Aflac’s Q1 Results: Dividend Resilience Amid Revenue Slump

Aflac Incorporated (AFL) delivered a starkly mixed first-quarter 2025 performance, with its top-line revenue plummeting 37.5% year-over-year to $3.4 billion while maintaining an adjusted EPS of $1.66—unchanged from Q1 2024. Despite the revenue contraction, the company reaffirmed its dividend policy, signaling confidence in its long-term financial health. However, the quarter’s results underscored vulnerabilities to external factors, including volatile investment performance and currency fluctuations.

Revenue Decline: A Perfect Storm of Headwinds
The 37.5% revenue drop was driven by three primary factors:
1. Net Investment Losses: A staggering $963 million loss in investment activities contrasted sharply with $951 million in gains in Q1 2024. Derivatives and foreign currency exposures accounted for $888 million of this loss.
2. Currency Effects: The yen’s weakening against the dollar (average rate of 152.40 in Q1 2025 vs. 148.67 in 2024) eroded revenue conversions from Japan, Aflac’s core market.
3. Policy Lifecycle Dynamics: In Japan, policies reaching paid-up status and internal reinsurance transactions reduced net earned premiums by 7.4% to $1.68 billion.

The decline was so severe that reported revenue fell 20.1% below the Zacks Consensus Estimate of $4.28 billion. While adjusted EPS held steady, the GAAP net earnings plunged 98.5% to $29 million, or $0.05 per share, from $1.88 billion in 2024.

Segment Performance: Operational Strengths vs. Market Headwinds
Despite the revenue slump, Aflac’s core insurance operations remained robust:
- Aflac Japan:
- New annualized premiums rose 12.6% to ¥14.1 billion ($93 million), reflecting strong demand for cancer and medical coverage.
- However, net earned premiums fell 7.4% due to maturing policies and reinsurance adjustments.
- Aflac U.S.:
- Net earned premiums grew 1.8% to $1.5 billion, driven by improved sales in group products.
- Sales increased 3.5% to $309 million, with 93.8% premium persistency—a key metric for profitability.

The U.S. segment’s resilience, combined with Japan’s sales growth, suggests underlying demand for Aflac’s supplemental health products remains intact.

Dividend Policy: Steadfast Amid Volatility
Aflac maintained its dividend policy, declaring a Q2 2025 dividend of $0.1875 per share—consistent with prior quarters—and reiterating the 16% increase in its Q1 dividend to $0.22 per share. This stability contrasts with the stock’s 2.9% after-hours decline, reflecting investor skepticism about the company’s ability to recover from external shocks.

Key Risks and Opportunities
- Investment Strategy: Aflac’s reliance on volatile investment returns remains a double-edged sword. Future quarters will hinge on stabilizing its investment portfolio, particularly in derivatives and foreign currencies.
- Currency Exposure: The yen’s weakness poses an ongoing risk, as 70% of Aflac’s operations are Japan-based. A stronger yen could reverse some of the Q1 headwinds.
- Regulatory and Competitive Landscape: Aflac’s dominance in supplemental health insurance faces increasing competition, particularly from digital-first insurers. Its legacy brand and Fortune 500 reputation provide a buffer but require sustained innovation.

Conclusion: Dividend Discipline Masks Operational Strengths
Aflac’s Q1 results are a tale of two companies: one struggling with external financial market headwinds and another thriving in its core insurance markets. While the 37.5% revenue decline is alarming, the adjusted EPS stability and dividend resilience suggest management is prioritizing long-term capital discipline.

Investors should focus on two critical indicators:
1. Investment Performance: A return to net gains in Q2 2025 would signal improved risk management.
2. Currency Trends: A yen rebound could alleviate translation pressures, boosting reported revenues.

With shareholders’ equity up 11.9% year-over-year to $26.3 billion and a 16% dividend increase already delivered, Aflac’s balance sheet remains strong. However, its ability to navigate investment volatility will determine whether this quarter’s slump is an anomaly or a harbinger of deeper challenges. For now, the dividend-focused investor can take solace in Aflac’s 64-year history of payouts—but should monitor these risks closely.

In the insurance sector, consistency is king. Aflac’s operational strengths in Japan and the U.S. remain intact, but its financial performance will require a rebound in investment results to regain investor confidence.