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AFLAC INC (AFL)·Q2 2025 Earnings Summary

Executive Summary

  • Adjusted EPS of $1.78 beat Wall Street consensus $1.706; GAAP diluted EPS was $1.11. Total revenues were $4.16B, slightly below consensus $4.32B due to net investment losses; adjusted earnings were $957M, down 7.5% YoY, with FX a $0.04 tailwind . EPS and revenue estimates from S&P Global: see asterisked values and disclaimer.
  • Segment performance: U.S. pretax margin remained strong at 22.5% on 3.4% net earned premium growth, while Japan pretax margin was 32.0% with strong Miraito cancer sales (+23.2% YoY) offset by lower adjusted NII and higher expenses .
  • Capital actions: $829M repurchases in Q2; Board later expanded authorization by up to 100M shares (total ~130.9M available), reinforcing shareholder return capacity .
  • Management highlighted resilient underwriting and improved distribution/product execution (Miraito, Tsumitasu), pre-funded yen debt, and very strong solvency (ESR >240% vs target 170–230) as key supports. No material sales impact from the June cyber incident .

What Went Well and What Went Wrong

What Went Well

  • EPS beat and margin resilience: Adjusted EPS $1.78, aided by FX (+$0.04), with U.S. pretax margin 22.5% and Japan 32.0% despite lower investment income .
  • Product momentum in Japan: Miraito cancer product drove 23.2% YoY sales growth (¥20.7B), with flexible coverage and support services; management expects sustained strength, including across channels (Japan Post) .
  • Capital strength and deployment: $829M buybacks in Q2; pre-funded ¥150B ($1B) yen debt, lifting holdco liquidity to ~$5.1B; solvency metrics strong (SMR >900%, ESR >240%) .

What Went Wrong

  • Investment headwinds: Net investment losses ($421M) versus gains a year ago drove revenue shortfall; variable investment income ran $35M below long-term expectations .
  • Japan adjusted NII down and higher expenses: Adjusted NII fell 10.5% in yen terms; Japan expense ratio elevated (20.6%), driven by tech investments; pretax margin down ~330 bps YoY .
  • U.S. benefit ratio uptick: U.S. benefit/premium ratio rose to 47.3% (+60 bps YoY) on mix, partly offset by expense ratio improvement; growth initiatives still adding ~70 bps to U.S. expenses until scale is reached .

Financial Results

Consolidated results vs prior periods and Wall Street consensus

MetricQ4 2024Q1 2025Q2 2025
Total Revenues ($USD Billions)$5.403 $3.398 $4.160
Diluted EPS (GAAP) ($)$3.42 $0.05 $1.11
Adjusted EPS ($)$1.56 $1.66 $1.78
Revenue Consensus Mean ($USD Billions)*$4.163$4.269$4.318
Primary EPS Consensus Mean ($)*$1.617$1.674$1.706
Primary EPS - # of Estimates*141313
Revenue - # of Estimates*755

Values with asterisk retrieved from S&P Global (Capital IQ).

Segment performance (dollar terms)

Segment MetricQ4 2024Q1 2025Q2 2025
Japan Net Earned Premiums ($B)$1.7 $1.7 $1.8
Japan Adjusted NII ($M)$665 $586 $699
Japan Total Adjusted Revenues ($B)$2.4 $2.3 $2.5
Japan Pretax Adjusted Earnings ($M)~$700 $722 $790
Japan Pretax Adjusted Margin (%)31.6% 31.8% 32.0%
U.S. Net Earned Premiums ($B)$1.4 $1.5 $1.5
U.S. Adjusted NII ($M)$213 $202 $207
U.S. Total Adjusted Revenues ($B)$1.7 $1.7 $1.7
U.S. Pretax Adjusted Earnings ($M)$330 $358 $388
U.S. Pretax Adjusted Margin (%)19.7% 20.8% 22.5%

Key operating KPIs

KPIQ4 2024Q1 2025Q2 2025
U.S. 12-mo Premium Persistency (%)79.3% 79.3% 79.2%
U.S. Benefit/Premium (%)46.3% 47.7% 47.3%
U.S. Total Adjusted Expenses / Revenue (%)40.3% 37.6% 36.3%
Japan 12-mo Premium Persistency (%)93.4% 93.8% 93.7%
Japan Total Benefit/Premium (%)66.5% 65.8% 66.5%
Japan Third Sector Benefit/Premium (%)56.9% 56.3% 57.4%
Japan Total Adjusted Expenses / Revenue (%)20.8% 19.6% 20.6%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Japan Earned Premium GrowthOngoing guidance period-1% to -2%-1% to -2%Maintained
Japan Expense RatioFY 2025 range20%–23%20%–23% (tracking lower half in H1)Maintained; trending favorable H1
Solvency ESR (Japan)OngoingTarget range 170–230 (with USP)Managing to 170–230 (USP uplift ~30 pts); current estimate >240%Maintained; above range currently
DividendQ3 2025$0.58/share$0.58/share declaredMaintained
Share Repurchase AuthorizationPost-Q230.9M remaining at 6/30/25+100M new authorization; total ~130.9M availableRaised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024, Q1 2025)Current Period (Q2 2025)Trend
Japan product strategy (Miraito, Tsumitasu)Tsumitasu momentum; preparing cancer refresh Miraito drove +23.2% sales; flexible design; banks/Japan Post rollout complete; Tsumitasu steady Improving adoption and broader channel rollout
Underwriting/benefit ratiosFavorable claims experience; remeasurement gains recurring U.S. and Japan benefit ratios aided by remeasurement; third sector trends favorable Continued favorable experience
Investment income/variable returnsStrong Q4 VI; Q1 VI below expectations Q2 VI below LT expectations by $35M; make-whole +$35M; switch trades benefiting NII outlook Mixed; tactical actions supportive
Capital/liquidity/ESRStrong capital; buybacks; dividend increases Pre-funded yen debt; holdco liquidity ~$5.1B; ESR >240%; continued buybacks Strengthening
CybersecurityNot discussedNo material sales/operational impact; investigation context acknowledged Contained impact
Digital/AI initiativesNot detailedGenAI + digital avatar pilots; DX to improve CX and operating leverage Accelerating

Management Commentary

  • CEO framing on product and distribution: “I am pleased with Aflac Japan’s 23.2% year-over-year sales increase… driven largely by sales of our newest cancer insurance product Miraito… We continue to introduce the need for third sector protection to new and younger customers through our innovative first sector product Tsumitasu.”
  • Margin discipline in U.S.: “We continue to focus on more profitable growth through our stronger underwriting discipline and improving the productivity of agents and brokers… maintaining a strong pretax margin.”
  • CFO on earnings drivers: “Variable investment income ran $35,000,000 below our long term return expectations, while one make whole call generated income of $35,000,000… The pretax margin for Japan in the quarter was 32%, … profitability in the U.S. segment was very strong with a pretax margin of 22.5%.”
  • Capital and solvency: “We raised debt of 150,000,000,000 yen… increased our unencumbered holding company liquidity to $5,100,000,000… We ended the quarter with an SMR above 900% and an estimated regulatory ESR above 240%.”

Q&A Highlights

  • Sustainability of Miraito sales: Management emphasized flexible design and support services; early data shows lapse/reissue in line or below expectations, with potential slight uptick in Q3; distribution rollout completed (including Japan Post) .
  • Japan NII trajectory: Q2 uplift partly from alternatives VI and make-whole; switch trades into higher-yield JGBs and credit expected to benefit H2, though VI remains hard to predict quarter to quarter .
  • ESR methodology and targets: Using regulatory ESR with USP (uplift ~30 points), approval expected by March 31, 2026; internal model reporting awaits formal approval; managing to 170–230 range .
  • U.S. sales outlook and dental platform: Q2 U.S. sales +2.7% (low end of range); expecting stronger H2 driven by Q4 enrollments; dental now showing double-digit growth after operational stabilization .
  • Cyber incident impact: No material sales or operational effect; ongoing customer service maintained .

Estimates Context

  • Q2 2025: Adjusted EPS $1.78 vs consensus $1.706* (beat); Revenues $4.160B vs consensus $4.318B* (slight miss) driven by net investment losses (derivatives/FX, CECL) offset partly by equity gains .
  • Q1 2025: Adjusted EPS $1.66 vs $1.674* (in line/slight miss); Revenues $3.398B vs $4.269B* (miss) due to sizable net investment losses in the quarter .
  • Q4 2024: Adjusted EPS $1.56 vs $1.617* (slight miss); Revenues $5.403B vs $4.163B* (beat) as net investment gains elevated GAAP revenue .
    Values with asterisk retrieved from S&P Global (Capital IQ).

Where estimates may need to adjust:

  • EPS trajectory: FX tailwind and Miraito sales could underpin modest upward EPS revisions if investment income normalizes and cost initiatives continue; watch variable investment income volatility .
  • Revenue modeling: Consensus revenue models may need to reflect heightened sensitivity to net investment gains/losses and derivative impacts quarter-to-quarter .

Key Takeaways for Investors

  • Near-term: EPS beat with strong segment margins and robust capital return (buybacks) is supportive; watch H2 variable investment income and Japan expense trajectory for sustaining margin profile .
  • Product execution: Miraito’s flexible design and full-channel rollout, alongside Tsumitasu, are driving sales momentum; expect continued focus on cancer and upcoming medical refresh within ~12–24 months .
  • Capital strength: Pre-funding yen debt, high holdco liquidity, and ESR >240% provide flexibility for continued repurchases; authorization uplift post-Q2 expands capacity .
  • U.S. operations: Solid persistency, improving expense ratio, and dental recovery position the business for stronger H2 sales (seasonal Q4 enrollments) while maintaining underwriting discipline .
  • Risks: Investment income variability (alternatives, derivatives/FX), Japan expense ratio creep from tech investments, FX swings, and macro uncertainty could add volatility .
  • Stock catalysts: Sustained Miraito-driven sales, continued margin resilience, incremental buyback execution, and clarity on ESR/USP approvals are potential positive drivers; any reversal in investment losses or stronger VI would amplify upside .

Other Q2-relevant releases

  • Cybersecurity incident disclosure (June 20, 2025) with subsequent management confirmation of no material sales impact .
  • Share repurchase authorization increased by up to 100M shares on August 12, expanding total available to ~130.9M shares .