Thank you for joining me as I provide a financial update on Aflac, Inc. 's results.
Virgil Miller: Thank you for joining me as I provide a financial update on Aflac Inc's results. For the fourth quarter of 2025, adjusted earnings per diluted share increased 0.6% year-over-year to $1.57, excluding effect of foreign currency in the quarter. In this quarter, remeasurement gains on reserves totaled $36 million, reducing benefits. Variable investment income ran $12 million below our long-term return expectations. Adjusted book value per share, excluding foreign currency remeasurement, increased 0.5%. The adjusted ROE was 11.7% and 14.5%, excluding foreign currency remeasurement, a solid spread to our cost of capital. Overall, we view these results in the quarter as solid. Starting with our Japan segment, net earned premiums in yen terms for the quarter declined 1.9%.
Virgil Miller: Thank you for joining me as I provide a financial update on Aflac Inc's results. For the fourth quarter of 2025, adjusted earnings per diluted share increased 0.6% year-over-year to $1.57, excluding effect of foreign currency in the quarter. In this quarter, remeasurement gains on reserves totaled $36 million, reducing benefits. Variable investment income ran $12 million below our long-term return expectations. Adjusted book value per share, excluding foreign currency remeasurement, increased 0.5%. The adjusted ROE was 11.7% and 14.5%, excluding foreign currency remeasurement, a solid spread to our cost of capital. Overall, we view these results in the quarter as solid. Starting with our Japan segment, net earned premiums in yen terms for the quarter declined 1.9%.
For the fourth quarter of 2025 adjusted earnings per diluted share increased 0.6% year over year to $1 57, excluding effect of foreign currency in the quarter.
In this quarter remeasurement gains on reserves totaled $36 million reducing benefits.
Variable investment income ran $12 million below our long term return expectations.
Adjusted book value per share, excluding foreign currency Remeasurement increased 0.5%.
The adjusted ROE was 11, 7% and 14.5% excluding foreign currency re measurement as.
A solid spread to our cost of capital.
Overall, we view these results in the quarter as solid.
Starting with our Japan segment net earned premiums in yen terms for the quarter declined one 9% Aflac Japans underlying earned premiums, which excludes the impact of deferred profit liability paid up policies and reinsurance declined one 2%.
Virgil Miller: Aflac Japan's underlying earned premiums, which excludes the impact of deferred profit liability, paid up policies, and reinsurance, declined 1.2%. We believe this metric provides a clearer insight into long-term premium trends. Japan's total benefit ratio came in at 65% for the quarter, down 150 basis points year-over-year. We estimate the impact from reserve remeasurement gains to be approximately 110 basis points favorable to the benefit ratio in Q4 2025. 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 93.1%. With refreshed product introductions, we generally see an uptick in lapse and reissue activity, causing reported lapsation to increase.
Virgil Miller: Aflac Japan's underlying earned premiums, which excludes the impact of deferred profit liability, paid up policies, and reinsurance, declined 1.2%. We believe this metric provides a clearer insight into long-term premium trends. Japan's total benefit ratio came in at 65% for the quarter, down 150 basis points year-over-year. We estimate the impact from reserve remeasurement gains to be approximately 110 basis points favorable to the benefit ratio in Q4 2025. 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 93.1%. With refreshed product introductions, we generally see an uptick in lapse and reissue activity, causing reported lapsation to increase.
We believe this metric provides a clearer insight into long term premium trends Japan's total benefit ratio came in at 65% for the quarter down 150 basis points year over year.
We estimate the impact from a reserve remeasurement gains to be approximately 110 basis points favorable to the benefit ratio in Q4 2025.
Long term experience trends as it relates to treatments of cancer and hospitalization continue to be in place leading to continued favorable underwriting experience persistency remained solid year over year and in line with our expectations at 93, 1% with refreshed product introductions, we generally see in <unk>.
Optic in lapse and reissue activity, causing reported lap station to increase.
We did experience this uptick with our recently launched cancer insurance product, but overall lapses remained within our expectations.
Virgil Miller: We did experience this uptick with our recently launched cancer insurance product, but overall lapses remained within our expectations. Lapses on our First Sector savings block remained low and in line with previous periods, despite the increase in yen interest rates. Our expense ratio in Japan was 22% for the quarter, up 120 basis points year-over-year, driven primarily by sales promotion expenses associated with higher sales. For the quarter, adjusted net investment income in yen terms was down 3.9%, primarily driven by lower floating rate income on our US dollar book and lower variable investment income, partially offset by higher US dollar fixed income due to higher volume. The pre-tax margin for Japan in the quarter was 31.3%, down 30 basis points year-over-year. A very good result. Now, turning to US results.
Virgil Miller: We did experience this uptick with our recently launched cancer insurance product, but overall lapses remained within our expectations. Lapses on our First Sector savings block remained low and in line with previous periods, despite the increase in yen interest rates. Our expense ratio in Japan was 22% for the quarter, up 120 basis points year-over-year, driven primarily by sales promotion expenses associated with higher sales. For the quarter, adjusted net investment income in yen terms was down 3.9%, primarily driven by lower floating rate income on our US dollar book and lower variable investment income, partially offset by higher US dollar fixed income due to higher volume. The pre-tax margin for Japan in the quarter was 31.3%, down 30 basis points year-over-year. A very good result. Now, turning to US results.
Lapses on our first sector savings block remained low and in line with previous periods. Despite the increase in yen interest rates.
Our expense ratio in Japan was 22% per quarter up 120 basis points year over year drill.
Driven primarily by sales promotion expenses associated with higher sales.
For the quarter adjusted net investment income in yen terms was down three 9%.
Primarily driven by lower floating rate income on our U S. Dollar book and lower variable investment income, partially offset by higher U S. Dollar fixed income due to higher volume.
The pretax margin for Japan in the quarter was 31, 3% down 30 basis points year over year, a very good result.
Now turning to U S results net earned premiums were up 4%, while premium persistency declined slightly by 10 basis points year over year.
Virgil Miller: Net earned premiums were up 4%, while premium persistency declined slightly by 10 basis points year-over-year. It remains strong at 79.2%. Our total benefit ratio came in at 48.6%, 230 basis points higher than Q4 2024, driven by prior year endorsements and higher claims activity on our individual voluntary block, as well as a higher benefit ratio on group life and disability. We estimate the reserve remeasurement gains impacted the benefit ratio by approximately 140 basis points in the quarter. Our expense ratio in the US was 40.4%, up 10 basis points year-over-year, primarily driven by timing of spend from previous quarters. Our growth initiatives, group life and disability, network dental and vision, and direct to consumer, increased the expense ratio by 60 basis points in the quarter.
Virgil Miller: Net earned premiums were up 4%, while premium persistency declined slightly by 10 basis points year-over-year. It remains strong at 79.2%. Our total benefit ratio came in at 48.6%, 230 basis points higher than Q4 2024, driven by prior year endorsements and higher claims activity on our individual voluntary block, as well as a higher benefit ratio on group life and disability. We estimate the reserve remeasurement gains impacted the benefit ratio by approximately 140 basis points in the quarter. Our expense ratio in the US was 40.4%, up 10 basis points year-over-year, primarily driven by timing of spend from previous quarters. Our growth initiatives, group life and disability, network dental and vision, and direct to consumer, increased the expense ratio by 60 basis points in the quarter.
It remains strong at 79, 2% our total benefit ratio came in at 48, 6% to 130 basis points higher than Q4, 'twenty 'twenty four.
Driven by prior year endorsements and higher claims activity on our individual voluntary block as well as a higher benefit ratio on group life and disability.
We estimate the reserve Remeasurement gains impacted a benefit ratio by approximately 140 basis points in the quarter.
Our expense ratio in the U S was 44% up 10 basis points year over year.
Primarily driven by timing of spend from previous quarters.
Our growth initiatives group life, and disability network dental and vision and direct to consumer increased the expense ratio by 60 basis points in the quarter.
This is in line with our expectations as these businesses continue to scale.
Virgil Miller: This is in line with our expectations as these businesses continue to scale. Adjusted net investment income in the US was down 2.8% for the quarter, primarily driven by a reduction in floating rate assets and corresponding rates. Profitability in the US segment was solid, with a pre-tax margin of 17.4%, a 230 basis points decrease compared with a stronger quarter a year ago. In Corporate and Other, we recorded a pre-tax adjusted loss of $31 million in the quarter. Total premiums decreased on closed blocks of business. Adjusted net investment income was $1 million higher than last year due to a combination of lower volume of tax credit investments, and higher asset balances.
Virgil Miller: This is in line with our expectations as these businesses continue to scale. Adjusted net investment income in the US was down 2.8% for the quarter, primarily driven by a reduction in floating rate assets and corresponding rates. Profitability in the US segment was solid, with a pre-tax margin of 17.4%, a 230 basis points decrease compared with a stronger quarter a year ago. In Corporate and Other, we recorded a pre-tax adjusted loss of $31 million in the quarter. Total premiums decreased on closed blocks of business. Adjusted net investment income was $1 million higher than last year due to a combination of lower volume of tax credit investments, and higher asset balances.
Adjusted net investment income in the U S was down 2.8% for the quarter, primarily driven by a reduction in floating rate assets and corresponding rates.
Profitability in the U S segment was solid with a pretax margin of 17, 4%, a 230 basis points decrease compared with a stronger quarter a year ago in corporate and other we recorded pre tax adjusted loss of $31 million in the quarter.
Total premiums decreased on closed blocks of business adjusted net investment income was $1 million higher than last year due to a combination of lower volume of tax credit investments and higher asset balances.
Our tax credit investments impacted net investment income line for U S. GAAP purposes negatively by $43 million in the quarter with an associated credit to the tax line.
Virgil Miller: Our tax credit investments impacted a net investment income line for US GAAP purposes negatively by $43 million in the quarter, with an associated credit to the tax line. The total Q4 earnings benefit from tax credit investments was $13 million. Adjusted earnings declined due to lower revenues and higher adjusted expenses, driven primarily by higher costs pertaining to business operations, and higher interest expense, partially offset by lower net benefits and claims. We continue to be pleased with the performance of our investment portfolio. During the quarter, we did not record any charge-offs for the commercial real estate portfolio. Additionally, we did not foreclose on any properties in the period.
Virgil Miller: Our tax credit investments impacted a net investment income line for US GAAP purposes negatively by $43 million in the quarter, with an associated credit to the tax line. The total Q4 earnings benefit from tax credit investments was $13 million. Adjusted earnings declined due to lower revenues and higher adjusted expenses, driven primarily by higher costs pertaining to business operations, and higher interest expense, partially offset by lower net benefits and claims. We continue to be pleased with the performance of our investment portfolio. During the quarter, we did not record any charge-offs for the commercial real estate portfolio. Additionally, we did not foreclose on any properties in the period.
The total fourth quarter earnings benefit from tax credit investments was $13 million.
Adjusted earnings declined due to lower revenues and higher adjusted expenses, driven primarily by higher costs pertaining to business operations and higher interest expense, partially offset by lower net benefits and claims we continue to be pleased with the performance of our investment portfolio during the quarter, we did not record any charge.
Arps for the commercial real estate portfolio. Additionally.
Additionally, we did not foreclose on any properties in the period.
On our portfolio of first lien senior secured middle market loans, we recorded charge offs of $22 million in the quarter.
Virgil Miller: On our portfolio of first lien senior secured middle market loans, we recorded charge-offs of $22 million in the quarter. For US statutory, we recorded a $3 million valuation allowance on mortgage loans as an unrealized loss during the quarter. On a Japan FSA basis, there were net realized gains of JPY 380 million for securities impairments in Q4, and we booked a valuation allowance of JPY 87 million related to transitional real estate loans. This is well within our expectations and has a limited impact on regulatory earnings and capital. In Q3 2025, we enhanced our liquidity and capital flexibility by $2 billion with the creation of two off-balance sheet pre-capitalized trusts, the issued securities commonly referred to as PCAPS.
Virgil Miller: On our portfolio of first lien senior secured middle market loans, we recorded charge-offs of $22 million in the quarter. For US statutory, we recorded a $3 million valuation allowance on mortgage loans as an unrealized loss during the quarter. On a Japan FSA basis, there were net realized gains of JPY 380 million for securities impairments in Q4, and we booked a valuation allowance of JPY 87 million related to transitional real estate loans. This is well within our expectations and has a limited impact on regulatory earnings and capital. In Q3 2025, we enhanced our liquidity and capital flexibility by $2 billion with the creation of two off-balance sheet pre-capitalized trusts, the issued securities commonly referred to as PCAPS.
For U S. Statutory we recorded a $3 million valuation allowance on mortgage loans as an unrealized loss during the quarter on a Japan FSA basis. There were net realized gains of 380 million yen for securities impairments in Q4.
And we booked a valuation allowance of 87 million yen related to transitional real estate loans.
This is well within our expectations and has a limited impact on regulatory earnings and capital.
In the third quarter of 2025, we enhanced our liquidity and capital flexibility by $2 billion with the creation of two off balance sheet pre capitalized trusts. They issued securities commonly referred to as P caps with increased off balance sheet capital resources.
And improved liquidity flexibility, we have lowered our minimum liquidity balance at the holding company by $750 million to $1 billion.
Virgil Miller: With increased off-balance sheet capital resources and improved liquidity flexibility, we have lowered our minimum liquidity balance at the holding company by $750 million to $1 billion. This means that Aflac Inc. unencumbered liquidity stood at $4.1 billion, which was $3.1 billion above our minimum balance at the end of the quarter. The full PCAP facility remains undrawn. Our adjusted leverage was 21.4% for the quarter, which is within our target range of 20% to 25%. As we hold approximately 63% 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. Our capital position remains strong.
Virgil Miller: With increased off-balance sheet capital resources and improved liquidity flexibility, we have lowered our minimum liquidity balance at the holding company by $750 million to $1 billion. This means that Aflac Inc. unencumbered liquidity stood at $4.1 billion, which was $3.1 billion above our minimum balance at the end of the quarter. The full PCAP facility remains undrawn. Our adjusted leverage was 21.4% for the quarter, which is within our target range of 20% to 25%. As we hold approximately 63% 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. Our capital position remains strong.
This means that Aflac, Inc. Unencumbered liquidity stood at $4.1 billion, which was $3.1 billion above our minimum balance at the end of the quarter.
The full pea capped facility remains undrawn.
Our adjusted leverage was 21, 4% for the quarter, which is within our target range of 20% to 25%.
As we hold approximately 63% 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.
Our capital position remains strong we ended the quarter with an S EMR above 970%.
Virgil Miller: We ended the quarter with an SMR above 970% and an estimated regulatory ESR with the undertaking specific parameter or USP of 253%. We estimate that the USP benefits the regulatory ESR by 18 points. We estimate our combined RBC to be 575%. These are strong capital ratios, which we actively monitor, stress, and manage to withstand market volatility and credit cycles, as well as external shocks. We last updated our ESR sensitivities at our financial analysts briefing in December 2024. Since then, we have seen significant movements in both the dollar/yen and yen interest rates, so we wanted to provide an updated estimate before the ESR comes into effect on 31 March 2025. We have deliberately improved our ALM during this time, which has led to reduced exposure to interest rate risk.
Virgil Miller: We ended the quarter with an SMR above 970% and an estimated regulatory ESR with the undertaking specific parameter or USP of 253%. We estimate that the USP benefits the regulatory ESR by 18 points. We estimate our combined RBC to be 575%. These are strong capital ratios, which we actively monitor, stress, and manage to withstand market volatility and credit cycles, as well as external shocks. We last updated our ESR sensitivities at our financial analysts briefing in December 2024. Since then, we have seen significant movements in both the dollar/yen and yen interest rates, so we wanted to provide an updated estimate before the ESR comes into effect on 31 March 2025. We have deliberately improved our ALM during this time, which has led to reduced exposure to interest rate risk.
And an estimated regulatory ESR with the undertaking specific parameter or USP of 253%.
We estimate that the USP benefits the regulatory ESR by 18 points.
We estimate our combined RBC to be 575%.
These are strong capital ratios, which we actively monitor stress and managed to withstand market volatility and credit cycles as well as external shocks.
We last updated our ESR sensitivities at our financial analyst briefing in December 'twenty 'twenty four.
Since then we have seen significant movements in both the dollar yen and yen interest rates.
So we wanted to provide an updated estimates before the ESR comes into effect on March 31.
We have deliberately improved R. A L M. During this time.
Which has led to reduced exposure to interest rate risk with.
We generally have lowered our sensitivities to market risk factors. We have also refreshed our sensitivity analysis related to our combined RBC ratio in the U S. A.
Virgil Miller: We generally have lowered our sensitivities to market risk factors. We've also refreshed the sensitivity analysis related to our combined RBC ratio in the US. I will characterize these refreshed estimates also as being in line with what we shared at FAB in December 2024. Given the strength of our capital and liquidity, we repurchased $800 million of our own stock and paid dividends of $303 million in Q4, offering good relative IRR on these capital deployments. We will continue to be flexible and tactical in the way 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. Before concluding, I would like to address our 2026 outlook.
Virgil Miller: We generally have lowered our sensitivities to market risk factors. We've also refreshed the sensitivity analysis related to our combined RBC ratio in the US. I will characterize these refreshed estimates also as being in line with what we shared at FAB in December 2024. Given the strength of our capital and liquidity, we repurchased $800 million of our own stock and paid dividends of $303 million in Q4, offering good relative IRR on these capital deployments. We will continue to be flexible and tactical in the way 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. Before concluding, I would like to address our 2026 outlook.
I would characterize these refreshed estimates also as being in line with what we shared at Fab in December 2024.
Given the strength of our capital and liquidity, we repurchased $800 million of our own stock and pay dividends of $303 million in Q4 offering good relative IRR on these capital deployments.
We will continue to be flexible and tactical in the way, 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.
Before concluding I would like to address our 20th twenty-six outlook.
At our 'twenty 'twenty four financial analyst briefing I'll provide arrangements for net earned premiums benefit and expense ratios and pre tax profit margin for each segment for 2025 through 2027.
Virgil Miller: At our 2024 financial analyst briefing, I provided ranges for net earned premiums, benefits and expense ratios, and pre-tax profit margin for each segment for 2025 through 2027. These ranges remain substantially intact for 2026, but with a couple of exceptions. For Aflac Japan, we expect underlying earned premiums to decline 1% to 2% in 2026. We also expect the expense ratio to be in the 20% to 23% range. However, we expect the benefit ratio in Japan to be in the 60% to 63% range and the pre-tax profit margin to be in the 33% to 36% range. In the US, we continue to expect net earned premium growth to be in the lower end of the 3% to 6% range.
Virgil Miller: At our 2024 financial analyst briefing, I provided ranges for net earned premiums, benefits and expense ratios, and pre-tax profit margin for each segment for 2025 through 2027. These ranges remain substantially intact for 2026, but with a couple of exceptions. For Aflac Japan, we expect underlying earned premiums to decline 1% to 2% in 2026. We also expect the expense ratio to be in the 20% to 23% range. However, we expect the benefit ratio in Japan to be in the 60% to 63% range and the pre-tax profit margin to be in the 33% to 36% range. In the US, we continue to expect net earned premium growth to be in the lower end of the 3% to 6% range.
These ranges remain substantially intact for 2026, but with a couple of exceptions.
For Aflac, Japan, we expect underlying earned premiums to decline, 1% to 2% in 2026, and we also expect the expense ratio to be in the 20% to 23% range.
However, we expect the benefit ratio in Japan to be in the 60% to 63% range and the pretax profit margin to be in the 33% to 36% range.
In the U S. We continue to expect net earned premium growth to be in the lower end of the 3% to 6% range.
We also expect the benefit ratio for 2020 six to be in a 48% to 52% range in.
Virgil Miller: We also expect the benefit ratio for 2026 to be in the 48 to 52% range, and the expense ratio to be in the 36 to 39% range as we continue to scale new business lines. At the same time, we expect pre-tax profit margin for 2026 to be in a range of 17 to 20%. Thank you, and I look forward to discussing our results in further detail on tomorrow's earnings call.
Virgil Miller: We also expect the benefit ratio for 2026 to be in the 48 to 52% range, and the expense ratio to be in the 36 to 39% range as we continue to scale new business lines. At the same time, we expect pre-tax profit margin for 2026 to be in a range of 17 to 20%. Thank you, and I look forward to discussing our results in further detail on tomorrow's earnings call.
In the expense ratio to be in the 36% to 39% range as we continue to scale new business lines.
At the same time, we expect pre tax profit margin for 'twenty or 'twenty six to be in the range of 17% to 20%. Thank you and I look forward to discussing our results in further detail on Tomorrow's earnings call.
