Q2 2025 Aflac Inc Earnings Call - Pre-Recorded
Yeah.
Okay.
Thank you for joining me as I'll provide our financial update on Aflac Incorporated's results.
For the second quarter of 2025, and adjusted earnings per diluted share decreased two 7% year over year to $1 78.
With a <unk> positive impact from FX in the quarter.
In this quarter re measurement gains on reserves totaled $37 million reducing benefits.
<unk> investment income ran a $35 million below our long term return expectations, while one make whole call generated income of $35 million.
Adjusted book value per share, excluding foreign currency Remeasurement increased five 2% adjusted ROE was 13, 7% and 16.4% excluding foreign currency re measurement and acceptable spread to our cost of capital.
Overall, we view these results in the quarter as solid.
With our Japan segment net earned premiums for the quarter declined four 8%.
Aflac, Japan's underlying earned premiums, which excludes the impact of deferred profit liability <unk>.
Paid up policies and reinsurance declined 1.1%.
We believe this metric better provides insight into our long term premium trends.
Japan's total benefit ratio came in at 66, 5% for the quarter.
Down 40 basis points year over year.
The third sector benefit ratio was 57, 4% for the quarter also down approximately 40 basis points year over year.
We estimate the impact from Remeasurement gains to be 83 basis points favorable to the benefit ratio in Q2 2025.
Long term experience trends as they relate to treatments of cancer and hospitalization continued to be in place leading to continued favorable underwriting experience.
Persistency remained solid at 93, 7%, which was up approximately 40 basis points year over year in line with our expectations.
Our expense ratio in Japan was 26% for the quarter up 280 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 10.5%.
Similarly, driven by lower floating rate income the impact of foreign currency on your installer investments in yen terms.
And lower variable investment income.
Somewhat offset by higher call income and higher returns on U S dollar fixed rate portfolios.
The pretax margin for Japan in the quarter was 32% down 330 basis points year over year, but a very good result.
Turning to U S results net earned premium was up three 4%.
Persistency increased 50 basis points year over year 79, 2%.
Our total benefit ratio came in at 47, 3%.
60 basis points higher than Q2 2024.
Driven by business mix.
We estimate that Remeasurement gains were in line with a year ago.
And favorably impacted the benefit ratio by 160 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 36, 3% down 60 basis points year over year, primarily driven by platforms, improving scale and continual focus on expense efficiency.
Our growth initiatives group life, and disability network, dental and vision and direct to consumer increase our total expense ratio by 70 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 at.
Adjusted net investment income in the U S was down 5% for the quarter, primarily driven by lower floating rate income.
Profitability in the U S segment was very strong with a pretax margin of 22.5%.
Basis points decline compared with a strong quarter a year ago.
In our corporate segment, we recorded a pretax gain of $20 million.
Adjusted net investment income was $37 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 internal reinsurance transaction in Q4 of 2024.
Our tax credit investments impacted our 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.
The net impact to our bottom line was a positive $1 million in the quarter.
To date these investments are performing well and in line with our expectations.
Higher total adjusted revenues were offset by higher total benefits and adjusted expenses of $90 million driven primarily by internal reinsurance activity.
Higher costs pertaining to business operations and higher interest expense.
During the quarter, we raised debt of 150 billion yen, which translates into slightly over $1 billion.
To pre fund, our 2026 maturities and to create liquidity and capital flexibility at the parent company.
This debt issuance combined with a significant dividend from Aflac, Japan increase our unencumbered holding company liquidity to $5.1 billion.
Which is $3 $4 billion above our minimum balance.
Our capital position remains strong and we ended the quarter with an SME above 900%.
And an estimated regulatory ESR about 240%.
Following the previously mentioned the dividend.
While not finalized we estimate our combined RBC to be greater than 600 per shop. These.
These are strong capital ratios, which we actively monitor stress and managed to withstand credit cycles as well as external shocks.
We repurchased $829 million of our own stock and paid dividends of $312 million in Q2.
During 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.
During the quarter, we increased our seasonal reserves associated with our commercial real estate portfolio by $33 million net of charge offs as property values remain at distressed valuations.
We also foreclosed on three 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 decreased seasonal reserves of $23 million in the quarter net of charge offs.
For U S. Statutory we recorded a $7 million valuation allowance on mortgage loans as an unrealized loss during the quarter.
On a Japan FSA basis, there were no security impairments in Q2, but we did book a net realized gain of 17 million yen related to transitional real estate loans.
This is well within our expectations and has a limited impact on regulatory earnings and capital.
Our leverage was 22, 5% for the quarter, which is within our target range of 20% to 25%.
As we hold approximately 65% 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.
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 Q2, we held at $27.1 billion of U S dollar assets in our Japan General account.
Forward contracts at Inc. With a notional balance of $1 $9 billion, and a $5 $7 billion of yen denominated debt.
We also hold $25 billion notional of out of the money put options, which.
Which provide tail protection against a large appreciation in the yen.
Adding this up we feel we're very well positioned on an economic basis.
Thank you and I look forward to discussing our results in further detail on Tomorrow's earnings call.
Okay.
Okay.
Thank you for joining me as I provide a financial update on Aflac Incorporated results.
For the second quarter of 2025, adjusted earnings per diluted share decreased 2.7% year-over-year to $0.78.
With a 4-cent positive impact from FX in the quarter.
In this quarter, re-measurement gains on reserves totaled $37 million, reducing benefits.
Variable investment income ran $35 million below our long-term return expectations.
In Q2 2025, Aflac Inc. generated income of $35 million.
Adjusted book value per share, excluding foreign currency remeasurement, increased 5.2%. The adjusted ROE was 13.7% and 16.4%, 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 premiums for the quarter declined 4.8%.
Aflac Japan's underlying earned premiums, which exclude the impact of deferred profit liability, paid-up policies, and reinsurance, declined by 1.1%.
We believe this metric better provides insight into our long-term premium trends.
Japan's total benefit ratio came in at 66.5% for the quarter.
Down 40 basis, points year-over-year.
For the quarter, we are also down approximately 40 basis points year-over-year.
We estimate the impact from re-measurement gains to be 83 basis points favorable to the benefit ratio in Q2 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 93.7%, which was up approximately 40 basis points year over year, in line with our expectations.
Our expense ratio in Japan was 20.6% for the quarter, up 280 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 10.5%. This decline was primarily driven by lower flow rate income and the impact of foreign currency on uninstalled investments in Yen terms.
And lower variable investment income.
Somewhat offset by higher call income and higher returns on US dollars. Fixed rate portfolios.
The pre-tax margin for Japan in the quarter was 32%, down 330 basis points year-over-year, but a very good result.
Turning to U.S. results, net and premium was up 3.4%.
The system saw an increase of 50 basis points year over year, reaching 79.2%.
Our total benefit ratio came in at 47.3%.
60 basis points higher than Q2 in '24.
Driven by business mix.
We estimate that remeasurement gains are in line with a year ago.
In favorably impacted benefit ratio by 160 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 36.3%, down 60 basis points year-over-year.
By platforms improving scale and continual focus on expense efficiency, our growth initiatives—Group, by facility, Network Den, elevation, and direct consumer—have allowed us to increase our total expense ratio by 70 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 5% for the quarter, primarily driven by lower floating rate income.
Profitability in the U.S. segment was very strong, with the pre-tax margin at 22.5%.
20 basis points decline compared with a strong quarter a year ago.
In our corporate segment, we recorded a pre-tax gain of $20 million.
The carnation or lower volume of tax, credit investments, and higher asset balances.
Which included the impact of the internal reinsurance transaction in Q4 of 2024.
Our tax credit investment impacted our corporate net investment income line for us, 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 $1 million in the quarter.
Today, these investments are performing well and in line with our expectations.
Higher total adjusted revenues were offset by higher total benefits and adjusted expenses of $90 million, driven primarily by internal reinsurance activity.
Higher costs pertaining to business operations and high interest expense. During the quarter, we raised debt of ¥150 billion, which translates to slightly over $1 billion.
To pre-fund our 2026 maturities and to create liquidity and capital flexibility at the parent company.
This debt issuance combined with a significant dividend from app, like Japan.
Increase our unencumbered holding company liquidity to $5.1 billion.
Which is $3.4 billion above our minimum balance.
Our capital position remains strong, and we end the quarter with an SMR of about 900%.
And an estimated regulatory ESR of about 240%.
Following, the previously mentioned dividend.
While not finalized, we have made a combined RBC 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.
We repurchased $829 million of our own stock and paid dividends of $312 million in Q2, 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.
During the quarter, we increased our seasonal resource associated with our commercial real estate portfolio by $33 million net of charge jobs, as property values remain at risk valuations.
We also foreclosed on 3 loans, adding them to a real estate owned portfolio. Consistent with our strategy for maximizing recovery values.
Our portfolio of first lean senior secured middle market loans continues to perform well, with decreased seasonal reserves of $23 million in the quarter, net of charge-offs.
For us statutory. We recorded the 7 million valuation allowance on mortgage loans as an unrealized loss during the quarter.
On a Japan FSA basis. The no security impairments in Q2 but we did book a net realized gain of 17 million yen related to transitional. Real estate loans
This is well within our expectations and has a limited impact on regulatory earnings and capital.
Our leverage was 22.5% for the quarter, which is within our target range of 20 to 25%.
As we hold the approximately 65% 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 athletic, Japan in the US dollar terms.
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 Q2, we held 27.1 billion of US dollar Assets in our Japan, general account.
Forward contracts at Inc with a notional balance of 1.9 billion.
And $5.7 billion of yen-denominated debt.
We also hold 25 billion notional of out of the money put options.
Which provide tail protection against a large appreciation, in the end.
Adding this up, we feel we're very well positioned on an economic basis.
Thank you, and I look forward to discussing our results in further detail on tomorrow's earnings call.