Q3 2025 Aflac Inc Earnings Call

Speaker #1: Good day and welcome to the Aflac incorporated . Third quarter 2020 earnings call . All participants will be in listen only mode . Should you need assistance , please signal a conference specialist by pressing the star key , followed by zero .

Speaker #1: After today's presentation , there will be an opportunity to ask questions , to ask a question , you may press star , then one on your telephone keypad .

Speaker #1: To withdraw your question , please press star . Then two . Please note this event is being recorded . I would now like to turn the conference over to David Young Vice President , Capital Markets .

Speaker #1: Please go ahead .

Speaker #2: Good morning and welcome . Thank you for joining us for Aflac incorporated . Third quarter 2020 Earnings Call this morning . Dan Amos , chairman CEO of Aflac incorporated , will provide an overview of our results and operations in Japan and the United States .

Speaker #2: Then Max Broden Senior Executive Vice President and CFO of Aflac incorporated , will provide more detail on our financial results for the quarter .

Speaker #2: Current capital and liquidity . These topics are also addressed in the materials we posted with our earnings release . Financial supplement and quarterly CFO update on our investors comm for Q&A today , we are joined by Virgil Millar , president of Aflac incorporated , and Aflac US .

Speaker #2: Charles Lake , chairman and representative director , president of Aflac International . Masatoshi Koide , president and representative director , Aflac Life Insurance Japan .

Speaker #2: And Brad Dylan , global chief investment officer , president of Aflac Global Investments . Before we begin , some statements in this teleconference are forward looking within the meaning of federal securities laws .

Speaker #2: Although we believe these statements are reasonable , we can give no assurance that they will prove to be accurate because they are prospective in nature .

Speaker #2: Actual results could differ materially from those we discuss today . We encourage you to look at our annual report on Form 10-K for some of the various risk factors that could materially impact our results .

Speaker #2: As I mentioned earlier , the earnings release was reconciliations of certain non-U.S. GAAP measures and related earnings . Materials are available on investors .

Speaker #2: Com . I'll now hand the call over to Dan . Dan .

Speaker #3: Thank you David and good morning everyone . We're glad you joined us . Aflac incorporated reported net earnings per diluted share of $3.08 and adjusted earnings per diluted share of $2.49 for the third quarter of 2025 .

Speaker #3: We believe that these are strong results for the quarter leading to a very good first nine months of the year . Max will expand upon these results in a moment , but before he does , I'd like to make a comment on our operations beginning with Aflac Japan .

Speaker #3: I am very pleased with Aflac Japan's 11.8% year over year sales increase , especially the 42% increase in cancer insurance sales . These strong sales were driven largely as expected by sales of Morito , our cancer insurance product launched in March as part of our ongoing strategy .

Speaker #3: We continue to emphasize and promote the importance of third sector protection to new and younger customers . With our innovative first sector product , Sumitomo , we believe the repricing of this product for new policies effective in September , has the potential to benefit its sales .

Speaker #3: We saw positive sales growth across all distribution channels . Overall , I believe we have the right strategy to meet our customers financial protection needs through their different life stages .

Speaker #3: Our ability to maintain strong premium persistency is a testament to Aflac Inc reputation . Our strategy and our customer recognition of the value of our products by maintaining this level of persistency and adding new premium through sales , we are partly offsetting the impact of reinsurance and policies reaching paid up status and maintaining strong persistency continues to be vital to the future of Aflac Japan being where customers want to buy insurance has always been an important element of our growth strategy in Japan .

Speaker #3: Our broad network of distribution channels, including agencies, alliance partners, and banks, continually optimizes opportunities to help provide financial protection to Japanese consumers.

Speaker #3: We will continue to work hard to support each channel as we evolve to meet the customers . Changing needs . Turning to Aflac US .

Speaker #3: We generated $390 million in New sales during the third quarter , which was a 2.8% year over year increase . More importantly , we maintained strong premium persistency of 79% , an increased net earned premiums , 2.5% .

Speaker #3: We continue to focus on driving more profitable growth by exercising a strong underwriting discipline and maintaining strong premium persistency . We believe this will continue to drive net earned premium growth .

Speaker #3: At the same time , Aflac US has continued its prudent approach to expense management and maintaining a strong pre-tax margin . As Max will expand upon in a moment in both Japan and the United States , I believe that consumers need the products and solutions .

Speaker #3: Aflac offers more than ever . When a policyholder transforms into a claimant , Aflac becomes more than an insurance company . We become a partner in health and a supporter of their family in their time of need .

Speaker #3: As a pioneer and leader in the industry , we are leveraging every opportunity to convey our products can help fill the gap during challenging times , providing not just financial assistance , but also compassion and care .

Speaker #3: At the same time , we generate strong capital and cash flows on an ongoing basis while maintaining our commitment to prudent liquidity and capital management .

Speaker #3: We continue to be very pleased with our investments , producing solid net investment income as an insurance company . Our primary responsibility is to fulfill the promises we make to our policyholders while being responsive to the needs of our shareholders .

Speaker #3: Our financial strength underpins our promise to our policyholders , balanced with the financial flexibility and tactical capital deployment . I am very pleased with the company's capital deployment in the third quarter , Aflac incorporated deployed a record $1 billion in capital to repurchase 9.3 million shares of our stock and paid dividends of $309 million .

Speaker #3: This means we delivered 1.3 billion back to the shareholders in the third quarter of 2025 , especially as we celebrate Aflac 70th anniversary on November , the 17th , we treasure another milestone 43 consecutive years of dividend increases .

Speaker #3: We remain committed to extending this record , supported by our financial strength . At the same time , we have maintained our position among companies with the highest return on capital and the lowest cost of capital .

Speaker #3: In the industry . 2025 . Also marked two other significant milestones for Aflac . The 30th anniversary of what is now known as the Aflac Cancer and Blood Disorders Center of Children's Healthcare of Atlanta and the 25th anniversary of the Aflac duck .

Percent for the quarter down approximately 14 percentage points year-over-year.

We estimate the impact from the reserved rematch gains to be 26.6 percentage points.

Favorable to the benefit ratio in Q3 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 year-over-year and in line with our expectations at 93.3%.

Causing reported lapsation to increase.

We did experience this uptick with our recently launched cancer product.

But overall lapsation remains within our expectations.

Our expense ratio in Japan was 19.8% for the quarter down 20 basis points year-over-year.

In primarily by an increase in expense capitalization rates, resulting from higher sales.

Put a quarter adjusted. Net investment income in Yen. Terms was relatively flat at 98 billion yen.

The pre-tax margin for Japan. In the quarter was 52.2% up 750 basis, points year-over-year.

By the unblock of Actuarial assumptions.

But even adjusting for that, a very good result.

Turning to us results, net and premium was up 2.5%.

our total benefit ratio came in at 45.6% 200 basis points lower than Q3 2024 driven by the unlock

We estimate that the reserve remeasurement gains impacted the benefit ratio by 480 basis points in the quarter.

Largely driven by the Assumption unlock and claims remaining below a previous long-term expectations. Our expense ratio in the US was 38.9% up, 90 basis points year-over-year

By the 1-time early contract, termination fee of 21 million. There are referred to earlier,

In the timing of advertising spent.

Even though we incurred a 1-time fee as part of our overall strategy.

We anticipate reduced costs and improved efficiency which will offset the termination fee over the next few years. Our growth initiatives, group, life, and disability Network dental, and vision and direct. The consumer had no impact to a total expense ratio in the quarter.

This is in line with our expectations, as these businesses continue to scale.

Adjust the net investment income in the US was up 1.9% for the quarter primarily driven by higher variable investment income compared to a year ago.

Profitability in the US segment was very strong with a pre-tax margin of 21.7% and 90 basis points. Increase compared with a strong quarter a year ago.

In corporate and other we record a pre-tax adjusted earnings of 69 million.

Adjusted, net investment income was 66 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 2024, our tax credit Investments impacted a net investment income line for a US. Gaap purposes negatively by 6 million in the quarter with an Associated Credit to the tax line.

The net impact to our bottom line was a positive 2 million in the quarter.

Higher total adjusted revenues were offset by higher total benefits and adjusted expenses of 64 million driven primarily by internal reinsurance activity.

Higher costs pertaining to business operations, and higher interest expense.

We continue to be pleased with the performance of our Investment Portfolio.

during the quarter, we increase our seasoned reserves associated with our commercial, real estate portfolio by 28 million, net of charge offs,

Reflecting continued, distressed property values.

We did not foreclose on any properties in the period. Our portfolio of first lean senior secured Middle Market loans continues to perform well with increased seasonal, reserves of 7 million in the quarter, net of charge offs.

For us statutory. We recorded a 7 million dollar valuation allowance on mortgage loans as an unrealized loss during the quarter.

On a Japan FSA basis. There were Securities impairments of 476 million yen in Q3.

And we booked a net realized loss of ¥189 million related to transitional real estate loans.

This is well within our expectations and has limited impact on regulatory earnings and capital.

During the quarter, we also enhanced our liquidity and capital flexibility by $2 billion with the creation of two off-balance sheet, pre-capitalized trusts that issued securities commonly referred to as pcaps.

Unencumbered holding company liquidity stood at $4.5 billion.

Which was 2.7 billion above our minimum balance. Our leverage was 22% for the quarter.

Which is within our target range of 20 to 25%. As we hold approximately, 64% 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 US dollar terms.

Our Capital position remains strong.

We ended a quarter with an SMR about 900% and an estimated regulatory ESR with the undertaking specific parameter or USP above 250%.

While not finalized, we estimate our combined RBC to be greater than 600%.

10 of our own stock and pay dividends of 309 million in Q3 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 for 2025. We now expect that the benefit ratio in Japan will be in the 58 to 60% range.

And we continue to expect the expense ratio to be in the at the lower end of the 20 to 23% range as we pursue various growth and strategic initiatives.

As a result, we expect the athlete. Japan's pre-tax profit margin to be in the 358% range.

In the US, we continue to expect the benefit ratio for 2025 to be at the lower end of the 48 to 52% range.

And the expense ratio to be in the mid to Upper end of the 36 to 39% range, as we continue to scale, new business lines.

At the same time, we expect pre-tax profit margin for 2025 in the US to be at the upper end of the 17th to 20% range. Thank you. I will now turn the call over to David

Thank you, Max.

Before we begin our Q&A, we ask that you, please limit yourself to 1 initial question and a related follow-up, you may then rejoin the queue to ask additional questions.

We'll now take the first question.

We will now begin the question and answer session.

to ask a question, you may press star then 1 on your telephone keypad,

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if at any time your question has been addressed and you would like to withdraw your question, please press star then 2

At this time, we will pause momentarily to assemble the roster.

And our first question will come from Joel hurwitz of dialing and partners. Please go ahead.

Hey, good morning. Uh wanted to touch on sales and and maybe start with the uh, it looks like dental and group sales were were very good, but your core voluntary product sales were down quite a bit year-over-year. Just can you can you talk about what you're seeing across your product offerings?

Yes, good morning Joel. This is Virgil. Uh, let me give you some commentary on that. Uh, first, let me start with, uh, where you, where you started your question with? Uh, yes. What we're seeing is in the market. A, as the Brokers have become more involved with selling supplemental benefits. Uh, they are leaning toward group products. So, therefore, we are seeing some pressure on our individual products.

Uh, I will tell you though that our focus is to continue to grow. Our average, we can produce hers, and we are looking for an increase in recruiting this year. Having said that, along with recruiting comes conversions. We had an 8% increase in converting those recruits into producers for us, and then we start our overall productivity at 16%.

Uh, we are seeing very strong production, though, in the Investments, we made with our, by the bills, uh, with our lab business, we achieved a 24% increase during the quarter. Uh, we also won the contract with the state of Maine to provide claims Administration for the Paid Family Medical Leave program. It's it's a really a testament to the type of service we're providing in that market. And also we stabilize our Dental operations. And, uh, we are sending a 40% increase for the first 9 months a a, uh, which, which is strong. So, our agents are returned.

Turned back to selling those products.

Uh, we are entering the broker market with those products, but a continued focus, though, on growing our affiliate nation, getting our veterans active to really drive, as you pointed out, the individual products.

Let's say, 1 more.

though, I'm pleased for the

is on persistency, which means we are still providing some strong underwriting criteria to ensure though that, we are making the right decisions for long-term performance. And, uh, that's why you see though the overall strong, uh, performance that we had with profitability, which exceeded our expectations

And sales. So they were they were good in the quarter. Can you just provide some more caller on on how the cancer sales? Uh, trended in the quarter and then and then how demand is for the new Sumi toss? Uh, repriced product?

Yoshi tzumi. Would you mind taking that question?

Uh, third of the marketing. My name is Yoshi tzumi in charge of sales and marketing. I am very pleased to say that. We're very satisfied with the results in the third quarter of the, we did much better than in the second quarter. And it was mainly driven by our Chancellor insurance meital. And first of all, 1 of the features that is not available by others is the fact that we have flexible protection design on Mito

and this product can be customized to entire people including those who already have cancer insurance and who doesn't have any cancer insurance today and it's appealing all

also, to the younger and middle age generation and also to people of all ages,

And we also carries plans for children, which is unique to Aflac and also it carries a premium waiver function.

And also it has the premium based plan. So this is a very unique cancer insurance to AAC. And that, this product can be provided to the customers because we have the 50 years of history. And then all the distribution channels, it is showing a great result and 15 to 20. We went through a rate revision, the Cougars got a hamburger and we started to see a solid growth in sales from September. So the 2 main products and Mito, these are driving our sales performance.

We expect at this momentum to sustain in the fourth quarter as well and related to channels.

Is associate channels in Japan post Group, which is a Reliance partner, they are doing both of them are doing very well.

And we would like to make sure that we continue this momentum and close near by doing well in the fourth quarter.

I'd like to also add something to do that. This is Dan. I was over in Japan 2 weeks ago, uh, specifically to meet on, uh, sum toss product and see how it was doing with the banks.

Um, I met with uh, 29 Regional Banks, uh, through meetings. And then I called on for Shinken Banks, uh, and the head of the association of shenkin Banks and the tone for the, uh, product of sum toss is very going very well for us. Uh, you know, it's it's hard to tell exactly what the sales will be but certainly uh, it is we can see in our numbers that uh we're

providing a younger block of business uh through Sumas which allows us to tack on uh our supplemental or third sector products with it over a period of time and uh

We thought we might do as high as 40%, uh, of our of the people would be what I would call.

50 25% better. So it's doing very well with us in bringing on a younger block of business that I think will play well in the long term for us. So, uh, I do like that. The other thing is, I'm really impressed with our marito product and what's going on there. I mean, the idea of the percentage increase we've had is spectacular, uh, this year and I, I credit what's going on with our sales organization there to continue to grow it. So, I, I agree totally with Yoshi, zoomi also, um, I got Virgil to go over 2 times during the quarter, and uh, also pump up, everyone and try to just talk about what we can do and Pat them on the back. Because uh, Yoshi zoomi joined us about the worst time you could join, which was during Co. And so, uh, this has really been a good year for him and enjoying it and

Uh so we're we're enjoying uh productivity and feel it'll carry through the year.

Great. Thank you.

The next question comes from Tom Gallagher of evercore isi. Please go ahead.

Hi. My my first question is just a follow-up on the repricing of the uh policies in September. Did you say that was Mariah and had it? What was the difference between? Because I think you launched that in June and so what was actually re-priced in September? Did you lower pricing? Can you just elaborate a bit more?

Good morning, Tom. And the repricing related to Sumas. And, and what we did was, as yields have increased throughout the year, we increase the, uh, the assume the interest rate on the product and move that up and that it relates both to the, uh, the underlying rate. But also the discounted Advanced premium rates uh that we moved up from 25 basis points to 1%. And that's a pretty meaningful move and that we did.

But nothing was a cancer.

Gotcha. So cancer is just playing out as you expected.

Yes, no, no repricing on cancer.

Gotcha, and just for my follow-up. Um,

so, I guess

Um, thinking about your launch of medical and Japan next year.

and I'm not asking for a specific numbers per se, but

I guess it's a broader question. If I think about you now, have 2 products.

Selling simultaneously doing pretty well. Um, uh

And and wondering as you add a third.

How do we think about your ability to support 3 products at once? Because I think historically Affleck was really a 1 product at a time company.

Um and now you you have 2 going doing pretty well. Um, how do you think about the launch of a third product and do you think that can translate into oh over 80 billion in Yen sales? You know from a ballpark perspective to where we could get to overall premium growth flattening or even maybe beginning to grow

This is co speaking from Mass Japan, we have just went through the market.

In sales transformation, this January. And the new the structure is now applied to the cancer medical asset formation get nursing care and the organization was function based when it comes to product, uh, product development and marketing.

Is to launch the 3 brands or 3 products, concurrently and support them separately. So with this new organization or transformation, we saw a positive result even by launching viral tumas. At the same time and we're planning to launch a new medical insurance in the end of December, but I am confident that under this new transformation or organization. We will be able to run all the 3 brands in parallel and separately.

and now that the sales teams have witnessed,

The success of the concurrency of the sales of Merle and sumidas and the team is now looking forward to make a similar success by launching, the new medical insurance here, that's all for me.

Comment about um what what was just covered and that is the morato. Uh,

Will be influenced to some degree when we go to Medical it. We we an agent has so much time in the day to sell and when they're making the call on the counter or whatever. They they generally

You know, if if they've been pushing cancer insurance for a year or so, uh, then the opportunity to bring a new product, like, medical always works to the advantage, whereas, in the case of Sumi toss, it's totally different and and a different way of of of approaching consumers that we normally have not been approaching. So I I I just want to make sure that was picked up that, uh, that they're they're always is some, uh, decline in sales of

An older product that's been out there a few years, then it, when we go to a brand new product because that's the whole idea of sales is to have bells and whistles and excite people to go push and sell more and so that does happen. So I want to be be clear of that for you. Tom, I think it was Tom asked a question, you know. Okay.

Gotcha. Thanks. Dan.

Who did this may I add 1 more thing? This is quite a speaking. I know are by the way, our alliance partner sells cancer. Insurance only. So this part

And just to mention 1 thing, about the 3 Brands, new structure, the teams are not working in silos, and they are working concurrently, and to support other products as well. We expect that with the launch of an attractive new medical insurance, there will be a positive impact to 20,000 other products within our company.

Thank you.

The next question comes from John barnidge of Piper Sandler. Please go ahead.

Thank you for the opportunity. My questions are focused on the US business.

Uh with the success and the growth of the buy to build initiatives. Have, we crossed over the period of investment in now, starting to yield some earnings from this effort. Thank you.

We we were able to get stabilized. I am very pleased, what we're seeing operationally uh those challenges have pretty much subsided and as I mentioned before, the first 9 months we've got 40% growth but we're going to need more sales and to to Really Drive herb premium to get to that scale. Uh, the trajectory is there but we're not at a point of arrival.

Max anything you want to add to that? Well I want to add something, I'm very pleased with what's going on. Um,

When I look at it last year and look where we are this year, we're running way ahead and it's nice to see that. And so, Virgil's, correct, we need more, but it's come a long ways. And I am very pleased with what I've seen them accomplished.

Quit. Well, I would say that you got 1 of the businesses is running a, a have turned to profitability this year, uh, to or not. And that being said, it it will still be, uh, sometime until we reach Target profitability. 1 thing is just to break even, but we want to get these businesses to adequate profitability overall, and that will still take it. Take a few years.

Thank you for those answers and my follow-up question on the US. Given the comments about more.

Of the broker distribution going into group products.

How do you get larger in that? Can you talk about maybe efforts organically and potentially inorganically. Thank you.

2 things to that, John the first is that we had to make sure we got the right product set of available to them and are making sure that we are giving, uh, what we call a unified experience. So the the, the the trajectory that you're seeing in the positive, we're seeing on our lab products, the Brokers are accepting that. We are giving a level of service that is top-notch, as I mentioned before, uh, our brand is very strong in that area now, and we're winning cases, what we are now focused on going into the 2026 is to now take those products and bundle them with our other VB products. Uh, we've used the term Halo, uh, in the past but we need to have those products bonded together so that the Brokers can make a unified uh, solution out there. It is not just about making it as an underwriting offer. It is be able to provide the technology and the process to support that, uh, that is our extreme area of focus. And then you go and you add the Dental products as I mentioned earlier, uh, the dental

Was growing is mainly still driven by our agents. So we are open for business and asking the Brokers. Now, to move it in some of the larger cases. Uh, when you put that together, we believe that we will continue to grow uh, consistently strong in the group space and that has been our Focus. Uh really with those with those bales.

And John let, let me make sure there was a second part. What was the second part of your question?

Yeah, I think you covered the first part from the organic.

I was asking is the inorganic opportunity to get scale there. Thank you.

All right, thank you for that John. I, I will tell you that, you know, as I take you over, now, my role is, is president of the corporation. I've worked about behind the scenes with all our leadership teams, uh, primarily Max and I will making sure that we've got a strong uh, corporate development arm. My my point on that is that we're going to make sure we got the right rigor and discipline to be looking out of the market for any opportunity. Uh, we're going to be very deliberate though. Uh, so we are uh, preparing to make sure that we have that discipline that rigor to be to be looking. But at the same time, though, uh we have not seen anything to come available that has attracted us, that can really move our operations. So we're not going to just make a move to make a move, uh, but the discipline that we have, we're making sure that we're ready if and when there is an opportunity,

Thank you.

The next question comes from Ryan Krueger of KBW. Please go ahead.

Mostly looking at smaller things, I would add capabilities or, you know, would you actually consider something more meaningful?

Um, I think first uh the the point we were making last year is the focus, you know, it's, it's hard to go out and and do something and then look at any type of other opportunity. When huge opportunity is sitting right in front of us, uh, with our life and absence and disability platform. Uh, is our first Focus to get that to scale and we are actually exceeding the G, the trajectory that we have put forth. So very pleased with that and to your point also. But when we had our dinner operations, not stable that became our, our definite Focus. Also. This is just a huge opportunity in both of those markets. Those products continue to be desired out there for consumers. And so, therefore, that is our Focus. Now having said that, uh, any, when you mentioned the word small, if there are opportunities that could really, uh,

Enhance our technology. You know, we are very very aware of what's happening in the world of AI. We've set up a a clear framework. We will be active in making sure that we're able to be efficient and effective in how we manage our business. And technology is a great part of that. So we're always looking at how we can advance and move our technology. But when it comes to like looking at blocks of business or other opportunities Out There, Our Focus will stay here but we will have the discipline to make

Make sure, though, that we're always looking at what's going to happen in the market, what got Aflac to the dance that we're at. Right now, though, is a history of being innovative; we are pioneers of this supplemental space and pioneers of cancer insurance. We will make sure, though, that we're going to be innovators, and we will continue to be innovative going forward.

I would just add it. I don't think that our abuse have changed on a

Um, we think that right now, we we the things that we are building out are working for us and we're making very good progress there. Um, and we have a core business that is doing very, very well. So we are in a position where we don't have to do anything and we obviously have the flexibility and opportunity. Uh, but that being said, we also recognize that we operate, generally in a niche businesses, where it's very difficult to either a find a complementing businesses, and be, uh, sometimes very difficult to integrate them as well. Uh, given the, uh, how how sort of Niche operated? We are both in terms of distribution Administration, and Etc. So, recognizing all of that, I would say that I don't think necessarily that our views or opinions have really changed

Thank you. And then, um, you had a 64 to 66% Japan. Benefit ratio Target over the next few years coming. Coming into this year, um, following the Assumption review in in Japan. Do you think that's still a good, good range? Um, I know there's some ongoing benefits from that.

so Ryan, if you, if you look at our underlying

Uh benefit ratio for the quarter. It came in a 65.9% so I think that's a reasonably good. Um Range going forward, uh keep in mind that when we give guidance, we generally do not include any further uh, unlock assumptions in those ranges. So, the long term range of 64 to 69%. We feel pretty good with

Obviously, we get a little bit of a Tailwind from the 130 basis points, lower and net premium ratio. We also get a little bit of a tail when from mix overall, um, as we grow continue to grow contribution of our enforce from the third sector block, predominantly cancer.

so, when you take all of that together and we said a year ago,

That in the range of 64% to 66%, we will start at the high end of that range and trend lower throughout the forecast period. And I think that's, uh, as we sit here today, post the current unlock and given the experience that we have, uh, that still holds.

great. Thank you.

The next question comes from Wilma. Bertis of Raymond James, please go ahead.

Hey, good morning. Um could you talk a little bit about why the Japan cash earnings have been so high over the last few years?

And how long this could persist thanks.

Have like Japan to have like ink over the last couple of years has really been driven by 2 factors. The first 1 is actually the weakening yen.

And the way the FSA accounting works is that on US dollar assets held on the Japanese balance sheet, you recognize the full impact from FX movements at the maturity of those bonds.

And we obviously generally buy a lot of 5 year and 10 year 10 years, and that means that you have to go back and look at what the Yen was 5 years ago and 10 years ago, in particular, if you look at what where the Yen was 10 years ago, um, it was significantly stronger than what you have today.

That means that as those Bonds mature, you realize a very significant ethics game as an example. 10 years ago, you roughly had the Yen at 105 relative to the dollar if those Bonds mature today. At 1:50, that is close to a 45% appreciation of that asset that gets recognized at the time of maturity.

So this boosts the FSA earnings in the near term.

The other impact that you've seen since 2022 is that we have executed a series of reinsurance transactions between Apple-like Japan and Apple-like Bermuda.

When we do that, there's also a release of reserves in uh, in the Japan segment and that is boosting the uh FSA earnings as well.

So, I would say that those two components have been the main drivers of the very high FSA earnings that you have seen.

Thank you Max. I'm just follow up. It sounds like that. Could persist for at least a couple more years and then along the same lines. Can you just talk about the higher, uh, share repurchases in the quarter? And if that's something that you expect to see as more of a run rate, thanks?

um,

So, as long as you have a Yen that is weakening, uh, you would continue to have a Tailwind from maturing US dollar assets. If you have again, strengthening you could have the opposite. So I do, I do want to caution you that this goes both ways.

Um, the other Factor, we we do continue to evaluate further reinsurance transactions and if we were to execute any any in the future that is also likely to uh, create FSA earnings and therefore higher.

Cash coming through.

But if you look at um the underlying um FSA earnings uh that has generally been on a core basis uh a little bit over 200 billion yen per year and then the way I would think about it is that that's sort of a core underlying base and then on top of that you have the FX gains and any sort of gains coming through uh as a as it relates to reinsurance on top of that as well.

In terms of BuyBacks, uh, our philosophy have not changed. Uh, it is a function of our Capital ratios that we have.

The cash levels that we have at the holding company, as well as the capital formation that we see going forward. And then, obviously, we evaluate all the different kinds of deployment opportunities that we have throughout the company and the enterprise.

And where we see good returns, that's where we have the capital allocated to in the quarter. We obviously saw good levels and attractive IRR on the capital that we deployed into the Jerry purchase, and that's the reason why you saw that being a little bit higher than what you've seen in previous quarters.

Thank you.

The next question comes from sunnat. Cannot of Jeffrey's. Please go ahead.

Thanks, uh, good morning. Um, I wanted to come back to John barnes's, um, line of questioning on Affleck us and this comment that you made about the broker's pivoting back to I guess true group product. Uh and and you sort of reinvigorating Affleck nation. Is this a, a new development? I don't remember you talking about this in the past. And, and the reason I ask is, you know, fourth quarter, is traditionally your big group, um, you know, broker quarter in terms of Us sales. And I'm just wondering if, if it's a new development, should we start thinking about how that could impact fourth quarter of 25 sales? Thanks?

Uh, our pipeline for 4 quarter, looks strong.

I, I am confident and optimistic that we were going to finish our sales here within our ranges that we set forth. Uh, the pipeline I'm looking at will give us, uh, consistent, expectations, for the quarter.

Uh, so for fourth quarter, the pipeline looks good, no, I wouldn't say anything is changed. What I what I would say is that um with the, our growth in the large case space, and with our life absence of disability products is actually positive that we are growing faster than what we had anticipated.

And we are also continue to to force those broker relationships. We're also now looking to bundle as I mentioned before those life and absence of disability products alongside our Core Group VB products. What you're hearing me say though, is that what you're seeing is it's in the Fab documents, there is a weaker uh, average we could produce or number that we have currently today.

And with the weaker average, we can produce it, they're currently mostly driving our individual products. That's why you're seeing an over performance of group and really an underperformance in our individual. And we have to focus on making sure that we get the Affleck Nation, built back up and and looking forward to a stronger recruiting year.

But again, it's not just about recruiting, we have to convert. I'm pleased with our 8% conversion and then I'm also pleased with our productivity at 16% and I want you to know that that is a a focus of ours though is to grow producers because they're the ones that sell more of the individual business.

Okay. All right. That makes sense. And then maybe a follow-up on on the US, uh, Virgil, if I could. Um, so if I look at annual sales, they've been sort of traveling around a billion and a half, and looks like this year, might be pretty close to that as well. Um, and I know you're focused on earning premium growth of 3 to 5%, but obviously sales is pretty important. And a few years ago we talked about a billion 8 kind of Target. Um, just wondering what what needs to happen to get to some level of sales like that.

Yeah, so if you go back to start with the buy the bills because it started with our lack of performance with the dental product. So if you look at what we had expected, we're really about 2 years behind from where we are today. So while I'm being positive, the fact that we were covered operations and I'm very pleased with the 40% growth. We're seeing in the first 9 months, but that is really a year or 2 behind. So when we projected those original numbers, we would expect it to have been higher on an annual sales production from demo right now. Um, my goal is to to recover that pick that back up fit a strong this year and then go into 2026 getting closer to those numbers that we had originally predicted years ago. Uh, the second point I would tell you is it's the

Uh done a good job with that and we're not where we want to be. Let me be clear on that. But we are moving in the right direction and I'm talking about a major move. I'm talking about better than I thought they've done. And so I'm I'm, I'm very positive about that and and what Virgil saying is exactly right.

Uh, just a quick follow-up. I'm not sure what you meant by fives and sixes, but in any event, how big of a headwind is that issue?

Is that classification?

Uh, in a lumber mill, that's the highest rating you can get because accidents occur more. So the, the higher the number, the, the higher, the probability, you're going to have claims,

or whatever it might be, if it's a high persistency, but the best would be a, a, a white collar worker in a, in a air conditioned, H room working day to day, and just counting numbers, that's the safest 1. We can give the best rate to. Uh, and we are a lot of people were not riding 5 or or or what, I'll just call Les 4 pence in business and, um, and and less profitable business.

So we we basically gone through our project to basically classify all our different accounts by profitability and with hearing them between 1 and 6. And then we have essentially adjusted to some extent, the commission schedules accordingly to make sure that uh we uh, capture more of the more profitable business and less of the less profitable business.

He said it better than me.

The next question comes from Jimmy, Bueller of JP Morgan. Please go ahead.

Hey, good morning. Um, I had a couple of questions on the US business as well. So first, um, just in terms of claims Trends, it seems like your benefits ratio has been going up, uh, if we adjust for the actual reviews, um, and, uh, re measurement, gains and stuff, and I'm not sure to what extent, um, experience claims experience in supplemental. Products is gotten back to normal or has it gotten worse than normal, um, because obviously it was favorable or is it just a mix of business and growth in the group like, uh, Group Insurance products with or pure group, that's driving the

Topics or the questions just on what you're seeing in terms of claims Trends in supplemental policies.

Um, Jimmy, let let me kick it off, on, on, on the benefit ratio. So there's essentially 3 factors that have been pushing up our underlying benefit ratio to the, to the higher levels. Now into the 50s. Uh, first of all, we went through actively around of, uh, endorsements and benefit enhancements of our underlying policies. This applies to our cancer product is applied to our accident product. This applies to our Hospital product.

Because simply they were too low, especially coming out of the, uh, of the pandemic.

So part of it is that we have pushed that through, then you also have the cyclical component that, uh, because claims were very low, there's also an element of catching up impact that you are seeing now as well, coming out of the pandemic, especially as it relates to cancer claims. Uh, during the pandemic, there was an significant amount of undetected cancers, uh, that post-pandemic as more people go for their regular annual checkups. These are now being detected, so, we see therefore a little bit of a catching up impact on that line of business.

And the last piece to the benefit ratio is mix.

So a greater proportion of our in force are now gradually sitting in higher benefit ratio product categories, like life and disability and also dental and vision. And as sales grow of those product categories, they will become a greater proportion of our overall enforce. And therefore when you look at the total us benefit ratio that will structurally move up over time.

Okay, but nothing alarming in terms of claims in supplemental going up beyond what you would've assumed.

No, the I wouldn't say so.

5% growth in 23. It was a slight decline in 24 this year, you're going to grow, but it seems like it'll be low single digit growth again. But I would have assumed that the business would grow a lot faster than that. Just given the sort of, um, under penetration of supplemental policies, fairly High Medical Care inflation. Um, but do you think what you've seen recently is representative of what you'd expect longer term or is, is this a business that over time should be growing faster than what it's been growing at?

Uh, I would say that this is exactly what we expected. It's actually a little bit faster than we expected this year because we had to regain confidence.

And what I'm looking at is the number of agents and then as I mentioned, now, get into the broken Market that are actually coming to sell it. And so we are getting a higher numbers than we anticipated. It's going to be a gradual grind.

Uh, to get really to where we want to get to. Uh, I can tell you though, consistency matters here. So as as as you mentioned before that 5% and then we had the negative year and so you're coming on a smaller base. So when I, when I talk about the 40 percenters and friendly but you're probably talking about, I think it's about a 122 million dollar increase for the quarter. So these numbers need to get larger and larger and larger. But I am seeing that it happened quarter over quarter as more and more are seeing that the operation

Operations work. Uh, this is, this is something we have to prove out in the market. Uh, We've also they'll now start to get, uh, cases with the broker and I expect that to grow. So, uh, we're I expect this trend to continue in the fourth quarter and then see an additional Trend increase going into next year.

Thank you.

The next question comes from Jack Matten of BMO Capital markets. Please go ahead.

Hi, good morning. Um, just just 1 on your margins in Japan, um, to what degree are you now? Like, assuming future Improvement in in cancer and hospitalization Trends guess versus maybe your your prior assumption and how, um, you've seen recent experience trends,

So in our unlocked assumptions that incorporates our uh, up-to-date experience, it also assumes a little bit of a further improvements in that as we have seen a very, very, uh, long-term trend of favorable development. And so, we do incorporate the slight Improvement going forward but I would put it as fairly limited. Um, so I want want you to be aware of that. It's not a there's not no improvement whatsoever but there is a very small Improvement Incorporated in in our future actual area assumptions for for

Answer.

Got it. Um, then a follow-up just wondering about your perspective around, um, private credit. Given it's been in the, in the headlines lately. Um, I guess. Can you just talk about your your outlook for that asset class and and what kind of experience um as like a portfolio? Sure, good morning, thank you for the question Jack. Um,

Private credit is is not something that's new to uh new to us or to the industry. By any means, we're very comfortable with our current strategy as it relates to private credit uh to state the obvious, there's 2 risk. You need to understand and you need to underwrite. Um, this is a credit asset, you need to have very strong Credit Management capabilities, um, and it needs to focus on Bottoms Up security, level underwriting with a discipline top down portfolio management approach. Uh, and then the second obvious, uh, risk factor is liquidity and making sure you're stressing to make sure that you've got the liquidity. You need to meet obligations across the, uh, across the, uh, the organization and we obviously, uh, do both of those, um, is, is it relates to the credit cycle and things we're seeing their, uh, nothing systemic that would suggest where the, uh, the beginnings of a serious credit cycle corporate balance sheets.

Exposure to the, to the names that have been in the news lately. And we think our disciplined underwriting uh, is going to allow us to do very well. If and when the cycle does turn,

Thank you.

This concludes our question and answer session. I would like to turn the conference back over to David young for any closing remarks.

Thank you, Andrea, and thank you all for joining us here today. If you have any follow-up questions, please reach out to investor and rating agency relations and we look forward to speaking to you soon, have a great day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.