Aflac’s U.S. Benefit Ratio Jumps 230 BPS, Overshadows Japan Premium Declines

Date of Call: Feb 5, 2026

Financials Results

• EPS: $1.57 per diluted share, up 0.6% YOY (adjusted, excluding foreign currency effect)

Guidance:

• Aflac Japan: Underlying earned premiums expected to decline 1%-2% in 2026; benefit ratio expected in 60%-63% range; expense ratio expected in 20%-23% range; pre-tax profit margin expected in 33%-36% range.
• U.S.: Net earned premium growth expected at lower end of 3%-6% range; benefit ratio expected in 48%-52% range; expense ratio expected in 36%-39% range; pre-tax profit margin expected in 17%-20% range.

Business Commentary:

Financial Performance and Earnings:

• Aflac Incorporated reported an adjusted earnings per diluted share of $1.57 for Q4 2025, indicating a 0.6% increase year-over-year, excluding foreign currency effects.
• The growth was driven by solid remeasurement gains on reserves, although variable investment income fell short of long-term expectations.

Japan Segment Performance:

• Net earned premiums in yen terms for Aflac Japan declined 1.9% in Q4 2025, with an underlying earned premium decline of 1.2%.
• The decline was influenced by the company's refreshed product introductions and long-term favorable underwriting experiences related to cancer and hospitalization treatments.

U.S. Segment Performance:

• Net earned premiums in the U.S. segment increased by 4%, but the total benefit ratio rose to 48.6%, which was 230 basis points higher than the previous year.
• The increase in the benefit ratio was driven by prior year endorsements, higher claims activity on the individual voluntary block, and a higher ratio on group life and disability.

Investment Income and Expense Ratios:

• Adjusted net investment income in Japan was down 3.9%, while in the U.S., it decreased by 2.8%.
• These declines were primarily due to lower floating rate income on the U.S. dollar book and reduced variable investment income.

Capital and Liquidity Management:

• Aflac strengthened its liquidity and capital flexibility by creating off-balance sheet pre-capitalized trusts, enhancing its unencumbered liquidity to $4.1 billion.
• This was achieved by lowering the minimum liquidity balance at the holding company, reflecting robust capital management to support strong risk-adjusted ROE.

Sentiment Analysis:

Overall Tone: Neutral

• Management described results as 'solid' and noted 'strong capital ratios,' but also reported declines in Japan premiums and a higher U.S. benefit ratio. Guidance ranges are provided with some downward adjustments for Japan and a maintained but cautious outlook for the U.S.

Contradiction Point 1

U.S. Benefit Ratio Trend

Contradiction on the underlying driver and trend of the U.S. benefit ratio.

Why does the transcript only include the CFO's prepared remarks and summary of results, with no direct questions from call participants? - Questioner's Name (Company Name)

2025Q4: U.S. total benefit ratio was 48.6%, 230 bps higher than Q4 2024. - [CFO](CFO), Aflac Incorporated

Okay, let me try to figure out how to approach this. The user wants me to rewrite an earnings call question into a concise version. The original question is about the U.S. benefit ratio increase, specifically asking what's driving it—whether it's worse-than-expected claims in supplemental products or something else. They also want to know the long-term growth potential for the U.S. business.First, I need to make sure I capture both parts of the question. The first part is about the recent increase in the benefit ratio, adjusted for remeasurement gains. The second part is about the long-term growth potential. The user mentioned to be concise, so I need to shorten the sentences without losing the key points. Also, they want only the rewritten question, no explanations or analysis, and end with a question mark.Let me start with the first part. The original says, "What is driving the recent increase in the U.S. benefit ratio (adjusting for remeasurement gains)? Is it worse-than-expected claims in supplemental products, or something else?" I can combine these two sentences into one question to make it more concise. Maybe something like, "What is driving the recent increase in the U.S. benefit ratio (excluding remeasurement gains)—worse-than-expected claims in supplemental products or other factors?" That covers both parts of the original first question.Now the second part: "Also, what is the long-term growth potential for the U.S. business?" I can rephrase this to be more concise as well. Maybe "What is the long-term growth potential for the U.S. business?" That's already pretty short, but maybe "What is the U.S. business's long-term growth potential?" is slightly shorter.Putting them together, I need to make sure both questions are included and formatted correctly. The user wants only the rewritten question, so I have to check that I don't add any extra text. Also, the original had a question mark at the end, so I need to make sure each question ends with one. Wait, but there are two questions here. The original had two separate questions, so the rewritten version should have two questions separated by a question mark each. Let me check the example input and output. The input had two questions, and the output combined them into two concise questions. Let me see the example again. The input was two questions, and the output was two concise questions. So in the output, they used an em dash and then a second question. Wait, looking at the example input and output, the user's example input had two questions, and the output combined them into one question with an em dash. Let me check that. The input example was: "What is driving the recent increase in the U.S. benefit ratio (adjusting for remeasurement gains)? Is it worse-than-expected claims in supplemental products, or something else? Also, what is the long-term growth potential for the U.S. business?" The output was: "What is driving the recent increase in the U.S. benefit ratio (excluding remeasurement gains)—worse-than-expected claims in supplemental products or other factors? What is the U.S. business's long-term growth potential?" So they combined the first two questions into one, and the second question is a separate one. So in my case, I should do the same. The original input has three sentences: first question, second question (Is it...), then "Also, what..." So the first two are combined into one question, and the third is a separate question. So I need to make sure that in the output, there are two questions. The first one combining the first two parts, and the second question about the long-term growth. Let me check the original input again. The input has three sentences separated by question marks and "Also," so the first two questions are about the cause of the increase, and the third is about growth potential. The output example combined the first two into one question using an em dash. So I should do the same here. Let me rephrase the first two parts into a single question using an em dash and then the second question. So the first part would be: "What is driving the recent increase in the U.S. benefit ratio (excluding remeasurement gains)—worse-than-expected claims in supplemental products or other factors?" Then the second question: "What is the U.S. business's long-term growth potential?" That should meet the user's requirements. Now, check for conciseness and that all key elements are included. "Excluding remeasurement gains" instead of "adjusting for" to make it concise. The original question's second part is "Is it worse-than-expected claims... or something else?" which becomes "worse-than-expected claims in supplemental products or other factors?" Then the second question is straightforward. I think that's it. Let me make sure there's no extra text and that it ends with question marks. Yes - Jamminder Bhullar (JPMorgan Chase & Co)

2025Q3: The increase in the underlying U.S. benefit ratio is due to three factors... The long-term growth potential for the U.S. business is expected to be gradual. - [CFO](CFO), [President](President)

Contradiction Point 2

Japan Long-term Benefit Ratio Target

Contradiction on the validity of Japan's long-term benefit ratio target range.

Were there any direct questions from call participants in the transcript? - Questioner's Name (Company Name)

2025Q4: Japan total benefit ratio was 65%, down 150 bps year-over-year. - [CFO](CFO), Aflac Incorporated

Are you more open to larger inorganic opportunities given U.S. progress, or still focused on smaller deals? Is Japan's 64-66% long-term benefit ratio target still valid after the recent assumption review? - Ryan Krueger (Keefe, Bruyette, & Woods, Inc.)

2025Q3: The 64-66% long-term benefit ratio range for Japan remains valid. The underlying Q3 benefit ratio was 65.9%, which is within the range. - [CFO](CFO)

Contradiction Point 3

Japan Segment's Benefit Ratio Trend

Guidance for Japan's benefit ratio shifts from a significant improvement to a modest decline.

Were there any direct questions from call participants in the transcript? - Questioner's Name (Company Name)

2025Q4: Total benefit ratio was 65%, down 150 bps year-over-year (with 110 bps favorable impact from reserve remeasurement gains). - [CFO](CFO), Aflac Incorporated

With ongoing remeasurement gains, will the next unlocking involve revised assumptions, and do current assumptions already reflect improved cancer/hospitalization trends? - Jack Matten (BMO Capital Markets Equity Research)

2025Q2: The Q3 2024 assumptions included a small, forward-looking improvement in hospitalization trends, not flat expectations. - [CFO](CFO)

Contradiction Point 4

Japan's Underlying Earned Premiums Outlook

The outlook for Japan's earned premium growth shifts from negative to positive.

Does the transcript contain direct questions from call participants, or only the CFO's prepared remarks and summary of results? - Questioner's Name (Company Name)

2025Q4: Underlying earned premiums to decline 1%-2%. - [CFO](CFO), Aflac Incorporated

Is the Q2 Japan sales level (JPY 21B, annualized to pre-pandemic levels) sustainable, and could it lead to improved earned premium growth in 2026/2027? - Thomas George Gallagher (Evercore ISI Institutional Equities)

2025Q2: The goal is to recover to pre-COVID sales levels... The company is cautiously optimistic but remains in negative earned premium territory. - [CEO](CEO), [CFO](CFO), [COO](COO)

Contradiction Point 5

Corporate and Other Segment Profitability

The profitability of the Corporate and Other segment shifts from a loss to a stated profit.

Were there any questions from call participants? - Questioner's Name (Company Name)

2025Q4: Recorded a pre-tax adjusted loss of $31 million. - [CFO](CFO), Aflac Incorporated

Given strong liquidity and healthy subsidiaries, is Aflac considering M&A to accelerate U.S. group growth or other capital allocation options? - Jack Matten (BMO Capital Markets Equity Research)

2025Q2: Capital deployment is evaluated based on capital generation, available capital, and opportunities. Priority is to invest in operations where IRR is high, then consider M&A. Lately, the focus has been on deploying capital back to shareholders via dividends and buybacks, which have delivered good IRRs. - [CFO](CFO)