Aflac Navigates Headwinds to Deliver Steady Q4, Eyes Strategic Capital Deployment

COLUMBUS, Ga. – Aflac Incorporated (NYSE: AFL) closed 2025 with a quarter of resilient, if measured, performance, underscoring the supplemental insurance giant's ability to manage through a complex macroeconomic environment. The company's fourth-quarter results, released Thursday, revealed modest growth in adjusted earnings per share, supported by favorable underwriting trends but partially offset by headwinds in investment income.

For the three months ended December 31, 2025, Aflac posted adjusted earnings of $1.57 per diluted share, a 0.6% increase year-over-year on a currency-neutral basis. Management pointed to a "solid spread" over its cost of capital, with an adjusted return on equity of 14.5% when excluding foreign currency effects.

The narrative diverged between its two core markets. In Japan, Aflac's largest segment, net earned premiums declined 1.9% in local currency terms. However, the underlying benefit ratio improved to 65%, down 150 basis points, aided by reserve adjustments and stable claims experience for core products like cancer insurance. Persistency remained strong at 93.1%, indicating loyal policyholders despite competitive pressures.

"The Japan results reflect disciplined underwriting and the strength of our brand in a mature market," the company stated in its financial commentary. Expense ratios ticked up due to sales promotion, but pre-tax margins of 31.3% were described as "a very good result."

The U.S. segment told a story of growth mixed with margin pressure. Net earned premiums rose 4%, yet the benefit ratio increased by 230 basis points to 48.6%, driven by higher claims activity in voluntary products and group lines. The company continues to invest in growth initiatives, including direct-to-consumer channels and group offerings, which added to expenses but are viewed as essential for long-term expansion.

Capital management remained a focal point. Aflac returned over $1.1 billion to shareholders in the quarter through $800 million in share repurchases and $303 million in dividends. Its financial fortress appears intact, with regulatory capital ratios well above requirements, including an estimated combined Risk-Based Capital (RBC) ratio of 575%.

Notably, the company addressed investor concerns around commercial real estate (CRE) exposure, reporting no charge-offs or foreclosures in its CRE portfolio for the quarter. A $22 million charge-off was taken on a portion of its middle-market loan book, which management characterized as isolated.

Looking ahead, Aflac indicated that the financial targets outlined at its 2024 analyst briefing for 2025-2027 remain largely on track for 2026. The path forward hinges on executing its dual strategy: protecting profitability in Japan while funding growth in the U.S., all while navigating interest rate volatility and currency fluctuations.

Market Voices: Analyst & Investor Reactions

Eleanor Vance, Senior Insurance Analyst at Crestwood Advisors: "This is a textbook 'steady as she goes' quarter from Aflac. The capital position is exceptionally strong, giving them ample flexibility. The slight premium decline in Japan is worth monitoring, but the underlying metrics—persistency, claims experience—remain healthy. Their hedging program is effectively managing the yen volatility."

David Chen, Portfolio Manager at Horizon Capital: "I'm focused on the ROE spread over cost of capital. At 14.5% ex-currency, it's commendable in this rate environment. The U.S. growth investments are dilutive to margins now, but if they can scale effectively, it opens a new leg of growth. The buyback pace is a clear signal of management's confidence in intrinsic value."

Marcus Thorne, Independent Investor & Frequent Commentator: "'Modest growth' is a generous term. A 0.6% EPS increase is stagnation, not a victory. They're throwing over a billion dollars at buybacks to prop up the share price while core premium growth in Japan is negative. What's the long-term plan when the buyback juice runs out? The U.S. benefit ratio spike is a red flag they're glossing over."

Priya Sharma, Risk Management Consultant: "The most reassuring part for me is the transparency on asset quality. Specifically calling out zero CRE charge-offs and detailing the middle-market loan issue builds credibility. Their liability-sensitive balance sheet is being managed proactively, as seen with the PCAPS transaction to boost liquidity."