Aflac Incorporated Q2 2026 Earnings Call Summary

1Key Financial Results and Metrics

Net Earnings: Reported net earnings per diluted share of $1.63; adjusted earnings per diluted share of $1.75.

Sales Performance: Aflac Japan sales declined 5.6% year-over-year to JPY 19.6 billion, but first-half sales were up 7%. Aflac U.S. sales increased 2.6% year-over-year.

Premium Persistency: Japan maintained a persistency rate of 92.7%, while U.S. persistency was 79.4%.

Investment Income: Adjusted net investment income in Japan decreased 2.9%, while U.S. income was essentially flat, up 0.5%.

Expense Ratios: Japan's expense ratio was 20.2%, and the U.S. expense ratio was 36.1%.

Capital Management: Returned $1.3 billion to shareholders through dividends and share repurchases in Q2.

2Strategic Updates and Business Highlights

Product Launches: Continued focus on promoting Tsumitasu (savings-type life insurance) and Anshin Palette (medical insurance), which have shown strong sales growth.

Distribution Channels: Emphasis on leveraging diverse distribution channels in Japan to reach different demographics.

Reinsurance Strategy: Increased internal reinsurance target from 10% to 30% of FSA reserves to enhance balance sheet efficiency and ROE.

Investment Strategy: Successfully repositioned $4.8 billion of the investment portfolio to capture higher yields, expecting an annualized increase in net investment income of over $50 million.

3Forward Guidance and Outlook

Sales Expectations: Aflac Japan anticipates exceeding 2025 sales figures, aiming for JPY 80 billion in total sales for 2026.

U.S. Premium Growth: Expected net earned premium growth for 2026 to be just below the guidance range of 3% to 6%.

Benefit Ratio Guidance: Anticipated to be at the high end of the 60% to 63% range for the full year, influenced by the mix of lapsation between older and newer policies.

4Bad News, Challenges, or Points of Concern

Sales Decline in Japan: Sales in Japan faced a year-over-year decline due to strong comparisons from the previous year and elevated lapse rates on newly launched products.

Investment Income Shortfall: Variable investment income was $72 million below long-term expectations, impacting overall earnings.

Increased Benefit Ratio: The U.S. benefit ratio rose to 49.5%, driven by higher group disability claims compared to favorable results in the previous year.

Economic Pressures: Inflationary pressures in Japan are being monitored, with potential impacts on operating expenses and overall economic stability.

5Notable Q&A Insights

Asset Repositioning: Management expressed confidence in future opportunities for asset repositioning to enhance income amidst a higher rate environment.

M&A Strategy: Aflac remains open to acquisitions but emphasizes a cautious approach, focusing on smaller, strategic deals that align with their existing operations.

Lapse Rates: Management indicated that while there has been an uptick in lapsation, it is primarily due to product refreshes rather than economic pressures, and they expect stabilization in persistency rates moving forward.

Reinsurance Business Potential: The reinsurance initiative is viewed as a long-term growth opportunity, though it is expected to develop gradually rather than in a consistent quarterly manner. This summary encapsulates the key takeaways from Aflac's Q2 2026 earnings call, highlighting both the strengths and challenges faced by the company.