Aflac Incorporated (NYSE:AFL) Q3 2025 Earnings Call Transcript

Aflac Incorporated (NYSE:AFL) Q3 2025 Earnings Call Transcript November 5, 2025

Operator: Good day, and welcome to the Aflac Inc. Third Quarter 2025 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to David Young, Vice President, Capital Markets. Please go ahead.

David Young: Good morning, and welcome. Thank you for joining us for Aflac Incorporated’s Third Quarter 2025 Earnings Call. This morning, Dan Amos, Chairman and CEO of Aflac Incorporated, will provide an overview of our results and operations in Japan and the United States. Then Max Broden, Senior Executive Vice President and CFO of Aflac Incorporated, will provide more detail on our financial results for the quarter, current capital and liquidity. These topics are also addressed in the materials we posted with our earnings release, financial supplement and quarterly CFO update on our investors.aflac.com. For Q&A today, we are joined by Virgil Miller, President of Aflac Incorporated and Aflac U.S.; Charles Lake, Chairman and Representative Director, President of Aflac International; Masatoshi Koide, President and Representative Director, Aflac Life Insurance Japan; and Brad Dyslin, Global Chief Investment Officer, President of Aflac Global Investments.

Before we begin, some statements in this teleconference are forward-looking within the meaning of federal securities laws. Although we believe these statements are reasonable, we can give no assurance that they will prove to be accurate because they are prospective in nature. Actual results could differ materially from those we discuss today. We encourage you to look at our annual report on Form 10-K for some of the various risk factors that could materially impact our results. As I mentioned earlier, the earnings release with reconciliations of certain non-U.S. GAAP measures and related earnings materials are available on investors.aflac.com. I’ll now hand the call over to Dan. Dan?

Daniel Amos: Thank you, David, and good morning, everyone. We’re glad you joined us. Aflac Incorporated reported net earnings per diluted share of $3.08 and adjusted earnings per diluted share of $2.49 for the third quarter of 2025. We believe that these are strong results for the quarter, leading to a very good first 9 months of the year. Max will expand upon these results in a moment. But before he does, I’d like to make a comment on our operations. Beginning with Aflac Japan, I am very pleased with Aflac Japan’s 11.8% year-over-year sales increase, especially the 42% increase in cancer insurance sales. These strong sales were driven largely as expected, by sales of Miraito, our cancer insurance product launched in March. As part of our ongoing strategy, we continue to emphasize and promote the importance of third sector protection to new and younger customers with our innovative first sector product, Tsumitasu.

We believe the repricing of this product for new policies effective in September has the potential to benefit its sales. We saw positive sales growth across all distribution channels. Overall, I believe we have the right strategy to meet our customers’ financial protection needs through their different life stages. Our ability to maintain strong premium persistency is a testament to Aflac’s reputation, our strategy and our customer recognition of the value of our products. By maintaining this level of persistency and adding new premium through sales, we are partly offsetting the impact of reinsurance and policies reaching paid-up status and maintaining strong persistency continues to be vital to the future of Aflac Japan. Being where customers want to buy insurance has always been an important element of our growth strategy in Japan.

Our broad network of distribution channels, including agencies, alliance partners and banks continually optimize opportunities to help provide financial protection to Japanese consumers. We will continue to work hard to support each channel as we evolve to meet the customers’ changing needs. Turning to Aflac U.S. We generated $390 million in new sales during the third quarter, which was a 2.8% year-over-year increase. More importantly, we maintained strong premium persistency of 79% and increased net earned premiums 2.5%. We continue to focus on driving more profitable growth by exercising a strong underwriting discipline and maintaining strong premium persistency. We believe this will continue to drive net earned premium growth. At the same time, Aflac U.S. has continued its prudent approach to expense management and maintaining a strong pretax margin, as Max will expand upon in a moment.

In both Japan and the United States, I believe that consumers need the products and solutions Aflac offers more than ever. When a policyholder transforms into a claimant, Aflac becomes more than an insurance company, we become a partner in health and a supporter of their family in their time of need. As a pioneer and leader in the industry, we are leveraging every opportunity to convey our products can help fill the gap during challenging times, providing not just financial assistance, but also compassion and care. At the same time, we generate strong capital and cash flows on an ongoing basis while maintaining our commitment to prudent liquidity and capital management. We continue to be very pleased with our investments, producing solid net investment income.

As an insurance company, our primary responsibility is to fulfill the promises we make to our policyholders while being responsive to the needs of our shareholders. Our financial strength underpins our promise to our policyholders balanced with the financial flexibility and tactical capital deployment. I am very pleased with the company’s capital deployment. In the third quarter, Aflac Incorporated deployed a record $1 billion in capital to repurchase 9.3 million shares of our stock and paid dividends of $309 million. This means we delivered $1.3 billion back to the shareholders in the third quarter of 2025. Especially as we celebrate Aflac’s 70th anniversary on November 17, we treasure another milestone, 43 consecutive years of dividend increases.

We remain committed to extending this record supported by our financial strength. At the same time, we have maintained our position among companies with the highest return on capital and the lowest cost of capital in the industry. 2025 also marked 2 other significant milestones for Aflac, the 30th anniversary of what is now known as the Aflac Cancer and Blood Disorders Center of Children’s Healthcare of Atlanta and the 25th anniversary of the Aflac Duck. These are significant milestones that celebrate the privilege of benefiting the lives of millions of people. Today’s complex health care environment has produced incredible medical advancements that come with incredible cost. We are reminded that one thing has not changed since our founding in 1955.

Families and individuals still seek a partner and solutions to help protect themselves from financial hardship that not even the best health insurance covers. Thanks to our relevant products, financial strength, powerful brand and broad distribution, we believe Aflac’s outstanding solutions make us the ideal partner. We also believe in the underlying strengths of our business and our potential for continued growth in Japan and the United States, 2 of the largest life insurance markets in the world. We continue to take action to reinforce our leading position and build on our momentum. I’ll now turn the program over to Max to cover more details of the financial results. Max?

Max Broden: Thank you, Dan. I will now provide a financial update on Aflac Incorporated’s results. For the third quarter of 2025, adjusted earnings per diluted share increased 15.3% year-over-year to $2.49 with no impact from FX in the quarter. In this quarter, remeasurement gains on reserves totaled $580 million, reducing benefits and also increasing the deferred profit liability in the earned premium line by $55 million. The total net impact from the Q3 assumption update increased EPS by $0.76 variable investment income ran in line with our long-term return expectations. In our U.S. business, as part of our strategic technology plan as we optimize efficiencies and migrate to the cloud, we terminated a services contract early, which led us to book a onetime termination fee of $21 million in the quarter.

Adjusted book value per share, excluding foreign currency remeasurement increased 6.3%. The adjusted ROE was 19.1% and 22.1%, excluding foreign currency remeasurement, a solid spread to our cost of capital. Overall, we view these results in the quarter as very good. Starting with our Japan segment. Net earned premiums for the quarter declined 4%. Aflac Japan’s underlying earned premiums, which excludes the impact of deferred profit liability, paid-up policies and reinsurance declined 1.2%. We believe this metric better provides insight into our long-term premium trends. Japan’s total benefit ratio came in at 39.3% for the quarter, down nearly 10 percentage points year-over-year. The third sector benefit ratio was 27.8% for the quarter, down approximately 14 percentage points year-over-year.

We estimate the impact from reserve remeasurement gains to be 26.6 percentage points favorable to the benefit ratio in Q3 2025. Long-term experience trends as they relate to treatments of cancer and hospitalization continue to be in place, leading to continued favorable underwriting experience. Persistency remained solid year-over-year and in line with our expectations at 93.3%. With refreshed product introductions, we generally see an uptick in lapse and reissue activity, causing reported lapsation to increase. We did experience this uptick with our recently launched cancer product, but overall lapsation remains within our expectations. Our expense ratio in Japan was 19.8% for the quarter, down 20 basis points year-over-year, driven primarily by an increase in expense capitalization rates resulting from higher sales.

For the quarter, adjusted net investment income in yen terms was relatively flat at JPY 98 billion. The pretax margin for Japan in the quarter was 52.2%, up 750 basis points year-over-year, notably driven by the unlock of actuarial assumptions. But even adjusting for that, a very good result. Turning to U.S. results. Net earned premium was up 2.5%. Persistency increased 10 basis points year-over-year to 79%. Our total benefit ratio came in at 45.6%, 200 basis points lower than Q3 2024, driven by the unlock. We estimate that the reserve remeasurement gains impacted the benefit ratio by 480 basis points in the quarter, largely driven by the assumption unlock and claims remaining below our previous long-term expectations. Our expense ratio in the U.S. was 38.9%, up 90 basis points year-over-year.

Primarily driven by the onetime early contract termination fee of $21 million that I referred to earlier and the timing of advertising spend. Even though we incurred a onetime fee as part of our overall strategy, we anticipate reduced costs and improved efficiency, which will offset the termination fee over the next few years. Our growth initiatives, group life and disability, network dental and vision and direct-to-consumer had no impact to our total expense ratio in the quarter. This is in line with our expectations as these businesses continue to scale. Adjusted net investment income in the U.S. was up 1.9% for the quarter, primarily driven by higher variable investment income compared to a year ago. Profitability in the U.S. segment was very strong with a pretax margin of 21.7%, a 90 basis points increase compared with a strong quarter a year ago.

In Corporate and Other, we recorded pretax adjusted earnings of $69 million. Adjusted net investment income was $66 million higher than last year due to a combination of lower volume of tax credit investments and higher asset balances, which included the impact of the internal reinsurance transaction in Q4 2024. Our tax credit investments impacted the net investment income line for U.S. GAAP purposes negatively by $6 million in the quarter with an associated credit to the tax line. The net impact to our bottom line was a positive $2 million in the quarter. Higher total adjusted revenues were offset by higher total benefits and adjusted expenses of $64 million, driven primarily by internal reinsurance activity, higher costs pertaining to business operations and higher interest expense.

We continue to be pleased with the performance of our investment portfolio. During the quarter, we increased our CECL reserves associated with our commercial real estate portfolio by $28 million net of charge-offs, reflecting continued distressed property values. We did not foreclose on any properties in the period. Our portfolio of first lien senior secured middle market loans continues to perform well with increased CECL reserves of $7 million in the quarter, net of charge-offs. For U.S. statutory, we recorded a $7 million valuation allowance on mortgage loans as an unrealized loss during the quarter. On a Japan FSA basis, there were securities impairments of JPY 476 million in Q3, and we booked a net realized loss of JPY 189 million related to transitional real estate loans.

This is well within our expectations and has limited impact on regulatory earnings and capital. During the quarter, we also enhanced our liquidity and capital flexibility by $2 billion with the creation of 2 off-balance sheet pre-capitalized trusts that issued securities commonly referred as PCAPs. Unencumbered holding company liquidity stood at $4.5 billion, which was $2.7 billion above our minimum balance. Our leverage was 22% for the quarter, which is within our target range of 20% to 25%. As we hold approximately 64% of our debt in yen, this leverage ratio is impacted by moves in the yen-dollar exchange rate. This is intentional and part of our enterprise hedging program, protecting the economic value of Aflac Japan in U.S. dollar terms.

Our capital position remains strong. We ended the quarter with an SMR above 900% and an estimated regulatory ESR with the undertaking specific parameter or USP, above 250% . While not finalized, we estimate our combined RBC to be greater than 600%. These are strong capital ratios, which we actively monitor, stress and manage to withstand credit cycles as well as external shocks. Given the strength of our capital and liquidity, we repurchased $1 billion of our own stock and paid dividends of $309 million in Q3, offering good relative IRR on these capital deployments. We will continue to be flexible and tactical in how we manage the balance sheet and deploy capital in order to drive strong risk-adjusted ROE with a meaningful spread to our cost of capital.

For 2025, we now expect that the benefit ratio in Japan will be in the 58% to 60% range. And we continue to expect the expense ratio to be at the lower end of the 20% to 23% range as we pursue various growth and strategic initiatives. As a result, we expect the Aflac Japan’s pretax profit margin to be in the 35% to 38% range. In the U.S., we continue to expect the benefit ratio for 2025 to be at the lower end of the 48% to 52% range and the expense ratio to be in the mid- to upper end of the 36% to 39% range as we continue to scale new business lines. At the same time, we expect pretax profit margin for 2025 in the U.S. to be at the upper end of the 17% to 20% range. Thank you. I will now turn the call over to David.

David Young: Thank you, Max. Before we begin our Q&A, we ask that you please limit yourself to one initial question and a related follow-up. You may then rejoin the queue to ask additional questions. We’ll now take the first question.

Q&A Session

Operator: [Operator Instructions] Our first question will come from Joel Hurwitz of Dowling & Partners.

Joel Hurwitz: I wanted to touch on sales and maybe start with the U.S. It looks like dental and group sales were very good, but your core voluntary product sales were down quite a bit year-over-year. Just can you talk about what you’re seeing across your product offerings?

Virgil Miller: Yes. Joel, this is Virgil. Let me give you some commentary on that. First, let me start with where you started your question with. Yes, what we’re seeing is in the market as the brokers have become more involved with selling supplemental benefits, they are leaning toward group products. So therefore, we are seeing some pressure on our individual products. I will tell you, though, that our focus is to continue to grow our average weekly producers and looking for an increase in recruiting this year. Having said that, along with recruiting comes conversions, we had an 8% increase in converting those recruits into producers for us, and then we saw overall productivity of 16%. We are seeing very strong production though in the investments we made in our buy-to-bills.

With our lab business, we achieved a 24% increase during the quarter. We also won the contract with the state of Maine to provide claims administration for their paid family medical leave program. It’s really a testament to the type of service we’re providing in that market. And also, we stabilized our dental operations, and we are seeing a 40% increase for the first 9 months, which is strong. So our agents have returned back to selling those products. We are entering the broker market with those products, but a continued focus though on growing our Aflac nation, getting our veterans active to really drive, as you pointed out, the individual products. Overall, I would say one more comment, though, I’m pleased for the year. We are at $1 billion for the first 9 months.

We are focused on persistency, which means we are still providing some strong underwriting criteria to ensure though that we are making the right decisions for long-term performance. And that’s why you see the overall strong performance that we have with profitability, which exceeded our expectations.

Joel Hurwitz: Got it. That’s helpful. And then maybe shifting just to Japan sales. They were good in the quarter. Can you just provide some more color on how the cancer sales trended in the quarter? And then how demand is for the new Tsumitasu repriced product?

Daniel Amos: Yoshizumi, would you mind taking that question?

Koichiro Yoshizumi: [Interpreted] My name is Yoshizumi, in-charge of sales and marketing. I am very pleased to say that we’re very much satisfied with the results in the third quarter, we did much better than in the second quarter. And it was mainly driven by our cancer insurance, Miraito. And first of all, one of the features that is not available at others is the fact that we have flexible protection design on Miraito. And this whole product can be customized to entire people, including those who already have cancer insurance and who doesn’t have any cancer insurance today. And it’s appealing also to the younger and middle-aged generation and also to people of all ages. And it also carries plans for children, which is unique to Aflac.

And also it carries a premium waiver function. And also, it has the premium-based plans. So this is a very unique cancer insurance to APAC and that — this product can be provided to the customers because we have the 50 years of history. And at all the distribution channels, it is showing a great result. And shifting to Tsumitasu, we went through a rate revision. And we started to see a solid growth in sales from September. So the 2 main products, Tsumitasu and Miraito, these are driving our sales performance. And we expect this momentum to sustain in the fourth quarter as well. And related to channels, our main channel is associate channels. And Japan Post Group, which is our alliance partner. They are doing — both of them are doing very well.

And we would like to make sure that we continue this momentum and close the year by doing well in the fourth quarter. That’s all from me.

Daniel Amos: I’d like to also add something to that, this is Dan. I was over in Japan 2 weeks ago specifically to meet on Tsumitasu product and see how it was doing with the banks. I met with 29 regional banks through meetings and then I called on 4 shinkin banks and the Head of the Association of Shinkin Banks. And the tone for the product of Tsumitasu is very — going very well for us. It’s hard to tell exactly what the sales will be. But certainly, it is — we can see in our numbers that we’re writing a younger block of business through Tsumitasu, which allows us to tack on our supplemental or third sector products with it over a period of time. And we thought we might do as high as 40% of our — of the people would be what I would call in the 30s and 40s in terms of age.

It’s actually run over 50%. So 40% is to 50%, 25% better. So it’s doing very well with us and bringing on a younger block of business that I think will play well in the long term for us. So I do like that. The other thing is, I’m really impressed with our Miraito product and what’s going on there. I mean the idea of the percentage increase we’ve had is spectacular this year, and I credit what’s going on with our sales organization there to continue to grow it. So I agree totally with Yoshizumi. Also, I got Virgil to go over 2 times during the quarter and also pump up everyone and try to just talk about what we can do and pat them on the back because Yoshizumi joined us about the worst time you could join, which was during COVID. And so this has really been a good year for him and enjoying it.

And so we’re enjoying productivity and feel it will carry through the year.

Operator: The next question comes from Tom Gallagher of Evercore ISI.

Thomas Gallagher: My first question is just a follow-up on the repricing of the policies in September. Did you say that was Miraito? And how did — what was the difference between — because I think you launched that in June. And so what was actually repriced in September? Did you lower pricing? Can you just elaborate a bit more?

Max Broden: Tom, the repricing related to Tsumitasu. And what we did was as yields have increased throughout the year, we increased the assumed interest rate on the product and moved that up. And that relates both to the underlying rate, but also the discounted advanced premium rate that we moved up from 25 basis points to 1%. And that’s a pretty meaningful move that we did.

Daniel Amos: But nothing with cancer.

Thomas Gallagher: Got you. So cancer is just playing out as you expected?

Max Broden: Yes. No repricing on cancer.

Thomas Gallagher: Got you. And just for my follow-up, so I guess I’m thinking about your launch of medical in Japan next year. And I’m not asking for specific numbers per se, but I guess it’s a broader question. If I think about you now have 2 products selling simultaneously doing pretty well. And wondering, as you add a third, how do we think about your ability to support 3 products at once? Because I think historically, Aflac was really a one product at a time company and now you have 2 going, doing pretty well. How do you think about the launch of a third product? And do you think that can translate into over JPY 80 billion in sales from a ballpark perspective to where we could get to overall premium growth flattening or even maybe beginning to grow?

Masatoshi Koide: [Interpreted] This is Koide speaking from Aflac Japan. We have just gone through the marketing and sales transformation this January and the new structure is now applied to the cancer medical asset formation and nursing care. And organization was function-based when it comes to product development and marketing. But we changed the organization to be more cross-functional and the product development and marketing are conducted in parallel across all the 3 brands. The purpose of having this transformation is for us to launch the 3 brands or 3 products concurrently and support them directly. So with this new organization or transformation, we saw a positive result even by launching Miraito and Tsumitasu at the same time.

And we’re planning to launch a new medical insurance in the end of December, but I am confident that under this new transformation or organization, we will be able to run all the 3 brands in parallel and separately. And now that the sales teams have witnessed the success of the sales of Miraito and Tsumitasu and the team is now looking forward to make a similar success by launching the new medical insurance. That’s all from me.

Daniel Amos: Comment about what was just covered. And that is, the Miraito will be influenced to some degree when we go to medical. An agent has so much time in a day to sell. And when they’re making the call on the count or whatever, they generally — if they’ve been pushing cancer insurance for a year or so, then the opportunity to bring a new product like medical always works to the advantage, whereas in the case of Tsumitasu, it’s totally different and a different way of approaching consumers that we normally have not been approaching. So I just want to make sure that was picked up that there always is some decline in sales of an older product that’s been out there a few years than — when we go to a brand-new product because that’s the whole idea of sales is to have bells and whistles and excite people to go push and sell more. And so that does happen. So I want to be clear on that for you, Tom. I think it was Tom that asked question.

Masatoshi Koide: [Interpreted] May I add one more thing? This is speaking. By the way, our alliance partner sells cancer reinsurance only. So this partner will not be impacted by the new launch of medical insurance. And just to mention one thing about the 3 brands new structure, the teams are not working in silos. They are working concurrently and to support other products as well. We expect that with the launch of an attractive new medical insurance, there will be a positive impact to Tsumitasu and other products within our company.

Operator: The next question comes from John Barnidge of Piper Sandler.

John Barnidge: My questions are focused on the U.S. business. With the success and the growth of the buy-to-build initiatives, have we crossed over the period of investment and are now starting to yield some earnings from those efforts?

Virgil Miller: Thanks, John. It’s Virgil. Let me say this that we’re not at scale. However, though, we are seeing some — with the growth that we’re seeing, I’ll be specific on the lab, there are quarters where we have realized being to the good. However, though, we’ve got to get more scale to make that consistent. So I’m not ready yet to claim that. I would say on the dental, no, we’ve got to get more growth. So we were able to get stabilized. I am very pleased with what we’re seeing operationally. Those challenges have pretty much subsided. And as I mentioned before, the first 9 months, we’ve got 40% growth, but we’re going to need more sales and to really drive earned premium to get to that scale. The trajectory is there, but we’re not at a point of arrival. Max, anything you want to add to that?

Daniel Amos: I want to add something. I’m very pleased with what’s going on. When I look at it last year and look where we are this year, we’re running way ahead, and it’s nice to see that. And so Virgil is correct. We need more, but it’s come a long way, and I am very pleased with what I’ve seen them accomplish.

Max Broden: Well, I would say that you got one of the businesses is running — have turned to profitability this year and 2 are not. That being said, it will still be some time until we reach target profitability. One thing is just to breakeven, but we want to get these businesses to adequate profitability overall, and that will still take a few years.

John Barnidge: And my follow-up question on the U.S. Given the comments about more of the broker distribution going into group products, how do you get larger in that? Can you talk about maybe efforts organically and potentially inorganically?

Virgil Miller: I would say 2 things to that, John. The first is that we had to make sure we got the right product set available to them and are making sure that we are giving what we call a unified experience. So the trajectory you’re seeing and the positivity we’re seeing in our lab products, the brokers are accepting that. We are giving a level of service that is top notch. As I mentioned before, our brand is very strong in that area now, and we’re winning cases. What we are now focused on going into 2026 is to now take those products and bundle them with our other VB products. We’ve used the term halo in the past, but we need to have those products bundled together so that the brokers can make a unified solution out there.

And it’s not just about making it as an underwriting offer, it is being able to provide the technology and the process to support that. That is our extreme area of focus. And then you go and you add the dental products — as I mentioned earlier, the dental is growing. It’s mainly still driven by our agents. So we are open for business and asking the brokers now to move it in some of their larger cases. When you put that together, we believe that we will continue to grow consistently strong in the group space, and that has been our focus really with those buyer deals. And John, let me make sure — there was a second part. What was the second part of your question?

John Barnidge: Yes. I think you covered the first part from the organic. I was asking is the inorganic opportunity for good scale there.

Virgil Miller: Thank you for that, John. I will tell you that as I’ve taken over now my role as President of the corporation, I’ve worked behind the scenes with all our leadership teams, primarily Max and I were making sure that we’ve got a strong corporate development arm. My point on that is that we’re going to make sure we’ve got the right rigor and discipline to be looking out in the market for any opportunity. We’re going to be very deliberate, though. So we are preparing to make sure that we have that discipline, that rigor to be looking. But at the same time, though, we have not seen anything become available that has attracted us that can really move our operations. So we’re not going to just make a move to make a move, but the discipline that we have, we’re making sure that we’re ready if and when there is an opportunity.

Operator: The next question comes from Ryan Krueger of KBW.

Ryan Krueger: I guess I had a follow-up on that last question on inorganic. I think last year at your investor conference, I think your views were you wanted to build out the newer U.S. capabilities and give it a few years to see if it was working before you’d really consider anything larger from an M&A standpoint. It sounds like things are going better than you expected when it comes to the progress in the U.S. So I just wanted to follow up and maybe can kind of circle back to what you had said last year. When it comes to inorganic, are you mostly looking at smaller things that would add capabilities? Or would you actually consider something more meaningful?

Virgil Miller: I think first, the point we were making last year is the focus. It’s hard to go out and do something and then look at any type of opportunity when huge opportunity is sitting right in front of us with our life and [indiscernible] and disability platform is our first focus to get that to scale. And we are actually exceeding the trajectory that we have put forth. So very pleased with that. And to your point also, but when we had our dental operations not stable, that became our definite focus also. It’s just a huge opportunity in both of those markets. Those products continue to be desired out there for consumers. And so therefore, that is our focus. Now having said that, when you mentioned the word small, if there are opportunities that could really enhance our technology, we are very, very aware of what’s happening in the world of AI.

We’ve set up a clear framework. We will be active in making sure that we’re able to be efficient and effective in how we manage our business and technology is a great part of that. So we’re always looking at how we can advance and move our technology. But when it comes to looking at blocks of business or other opportunities out there, our focus will stay here, but we will have the discipline to make sure though that we are always looking at what’s going to happen in the market. What got Aflac to the dance that we’re at right now, though, is a history of being innovative. We’re the pioneers of the supplemental space. We’re the pioneers of the cancer insurance. And we will make sure, though, that we’re going to be innovators, and we will continue to be innovative going forward.

Max Broden: I would just add that I don’t think that our views have changed on M&A. We think that right now, we — the things that we are building out are working for us, and we’re making very good progress there. And we have a core business that is doing very, very well. So we are in a position where we don’t have to do anything. We obviously have the flexibility and opportunity. But that being said, we also recognize that we operate generally in niche businesses where it’s very difficult to either, a, find complementing businesses; and b, sometimes very difficult to integrate them as well, given the — how sort of niche operated we are, both in terms of distribution administration, et cetera. So recognizing all of that, I would say that I don’t think necessarily that our views or opinions have really changed.

Ryan Krueger: And then you had a 64% to 66% Japan benefit ratio target over the next few years coming into this year. Following the assumption review in Japan, do you think that’s still a good range? I know there’s some ongoing benefits from that.

Max Broden: So Ryan, if you look at our underlying benefit ratio for the quarter, it came in at 65.9%. So I think that’s a reasonably good range going forward. Keep in mind that when we give guidance, we generally do not include any further unlock assumptions in those ranges. So the long-term range of 64% to 69%, we feel pretty good with. Obviously, we get a little bit of a tailwind from the 130 basis points lower net premium ratio. We also get a little bit of a tailwind from mix overall as we grow — continue to grow contribution of our in-force from the third sector block, predominantly cancer. So when you take all of that together, we said a year ago, that in the range of 64% to 66%, we will start at the high end of that range and trend lower throughout the forecast period. And I think that as we sit here today post the current unlocking and given the experience that we have, that still holds.

Operator: The next question comes from Wilma Burdis of Raymond James.

Wilma Jackson Burdis: Could you talk a little bit about why the Japan cash earnings have been so high over the last few years and how long this could persist?

Max Broden: Thank you, Wilma. The 2 main drivers of the high FSA earnings and therefore, ultimately dividends from Aflac Japan to Aflac Inc. over the last couple of years has really been driven by 2 factors. The first one is actually the weakening yen. And the way the FSA accounting works is that on U.S. dollar assets held on the Japanese balance sheet, you recognize the full impact from FX movements at the maturity of those bonds. And we obviously generally buy a lot of 5-year and 10-year tenors. And that means that you have to go back and look at what the yen was 5 years ago and 10 years ago. In particular, if you look at where the yen was 10 years ago, it was significantly stronger than what you have today. That means that as those bonds mature, you realize a very significant FX gain.

As an example, 10 years ago, you roughly had a yen at JPY 1.05 relative to the dollar. If those bonds mature today at 1.50, that is close to a 45% appreciation of that asset that gets recognized at the time of maturity. So this boosts the FSA earnings in the near term. The other impact that you’ve seen since 2022 is that we have executed a series of reinsurance transactions between Aflac Japan and Aflac Bermuda. When we do that, there’s also a release of reserves in the Japan segment, and that is boosting the FSA earnings as well. So I would say that those 2 components have been the main driver of the very high FSA earnings that you have seen.

Wilma Jackson Burdis: And just a follow-up. It sounds like that could persist for at least a couple more years. And then along the same lines, can you just talk about the higher share repurchases in the quarter? And if that’s something that you expect to see as more of a run rate?

Max Broden: So as long as you have a yen that is weakening, you would continue to have a tailwind from maturing U.S. dollar assets. If you have a yen strengthening, you could have the opposite. So I do want to caution you that this goes both ways. The other factor, we do continue to evaluate further reinsurance transactions. And if we were to execute any in the future, that is also likely to create FSA earnings and therefore, higher cash coming through. But if you look at the underlying FSA earnings, that has generally been on a core basis, a little bit over JPY 200 billion per year. And then the way I would think about it is that, that’s sort of a core underlying base. And then on top of that, you have the FX gains and any sort of gains coming through as it relates to reinsurance on top of that as well.

In terms of buybacks, our philosophy have not changed. It is a function of our capital ratios that we have, the cash levels that we have at the holding company as well as the capital formation that we see going forward. And then obviously, we evaluate all the different kinds of deployment opportunities that we have throughout the company and the enterprise. And where we see good returns, that’s where we have the capital allocated to. In the quarter, we obviously saw good levels and attractive IRRs on the capital that we deployed into share repurchase. And that’s the reason why you saw that being a little bit higher than what you’ve seen in previous quarters.

Operator: The next question comes from Suneet Kamath of Jefferies.

Suneet Kamath: I wanted to come back to John Barnidge’s line of questioning on Aflac U.S. And this comment that you made about the brokers pivoting back to, I guess, true group product and you sort of reinvigorating Aflac Nation. Is this a new development? I don’t remember you talking about this in the past. And the reason I ask is, fourth quarter is traditionally your big group broker quarter in terms of U.S. sales. And I’m just wondering if it’s a new development, should we start thinking about how that could impact fourth quarter of ’25 sales?

Virgil Miller: Suneet, Virgil here. I would tell you that our pipeline for fourth quarter looks strong. I am confident and optimistic that we were going to finish our sales here within our ranges that we set forth. The pipeline I’m looking at will give us consistent expectations for the quarter. So for fourth quarter, the pipeline was good. No, I wouldn’t say anything has changed. What I would say is that with the — our growth in the large case space and with our life in absence and disability products is actually a positive that we are growing faster than what we had anticipated. And we are also continuing to forge those broker relationships. We’re also now looking to bundle, as I mentioned before, those life in absence and disability products alongside our core group VB products.

What you’re hearing me say though, is that what you’re seeing in this in the fab documents, there is a weaker — average weaker producer number that we have currently today. And with the weaker — average weaker producer they’re currently mostly driving our individual products. And that’s why you’re seeing an overperformance in our group and really underperformance in our individual. And we have to focus on making sure that we get the Aflac Nation built back up and looking forward to a stronger recruiting year. But again, it’s not just about recruiting, we have to convert. I’m pleased with our 8% conversion. And then I’m also pleased with our productivity at 16%. Now I want you to know that, that is a focus of ours, though, is to grow producers because they are the ones that sell more of the individual business.

Suneet Kamath: Okay. All right. That makes sense. And then maybe a follow-up on the U.S., Virgil, if I could. So if I look at annual sales, they’ve been sort of traveling around $1.5 billion and it looks like this year might be pretty close to that as well. And I know you’re focused on earned premium growth of 3% to 5%, but obviously, sales is pretty important. And a few years ago, we talked about a $1.8 billion kind of target. Just wondering what needs to happen to get to some level of sales like that?

Virgil Miller: Yes. So if you go back to — I’ll start with the buy-to-bills because it started with our lack of performance with the dental product. So if you look at what we had expected, we’re really about 2 years behind from where we are today. So while I’m being positive, the fact that we recovered operations, I’m very pleased with the 40% growth we’ve seen in the first 9 months, but that is really a year or 2 behind. So when we projected those original numbers, we would expect it to have been higher on an annual sales production from dental right now. My goal is to recover that, pick that back up, finish strong this year and then going into 2026, getting closer to those numbers that we had originally predicted years ago.

The second part I would tell you is it’s the bundling. We mentioned that it’s not trying to be best in dental. It is the ability to bundle dental with our VB products. As I look at my numbers in the third quarter, about $0.85 to $1. So every time we sell a $1 of dental, $0.85 worth of VB was sold. That is exactly what we’re looking for. So the more dental we will get to sell as we recover that business, you’re going to also see it pull up that individual block. And so that is part of the reason why we’re lagging behind. And then the last thing I’ll say though, it does get back to the number of producing agents. That is what we’re addressing right now also.

Daniel Amos: Yes. This is Dan. Let me add one other thing. I’ve always talked about evolution, not revolution. We’re making some changes internally that are evolving that are good decisions. I’ll give you an example. We write according to these classifications, 5s and 6s, which are high turnover areas, nursing homes, for example, the employment there. It’s — writing that business didn’t make any sense because, number one, is there was too much turnover to the point where our claims were low. Another thing that made it, there was no profit because the expenses were too high. So if you go back a few years ago and say, well, what did you make in your forecast? We didn’t forecast we were going to stop selling it. And yet now we’ve stopped selling it because it’s not good for anybody.

It’s not good for the company. It’s — it’s not good for the consumer after we see the loss ratio. And so we’ve moved on. So there are things that we’re evolving and doing. And that’s what I’ve seen about cleaning things up and making them more profitable, too, with the buy-to-bills. They’ve done a good job with that, and we’re not where we want to be. Let me be clear on that. But we are moving in the right direction. And I’m talking about a major move. I’m talking about better than I thought they’ve done. And so I’m very positive about that and what Virgil saying is exactly right.

Suneet Kamath: Just a quick follow-up. I’m not sure what you meant by 5s and 6s, but in any event, how big of a headwind is that issue?

Daniel Amos: Well, what I mean by 5s and 6s is the classifications. Certain areas like if you’re working in a lumber mill, that’s the highest rating you can get because accidents occur more. So the higher the number, the higher the probability you’re going to have claims or whatever it might be, if it’s a high persistency. But the best would be a white collar worker in an air conditioned room working day-to-day and just counting numbers. That’s the safest one we can give the best rate to. And a lot of people were not writing or what I’ll just call less poor persistency business and less profitable business.

Max Broden: Suneet, we have basically gone through a project to basically classify all our different accounts by profitability, and we’re tiering them between 1 and 6. And then we have essentially adjusted to some extent, the commission schedules accordingly to make sure that we capture more of the more profitable business and less of the less profitable business.

Daniel Amos: He said it better than me.

Operator: The next question comes from Jimmy Bhullar of JPMorgan.

Jamminder Bhullar: I had a couple of questions on the U.S. business as well. So first, just in terms of claims trends, it seems like your benefits ratio has been going up if we adjust for the actuarial reviews and remeasurement gains and stuff. And I’m not sure to what extent experience — claims experience and supplemental products has gotten back to normal? Or has it gotten worse than normal because obviously, it was favorable? Or is it just the mix of business and growth in the group insurance products or per group that’s driving the uptick? So the question is just on what you’re seeing in terms of claims trends in supplemental policies?

Max Broden: Jimmy, let me kick it off on the benefit ratio. So there are essentially 3 factors that’s been pushing up our underlying benefit ratio to the higher levels now into the 50s. First of all, we went through actively a round of endorsements and benefit enhancements of our underlying policies. This applies to our cancer product. This applies to our accident product. This applies to our hospital product because simply, they were too low, especially coming out of the pandemic. So part of it is that we have pushed that through. Then you also have the cyclical component that because claims were very low, there’s also an element of catching up impact that you are seeing now as well coming out of the pandemic, especially as it relates to cancer claims.

During the pandemic, there was a significant amount of undetected cancers that post-pandemic as more people go for their regular annual checkups, these are now being detected. So we see, therefore, a little bit of a catching up impact on that line of business. And the last piece to the benefit ratio is mix. So a greater proportion of our in-force are now gradually sitting in higher benefit ratio product categories like life and disability and also dental and vision. And as sales grow of those product categories, they will become a greater proportion of our overall in-force. And therefore, when you look at the total U.S. benefit ratio, that will structurally move up over time.

Jamminder Bhullar: Okay. But nothing alarming in terms of claims in supplemental going up beyond what you would have assumed?

Max Broden: No, I wouldn’t say so.

Jamminder Bhullar: And then just on — and there’s been a number of questions on this already. But if you think about the growth potential — or what do you think about the growth potential of the U.S. business over the long term? Because I realize dental was a weak spot, but it’s been recovering. And if I think about your sales the past couple of years, you had, I think, 5% growth in ’23. It was a slight decline in ’24. This year, you’re going to grow, but it seems like it will be low single-digit growth again. But I would have assumed that the business would grow a lot faster than that, just given the sort of underpenetration of supplemental policies, a fairly high medical care inflation. But do you think what you’ve seen recently is representative of what you’d expect longer term? Or is this a business that over time should be growing faster than what it’s been growing at?

Virgil Miller: Jimmy, I would say that this is exactly what we expected. It’s actually a little bit faster than we expected this year because we had to regain confidence. And what I’m looking at is the number of agents and then, as I mentioned, now get into the broker market that are actually coming to sell it. And so we are getting higher numbers than we anticipated. It’s going to be a gradual grind to get really to where we want to get to. I can tell you, though, consistency matters here. So as you mentioned before, that 5% — and then we had the negative year. And so you’re coming on a smaller base. So when I talk about a 40%, what you’re really talking about, I don’t have the exact numbers in front of me, but you’re probably talking about — I think it’s about a $12 million increase for the quarter.

So these numbers need to get larger and larger and larger, but I am seeing that happen quarter-over-quarter as more and more are seeing that the operations work. This is something we have to prove out in the market. We’ve also, though, now started to get cases with the broker, and I expect that to grow. So I expect this trend to continue in the fourth quarter and then see an additional trend increase going into next year.

Operator: The next question comes from Jack Matten of BMO Capital Markets.

Francis Matten: Just one on your margins in Japan. To what degree are you now like assuming future improvement in cancer and hospitalization trends, I guess, versus maybe your prior assumption and how you’ve seen recent experience trends?

Max Broden: So in our unlocked assumptions, that incorporates our up-to-date experience. It also assumes a little bit of further improvement in that as we have seen a very, very long-term trend of favorable development. So we do incorporate a slight improvement going forward, but I would put it as fairly limited. So I want you to be aware of that it’s not — there’s not no improvement whatsoever, but there is a very small improvement incorporated in our future actuarial assumptions for cancer.

Francis Matten: Got it. And then a follow-up, just wondering about your perspective around private credit, given it’s been in the headlines lately. I guess can you just talk about your outlook for that asset class and what kind of experience Aflac is being in its portfolio?

Max Broden: Sure. Thank you for the question, Jack. Private credit is not something that’s new to us or to the industry by any means. We’re very comfortable with our current strategy as it relates to private credit. To state the obvious, there’s 2 risks you need to understand and you need to underwrite. This is a credit asset. You need to have very strong credit management capabilities, and it needs to focus on bottoms-up security level underwriting with a disciplined top-down portfolio management approach. And then the second obvious risk factor is liquidity and making sure you’re stressing to make sure that you’ve got the liquidity you need to meet obligations across the organization. And we obviously do both of those. As it relates to the credit cycle and things we’re seeing there, nothing systemic that would suggest we’re at the beginnings of a serious credit cycle.

Corporate balance sheets remain strong. We’ve not seen a discernible trend in downgrades or credit deterioration across our portfolio. In our structured private credit space, all of our holdings are performing in line with expectations. I’m very confident that if we do get a turn, our portfolio is going to perform well. Defaults and downgrades generally are isolated in below investment-grade portfolios. We have been very cautious in how we’ve built that exposure. So we feel very good about our overall private credit and aren’t too concerned. We didn’t have any exposure to the names that have been in the news lately, and we think our disciplined underwriting is going to allow us to do very well if and when the cycle does turn.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to David Young for any closing remarks.

David Young: Thank you, Andrea, and thank you all for joining us here today. If you have any follow-up questions, please reach out to Investor and Rating Agency Relations, and we look forward to speaking to you soon. Have a great day.

Operator: The conference has now concluded. Thank you for attending today’s presentation, and you may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]