AFLAC INC Q3 FY2026 earnings call

• Leadership Succession: Announced promotions effective January 1, including Shinsuke Morimoto as President of Aflac Japan and Fred Simard as President of Aflac US. This reflects deliberate succession planning overseen by the Board.
• Strategic Focus on Supplemental Insurance: Emphasized the growing need for supplemental health solutions due to rising healthcare costs in both Japan and the US. Highlighted Aflac’s position as a pioneer in cancer insurance and a leader in providing financial protection.
• Capital Deployment and Shareholder Returns: Delivered $1.1 billion back to shareholders in Q3 via dividends and share repurchases. Maintained a streak of 44 consecutive years of dividend increases. Strong capital position supports tactical capital deployment and high return on capital.
• Investment Portfolio Management: Executed large-scale 'switch trades' repositioning $2.3 billion of Japanese Government Bonds (JGBs) to capture higher interest rates, improving future net investment income by over $30 million annually. Private credit portfolios are delivering strong yields despite commercial real estate pressures.
• Reinsurance Strategy: Ceded approximately 500 billion yen of reserves from Aflac Japan to Aflac Re Bermuda, releasing ~$1 billion in capital. Increased internal reinsurance target from 10% of US GAAP assets to 30% of FSA reserves to improve balance sheet efficiency and ROE.
• Product Mix Evolution: In Japan, Sumitatsu sales are growing, contributing to customer base expansion and concurrent sales with core products. In the US, group life, disability, and dental/vision platforms show strong momentum, with dental/vision up 67% quarter-over-quarter.

Aflac Japan: Net-earned premiums declined 2% year-over-year in yen terms. The pre-tax margin was 44.4%, down 780 basis points year-over-year, primarily due to a significant actuarial assumption unlock in the prior year. Total benefit ratio was 49.2% (up 990 basis points YoY), with an adjusted estimate of 61.7%. Expense ratio was 21.2% (up 140 basis points YoY). Persistency remained solid at 92.9%. Aflac U.S.: Net-earned premiums increased 3.3% year-over-year. The pre-tax profit margin was 27.7%, up 600 basis points year-over-year. Total benefit ratio was 40.7% (down 490 basis points YoY), with an adjusted estimate of 50.2%. Expense ratio was 37% (down 190 basis points YoY). Premium persistency was 79.7%, up 70 basis points year-over-year.

• Japan Benefit Ratio: Expects the 2026 benefit ratio to be slightly below the previously stated 60-63% range, due to favorable trends and assumption updates.
• Japan Expense Ratio: Expects the 2026 expense ratio to be on the lower end of the 20-23% range.
• Japan Pre-Tax Margin: Raised the 2026 expected pre-tax profit margin range for Aflac Japan (specific new range not explicitly quantified in text but indicated as an upward revision).
• US Benefit Ratio: Expects the 2026 benefit ratio to be below the 48-52% range.
• US Expense Ratio: Expects the 2026 expense ratio to be in the middle of the 36-39% range.
• US Pre-Tax Margin: Expects the 2026 pre-tax profit margin to be above the 17-20% range.
• Japan Sales: Continues to expect Aflac Japan sales in 2026 to exceed 2025 levels.

• Cybersecurity Expenses: Incurred $40 million ($0.06 per diluted share) in cybersecurity expenses and enhancements in Japan during Q3. Operations were temporarily disrupted, with direct mail and outbound calls suspended, though resumed in September.
• Commercial Real Estate Pressure: Continued pressure on commercial real estate property valuations is leading to increased loan reserves in the private credit portfolio.
• Interest Rate Sensitivity: First-sector savings business in Japan is exposed to macro factors like interest rates, requiring flexible pricing and repricing strategies.
• Actuarial Assumption Volatility: Significant re-measurement gains/losses can occur due to actuarial assumption unlocks and experience adjustments, impacting reported margins and ratios.
• Exchange Rate Fluctuations: Leverage ratio and financial results are impacted by USD/JPY exchange rate movements, particularly given that ~64% of debt is in yen.

Q: Analyst asked about the runway for continuing Bermuda reinsurance transactions after ceding 500 billion yen, noting the target moved from 10% of US GAAP assets to 30% of FSA reserves. / A: CFO Max Broden confirmed they have seeded ~15% of total FSA reserves to Bermuda, with an internal limit set at 30%. This provides meaningful runway to continue transactions to improve risk composition, capital position, and ROE. He noted that while each transaction has fixed costs, larger transactions can be executed efficiently, and the pace will be driven by Aflac Japan's needs rather than a linear timeline.

Q: Analyst asked if behavioral health claims pressure in group disability among peers should cause Aflac to slow growth or if it presents an opportunity to take market share. / A: Virgil Miller (President, Aflac US) stated the group disability block is materially small for Aflac, so peer pressures have no materiality. Fred Simard added that their loss ratio has actually decreased slightly year-over-year, and strong execution on renewals and pricing allows them to view this as an opportunity to keep growing while maintaining underwriting discipline.

Q: Analyst asked about the mix change between third-sector (core) and first-sector (asset-intensive) sales in Japan, and how Aflac balances growth in asset-intensive businesses with cost of capital impacts. / A: CFO Max Broden explained that third-sector remains the core, low-macro-risk business. First-sector is more capital-intensive and exposed to interest rates but currently offers attractive New Business IRRs post-reinsurance. He noted that first-sector savings in-force is still shrinking overall as runoff exceeds new writes, giving them comfort to grow opportunistically without significantly impacting cost of capital. Executive Yoshizumi added Sumitatsu accounts for ~20% of sales and helps expand the customer base through concurrent sales.

Q: Analyst asked if the favorable actuarial assumption update would have an ongoing positive impact on benefit ratios in Japan and the US, and requested an update on sales recovery following the cyber incident in Japan. / A: CFO Max Broden confirmed the assumption unlock lowers future net premium ratios, resulting in roughly 70 bps lower benefit ratios going forward for Japan in-force business and 60 bps for the US. Regarding the cyber incident, Executive Yoshizumi confirmed that suspended activities (direct mail, outbound calls) resumed in September, sales recovered in Q4, and October sales are as expected, with full-year sales projected to exceed 2025.