AFLAC INC Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Dan Amos noted Aflac Japan had a 12.6% year-over-year sales increase, driven by Tsumitasu and new cancer product Miraito. Aflac U.S. saw 3.5% year-over-year sales growth, with strong premium persistency and expense management. Emphasized Aflac's role as a partner in health and supporter of families during challenging times.
• Max Broden discussed financial results: adjusted earnings per diluted share was flat at $1.66. Remeasurement gains, variable investment income, and tax credit investments impacted results. Japan's underlying earned premiums, U.S. expense efficiency, and corporate segment gains were highlighted.

Segment Performance

• Aflac Japan: Net earned premiums declined 5% for the quarter. Underlying earned premiums (excluding deferred profit liability, paid-up policies, and reinsurance) decreased 1.4%. Sales increased 12.6% year-over-year, with 6.3% growth in cancer insurance sales. Tsumitasu helped appeal to younger customers. New cancer insurance Miraito launched on March 17th. Persistency was 93.8%, up 40 basis points year-over-year. Expense ratio was 19.6%, up 160 basis points year-over-year. Adjusted net investment income in yen terms was down 7.6%. Pretax margin was 31.8%, down 100 basis points year-over-year.
• Aflac U.S.: Net earned premium was up 1.8%, persistency increased to 79.3%, up 60 basis points year-over-year. Sales grew 3.5% year-over-year. Total benefit ratio was 47.7%, 120 basis points higher than Q1 2024. Expense ratio was 37.6%, down 110 basis points year-over-year. Adjusted net investment income was down 1.9%. Pretax margin was 20.8%, down 20 basis points year-over-year. Corporate segment recorded a pretax gain of $43 million. Unencumbered holding company liquidity stood at $4.3 billion.

Guidance

• Management remains confident in the underlying strength of the business in Japan and the U.S., two large life insurance markets. Aiming to reinforce the leading position and build on momentum. Expect continued sales growth in Japan, especially with new cancer products, and stabilization in the U.S. dental business.

Risks

• Foreign currency volatility impacting the ESR ratio. Competitive dynamics in Japan's medical insurance market. Potential impact of macroeconomic factors on sales and capital deployment. Risks associated with reinsurance transactions and tax credit investments.

Question and Answer

• Q: Why did the ESR ratio decline in Q1?

A: Driven by Yen strengthening, partially offset by higher Japan interest rates and dividends from Aflac Japan to the holding company.

• Q: Expectations for sales of the new cancer product in Japan?

A: Positive initial results, expecting sales to grow in 2025, with the second quarter likely seeing an impact from the launch.

• Q: Remeasurement gains decay?

A: Significant remeasurement gains are unlocked in the third quarter, with smaller gains in other quarters due to truing up experience.

• Q: Yen sensitivity and ESR?

A: Yen strengthening impacts the ESR, but hedging with put options helps manage tail volatility.

• Q: Impact of Japan Post data breach?

A: Japan Post has implemented preventative measures, and cancer insurance sales are still continuing.

• Q: Anti-U.S. sentiment in Japan affecting sales?

A: No, deep U.S.-Japan economic and security ties mean no anti-American sentiment is affecting sales.

• Q: Corporate segment trajectory?

A: Volatility due to reinsurance, debt, and tax credit investments, but generally positive pretax results are expected.