the quarter, adjusted earnings per diluted share was flat year-over-year at $1.66.

Virgil Miller: Thank you for joining me as I provide a financial update on Aflac Incorporated's results for the first quarter of 2025. For the quarter, adjusted earnings per diluted share was flat year over year at $1.66, with a $0.01 negative impact from FX in the quarter. In this quarter, remeasurement gains on reserves totaled $41 million, reducing benefits. Variable investment income ran $27 million below our long-term return expectations, while one make-whole call generated income of $16 million. Adjusted book value per share, excluding foreign currency remeasurement, increased 2.2%. The adjusted ROE was 12.7% and 15.6%, excluding foreign currency remeasurement, an acceptable spread to our cost of capital. Overall, we view these results in the quarter as solid. Starting with our Japan segment, net earned premiums for the quarter declined 5%.

For the quarter adjusted earnings per diluted share was flat year over year at $1 66.

With a one cents negative impact from FX in the quarter.

Unknown Executive: with a one cent negative impact from FX in the quarter.

In this quarter remeasurement gains on reserves totaled $41 million reducing benefits.

Unknown Executive: In this quarter, re-measurement gains on reserves totaled $41 million, reducing benefits. Variable Investment Income, Rent $27 Million Below a Long-Term Return Expectation while one make-hold call generated income of $16 million. Adjusted book value per share excluding foreign currency re-measurement increased 2.2%. The adjusted ROE was 12.7% and 15.6% excluding foreign currency re-measurement, an acceptable spread to our cost of capital.

Variable investment income ran $27 million below our long term return expectations.

While one make whole call generated income of $16 million adjusted book value per share excluding foreign currency Remeasurement increased two 2%.

The adjusted ROE was 12, 7% and a 15.6% excluding foreign currency remeasurement and acceptable spread to our cost of capital overall, we view these results in the quarter as solid.

Unknown Executive: Overall, we view these results in the quarter as solid. Starting with our Japan segment, net-earned premiums for the quarter declined 5%, Aflac Japan's underlying earned premiums, which adjusts net-earned premiums to exclude the impact of deferred profit liability, paid-up policies and reinsurance, declined 1.4%. We believe this metric better provides insight into long-term premium trading. Japan's total benefit ratio came in at 65.8% for the quarter, down 120 basis points year-over-year. The third sector benefit ratio was 56.3% for the quarter, down approximately 120 basis points year-over-year. We estimate the impact from re-measurement gains to be approximately 150 basis points favorable to the benefit ratio in Q1 2025.

Starting with our Japan segment net earned premiums for the quarter declined 5% Aflac Japans underlying earned premiums, which adjusts net earned premiums to exclude the impact of our deferred profit liability paid up policies and reinsurance declined one 4%.

Virgil Miller: Aflac Japan's underlying earned premiums, which adjusts net earned premiums to exclude the impact of deferred profit liability, paid-out policies, and reinsurance, declined 1.4%. We believe this metric better provides insight into long-term premium trends. Japan's total benefit ratio came in at 65.8% for the quarter, down 120 basis points year over year. The third sector benefit ratio was 56.3% for the quarter, down approximately 120 basis points year over year. We estimate the impact from remeasurement gains to be approximately 150 basis points favorable to the benefit ratio in Q1 2025. Long-term experience trends, as they relate to treatments of cancer and hospitalization, continue to be in place, leading to continued favorable underwriting experience. Persistency remains solid at 93.8%, which is up 40 basis points year over year and in line with our expectations.

Aflac Japan's underlying earned premiums, which adjusts net earned premiums to exclude the impact of deferred profit liability, paid-out policies, and reinsurance, declined 1.4%. We believe this metric better provides insight into long-term premium trends. Japan's total benefit ratio came in at 65.8% for the quarter, down 120 basis points year over year. The third sector benefit ratio was 56.3% for the quarter, down approximately 120 basis points year over year. We estimate the impact from remeasurement gains to be approximately 150 basis points favorable to the benefit ratio in Q1 2025. Long-term experience trends, as they relate to treatments of cancer and hospitalization, continue to be in place, leading to continued favorable underwriting experience. Persistency remains solid at 93.8%, which is up 40 basis points year over year and in line with our expectations.

We believe this metric better provides insight into long term premium trends.

Japan's total benefit ratio came in at 65, 8% for the quarter down 120 basis points year over year. The third sector benefit ratio was 56, 3% for the quarter down approximately 120 basis points year over year.

We estimate the impact from Remeasurement gains to be approximately 150 basis points favorable to the benefit ratio in Q1 2025.

Long term experience trends as it relates to treatments of cancer and Hospitalisation continue to be in place leading to continued favorable underwriting experience persistency remained solid at 93, 8%, which is up 40 basis points year over year and in line with our expectations.

Unknown Executive: Long-term experience trends, as they relate to treatments of cancer and hospitalization, continue to be in place, leading to continued favorable underwriting experience. Persistency remains solid at 93.8%, which is up 40 basis points year-over-year, and in line with our expectations. However, beginning in this quarter, we have revised the Premium Persistency Definition to better reflect the economic trends of the business. As a result, we do not treat annotization as a lapse for persistency purposes. and this revised definition raised the reported persistency by roughly 30 basis points. Our expense ratio in Japan was 19.6% for the quarter, up 160 basis points year-over-year, driven primarily by an increase in technology expenses.

However, beginning in this quarter, we have revised our premium persistency definition to better reflect the economic trends sort of business.

However, beginning in this quarter, we have revised the premium persistency definition to better reflect the economic trends for the business. As a result, we do not treat annuitization as a lapse for persistency purposes, and this revised definition raised the reported persistency by roughly 30 basis points. Our expense ratio in Japan was 19.6% for the quarter, up 160 basis points year over year, driven primarily by an increase in technology expenses. For the quarter, adjusted net investment income in yen terms was down 7.6%, primarily driven by lower floating rate income, the transfer of assets to Aflac Re Bermuda associated with reinsurance, and variable investment income somewhat offset by high returns from the structured private credit portfolio. The pre-tax margin for Japan in the quarter was 31.8%, down 100 basis points year over year, but a very good result.

Virgil Miller: However, beginning in this quarter, we have revised the premium persistency definition to better reflect the economic trends for the business. As a result, we do not treat annuitization as a lapse for persistency purposes, and this revised definition raised the reported persistency by roughly 30 basis points. Our expense ratio in Japan was 19.6% for the quarter, up 160 basis points year over year, driven primarily by an increase in technology expenses. For the quarter, adjusted net investment income in yen terms was down 7.6%, primarily driven by lower floating rate income, the transfer of assets to Aflac Re Bermuda associated with reinsurance, and variable investment income somewhat offset by high returns from the structured private credit portfolio. The pre-tax margin for Japan in the quarter was 31.8%, down 100 basis points year over year, but a very good result.

As a result, we do not treat annuities station as a lapse for persistency purposes. In this revised definition raised the reported persistency by roughly 30 basis points, our expense ratio in Japan was 19, 6% for the quarter up 160 basis points year over year.

Driven primarily by an increase in technology expenses for the quarter adjusted net investment income in yen terms was down seven 6%.

Unknown Executive: For the quarter, adjusted net investment income in yen terms was down 7.6%, primarily driven by lower floating rate income, the transfer of assets to Aflac Re-Bermuda associated with reinsurance, and variable investment income somewhat offset by high returns from the structured private credit portfolio. The pre-tax margin for Japan in the quarter was 31.8%, down 100 basis points year-over-year, but a very good result.

Primarily driven by lower floating rate income the transfer of assets to Aflac re Bermuda associated with reinsurance and variable investment income somewhat offset by higher returns from the structured private credit portfolio.

The pretax margin for Japan in the quarter was 31, 8% down 100 basis points year over year, but a very good result.

Turning to U S results net earned premium was up 1.8% persistency increased 60 basis points year over year to 79, 3%.

Unknown Executive: Turning to U.S. results, net debt premium was up 1.8%. Persistency increased 60 basis points year-over-year to 79.3%. Our US total benefit ratio came in at 47.7%. 120 basis points higher than Q1 2024. driven by business mix, and lower re-measurement gains than a year ago. We estimate that the re-measurement gains impacted the benefit ratio by approximately 100 basis points in the quarter, as claims have remained below our long-term expectations. In the quarter, we benefited from favorable underwriting on our small but growing long-term disability block. Our expense ratio in the U.S. was 37.6%, down 110 basis points year-over-year.

Turning to US results, net earned premium was up 1.8%. Persistency increased 60 basis points year over year to 79.3%. Our US total benefit ratio came in at 47.7%, 120 basis points higher than Q1 2024, driven by business mix and lower remeasurement gains than a year ago. We estimate that the remeasurement gains impacted the benefit ratio by approximately 100 basis points in the quarter, as claims have remained below our long-term expectations. In the quarter, we benefited from favorable underwriting on our small but growing long-term disability block. Our expense ratio in the US was 37.6%, down 110 basis points year over year, primarily driven by platforms improving scale and continuous focus on expense efficiency. Our growth initiatives, Group Life and Disability, Network Dental and Vision, and Direct to Consumer increased our total expense ratio by 50 basis points for the quarter.

Virgil Miller: Turning to US results, net earned premium was up 1.8%. Persistency increased 60 basis points year over year to 79.3%. Our US total benefit ratio came in at 47.7%, 120 basis points higher than Q1 2024, driven by business mix and lower remeasurement gains than a year ago. We estimate that the remeasurement gains impacted the benefit ratio by approximately 100 basis points in the quarter, as claims have remained below our long-term expectations. In the quarter, we benefited from favorable underwriting on our small but growing long-term disability block. Our expense ratio in the US was 37.6%, down 110 basis points year over year, primarily driven by platforms improving scale and continuous focus on expense efficiency. Our growth initiatives, Group Life and Disability, Network Dental and Vision, and Direct to Consumer increased our total expense ratio by 50 basis points for the quarter.

Our U S. Total benefit ratio came in at 47, 7% 120 basis points higher than Q1 2024, driven.

Driven by business mix and lower re measurement gains than a year ago, we estimate that the re measurement gains impacted a benefit ratio by approximately 100 basis points in the quarter as.

As claims have remained below our long term expectations.

In the quarter, we benefited from favorable underwriting on our small but growing long term disability block our expense ratio in the U S was 37, 6% down 110 basis points year over year.

Primarily driven by platforms, improving scale and continuous focus on expense efficiency, our growth initiatives group life, and disability network down and vision and direct to consumer increased our total expense ratio by 50 basis points for the quarter.

Unknown Executive: Primarily driven by platforms improving scale and continuous focus on expense efficiency. Our growth initiatives, Group Life and Disability, Networked Download Vision, and Direct-to-Consumer increase our total expense ratio by 50 basis points for the quarter. This is in line with our expectations, and we would expect this impact to decrease as we continue to approach scale. Adjusted net investment income in the U.S. was down 1.9% for the quarter, primarily driven by lower floating rate income. Profitability in the US segment was very strong with a pre-tax margin of 20.8%, a 20 basis points decline compared to a year ago.

This is in line with our expectations and we would expect this impact to decrease as we continue to approach scale adjusted net investment income in the U S was down one 9% for the quarter, primarily driven by lower floating rate income.

Virgil Miller: This is in line with our expectations, and we would expect this impact to decrease as we continue to approach scale. Adjusted net investment income in the US was down 1.9% for the quarter, primarily driven by lower floating rate income. Profitability in the US segment was very strong, with a pre-tax margin of 20.8%, a 20 basis points decline compared to a year ago. During the quarter, we increased our CECL reserves associated with our commercial real estate portfolio by $2 million net of charge-offs, as property values remain at distressed valuations. We also foreclosed on two loans, adding them to our real estate-owned portfolio, consistent with our strategy for maximizing recovery values. Our portfolio of first lien, senior secured, middle market loans continued to perform well, with increased CECL reserves of $7 million in the quarter net of charge-offs.

Profitability in the U S segment was very strong with a pretax margin of 28%, a 20 basis points decline compared to a year ago.

During the quarter, we increased our seasonal reserves associated with our commercial real estate portfolio by $2 million net of charge offs as property values remain at distressed valuations. We also foreclosed on two loans, adding them to our real estate owned portfolio consistent with our strategy for Maxim.

Unknown Executive: During the quarter, we increased our CECL reserves associated with our commercial real estate portfolio by $2 million net of charge-ups. We also foreclosed on two loans, adding them to our real estate-owned portfolio, consistent with our strategy for maximizing recovery values. Our portfolio of first lien, senior secured, middle market loans continue to perform well with increased seasonal reserves of $7 million in the quarter net of charge-offs. In our corporate segment, we recorded a pre-tax gain of $43 million. Adjusted net investment income was $47 million higher than last year due to a combination of lower volume of tax credit investments and higher asset balances, which included the impact of the reinsurance transaction in Q4 2024.

<unk> recovery values.

Our portfolio of first lien senior secured middle market loans continue to perform well with increased seasonal reserves of $7 million in the quarter net of charge offs.

In our corporate segment, we recorded a pretax gain of $43 million.

Virgil Miller: In our corporate segment, we recorded a pre-tax gain of $43 million. Adjusted net investment income was $47 million higher than last year due to a combination of lower volume of tax credit investments and higher asset balances, which included the impact of the reinsurance transaction in Q4 2024. Our tax credit investments impacted the corporate net investment income line for US GAAP purposes negatively by $8 million in the quarter, with an associated credit to the tax line. The net impact to our bottom line was a positive $0.4 million in the quarter. To date, these investments are performing well and in line with our expectations. Unencumbered holding company liquidity stood at $4.3 billion, $2.6 billion above our minimum balance. We repurchased $900 million of our own stock and paid dividends of $317 million in Q1, offering good relative IRR on these capital deployments.

Adjusted net investment income was $47 million higher than last year due to a combination of lower volume our tax credit investments and higher asset balances, which included the impact.

REIT of the reinsurance transaction in Q4, 'twenty 'twenty four our tax credit investments impacted the corporate net investment income line for U S. GAAP purposes negatively by $8 million in the quarter with an associated credit to the tax line.

Unknown Executive: Our tax credit investments impacted the corporate net investment income line for US GAAP purposes negatively by $8 million in the quarter with an associated credit to the tax line. The net impact to our bottom line was a positive $0.4 million in the quarter. To date, these investments are performing well and in line with our expectations. Unencumbered holding company liquidity stood at $4.3 billion. $2.6 billion above our minimum balance. We repurchased $900 million of our own stock and paid dividends of $317 million in Q1, offering good relative IRR on these capital deployments. We will continue to be flexible and tactical in how we manage the balance sheet and deploy capital in order to drive strong risk-adjusted ROE with a meaningful spread to our cost of capital.

The net impact to our bottom line was a positive zero point $4 million in the quarter.

To date these investments are performing well and in line with our expectations.

Unencumbered holding company liquidity stood at $4 $3 billion to.

$2 $6 billion above our minimum balance.

We repurchased $900 million over our own stock and paid dividends of $317 million in Q1 offering good relative IRR on these capital deployments, we will continue to be flexible and tactical in how we manage the balance sheet and deploy capital in order to drive strong risk adjusted.

Virgil Miller: We will continue to be flexible and tactical in how we manage the balance sheet and deploy capital in order to drive strong risk-adjusted ROE with a meaningful spread to our cost of capital. Our capital position remains strong, and we ended the quarter with an SMR above 950%, an estimated regulatory ESR above 250%. Our combined RBC, while not finalized, we estimate to be greater than 600%. These are strong capital ratios, which we actively monitor, stress, and manage to withstand credit cycles as well as external shocks. For US statutory, we recorded a $6 million valuation allowance on mortgage loans as an unrealized loss. We ended the quarter, 31 March, with net JPY 5.2 billion of Japan FSA realized gains net of losses for securities impairment. This is well within our expectations and with limited impact to both earnings and capital.

With a meaningful spread to our cost of capital our capital position remains strong and we ended the quarter with an S EMR above 950%.

Unknown Executive: Our capital position remains strong, and we ended the quarter with an SMR above 950%. an estimated regulatory ESR above 250. Our combined RBC, while not finalized, we estimate to be greater than 600%. These are strong capital ratios, which we actively monitor, stress, and manage to withstand credit cycles as well as external shocks.

An estimated regulatory ESR above 250% are combined RBC, while not finalized we estimate to be greater than 600%.

These are strong capital ratios, which we actively monitor stress and managed to withstand credit cycles as well as external shocks for U S. Statutory we recorded a 6 million dollar valuation allowance on mortgage loans as an unrealized loss.

Unknown Executive: For U.S. statutory, we recorded a $6 million valuation allowance on mortgage loans as an unrealized loss. We end the quarter, March 31st, with net 5.2 billion yen of Japan FSA realized gains, net of losses for securities impairment. This is well within our expectations and with limited impact to both earnings and capital. Our leverage was 20.7% for the quarter, which is within our target range of 20 to 25%. As we hold approximately 59% of our debt in yen, this leverage ratio is impacted by moves in the yen-dollar exchange rate. This is intentional and part of our enterprise hedging program, protecting the economic value of Aflac Japan in U.S.

We ended the quarter March 31st with net $5 2 billion yen of Japan, FSA realized gains net of losses supported securities impairment.

This is well within our expectations and with limited impact to both earnings and capital.

Our leverage was 27% for the quarter, which is within our target range of 20% to 25%.

Virgil Miller: Our leverage was 20.7% for the quarter, which is within our target range of 20% to 25%. As we hold approximately 59% of our debt in yen, this leverage ratio is impacted by moves in the yen dollar exchange rate. This is intentional and part of our enterprise hedging program, protecting the economic value of Aflac Japan in U.S. dollar terms. On a U.S. GAAP basis, we are impacted by moves in the yen, as our yen-denominated earnings will translate into US dollars at different exchange rates. We currently estimate that every ¥5 to the dollar move would impact our underlying EPS by roughly $0.07. As foreign currency markets have experienced a marked increase in volatility, I would like to reiterate our approach to managing foreign currency exposure. Fundamentally, we size our unhedged U.S. dollar exposure to the estimated economic surplus associated with our Japanese business.

Virgil Miller: Our leverage was 20.7% for the quarter, which is within our target range of 20% to 25%. As we hold approximately 59% of our debt in yen, this leverage ratio is impacted by moves in the yen dollar exchange rate. This is intentional and part of our enterprise hedging program, protecting the economic value of Aflac Japan in US dollar terms. On a US GAAP basis, we are impacted by moves in the yen, as our yen-denominated earnings will translate into US dollars at different exchange rates. We currently estimate that every ¥5 to the dollar move would impact our underlying EPS by roughly $0.07. As foreign currency markets have experienced a marked increase in volatility, I would like to reiterate our approach to managing foreign currency exposure. Fundamentally, we size our unhedged US dollar exposure to the estimated economic surplus associated with our Japanese business.

As we hold approximately 59% of our debt in yen. This leverage ratio is impacted by moves in the yen dollar exchange rate.

This is intentional and part of our enterprise hedging program protecting the economic value of Aflac, Japan in the U S. Dollar terms on a U S GAAP basis.

Unknown Executive: dollar terms. On a U.S. GAAP basis, we are impacted by moves in the yen, as our yen-denominated earnings will translate into U.S. dollars at different exchange rates.

We are impacted by moves in again as our yen denominated earnings will translate into U S dollars at different exchange rates.

We currently estimate that every five yen to the dollar move would impact our underlying EPS by roughly seven cents.

Unknown Executive: We currently estimate that every 5 yen to the dollar move would impact our underlying EPS by roughly 7 cents.

As foreign currency markets have experienced a marked increase in volatility I would like to reiterate our approach to managing foreign currency exposure.

Unknown Executive: As foreign currency markets have experienced a marked increase in volatility, I would like to reiterate our approach to managing foreign currency exposure. Fundamentally, we size our unhedged U.S. dollar exposure to the estimated economic surplus associated with our Japanese business. At the end of Q1, we held $25.5 billion of unhedged U.S. dollar assets in our Japan general account. Forward Contracts at Inc. with a notional balance of $2.7 billion. and 4.4 billion of Yen-denominated deaths. We also hold $24.2 billion of notional out-of-the-money put options. which provide tail protection against a large appreciation in the young. Adding this up, we feel that we are very well positioned on an economic basis.

Fundamentally we size, our unhedged U S dollar exposure to the estimated economic surplus associated with our Japanese business.

At the end of Q1, we held $25 $5 billion of Unhedged U S dollar assets in our Japan General account.

Virgil Miller: At the end of Q1, we held $25.5 billion of unhedged US dollar assets in our Japan general account, forward contracts at inception with a notional balance of $2.7 billion, and $4.4 billion of yen-denominated debt. We also hold $24.2 billion of notional out-of-the-money put options, which provide tail protection against a large appreciation in the yen. Adding this up, we feel that we are very well positioned on an economic basis. Thank you. I look forward to discussing our results in further detail on tomorrow's earnings call.

Virgil Miller: At the end of Q1, we held $25.5 billion of unhedged U.S. dollar assets in our Japan general account, forward contracts at inception with a notional balance of $2.7 billion, and $4.4 billion of yen-denominated debt. We also hold $24.2 billion of notional out-of-the-money put options, which provide tail protection against a large appreciation in the yen. Adding this up, we feel that we are very well positioned on an economic basis. Thank you. I look forward to discussing our results in further detail on tomorrow's earnings call.

Forward contracts at Inc, with a notional balance of $2 $7 billion.

And $4 4 billion of yen denominated debt.

We also hold $24 $2 billion of notional out of the money put options.

Which provide tail protection against a large appreciation in the yen.

Adding this up we feel that we are very well positioned on an economic basis.

Thank you I look forward to discussing our results in further detail on Tomorrow's earnings call.

Unknown Executive: I look forward to discussing our results in further detail on tomorrow's earnings call.

Q1 2025 Aflac Inc Earnings Call - Pre-Recorded

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