Negative Points
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Aflac Japan sales declined 5.6% in Q2 2026 due to a tough comparison with the prior year’s Miraito launch, though first-half sales were up 7%.
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Aflac US net earned premium growth for 2026 is now expected to be just below the guidance range of 3% to 6%, revised from previous low-end guidance.
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The US total benefit ratio increased 220 basis points year-over-year to 49.5%, driven by higher incurred group disability claims in the quarter.
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Variable investment income ran $72 million or $0.11 per diluted share below long-term return expectations in Q2.
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Japan’s benefit ratio is expected to be at the high end of the 60% to 63% guidance range for 2026, due to elevated lapse and reissue activity on newer products.
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Adjusted book value per share, excluding foreign currency remeasurement, decreased 4.1% in the quarter.
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Corporate and other reported a pretax adjusted loss of $10 million, down from a $20 million gain last year, due to lower investment income and higher interest expense.
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Japan FSA booked securities impairments of JPY15.8 billion and additional valuation allowances, though within expectations.
Q & A Highlights
Q: What is the outlook for Aflac’s reinsurance initiative in Japan, and how large could this business become in the medium term?A: Max Broden, CFO, stated that while the company has executed one external transaction so far, they view this as a significant market with particular competitive advantages. The business is lumpy and operates on an annual cycle rather than quarterly. Long-term, they believe this will become a significant supplemental business for Aflac, though it will not overtake their primary operations in the US and Japan.
Q: Can you provide more detail on the $4.8 billion asset repositioning completed during the quarter, and to what extent do you see additional opportunities going forward?A: Brad Dyslin, Global Chief Investment Officer, explained that the repositioning involved harvesting foreign currency gains from the dollar portfolio in Aflac Japan to offset losses on older bonds in both the US dollar and JGB portfolios. The activity was mostly in Japan, with some adjustments in the US and Bermuda. He emphasized that the higher rate environment presents a “very big opportunity” and that the team continues to work on additional repositioning opportunities beyond the quarter.
Q: Is there a practical limit to what percentage of Japan sales could come from first sector products like Tsumitas, given the higher rate environment?A: Max Broden, CFO, stated there is no specific set limit on the mix between third and first sector business. The primary driver is risk-adjusted return. Currently, first sector in-force is less than 20% of total in-force. While the returns are attractive, increasing this proportion too much could increase overall risk due to mortality, spread, and longevity risks. Masatoshi Koide, President of Aflac Japan, added that Tsumitas is strategically important for expanding the customer base to younger generations and driving concurrent sales of cancer and medical insurance.
Q: What is the impact of the expansion of the internal reinsurance limit from 10% of US GAAP assets to 30% of FSA reserves, and does this signal an ability to do more transactions?A: Max Broden, CFO, clarified that this is an internally imposed limit developed by the company, which has been shared with external constituents for feedback. The move allows for potentially larger transactions, which lowers the cost per transaction. The company has developed a strong track record in executing these transactions and feels good about the significant opportunities to improve both the risk and return profile of the company.
Q: How are US sales performing this year, and can you provide color on the traditional channel versus the brokerage channel?A: Virgil Miller, President of Aflac US, stated that sales are in line with expectations, with a stronger second half expected, heavily weighted in Q4. Group Life, Absence, and Disability combined with Dental and Vision were up 7.1% in Q2. The Dental and Vision property was up 47%, heavily driven by the agency force. He emphasized the focus on selling voluntary benefits alongside network dental products, noting that for every dollar of dental sold, they sold $1.07 of voluntary benefits.
Q: Have you seen any change in lapse, paid-up, or surrender behavior in Japan given inflationary pressures and higher interest rates?A: Max Broden, CFO, reported no significant lapse uptick related to inflation or interest rates. The first sector block, most sensitive to rates, has seen only a minor uptick from very low levels. The decline in persistency is primarily driven by lapse and reissue activity from recent product launches, particularly the Miraito cancer product. As Miraito matures past its first year, they expect lapse and reissue activity to normalize and persistency to stabilize.
Q: What is the estimated capital free-up from increasing Japan reinsurance from 10% to 30%, and can you walk through the pieces?A: Max Broden, CFO, explained that the total opportunity is based on Aflac Japan’s FSA policy reserves of JPY10.8 trillion. The capital freed up depends on many factors, including which blocks are ceded. The difference between FSA and economic reserves is greatest for medical business, less for cancer, and least for first sector business. He directed analysts to the 2021 FAB presentation for a ballpark estimate of the reserve difference, noting the mix is not materially different today.
Q: How will the higher benefit ratio in Japan year-to-date influence the approach to the Q3 reserve review?A: Max Broden, CFO, explained that the higher benefit ratio is driven by the mix of lapses. There has been less lapsation of older policies, which release significant reserves and push the ratio down, and more lapsation of recently issued policies without the same reserve build-up. This is driven by the lapse and reissue program on the Miraito cancer product. As this normalizes, they expect the benefit ratio to come back inside the 60% to 63% range in the second half. The Q3 assumption review is ongoing, and they will report results then.
Q: What impact do the US and Japan joint efforts to support the yen have on Aflac, and what would happen if Japanese interest rates increase further?A: Brad Dyslin, Global Chief Investment Officer, explained that the US dollar portfolio is part of a strategy to protect the economic value of Aflac Japan against FX moves. Changes in FX move in tandem on both sides of the balance sheet, with only a small impact on ESR. While a stronger yen impacts FX gains used for portfolio repositioning, most dollar assets were bought at much stronger yen levels, so there is a long way to go before those gains are eroded. Max Broden added that the FX hedges are long-term in nature, and a 4% move in the yen-dollar rate is minor in the scheme of things, not leading to significant changes in the program.
Q: What is the outlook for Japan sales for the rest of the year, and is the JPY80 billion target still achievable?A: Dan Amos, Chairman and CEO, stated that he would still be happy with sales of JPY80 billion, but the company expects 2026 sales to exceed 2025 levels. Some major campaigns were delayed but are now back on track. The JPY80 billion target remains “in the realm of possibilities,” but the primary confidence is in exceeding last year’s sales figures.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
