Q4 2024 Summary
Published Feb 7, 2025, 7:58 PM UTC- Aflac is launching a new cancer insurance product in Japan between March and April 2025, expected to be a major driver of sales. This product includes unique cancer consultation support services, flexible coverage design, and a new plan for children, appealing to a wide range of customers. Additionally, Aflac has significantly expanded its agent network in Japan, hiring over 600 agents in 2023 and more than 600 in 2024, expecting these agents to boost sales in 2025.
- Aflac U.S. demonstrated strong financial performance despite challenges, with pretax earnings up 9.3%, earned premiums up 2.7%, and persistency improved by 70 basis points to 79.3% in 2024. The company has maintained strong underwriting discipline, focusing on profitable business, and reduced expenses by 3.1%, reflecting solid financial management.
- Aflac has a strong capital position, enabling significant shareholder returns through increased share repurchases and dividends. In the fourth quarter of 2024, Aflac repurchased $750 million of its own stock, the most in a single quarter, and has nearly doubled its dividend per share over the last five years, demonstrating commitment to returning value to shareholders.
- Significant decline in U.S. dental sales, with a 33% decrease in Q4 2024, due to a failed system implementation and lack of response from brokers and agents, leading to uncertainty in the recovery timeline.
- Anticipated headwinds in net investment income for 2025, particularly affecting the $9 billion floating rate portfolio, due to a 100 basis points decline in SOFR and non-recurring gains in 2024, putting pressure on earnings.
- Ongoing challenges in the commercial real estate market, with depressed property values and expectations that 2025 will largely play out much like 2024, indicating a slow recovery that could impact investment returns.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +43% YoY (up to $5.403B in Q4 2024 from $3.778B in Q4 2023) | Revenue grew dramatically as strong operational performance—particularly in Japan—helped reverse lower revenue levels seen in the prior year; growth initiatives and improved core business execution contributed to the jump. |
Operating Income | Increased from $29M in Q4 2023 to $2.135B in Q4 2024 | Operating income surged due to a turnaround in cost management and efficiency improvements, as well as a rebound in net investment results that contrasted with the marginal figures from the previous period; these factors combined to produce a dramatic uplift. |
Net Income | +609% YoY (from $268M in Q4 2023 to $1.902B in Q4 2024) | Net income rebounded sharply as the company shifted from a period marked by investment losses and foreign exchange headwinds to a robust operating period, benefiting both from higher revenue and improved cost and investment performance compared to the previous quarter. |
Basic EPS | Increased from $0.50 in Q4 2023 to $3.44 in Q4 2024 | EPS improvement was driven by higher net income coupled with significant share repurchases that reduced the number of shares outstanding; the repurchases (totaling $2,037M) amplified the per-share earnings compared to the prior period. |
Geographic Breakdown | Japan: $5.682B; U.S.: $1.672B; Corporate & Other: -$382M | Japan remains the dominant revenue contributor, offsetting weaker performance and negative adjustments from the U.S. and Corporate segments, indicating a strategic concentration in markets where operational turnaround and growth initiatives are most effective. |
Cash Flow | Adjustments (Non-Cash Items): $333M; Share Repurchases: $2,037M; Net Change in Cash: $617M | Improved cash flow metrics underline strong operational performance, with robust free cash generation enabling substantial share repurchases and liquidity growth; these measures reflect efficient capital allocation compared to the previous period’s lower cash transformation. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Japan Benefit Ratio | FY 2025 | 62% to 63% | 64% to 66% | raised |
Japan Pretax Profit Margin | FY 2025 | 35% to 36% | 30% to 33% | lowered |
Japan Expense Ratio | FY 2025 | no prior guidance | 20% to 23% | no prior guidance |
U.S. Benefit Ratio | FY 2025 | 45% to 47% | 48% to 52% | raised |
U.S. Expense Ratio | FY 2025 | 38% to 40% | 36% to 39% | lowered |
U.S. Pretax Profit Margin | FY 2025 | no prior guidance | 17% to 20% | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Japan New Product Launches (TSUMITAS, 2025 Cancer) | • Q1 2024: TSUMITAS planned for June 2024; cancer coverage noted but 2025 product details not fully mentioned. | • 2025 cancer product confirmed for March/April launch, with enhanced coverage (before/during/after treatment) and pediatric cancer plan. TSUMITAS successful, sales stabilizing. | Continued focus on new product introductions has strengthened, with more detail on the 2025 cancer product. |
Japan Agent Network Expansion | • Q1 2024: About 600 new agents recruited in 2023, more in 2024. | • Growth in agent hiring exceeded prior year, new agents expected to contribute more in 2025. | Recurring theme with more emphasis on expanded headcount fueling sales growth. |
Strong Third Sector Presence (Japan) | • Q1 2024: Aflac Japan #1 in third sector, focus on cancer/medical. | • Remains key to Aflac strategy, leveraging TSUMITAS as a hook, third sector margin strong. | Stable priority with ongoing focus on leveraging product lineup. |
Japan Persistency Concerns | • Q1 2024: Mentioned aging block, structural lapses. | • No major concerns highlighted in Q4 2024; persistency at 93.4%, stable. | Decreased emphasis as persistency remained steady and focus shifted to new products. |
U.S. Business Performance (Profitability, Persistency) | • Q1 2024: Pretax margin ~21%, persistency improved 80 bps, underwriting discipline reinforced. | • Q4 2024: Strong margins (19.7% for quarter, 21.1% full-year), persistency +70 bps, disciplined underwriting sustained. | Consistent theme with improvement validated by margin and persistency gains. |
U.S. Dental Sales Decline | • Q1 2024: No mention of Q4 2024 performance [—]. | • Q4 2024: Noted 33% decline due to failed system implementation, competitive factors. | New topic that emerged in Q4 2024. |
Net Investment Income Headwinds (Floating Rates, etc.) | • Q1 2024: Not discussed [—]. | • Q4 2024: SOFR declines, floating rate exposure ($9B), non-recurring 2024 gains create 2025 headwinds. | New topic with detailed guidance for 2025. |
Commercial Real Estate Challenges | • Q1 2024: Foreclosures, some improvement signals, stable watchlist. | • Q4 2024: Ongoing difficulties, CECL reserve increase by $40M, prolonged recovery expected. | Recurring issue with continued caution on commercial real estate. |
Increased Competition in Japan’s Third Sector | • Q1 2024: Competitive market, low-priced offerings noted. | • Q4 2024: No mention in the documents [—]. | Dropped mention as it was not referenced in latest period sources. |
Ongoing Disciplined Expense Management | • Q1 2024: Japan expense ratio near 18%, U.S. ~38.7%, emphasis on cost control. | • Q4 2024: Japan expense ratio 20.8% (down 30 bps), U.S. 40.3% (down 310 bps). | Consistent theme with continuing margin improvement. |
Strong Capital Position (Share Repurchases/Dividend) | • Q1 2024: Record $750M repurchase, 41st year of dividend growth. | • Q4 2024: $750M repurchases in Q4, $2.8B full year, dividend nearly doubled over five years. | Continued focus on capital returns and dividend increases. |
Potential Large Impact in 2025 | • Q1 2024: No specific mention of 2025’s investment environment or product impact [—]. | • Q4 2024: 2025 cancer product to drive growth, agent expansion, investment income headwinds from rate shifts. | New consolidated view on strategic milestones and looming NII challenges. |
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Japan Pretax Margin Guidance
Q: Why is Japan's pretax margin at low end of guidance?
A: The pretax margin for Japan is at the low end of the range mainly due to a reduction in net investment income caused by lower floating-rate income as interest rates decline. The floating-rate portfolio, totaling around $9 billion, is sensitive to SOFR rates, and rate cuts impact the income generated. Additionally, interest rate swaps intended as a hedge are currently ineffective because rates are higher than when the swaps were initiated. -
Japan Capital Position
Q: Will you return excess capital from Japan?
A: Our capital position in Japan is very strong, but we plan to wait until the new capital regime (ESR) is fully implemented by the end of the first quarter of 2026 before considering any special dividends. We believe it's prudent not to adjust the capital base prematurely and will reassess once ESR is in place. -
U.S. Sales Challenges
Q: What impacted U.S. sales in Q4?
A: U.S. sales faced challenges due to tough comparisons with a record Q4 2023 and a 33% decline in dental sales. We maintained underwriting discipline, avoiding unprofitable business, and addressed prior service issues in our dental vision platform. Despite the sales decline, we reported a 9.3% increase in pretax earnings and improved margins by 1.3%. -
Reinsurance to Bermuda
Q: Any change in 10% cap on Japan reinsurance to Bermuda?
A: There is currently no change in our internal cap of 10% for ceding Japan's business to Bermuda. We've ceded about 6% so far and will reassess the cap as we approach the limit, ensuring it aligns with our risk management practices. -
Reliance on Sumitas Sales
Q: Are you relying more on first sector sales like Sumitas?
A: While Sumitas contributes to sales growth, our focus remains on third sector products like cancer and medical insurance. Sumitas helps expand our customer base, especially among younger generations, but we aim to grow third sector sales by offering Sumitas alongside these products. -
U.S. Expense Ratio
Q: How long will investments impact U.S. expense ratio?
A: We're starting to reduce the expense ratio, bringing it down to around 38.5%. With continued disciplined expense management and scaling our investments, we expect incremental decreases in the expense ratio over the next few years, maintaining our margin range of 17% to 20%. -
Commercial Real Estate Exposure
Q: What are the trends in commercial real estate impacting your portfolio?
A: The commercial real estate market remains difficult, with a slow recovery expected. We continue to work through our portfolio, focusing on maximizing recoveries and managing our exposure, and anticipate 2025 to reflect similar challenges as in 2024. -
Share Repurchase Plans
Q: Is $750 million buyback a good run rate for 2025?
A: We have a healthy capital position and generated strong free cash flow, allowing for a $750 million share repurchase in Q4, our highest in a single quarter. While we'll continue to evaluate opportunities, we prioritize investments with good IRRs, including organic growth and dividends, and will be tactical in deploying capital for share repurchases. -
Maintaining Underwriting Discipline
Q: How are you handling competition affecting U.S. sales?
A: Despite a competitive market, we remain committed to underwriting discipline, avoiding unprofitable business that doesn't fit our profit profile. We focus on profitable long-term growth rather than sacrificing margins for short-term sales increases. -
New Cancer Product Launch
Q: Will new cancer product impact sales in Japan?
A: We plan to launch a new cancer insurance product in stages from March to April, which we expect to be a significant driver of sales. The product offers comprehensive coverage and aims to meet changing customer needs, potentially boosting performance despite a possible modest dip in sales ahead of the launch.