Aflac Incorporated Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Aflac Japan: Achieved 23.2% year-over-year sales growth, with 53% growth in cancer insurance (Miraito product). Implemented a new marketing/sales structure with agile teams. Introduced Tsumitasu product for younger customers. Maintained strong premium persistency.
• Aflac U.S.: Generated $340 million in new sales (2.7% year-over-year increase). Maintained strong premium persistency (79.2%) and net earned premium growth (3.4%). Saw momentum in group life, disability, and network dental. Practiced prudent expense management.
• Capital Deployment: Repurchased $829 million of stock and paid $312 million in dividends in Q2. Unencumbered holding company liquidity stood at $5.1 billion, $3.4 billion above the minimum balance. Ended the quarter with strong capital ratios (SMR above 900%, estimated regulatory ESR above 240%).

Segment Performance

• Aflac Japan: Net earned premiums declined 4.8% in Q2 2025. Underlying earned premiums (excluding deferred profit liability, paid-up policies, and reinsurance) decreased 1.1%. Sales rose 23.2% year-over-year, with a 53% increase in cancer insurance sales (driven by Miraito product). Persistency was 93.7%, up ~40 basis points year-over-year. Expense ratio was 20.6%, up 280 basis points year-over-year due to technology expenses. Adjusted net investment income in yen terms fell 10.5%. Pretax margin was 32%, down 330 basis points year-over-year.
• Aflac U.S.: Net earned premium increased 3.4%. Persistency rose 50 basis points to 79.2%. Total benefit ratio was 47.3%, 60 basis points higher than Q2 2024. Expense ratio was 36.3%, down 60 basis points year-over-year. Adjusted net investment income decreased 5% for the quarter. Pretax margin was 22.5%, a 20 basis points decline from the prior year.
• Corporate Segment: Recorded a pretax gain of $20 million. Adjusted net investment income was $37 million higher than last year due to lower tax credit investments and higher asset balances.

Guidance

• Aflac Japan aims to sustain sales momentum from the Miraito product, targeting sales recovery to pre-pandemic levels.
• Aflac U.S. expects a stronger second half of the year, driven by fourth quarter enrollments, with focus on recruitment and growth in group business, dental, and direct-to-consumer segments.
• Corporate segment anticipates adjusted net investment income to remain positive, with tax credit investments performing in line with expectations.

Risks

• Foreign currency exchange rate fluctuations impacting leverage and investment income.
• Uncertainty in U.S. trade policies affecting exports and global production, potentially influencing household income and consumer sentiment in Japan.
• Regulatory changes and compliance issues posing challenges to business operations and financial results.

Question and Answer

• Q: On cancer sales and sustainability of Miraito product's impact. A: Yoshizumi states Miraito has traction, flexible design, and supporting services, expecting strong performance to continue.
• Q: On Japan investment income and sustainability. A: Broden mentions variable NII, make-whole calls, and switch trades contributing, expecting solid third quarter but make-whole calls are one-off.
• Q: On ESR and regulatory metrics. A: Broden explains use of regulatory model with USP, aiming for internal model approval eventually.
• Q: On capital deployment and M&A. A: Broden states capital deployment based on IRR opportunities, including dividends and buybacks.
• Q: On Japan sales sustainability and product refresh. A: Yoshizumi and Amos discuss ongoing efforts, new product launches, and channel optimization for sustained sales growth.