Q2 2026 Aflac Inc Earnings Call - Pre-Recorded
Speaker #1: Thank you for joining me as I provide a financial update on Airflight Incorporated's results. For the second quarter of 2026, adjusted earnings per diluted share increased 1.1% year-over-year to $1.80.
[Company Representative] (Aflac): Thank you for joining me as I provide a financial update on Aflac Incorporated's results. For Q2 2026, adjusted earnings per diluted share increased 1.1% year over year to $1.80, excluding effect of foreign currency in the quarter. In this quarter, remeasurement gains on reserves totaled $46 million, reducing benefits with $7 million, or $0.01 per diluted share below plan. variable investment income ran $72 million, or $0.11 per diluted share below our long-term return expectations. We also released a $26 million expense contingency with lowered expenses in our U.S. segment, benefiting results by $0.04 per share. adjusted book value per share excluding foreign currency remeasurement decreased 4.1%. The adjusted ROE was 12.7% and 16.6%, 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.
Dan Amos: Thank you for joining me as I provide a financial update on Aflac Incorporated's Results. For Q2 2026, adjusted earnings per diluted share increased 1.1% year over year to $1.80, excluding the effect of foreign currency in the quarter. In this quarter, remeasurement gains on reserves totaled $46 million, reducing benefits by $7 million, or $0.01 per diluted share, below plan. variable investment income ran $72 million, or $0.11 per diluted share below our long-term return expectations.
Speaker #1: Excluding effect of foreign currency in the quarter. In this quarter, remeasurement gains on reserves totaled $46 million reducing benefits, with $7 million or 1 cent per diluted share below plan.
Speaker #1: Variable investment income ran $72 million or $0.11 per diluted share below our long-term return expectations. We also released a $26 million expense contingency with lowered expenses in our U.S.
Speaker #1: segment, benefiting results by $0.04 per share. Adjusted book value per share excluding foreign currency remeasurement decreased 4.1%. The adjusted ROE was 12.7%, and 16.6% excluding foreign currency remeasurement, a solid spread to our cost of capital.
Dan Amos: We also released a $26 million expense contingency with lowered expenses in our U.S. segment, benefiting results by $0.04 per share. adjusted book value per share excluding foreign currency remeasurement decreased 4.1%. The adjusted ROE was 12.7% and 16.6%, 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.
Speaker #1: Overall, we view these results in the quarter as solid. Starting with our Japan segment. Net term premiums in yen terms for the quarter declined 3.7%.
Speaker #1: Airflight Japan's underlying earned premiums, which excludes the impact of reinsurance, paid-out policies, and deferred profit liability, declined 1.4%. Japan's total benefit ratio came in at 64% for the quarter.
[Company Representative] (Aflac): net earned premiums in JPY terms for the quarter declined 3.7%. Aflac Japan's underlying earned premiums, which excludes the impact of reinsurance, paid-up policies, and deferred profit liability, declined 1.4%. Japan's total benefit ratio came in at 64% for the quarter, down 250 basis points year over year. We estimate the impact from reserve remeasurement gains were under plan by approximately 60 basis points. We continue to have favorable trends in cancer and hospitalization. Recognizing that the year-to-date benefit ratio is 63.4%, we now expect to be at the high end of our guidance range of 60% to 63% for the full year of 2026, excluding the annual actuarial assumption review in Q3. persistency remains solid and in line with our expectations at 92.7%.
Dan Amos: Net earned premiums in JPY terms for the quarter declined 3.7%. Aflac Japan's underlying earned premiums, which exclude the impact of reinsurance, paid-up policies, and deferred profit liability, declined 1.4%. Japan's total benefit ratio came in at 64% for the quarter, down 250 basis points year over year.
Speaker #1: Down 250 basis points year-over-year. We estimate the impact from reserve remeasurement gains were under plan by approximately 60 basis points. We continue to have favorable trends in cancer and hospitalization.
Dan Amos: We estimate the impact from reserve remeasurement gains were under plan by approximately 60 basis points. We continue to have favorable trends in cancer and hospitalization. Recognizing that the year-to-date benefit ratio is 63.4%, we now expect to be at the high end of our guidance range of 60% to 63% for the full year of 2026, excluding the annual actuarial assumption review in Q3. Persistency remains solid and in line with our expectations at 92.7%.
Speaker #1: Recognizing that the year-to-date benefit ratio is 63.4%, we now expect to be at the high end of our guidance range of 60 to 63% for the full year of 2026, excluding the annual actuarial assumption review in Q3.
Speaker #1: Persistency remains solid, and in line with our expectations at 92.7%. We have continued to experience somewhat elevated labs and research activity on recently launched products.
Speaker #1: As we have expanded coverage options and competitiveness on our new products. Lapses on our first sector savings block remain low and in line with previous periods, despite the increase in yen interest rates.
[Company Representative] (Aflac): We have continued to experience somewhat elevated lapse and ratio activity on recently launched products as we have expanded coverage options and competitiveness on our new products. Lapses on our first sector savings block remain low and in line with previous periods, despite the increase in JPY interest rates. Our expense ratio in Japan was 20.2% for the quarter, down 40 basis points year over year. This is a strong result, especially on the back of the current inflationary pressures in Japan. For the quarter, adjusted net investment income in JPY terms was down 2.9%, primarily driven by lower call income and lower dollar-denominated floating rate income, partially offset by higher income on U.S. dollar assets due to the weakening of the JPY and higher dollar-denominated fixed rate income. The pre-tax margin for Japan in the quarter was 34.3%, up 230 basis points year over year. A very good result.
Dan Amos: We have continued to experience somewhat elevated lapse and ratio activity on recently launched products as we have expanded coverage options and competitiveness on our new products. Lapses on our first sector savings block remain low and in line with previous periods, despite the increase in JPY interest rates. Our expense ratio in Japan was 20.2% for the quarter, down 40 basis points year over year.
Speaker #1: Our expense ratio in Japan was 20.2% for the quarter, down 40 basis points year-over-year. This is a strong result, especially on the back of the current inflationary pressures in Japan.
Speaker #1: For the quarter adjusted net investment income in yen terms was down 2.9%, primarily driven by lower call income and lower dollar denominated floating rate income.
Dan Amos: This is a strong result, especially on the back of the current inflationary pressures in Japan. For the quarter, adjusted net investment income in JPY terms was down 2.9%, primarily driven by lower call income and lower dollar-denominated floating-rate income, partially offset by higher income on US dollar assets due to the weakening of the JPY and higher dollar-denominated fixed-rate income. The pre-tax margin for Japan in the quarter was 34.3%, up 230 basis points year over year. A very good result.
Speaker #1: Partially offset by higher income on U.S. dollar assets due to the weakening of the yen and higher dollar denominated fixed rate income. The pre-tax margin for Japan in the quarter was 34.3%, up 230 basis points year-over-year, a very good result.
Speaker #1: As we previously discussed, Airflight Japan set an internal reinsurance target of up to 10% of U.S. gap assets. We have revisited this target and aligned it with an FSA perspective of up to 30% of FSA reserves.
[Company Representative] (Aflac): As we previously discussed, Aflac Japan set an internal reinsurance target of up to 10% of US GAAP assets. We have revisited this target and aligned it with an FSA perspective of up to 30% of FSA reserves. This will allow us to continue to reduce risk, improve balance sheet efficiency, and ultimately generate a higher ROE for Aflac Japan and the group. Turning to U.S. results. net earned premiums were up 2.3%. We expect our net earned premium growth rate for 2026 to be just below our guidance range of 3% to 6%, versus previous guidance for the low end of this range. We continue, though, to expect our 2025 to 2027 net earned premium CAGR to be within the range of 3% to 6%. Premium persistency remains solid at 79.4%, up 20 basis points year over year.
Dan Amos: As we previously discussed, Aflac Japan set an internal reinsurance target of up to 10% of US GAAP assets. We have revisited this target and aligned it with an FSA perspective of up to 30% of FSA reserves. This will allow us to continue to reduce risk, improve balance sheet efficiency, and ultimately generate a higher ROE for Aflac Japan and the group. Turning to U.S. results. Net earned premiums were up 2.3%.
Speaker #1: This will allow us to continue to reduce risk, improve balance sheet efficiency, and ultimately generate a higher ROE for Airflight Japan and the group, turning to U.S.
Speaker #1: results, net term premiums were up 2.3%. We expect our net term premium growth rate for 2026 to be just below our guidance range of 3 to 6%, versus previous guidance for the low end of this range.
Dan Amos: We expect our net earned premium growth rate for 2026 to be just below our guidance range of 3% to 6%, versus previous guidance for the low end of this range. We continue, though, to expect our 2025 to 2027 net earned premium CAGR to be within the range of 3% to 6%. Premium persistency remains solid at 79.4%, up 20 basis points year over year.
Speaker #1: We continue though to expect our 2025 to 2027 net earned premium CAGR to be within the range of 3 to 6%. Premium persistency remains solid at 79.4%, up 20 basis points year-over-year.
Speaker #1: Our total benefit ratio came in at 49.5%, 220 basis points higher than Q2 2025. Driven by an increase in incurred group disability claims in the quarter, relative to favorable results in the previous quarter.
Dan Amos: Our total benefit ratio came in at 49.5%, 220 basis points higher than Q2 2025, driven by an increase in incurred Group Disability claims in the quarter relative to favorable results in the previous quarter. We estimate that reserve remeasurement gains impacted the benefit ratio by about 30 basis points above plan. Our expense ratio in the US was 36.1%, down 20 basis points year over year.
[Company Representative] (Aflac): Our total benefit ratio came in at 49.5%, 220 basis points higher than Q2 2025, driven by an increase in incurred Group Disability claims in the quarter relative to favorable results in the previous quarter. We estimate that reserve remeasurement gains impacted a benefit ratio by about 30 basis points above plan. Our expense ratio in the US was 36.1%, down 20 basis points year over year. Adjusted net investment income in the US was essentially flat, up 0.5% for the quarter, as higher call and fixed rate income were offset by lower floating rate and short-term income. Profitability in the US segment was solid, with a pre-tax margin of 20.9%, 160 basis points decrease compared with a strong quarter a year ago. Corporate and Other reported a pre-tax adjusted loss of $10 million, down from a $20 million gain last year.
Speaker #1: We estimate that reserve remeasurement gains impacted the benefit ratio by about 30 basis points above plan. Our expense ratio in the U.S. was 36.1%, down 20 basis points year-over-year.
Speaker #1: Adjusted net investment income in the U.S. was essentially flat, up 0.5% for the quarter, as higher call and fixed rate income were offset by lower floating rate and short-term income.
Dan Amos: Adjusted net investment income in the US was essentially flat, up 0.5% for the quarter, as higher call and fixed rate income were offset by lower floating rate and short-term income. Profitability in the US segment was solid, with a pre-tax margin of 20.9%, 160 basis points decrease compared with a strong quarter a year ago. Corporate and Other reported a pre-tax adjusted loss of $10 million, down from a $20 million gain last year.
Speaker #1: Profitability in the U.S. segment was solid, with a pre-tax margin of 20.9%, 160 basis points decreased compared with a strong quarter a year ago.
Speaker #1: Corporate and other reported pre-tax adjusted loss of $10 million down from a $20 million gain last year. The main drivers were lower adjusted net investment income from lower short-term income and reduced hedge benefits that were partially offset by higher fixed rate income.
[Company Representative] (Aflac): The main drivers were lower adjusted net investment income from lower short-term income and reduced hedge benefits that were partially offset by higher fixed rate income. Although our tax credit investments impacted the adjusted net investment income line for US GAAP purposes negatively by $6 million in the quarter with an associated credit to the tax line, the overall tax credit investment program benefited net earnings by $8 million. Higher interest expense and run-off impacts from our closed blocks of business also contributed to the net loss for the quarter. We're pleased with our overall performance of our investment portfolio. Our private credit portfolio, most notably our middle market loan portfolio, continues to deliver strong risk-adjusted net yields.
Dan Amos: The main drivers were lower adjusted net investment income from lower short-term income and reduced hedge benefits that were partially offset by higher fixed-rate income. Although our tax credit investments impacted the adjusted net investment income line for US GAAP purposes negatively by $6 million in the quarter with an associated credit to the tax line, the overall tax credit investment program benefited net earnings by $8 million.
Speaker #1: Although our tax credit investments impacted the adjusted net investment income line for U.S. gap purposes negatively by $6 million, in the quarter, with an associated credit to the tax line, the overall tax credit investment program benefited net earnings by $8 million.
Speaker #1: Higher interest expense and runoff impacts from our close blocks of business also contributed to the net loss for the quarter. We're pleased with our overall performance of our investment portfolio.
Dan Amos: Higher interest expense and run-off impacts from our closed blocks of business also contributed to the net loss for the quarter. We're pleased with our overall performance of our investment portfolio. Our private credit portfolio, most notably our middle market loan portfolio, continues to deliver strong risk-adjusted net yields.
Speaker #1: Our private credit portfolio, most notably our middle market loan portfolio, continues to deliver strong risk-adjusted net yields. During the quarter, our global investments team were quite active repositioning 4.8 billion of the portfolio through switch trades, to capture the benefit of higher yields and further strengthen the overall quality of our consolidated portfolio.
[Company Representative] (Aflac): During the quarter, our global investments team were quite active, repositioning $4.8 billion of the portfolio through switch trades to capture the benefit of higher yields and further strengthen the overall quality of our consolidated portfolio. These trades capture foreign currency gains to minimize market losses on lower yielding assets, reduce the risk of future FSA impairments, improve our ALM, and boost net investment income. On an annualized basis, we expect this program to increase net investment income by over $50 million on a run rate basis, with a very limited impact on capital levels. We will continue pursuing opportunities that improve the overall health and performance of the portfolio. For U.S. statutory, we recorded $11 million of impairments on invested assets and $1 million valuation allowance on our mortgage loans as an unrealized loss during the quarter.
Dan Amos: During the quarter, our global investments team were quite active, repositioning $4.8 billion of the portfolio through switch trades to capture the benefit of higher yields and further strengthen the overall quality of our consolidated portfolio. These trades capture foreign currency gains to minimize market losses on lower-yielding assets, reduce the risk of future FSA impairments, improve our ALM, and boost net investment income.
Speaker #1: These trades capture foreign currency gains to minimize market losses on lower yielding assets, reduce the risk of future FSA impairments, improve our ALM, and boost net investment income.
Speaker #1: On an annualized basis, we expect this program to increase net investment income by over $50 million on our run rate basis, with a very limited impact on capital levels.
Dan Amos: On an annualized basis, we expect this program to increase net investment income by over $50 million on a run-rate basis, with a very limited impact on capital levels. We will continue pursuing opportunities that improve the overall health and performance of the portfolio. For US statutory, we recorded $11 million of impairments on invested assets and $1 million valuation allowance on our mortgage loans as an unrealized loss during the quarter.
Speaker #1: We will continue pursuing opportunities that improve the overall health and performance of the portfolio. For U.S. statutory, we recorded $11 million of impairments on invested assets, and $1 million valuation allowance on our mortgage loans as an unrealized loss during the quarter.
Speaker #1: On our Japan FSA basis, we booked securities impairments of $15.8 billion yen and an additional valuation allowance of $33 million yen related to transitional real estate loans in Q2.
Dan Amos: On a Japan FSA basis, we booked securities impairments of JPY 15.8 billion and an additional valuation allowance of JPY 33 million related to transitional real estate loans in Q2. This is well within our expectations and has a limited impact on regulatory earnings and capital. Aflac Inc unencumbered liquidity stood at $3.3 billion, which was $2.3 billion above our minimum balance of 1 billion at the end of the quarter.
[Company Representative] (Aflac): On a Japan FSA basis, we booked securities impairments of JPY 15.8 billion and an additional valuation allowance of JPY 33 million related to transitional real estate loans in Q2. This is well within our expectations and has a limited impact on regulatory earnings and capital. Aflac Inc unencumbered liquidity stood at $3.3 billion, which was $2.3 billion above our minimum balance of 1 billion at the end of the quarter. Our adjusted leverage was 21.8% 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. We ended the quarter with an estimated regulatory ESR of 226%.
Speaker #1: This is well within our expectations and has limited impact on regulatory earnings and capital. Airflight Inc. unencumbered liquidity stood at 3.3 billion dollars, which was 2.3 billion dollars above our minimum balance of $1 billion at the end of the quarter.
Speaker #1: Our adjusted leverage was 21.8% 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.
Dan Amos: Our adjusted leverage was 21.8% for the quarter, which is within our target range of 20% to 25%. As we hold approximately 63% of our debt in JPY, 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. We ended the quarter with an estimated regulatory ESR of 226%.
Speaker #1: This is intentional and part of our enterprise hedging program, protecting the economic value of Airflight Japan in U.S. dollar terms. Our capital position remains strong, we ended the quarter with an estimated regulatory ESR of 226%.
Speaker #1: If including the undertaking specific parameter or USP, this would add 14 points to the regulatory ratio and results in an ESR with USP of 240%.
[Company Representative] (Aflac): If including the undertaking-specific parameter or USP, this would add 14 points to the regulatory ratio and result in an ESR with USP of 240%. The decline quarter over quarter was primarily driven by significant subsidiary dividends. We estimate our combined RBC to be slightly above 600%. These are strong capital ratios, which we actively monitor, stress, and manage to withstand both market volatility and credit cycles, as well as external shocks. Given the strength of our capital and liquidity, we repurchased $983 million of our own stock and paid dividends of $309 million in Q2, 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.
Dan Amos: If including the undertaking-specific parameter or USP, this would add 14 points to the regulatory ratio and result in an ESR with USP of 240%. The decline quarter over quarter was primarily driven by significant subsidiary dividends. We estimate our combined RBC to be slightly above 600%. These are strong capital ratios, which we actively monitor, stress, and manage to withstand both market volatility and credit cycles, as well as external shocks.
Speaker #1: The decline quarter over quarter was primarily driven by significant subsidiary dividends. We estimate our combined RBC to be slightly above 600%. These are strong capital ratios, which we actively monitor, stress, and manage to withstand both market volatility and credit cycles as well as external shocks.
Speaker #1: Given the strength of our capital and liquidity, we'd repurchased $983 million of our own stock and paid dividends of $309 million in Q2, offering good relative IRR on these capital deployments.
Dan Amos: Given the strength of our capital and liquidity, we repurchased $983 million of our own stock and paid dividends of $309 million in Q2, 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. Thank you. I look forward to discussing our results in further detail on tomorrow's earnings call.
Speaker #1: 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.
[Company Representative] (Aflac): Thank you. I look forward to discussing our results in further detail on tomorrow's earnings call.
