# Aflac Incorporated (AFL): Company Narrative, Third Quarter 2026

This covers the quarter ended September 30, 2026. The Business, Risks and annual MD&A sections come from the Form 10-K for fiscal 2025 (accession 0001628280-26-011402). The current-quarter and subsequent-events sections come from the Form 10-Q for the quarter ended September 30, 2026 (accession 0001628280-26-070776) and the November 4, 2026 earnings Form 8-K (accession 0001628280-26-070181), which includes the press release and the CFO's video update. Aflac reports in US dollars. Its Japanese operations earn and pay out in yen, so where the company gives a yen figure it is quoted as given, in yen.

## Business

Aflac sells supplemental health and life insurance in Japan and the United States. Its policies pay cash benefits directly to the policyholder when the insured gets sick or hurt, covering out-of-pocket and non-medical costs that primary health coverage does not reimburse. Revenue comes from two sources: premiums on these policies, and investment income on the large fixed-income portfolio that backs the reserves. Profit depends on pricing products above the cost of benefits and administration, on persistency, and on investment yields. Aflac is licensed in all 50 states, the District of Columbia, several U.S. territories and Japan, and it promotes its products with the Aflac Duck in both countries.

The business has two reporting segments and a corporate segment:

- **Aflac Japan** (Aflac Life Insurance Japan Ltd.) contributes most of the consolidated earnings. It is the largest insurer in Japan by cancer and medical ("third sector") policies in force. Aflac Japan created the Japanese cancer insurance market in 1974 and is still its number-one provider. At year-end 2025 it had more than 22 million individual policies in force, about 14 million of them cancer policies. Its products are cancer insurance (including Miraito, launched March 2025), medical insurance (including Anshin Palette, launched December 2025), nursing care, protection-type life insurance (whole life, the GIFT income-protection product) and savings-type life insurance (Tsumitasu, launched June 2024, and WAYS). In 2025 Aflac Japan produced 53% of total adjusted revenues and held 76% of total assets.
- **Aflac U.S.** sells accident, short- and long-term disability, cancer and critical illness, hospital indemnity, dental and vision, and term and whole life coverage. It sells both individual policies (through American Family Life Assurance Company of Columbus) and group policies (through Continental American Insurance Company, branded Aflac Group Insurance). Dental and vision run on the Aflac Benefits Solutions platform. Individual policies are portable and generally guaranteed-renewable. U.S. products pay regardless of other insurance.
- **Corporate and other** includes the parent company, the asset-management subsidiaries, Aflac Global Ventures and Aflac Re Bermuda. Aflac Re is a Bermuda-domiciled reinsurer that takes on blocks of Aflac Japan's business. In March 2026 it also assumed a block from an outside insurer.

**Distribution.** In Japan, Aflac sells through about 6,300 sales agencies employing about 112,000 licensed associates (year-end 2025). It also sells through alliance partners: about 37,000 Dai-ichi Life representatives, roughly 20,000 Japan Post postal outlets plus Japan Post Insurance branches, and about 3,700 Daido Life representatives. Agreements with about 90% of Japan's banks add a further channel. In the U.S., independent career agents focus on employers with 3 to 99 employees, brokers serve employers with 100 or more, and a consumer-markets business generates leads digitally. In 2025 the U.S. averaged about 5,300 agents and brokers producing business each week. U.S. group sales are seasonal: open enrollment typically puts more than a third of annual U.S. sales into the fourth quarter.

**Competition and regulation.** Since Japan deregulated in 2001, more insurers have offered stand-alone cancer and medical policies. Aflac relies on its scale, brand, low-cost operations and broad distribution to compete. In the U.S., major medical carriers are moving into supplemental lines and bundling and discounting those products alongside their core coverage. Japan's Financial Services Agency (FSA) supervises Aflac Japan, and the Companies Act limits the dividends Aflac Japan can pay to the parent. The FSA's new economic value-based solvency ratio (ESR) regime took effect for Aflac Japan's fiscal year ended March 31, 2026. U.S. insurers are regulated by their home states: Nebraska for the main U.S. carriers and New York for Aflac New York. Aflac Re is regulated by the Bermuda Monetary Authority. Aflac had 12,716 full-time employees at December 31, 2025: 6,804 in Japan, 5,117 in the U.S. and 795 in Corporate and other.

## Risk factors

These are the most substantive risks in the fiscal 2025 10-K (accession 0001628280-26-011402), condensed:

- **Japan concentration and JGB exposure.** Most of the business is in Japan, and the portfolio holds a large concentration of Japan Government Bonds. A deterioration in Japan's sovereign credit, its economy or its markets would hit both operations and capital. At September 30, 2026, the single largest unrealized loss position in the portfolio was Japanese government debt: $31.35 billion amortized cost against $26.33 billion fair value (10-Q).
- **Yen/dollar exchange rate.** Yen results are translated into dollars, so a weaker yen lowers reported earnings and equity. Remeasurement of U.S.-dollar assets held in Japan, and of yen liabilities held at Aflac Re, makes earnings volatile. Aflac deliberately keeps an unhedged U.S.-dollar portfolio at Aflac Japan as an economic hedge of its investment in Japan. That portfolio makes Aflac Japan's regulatory capital volatile and can constrain its dividends. The parent's forward contracts on Japan dividends can drain parent-company cash through collateral calls if the yen strengthens sharply.
- **Scarcity of long-dated yen assets.** Few long-dated yen instruments exist beyond JGBs, so Aflac Japan and Aflac Re invest in U.S.-dollar assets, including less-liquid loans and private credit. This creates a currency mismatch against yen liabilities, plus hedge-cost and roll-over risk.
- **Interest rates.** Low Japanese rates hold down investment income. Rising rates cut the fair value of fixed maturities, cut unrealized gains in solvency ratios, and can trigger surrenders and regulatory impairments in Japan. A wider gap between U.S. and Japanese short-term rates raises hedging costs.
- **Credit and valuation.** Commercial real estate loans and lending to highly leveraged middle-market borrowers are the holdings Aflac names as most exposed to high rates or a downturn. Credit-loss allowances depend on significant judgment, and Japan's regulatory impairment rules can reduce Aflac Japan's dividend capacity.
- **Ratings and counterparties.** A downgrade could trigger early termination of derivatives or extra collateral calls, and could hurt sales through Japanese banks. Aflac Re has less capital than the outside reinsurers Aflac Japan used before.
- **Reserving assumptions.** If claims, mortality, morbidity or lapses differ from pricing and reserve assumptions, results suffer. Annual assumption updates move reported benefits materially, as both the third quarter of 2025 and the third quarter of 2026 show.
- **Cybersecurity and data privacy.** In the June 2025 U.S. incident, data on about 22.65 million individuals was taken. An unauthorized party accessed Aflac Japan systems in June 2026. Both incidents expose the company to remediation costs, litigation, regulatory action (including possible FSA business-improvement orders under Japan's privacy law) and reputational harm.
- **Distribution.** Sales depend on recruiting and keeping independent agents, brokers and alliance partners. Japan Post Group has recently been a significant share of Japan sales. Independent contractors can sell competitors' products.
- **Holding-company dependence.** The parent relies on dividends from subsidiaries, and those are limited by Nebraska insurance law, Japan's Companies Act and FSA criteria, and Bermuda rules.
- **Regulation, tax and litigation.** The company is exposed to changes in U.S., Japanese and Bermudan law and tax rates; Japan's corporate tax rate rises to 28.9% from April 1, 2026. Litigation risk covers sales practices, claims handling and the low level of recent Aflac U.S. benefit ratios. Aflac also faces the risk that its independent U.S. agents are reclassified as employees.
- **Competition and catastrophes.** New competitors and technological disruption are risks, as are pandemics, earthquakes and other catastrophes that can drive claims and lapses.

## Management's discussion: fiscal 2025

From the fiscal 2025 10-K (accession 0001628280-26-011402).

**Consolidated results.** Total revenues for the full year of 2025 fell 9.3% to $17.2 billion from $18.9 billion. The main reason was net investment losses of $572 million, against net investment gains of $1.3 billion in 2024. The 2025 losses were mostly $467 million of derivative and foreign-currency losses and a $191 million increase in credit-loss allowances. Net earnings were $3.6 billion, or $6.82 per diluted share, compared with $5.4 billion, or $9.63, in 2024. Adjusted earnings, a non-GAAP measure that excludes investment gains and losses, were $4.0 billion, or $7.49 per diluted share, compared with $4.1 billion, or $7.21. The yen averaged 149.32 to the dollar, 1.1% stronger than in 2024, which added $0.04 per share. Aflac repurchased $3.5 billion of stock (33.0 million shares) during 2025. Shareholders' equity ended the year at $29.5 billion, or $56.85 per share. The adjusted return on equity excluding foreign currency remeasurement was 17.6%.

**Aflac Japan.** Net earned premiums fell 3.9% in yen. The causes were about ¥21 billion ceded under the internal cancer reinsurance transaction with Aflac Re (set up in the fourth quarter of 2024) and about ¥15 billion from limited-pay policies reaching paid-up status. Pretax adjusted earnings fell 2.7% in yen to ¥514 billion ($3.44 billion). Lower revenue outweighed a lower benefit ratio, which fell to 59.3% of premiums from 62.5% thanks to ¥68 billion of reserve remeasurement gains from the third-quarter 2025 assumption update. New annualized premium sales rose 16.0% to ¥74.4 billion, driven by the Miraito cancer product and Tsumitasu. Premium persistency was 93.1%.

**Aflac U.S.** Net earned premiums rose 2.9% to $6.0 billion on improved sales. Pretax adjusted earnings were essentially flat at $1.42 billion, because higher incurred claims and a one-time technology expense offset premium growth. New annualized premium sales were $1.59 billion, against $1.54 billion in 2024, led by group products. Annualized premiums in force grew 4.9% to $6.7 billion.

**Corporate and other.** Pretax adjusted earnings rose to $101 million from $32 million. The increase came from higher internal reinsurance activity at Aflac Re and from a smaller volume of tax-credit investments, whose cost is booked against investment income. Higher interest expense and the costs of responding to the cyber incident partly offset these gains.

**June 2025 U.S. cyber incident.** On June 12, 2025, Aflac detected unauthorized access to a limited number of its U.S. systems and contained it within hours; no ransomware was involved. Claims, health and Social Security information was exfiltrated. In December 2025 Aflac determined that about 22.65 million individuals were affected. Management did not consider the incident reasonably likely to have a material financial impact.

**2026 outlook at year-end.** Management's targets for Aflac Japan were a benefit ratio of 60% to 63% and an expense ratio of 20% to 23%. For Aflac U.S. they were a benefit ratio of 48% to 52% and an expense ratio of 36% to 39%. The capital targets were an ESR of 170% to 230% for Aflac Japan and a combined RBC ratio of 350% to 450% for Aflac U.S. The quarterly dividend was raised 5.2% effective with the first quarter of 2026.

## Current quarter: third quarter 2026

From the 10-Q for the quarter ended September 30, 2026 (accession 0001628280-26-070776) and the November 4, 2026 earnings 8-K (accession 0001628280-26-070181).

**Portfolio repositioning drove the GAAP results.** Total revenues fell to $3.3 billion from $4.7 billion, and net earnings fell to $303 million, or $0.61 per diluted share, from $1.6 billion, or $3.08. The decline came mainly from $1.1 billion of net investment losses ($2.15 per share), which the company largely attributes to a strategic repositioning of its investment portfolio. Those losses include:

- $842 million of net losses on sales and redemptions;
- $146 million of derivative and foreign-currency losses;
- a $102 million increase in credit-loss allowances;
- partly offset by a $19 million gain on equity securities.

The repositioning consists of "switch trades": Aflac sells lower-yielding holdings and reinvests at today's higher rates. In the second quarter it repositioned $4.8 billion of the portfolio this way, according to the August 2026 earnings 8-K (accession 0001628280-26-054333). In the third quarter it switched another $2.3 billion of JGBs in the Aflac Japan portfolio. The CFO said the third-quarter trades add more than $30 million a year to net investment income. He put the annual net investment income added by this year's trades at more than $80 million, and said they also reduce the risk of future FSA impairments and improve asset-liability matching. GAAP net earnings also carried a $51 million tax charge, a valuation allowance against part of the deferred tax assets on tax capital loss carryforwards. That charge pushed the quarter's effective tax rate to 39.6% from 17.8%. The credit-loss increase reflects continued pressure on commercial real estate values and on long-run expectations for middle-market loans.

**Adjusted earnings.** Adjusted earnings fell 8.5% to $1.2 billion, and adjusted earnings per share fell 2.4% to $2.43. The yen averaged 158.49 to the dollar, 6.8% weaker than a year earlier, which cost $0.03 per share; excluding that effect, adjusted EPS was $2.46 against $2.49. The annual actuarial assumption update produced $447 million of pretax reserve remeasurement gains, which added a net $0.71 per share. Cybersecurity expenses and enhancements in Japan cost $40 million ($0.06 per share). For the first nine months, net earnings were $2.1 billion ($4.24 per share) against $2.3 billion ($4.21). Adjusted earnings were $3.0 billion, or $5.92 per share, unchanged per share from a year earlier; excluding currency, nine-month adjusted EPS rose 1.7% to $6.02.

**Aflac Japan.** Net earned premiums fell 2.0% in yen to ¥240 billion. The drivers were about ¥12 billion ceded under the new internal cancer reinsurance with Aflac Re, about ¥4 billion from an external reinsurance transaction in the first quarter, and about ¥3 billion from paid-up policies. Excluding reinsurance, paid-up policies and deferred-profit effects, underlying earned premiums fell 1.2%. The benefit ratio rose to 49.2% from 39.3% because this year's assumption update produced about ¥27 billion of reserve remeasurement gains, against about ¥68 billion a year earlier. The expense ratio rose to 21.2% from 19.8%; costs tied to the June 2026 cyber incident added about 1.8 points. Pretax adjusted earnings fell 15.2% in yen to ¥152 billion (down 17.9% excluding currency). In dollars they fell 21.0% to $961 million, and the pretax margin was 44.4% against 52.2%. Adjusted net investment income rose 3.7% in yen on higher fixed-rate income and a weaker yen, partly offset by lower floating-rate income. Sales fell 4.0% to ¥18.8 billion against a strong year-earlier quarter that followed the Miraito launch. Tsumitasu (refreshed in the second quarter) and Anshin Palette grew. After the cyber incident, Aflac Japan paused direct mail and outbound calls to prioritize customer support; all normal marketing had resumed by the end of the quarter. Nine-month sales were up 3.0% at ¥56.1 billion. Persistency was 92.9%, and annualized premiums in force fell 2.2% to ¥1.16 trillion as limited-pay policies became paid-up.

**Reinsurance strategy.** Aflac Japan raised its internal reinsurance target from up to 10% of U.S. GAAP assets to 30% of FSA reserves. In July 2026, Aflac Japan ceded 50% of the liabilities on certain cancer policies and riders to Aflac Re. The transaction moved about $2.7 billion of reserves (about ¥500 billion on an FSA basis) and about $1.5 billion of assets. Management expects it to free about $1 billion of capital over time. It has no consolidated effect beyond foreign-currency accounting. Earlier in 2026:

- In March, Aflac Re assumed about $551 million of whole life annuity reserves from an outside ceding company affiliated with Japan Post Holdings. It received about $636 million in cash, held in trust as collateral.
- In January, Aflac Japan ceded 100% of certain life policies (about $333 million of reserves) to an outside reinsurer, paying about $236 million.

**Aflac U.S.** Net earned premiums rose 3.3% to $1.54 billion on better sales and persistency. Pretax adjusted earnings rose 31.5% to $493 million, for a 27.7% margin against 21.7%. The benefit ratio fell to 40.7% from 45.6% because the assumption update produced about $138 million of reserve remeasurement gains, against $60 million a year earlier. The expense ratio fell to 37.0% from 38.9%. Part of that improvement came because the prior-year quarter carried a one-time early contract termination fee of $21 million. Part came because Aflac now defers more acquisition costs as its group life and disability business reaches scale. Sales rose 3.5% to $403 million, led by group products including network dental and group life and disability. Persistency was 79.7%, and annualized premiums in force rose 4.4% to $6.8 billion.

**Corporate and other.** Pretax adjusted earnings were $72 million, against $69 million. The year's reinsurance transactions and about $91 million of remeasurement gains from the assumption update offset higher expenses and interest costs, lower short-term investment income and lower amortized hedge income.

**Capital and liquidity.** In the quarter Aflac repurchased $804 million of stock and paid $305 million in dividends. For the first nine months, repurchases totaled $2.8 billion (24.3 million shares), and 90.0 million shares remained authorized at September 30. Shareholders' equity was $29.3 billion, or $59.08 per share, at quarter-end. Adjusted book value excluding foreign currency remeasurement was $40.73 per share, down 6.4% from a year earlier. The annualized adjusted ROE excluding foreign currency remeasurement was 23.7%. At quarter-end the company estimated:

- Aflac Japan's ESR at 225%, or 238% including the undertaking-specific parameter (Aflac Japan published its first ESR, as of March 31, 2026, in July 2026);
- the combined U.S. RBC ratio at slightly above 575%;
- unencumbered parent-company liquidity at $2.7 billion, against a $1 billion minimum;
- adjusted leverage at 22.6%, within the 20% to 25% target.

Subsidiaries paid the parent $2.09 billion of dividends in the first nine months, against $3.06 billion a year earlier. Aflac Japan's dividends fell to ¥287.0 billion from ¥346.5 billion. During the year Aflac repaid $400 million of 1.125% sustainability notes at maturity in March. In May it issued $500 million of 5.150% senior notes due 2036 and ¥65.9 billion of yen senior notes in four series.

**Cyber incidents.** The June 2026 unauthorized access to Aflac Japan systems was limited to Japan. As of the 10-Q, the company says the potential loss cannot yet be reasonably estimated, and it does not believe the incident is reasonably likely to have a material impact. For the June 2025 U.S. incident, Aflac remains in communication with regulators and has pending disputes; it says the potential loss cannot be reasonably estimated.

**Updated 2026 outlook.** Through nine months, Aflac Japan's benefit ratio was 58.8%. Management now expects, for 2026:

- Aflac Japan: benefit ratio slightly below the 60% to 63% range; expense ratio at the low end of 20% to 23%; pretax profit margin target raised to 35% to 38%.
- Aflac U.S.: benefit ratio below the 48% to 52% range; expense ratio in the middle of 36% to 39%; pretax profit margin above the 17% to 20% range.

## Subsequent events

These are the post-quarter developments disclosed in the 10-Q (accession 0001628280-26-070776) and the November 4, 2026 earnings 8-K (accession 0001628280-26-070181):

- **Fourth-quarter dividend.** In November 2026 the board declared a quarterly cash dividend of $0.61 per share, payable December 1, 2026 to shareholders of record on November 18, 2026. That is unchanged from the third-quarter rate and 5.2% above the fourth quarter of 2025. The company describes it as its 44th consecutive year of dividend increases.
- **Debt maturity.** Aflac's $300 million of 2.875% senior notes due October 2026, carried at $299 million at September 30, 2026, matured in October 2026.

The quarterly report discloses no acquisitions, divestitures, new borrowings or litigation outcomes after September 30, 2026.