Aflac Aktie

All right. Good morning, everybody. We're privileged to have Virgil Miller, the President of Aflac Incorporated; and then Max Broden, the CFO of Aflac here with us today. So again, thank you both for taking the time and come to our conference. I really appreciate it. It should be an exciting discussion.

If we can -- maybe start with just the overall broad strategy and themes, right? Max, one thing I asked you in Japan, same thing I'm going to ask here is that over the last 5 years, Aflac is easily one of the best-performing life insurance stocks in the space.

Now that being said, right, going forward in today's environment, how should we think about the growth and the earnings opportunities, both in Japan and U.S. kind of sort of to keep you continue to outperform S&P...

Bob, I'll start with just an overview and then turn it over to Max to go into a little bit deeper. But if you think about Aflac, the strength of the organization has been in our 2 business segments. We operate in the 2 largest insurance economies in the world. Starting with Japan, which is still our largest segment of the business. If you think about Japan over the last few years, during the pandemic, coming out of the pandemic that we had seen negative growth with our overall earned premium. We've been very innovative and creative though to launch some new products over the last couple of years. Starting with Tsumitasu, we launched an asset accumulation type product that continues to demonstrate growth. It helps us also target a younger demographic there in Japan with a declining population.

Next, we launched a new cancer product, Miraito. And the key to the way we approach the environment there in Japan is more through an entire ecosystem. So this cancer product is looking at how we can really deliver communal benefits, starting with someone pre-diagnosis, encouraging health and wellness all the way through diagnosis and all the way carrying somebody all the way through to an actual nursing care benefit, which we also launched in Japan. And then finally, the category, we wanted to strengthen our ability to sell in the medical product field. We launched in December of last year, a new product on Anshin Palette.

The key to this product is that it has compartmentalized benefits. You can sell to an existing customer or you can sell to an existing customer of another client -- of another competitor because you're able to buy the benefit that you need. And so you can buy all the way up or you can buy just an individual rider to take care of yourself.

I'd start there to tell you that we're seeing growth in each of those product categories, and that is one of the things that we are optimistic about going forward there in Japan. Couple that then with the U.S. In the U.S., we have done a good job of strengthening our product categories in the group space. Last year, in 2025, 81% of all products in the U.S. were sold in the group space. The market grew by 2.5%. Aflac grew our earned premium 3.5% in the U.S., exceeding the market. We are strong in every category we can sell in the upper case market.

We brought new products, life and disability that we are doing very well, and we're performing paid family medical leave administrative services for the states of Maine and the states of Connecticut, all the way down to the middle market and all the way down to -- we have a direct-to-consumer platform. If you combine those buy-to-builds, we grew 14% last year in those buy-to-builds investments. That's what's encouraging on the U.S. And then before I turn it over to Max, I want to give him credit for what he's been able to do in establishing us in Bermuda with our Bermuda reinsurance category there.

We have been able to take the Japan balance sheet and take it and make sure we moved it over to our Bermuda engagement. And now we've also launched our first client in Japan beyond the Aflac Japan balance sheet. So I am optimistic about the ability we have in each one of these categories if you look at Aflac holistically.

Max?

Well, Bob, your question was on the -- what we're going to do to continue to drive the share price. And just reflecting on that, that's history. And I can tell you that our boss, both Virgil and I got phone calls this morning, and it was more along the lines of what have you done for me lately. So he is not happy. So for us, it's -- a lot of it comes down to make sure that we drive this for the future to make sure we keep that up. Another thing that I think has been a factor is how we think about the balance sheet, and that is both in terms of risk and return.

I personally believe that our sector is spending a lot of time focusing on driving return on equity. But I don't think that our sector is spending a lot of time thinking about driving cost of capital. And the valuation of the stocks in our sector and also what drives share prices to some extent, is the spread between the 2. And we've been able to expand that spread, and that's something that we actually spend a lot of time thinking about, both in terms of what is potentially driving the cost of equity, what is potentially driving the ROE today, but also going forward. So what can we do to actively push the ROE up and actively push the cost of equity down not just now, but also for the next 5 years. So I think that's been one of the drivers.

I think one thing you guys talked about that's kind of interesting is the opportunities in Japan, right? One thing a lot of folks talk about in Japan is really the demographic challenges. And then everyone is trying to find their own way of navigating this trend. Does this make competition more difficult in Japan? Can you maybe talk about the competitive positioning in Japan, just given the environment we've been in for a decent amount of time now?

So when you have a shrinking market because that's what we have in Japan, you have a population that is shrinking. What we predominantly insure is the out-of-pocket expenses. And the 2 main product categories for us being cancer and medical are also from a penetration standpoint, reasonably well penetrated, i.e., it's unlikely that the penetration levels will materially shift. That means that the underlying demand is flat to maybe slightly negative. And I think you need to accept that that's the environment that we're operating in. And we also size our operations accordingly.

So what you have seen us do is -- we are currently shrinking slightly from an earned premium standpoint. In the first quarter, we had an underlying earned premium decline of 1.3%. At the same time, we are executing on plans to get that back to zero and hopefully into the positive category or positive level. So over time, we want to be sort of stable to slightly growing in Japan. If you see us growing at 5%, 10% earned premium growth, you should ask us some very serious questions because most likely, we are mispricing product.

So our strategy continues to be consistent, be very profitable and be disciplined in the way we price new business because in a stable market like Japan, it's very easy to be too aggressive in terms of the pricing. So what you've seen our in-force do is that you've seen their earned premium slightly decline, while at the same time, pretax margins have continued to expand. And I think that's a reflection of those underwriting decisions.

Okay. And Bob, I'll just add, though. And given the situation, we must still be innovative, right? So the product categories that we created were intentional to go after a younger demographic. The ability -- if you think about the population in Japan and the culture of Japan and the life expectancy, we know that people little longer. The question and the key to what we've done is try to reach them at an earlier stage in life.

And then once we get them to invest in our products earlier, the loyalty and the reason why we have such a high persistency, yes, it's service, but it's absolutely cultural, right, the loyalty that you have there. And so we want to build that and then carry it throughout the life cycle. If you look at the way we strategize in Japan, everything is built around giving back inside the community and understanding the ecosystem of early life all the way through the end of life. And that's how we develop our product categories.

Got it. One thing I thought was interesting in terms of capabilities you have in Japan. Recently, you insured a whole life annuity business from Japan Post. Is that something that would allow you to kind of leverage that balance sheet to get to that breakeven or maybe even slightly positive growth going forward. Can you maybe give us a little bit more color on your thoughts on the reinsurance piece going forward?

Yes. So I'll think about those separately. And you can think about it this way that we are in both the U.S. and in Japan. We are in the retail business, i.e., we originate liabilities on one policy at a time. What reinsurance is doing is essentially a step into the wholesale business where we originate a big block of liabilities and assets onto our balance sheet at one go. So they're a little bit different from that standpoint. What we are -- we are in a situation where we had built capabilities in Bermuda to transact between Japan and Bermuda. And that -- we wanted to then leverage those capabilities to also offer up solutions to other insurance companies in Japan as well.

So we've been driving some pretty significant capital efficiencies through the internal transactions that we began executing in 2022. And we are now taking that and offering those -- these solutions to other insurance companies in Japan. And we have a couple of benefits here that I think also gives us some competitive advantages. And the first one is that we have -- our reinsurance entity is AA rated. And the rating goes straight into the capital model for the cedent, i.e., they need to hold capital relative to the credit rating of the reinsurer that they're using. And most of our competitors do not have a AA rating in Japan. So that gives us a benefit. The other thing is that if you look at our balance sheet, where we're coming from, we're very, very long morbidity and we're relatively underweight mortality, longevity and spread risk.

What this transaction that we did with Japan Post Insurance do is it brings a small level of additional mortality risk, longevity risk and spread risk onto our balance sheet. When we add some of these risks and we commingle that with the very significant morbidity risk that we have, they become quite diversifying, both on an economic capital model, but also on a regulatory capital model. So that is also an additional benefit for us.

Got it. So I mean, it does sound like it's a very attractive business from both an earnings and a balance sheet perspective. How robust do you envision the pipeline to be going forward? Is there a way to think about the market for this or the opportunity for this for Aflac specifically?

We would expect that over a reasonable time period, for this to be meaningful to Aflac overall as a business. It will not take over and be the majority of our balance sheet or our earnings, but we do expect it to be meaningful.

Wait for the mic, sorry.

Thanks, Bob. Max, is this going to be a separate segment? And where is it in today's current reporting and documents, this third-party reinsurance business that you're standing up and building?

So it is sitting inside of corporate and other at the moment. Over time, if it grows and becomes a significant portion of the overall business, then under U.S. GAAP, you would have to break it out.

I think we have another question from the audience right there.

Next one question in terms of lowering the cost of equity or cost of capital point. How much of that are you driving it from the financial actions? And how much of that you're driving from the business mix actions, i.e., the reinsurance and other areas?

I think that the absolute biggest driver is how we design products, i.e., with the benefits being capped the way Aflac always have sort of priced its policies. That is the absolute bedrock of the risk management. So we are facing very high frequency risks but very low severity risk, and that is the key to it. What we're doing on the financial side, I would say that adds to it.

Probably one of the biggest components is how we have worked with foreign exchange risk where that was something that was pretty significant to the company. And I feel like we've gotten it to the point now where it is very limited, both in terms of how it impacts the economic value of the company, but also how it impacts cash flows as well.

Thank you for the questions. If I don't see you because of the podium, I apologize in advance. I always love the engagement. Maybe another question just on the Japan piece before we move to the U.S. Aflac Japan targets about 60% to 63% margin in 2026. first quarter '26 benefit ratio was more towards the higher end of that target, right? Sorry, on the benefit ratio. This is due to a lapse in older age cancer block, things of that nature.

Curious as your expectation going forward. Obviously, it feels like the full year outlook is still very achievable, but just curious how we should think about the benefit ratio and then the margin profile in Japan at this point?

Yes. So we feel good about the full year outlook of 60% to 63% benefit ratio. We did see in the first quarter a little bit of elevated lapsation, especially of younger policies where the reserve has not built up enough over time. So when we see a mix shift a little bit between different cohorts of lapsation. The older cohorts when they lapse, that reserve gets released through the benefit ratio and pushes that benefit ratio down. In this quarter, we saw a little bit more of younger policies lapsing where there was less of a reserve built up, and therefore, it doesn't push down the benefit ratio as much. But for the full year, we feel very good about the 60% to 63%.

So it's really just a timing on business mix rather than anything -- okay. No, that's very helpful. So maybe pivoting to the U.S. side, Virgil, you talked about this a little bit earlier. Maybe if we can add more color in terms of growth and sales opportunity, right? Like sales has been improving in the U.S. year-on-year for several quarters now. In the most recent quarter, all areas of the group business has been very strong and then especially voluntary products. Can you maybe help us with a little bit more in terms of how you think about the growth trend going forward, especially from a more of a medium to longer-term side of things and then how that momentum from this year kind of carries forward?

Yes. I get asked that question, we're performing so well in the group space, and we are very, very appreciated in the broker market, why don't we see a larger overall growth number. And it's really the base of the individual block of business. Our individual block of business is so large, right, that when it is not growing, and we have not seen growth in our individual traditional block. So it has not been overcome with the great growth we're seeing on the group side. So what I would say, Bob, is that we're going to continue to double down though in the group space.

So what I mentioned earlier, according to the Eastbridge report in 2025, 81% of all products sold in the U.S. last year were group products, group file products. 71% of that was driven through brokers. And so I would say that we're positioned well. When you look at our group product space, we grew 14%. Overall, though, when you combine it with a negative on an individual, that is why you didn't see the tremendous explosiveness. So what we intended to do this year, the focus is on taking the properties that we've invested in, the life absence and disability, which we've seen better-than-expected growth there.

And what we're doing with the absence management continues to strengthen our reputation of having a white glove, high-touch customized service that is absolutely at the top end of the market. And so as we continue to do that, I will see more growth there.

We also recovered. I sat on the stage a couple of years ago and said that we have felt what I was done on the vision property. Operational failures there cost us some of the sales. We recovered that in last year, we grew [ 48.8% ] in dental. This year, the focus is going to be to get those on a singular experience. So today, we sell dental and vision, we sell Group [ D&V, ] we sell our life absent disability, and they have each unique experience. We're rolling out a single experience, which we will bundle and then go to market as one Aflac. That will continue to be, I think, a nice differentiator for us.

Okay. Do you -- just given this momentum you have, do you see competitors respond? I'm curious as to what you see in the competitive dynamics overall.

Yes. I think we surprised some of the -- and we all know each other. We're all friendly competition. I think we surprised some of them in the upper case space. And I would describe it as generally more than 5,000 employee sizes that we're able to win. Remember, a lot of them have been incumbents for sometimes 20-plus years, and we're able to go in and win. And why is that? It's our brand. Generally, when you take Aflac, our penetration rate or the number of employees will take the more to Aflac because of the brand recognition. People know that we will pay them cash. And so therefore, we get a competitive advantage for that any time we're going into a finalist meeting, we've been able to win in that space. And so pricing becomes an issue.

I've seen some of our competitors that are competing on price. I won't go as far as say price gouging, but they're certainly competing on price. We're not going to play games like that. We're going to continue to keep a strong underwriting discipline. We will maintain that because we know long term, that is what will be beneficial to our shareholders and organization. We've also seen them go out and highly recruit some of our agency force. And so that makes how the -- we are pricing when it comes to commissions and overpay in the sales force.

Again, we're going to hold firm that we're not going to do that. We're going to stick to our underwriting guidelines. We're going to pay our people fairly, and we're going to let how we manage operations be our strong point.

So I think this is kind of interesting, right? So you're gaining momentum on the growth side. But at the same time, competitors feel like -- it feels like they are responding to that as well in the market. And then if we line that up with your earnings trajectory in the U.S. business, the benefit ratio is tracking on the very better end of your guidance first quarter, right? And as you see the broader dynamic of the market shifting and as you continue to grow, should we see that kind of move more into the middle part of that guidance range? Or you feel like you have a little bit of cushion here, so to speak.

Yes. Well, so we set at a 17% to 20% range on our margins. And we did that knowing though that, a, first, it's a product mix. The individual product has a better margin on it. And as we sell more in the group space, the margins are slightly, of course, lower than the current traditional, and we took that into consideration. We were able to come in above 20%, though in Q1. And again, that has a lot to do with our strong underwriting discipline and also the fact we are managing our expenses. We maintained our expense ratio below 40% during Q1, and I expect us to continue to be within the range of guidance we set there.

So I would say the strength comes into staying disciplined, staying disciplined and make sure our strategy is sound. What we've been able to do, if you think about it this way, Aflac was known as a small market agency-driven force. We've been able now to win in the broker market and take our products up. As you think about the competition, they're looking to come down. And so therefore, it's a different type of nuances that they're going to have to consider. I'm confident in the trajectory we laid it out, and I feel good about where we're headed.

Got it. I mean I would say on the benefit ratio for the U.S., we're off to a good start for the year. In Q1, we did have a pretty low benefit ratio on LTD, and that is something that can be lumpy. So that's why we're obviously sticking with our guidance of 48% to 52%.

Over time, you should see a mix shift impacting our benefit ratio, our expense ratio and pretax margin. So as we grow faster, as Virgil outlined, in the group space, the group life and disability business, that carries a significantly higher benefit ratio, a significantly lower expense ratio and also a lower GAAP pretax margin than our average. So as that becomes a bigger proportion of our in-force, you should see our benefit ratio over time creep up, and you should see our expense ratio creep down, and you should see our pretax margin marginally go down.

Good perspective of numbers Max to talk about. So last year's 2025 sales, 57% of total U.S. sales were individual or traditional product, 43% group. You go back to 2010, that number of group was 6%. So we've gone from 6% of total U.S. sales to 43% last year.

So -- and -- but if we kind of put everything together, your growth is very strong. Even if you're giving up a tiny bit of margin here, your overall dollar income for this business should at the very least be fairly stable, if not increase.

To be increased.

Got it. No, that's very helpful. So it's not a financial conference this day and age without talking about AI. So maybe we can dig into that a little bit.

Now when you were laying out your prior guidance, right, AI wasn't nearly as powerful as it is today. As you think about technology opportunities in the longer term, I'm curious to how you think about your implementation and your technology overall as maybe an added piece to your guidance. Is there a way for us to think about that?

Let me lay out our strategy for technology, then I'll let Max go deeper to the guidance. Just to give everyone a perspective, sitting as an insurer, in an environment where insurance is not trusted by the consumer. We have to be very careful with how we leverage AI. I was with a bunch of CEOs recently. And the one thing, commonality is that we all agree that we're in the business to build trust, but we are in the relationship business. The way I describe our usage of AI in the U.S. and in Japan is a human-centered. Human-centered, meaning that this human is at the center of the relationship enabled by AI.

And what we mean by that is we're going to make our humans better. The employee becomes better leveraging AI, but we make it better for the consumer through expediting those transactions that the consumer is facing. We've absolutely used AI to expedite claims payments to make the billing simpler and easier and to make the enrollment process simpler and easier and to deliver product -- projects faster and to go to market with new products faster in both countries. We're more advanced in Japan, the FSA there, you're dealing with one regulator that is encouraging all companies to use AI. We have an innovation lab there that we are testing new cutting-edge things.

For the most part, though, we've been able to make processes easier and expedite put a human being at the center. In the U.S., same thing. We focus a lot on claims because that's absolutely the promise we deliver. We will not let AI deny a claim, but we help pay, and we've been able to now in that traditional business, automate 70% of all claims, putting it less than to pay someone less than 24 to 48 hours. And that's ultimately what our promise is.

There is no doubt that AI will improve efficiencies and make our policy and administration platforms much better. It will improve efficiency of our enrollment platforms. It will improve the overall customer experience. So overall, all of that is very positive. As that feeds into our financial numbers and guidance, I'm actually of the view that we are most likely going to be charged very well for the AI products that we purchase. And what I mean by that, if you look at the largest companies in the world by market cap, well, they're all driven by AI. They're all very good at charging for their products, maybe not necessarily the new ones yet. But if you look at the established technology companies, they're very good at charging. They know the value of the products that they give.

So we are not betting on at this point that efficiencies will lead to lower expense ratios as an example. If that happens, I'll be super happy, and I'll probably make flips up in the hallway, but we are not betting on that. We are not pricing new products for a future lower expense ratio because of that because I actually honestly believe that expenses will find its way to us in just other forms. So as we become more efficient, we probably will be charged for it.

Okay. No, that's actually a very interesting though. Thank you for that. We also have a lot of cameras outside. So if you do, we'll post it on you, too. So -- so another point, I think a lot of folks have been debating, obviously, is the fear of private credit. From our perspective, Aflac doesn't have an issue here. But can you maybe talk about maybe not just private credit, but your investment philosophies in general as well as risk management because I think there's 2 things here, right?

One is how you think about private credit and how you manage the risk. But really, the other point here really is every time we have some type of investment asset side risk, people get scared. And every time Aflac turns out to be okay. Can you maybe just talk about the 2 components here? One -- so yes...

Well, let's take one step back. I kind of view it as we are exposed to 4 different types of financial risk, that being insurance risk, credit risk, FX risk and interest rate risk. And we look at these differently. So insurance risk, this is how we make money. That's how we underwrite, and we want as much as possible of it. Credit risk, it's part of how we make money. We underwrite it, but there's a limit to how much credit risk we want to take on. FX risk is a risk that we do not underwrite. And therefore, we do not take any risk on it, and we want to eliminate it as much as possible. And I spoke a little bit about that earlier. The same thing applies to rate risk. We don't underwrite rate risk, and therefore, we actually do not want to take any risk on rate.

As you then think about the asset side, you cannot think about the asset side without the liability side. They are 100% linked. And if you think about our portfolio, we need a certain level of duration. We have a certain level of liquidity, but we also have a very significant illiquidity of our balance sheet because of the liabilities that we originate. What that means is that private credit actually fits very, very well onto a liability structure that we have. i.e., we can hold for a very long period of time. We don't necessarily have liquidity events that we need at certain points. We easily fund our short-term liquidity needs with very liquid instruments that predominantly being both government bonds, but also through money market funds, et cetera. So we have a relatively liquid portfolio, I would argue.

So adding a level of private credit exposure to it is very beneficial for us, both in the form of the credit risk that we're taking on, but also our ability to clip that illiquidity risk premium that from time to time can be quite substantial. Obviously, it's been coming down over the last couple of years. But I think that we, as a company and I think our industry are very good holders of private credit for that reason. My read on what's been going on this year is not necessarily a credit situation, but much more a liquidity situation. And I think that's the lens that you really need to start looking through it.

And Bob, let me make a comment on the habit of the company. Our CEO has been CEO for 36 years, Dan Amos. We've got talented people. We got talented people here in New York City and our GI operation. How we manage the company, Dan's expertise is risk management. We run our entire organization through that lens of making sure we protect our shareholders to the degree.

Really appreciate that. Yes. Last one for me, we're getting close to time is capital deployment, right? You generate very strong free cash flow. And then you also talked about financial flexibility and tactical capital deployment. It's an interesting environment we're living in, right? Ample capital, somewhat of a volatile market. Can you maybe talk about where do you think capital deployment could be the most interesting?

Where we can get the best return?

Maybe buybacks, maybe -- well, dividends for sure, buybacks, M&A, just -- yes, curious to your thoughts on some of those things.

Well, let me start, and I'll let Virgil follow. But, yes, we have significant capital capacity. We will continue to make sure that we have that. Last year, we added off-balance sheet liquidity to our liquidity toolkit, which was quite important. We were able to structure a transaction where we went down in on-balance sheet liquidity, but we went up significantly in off-balance sheet liquidity, and that helped us further improve the overall liquidity profile, but also it helped boost our available capital and buyback last year. As we look forward, we will continue to find ways to do this. I would say that our underlying cash flow generation is sort of on a run rate basis, about $2.5 billion to $3 billion. On top of that, from time to time, we do find ways either through internal reinsurance transactions, rationalizing our debt profile and other ways to improve that.

But those will be more onetime in nature. But over the last couple of years, we've found quite a number of one-timers, and I would expect the team to continue to find those. And we will use that to obviously continue to increase our dividend. We are a dividend aristocrat company where we have increased the dividend for 43 years in a row. So that will continue. And on top of that, we obviously have significant capital flexibility, both for buybacks and if we find value-enhancing M&A, that's something that we would evaluate as well.

Consistency and focus strengths of Aflac. We focus on Japan. We're focused on the U.S. We're focused on what we're doing with our reinsurance there in Bermuda. And as we do that, we'll continue to assess and to see if there's anything else we need to do.

Really appreciate that. And thank you both for taking the time.

Thank you.

Thank you. Enjoyed it.

Good day, and welcome to the Aflac Incorporated First Quarter 2026 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would now like to hand the call over to David Young, Senior Vice President of Capital Markets. Please go ahead.

Good morning, and welcome. Thank you for joining us for Aflac Incorporated's First Quarter 2026 Earnings Call. This morning, Dan Amos, Chairman, 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 this quarter's financial results, including our capital and liquidity. These topics are also addressed in the materials we posted with our earnings release, financial supplement and quarterly CFO video update on investors.aflac.com.

For Q&A today, we are also 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 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?

Thank you, David, and good morning, everyone. We're glad you've joined us. Although we have just one quarter under our belt, the first quarter marked a good start to the year. Aflac Incorporated reported net earnings per diluted share of $1.98 and adjusted earnings per diluted share of $1.75. These results reflect our focused execution of our strategy, thus creating long-term value for our shareholders.

Starting with Japan, as you will recall, last year, Aflac Japan implemented a marketing and sales transformation, which helped deliver the strong results and sales momentum we saw in 2025. And again, in this quarter, this transformation was a major strategic initiative driven by Aflac Japan's corporate strategy and marketing and sales team. I would highlight the leadership of Deputy President, Shinsuke Morimoto; First Senior Vice President, Michihiro Ito; and Chief Marketing Officer, Yumi Saito, working together with Executive Vice President, Yoshizumi, to make it happen. As a cohesive management team, they delivered strong results. I'm excited about [indiscernible] and innovation that they have produced and will continue to bring to the organization moving forward.

With this in mind, I am pleased with Aflac Japan's sales increase of a 25.5% increase for the first quarter. These strong sales results were driven largely by our newest medical product, Anshin Palette and Miraito, our latest cancer insurance product. 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. The value of our policies resonates with millions of policyholders, and this reinforces how Aflac's overall strategy is effective and reputation is important.

By maintaining strong persistency while adding new premium through sales, we seek to offset the impact of lapses and reissue as well as policies reaching paid-up status in the future. Maintaining strong persistency continues to be important to the future of Aflac Japan. Our broad network of distribution channels, including agencies, alliance partners and banks continually leverage opportunities to help provide financial protection to Japanese consumers. For the quarter, all of our distribution channels generated increases in sales, which is significant, considering that we prioritize being where the customer wants to buy insurance. We will continue to evaluate the needs of each channel and support those needs, as we work together to provide Japanese citizens with financial protection.

Turning to Aflac U.S., I am encouraged by the 2.9% year-over-year increase in sales and the momentum we are seeing within all areas of our group business, especially our group voluntary products. And more importantly, we maintained strong premium persistency of 79.3% and increased net earned premium of 3.5% for the quarter. We continue to focus on driving our profitable growth with 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 shortly.

Across Japan and the United States, consumers are feeling the increasing burden of out-of-pocket medical expenses. That's where we step in. Our management teams, employees and sales distribution partners are united to be there for the policyholders when they need us most. As the pioneer in cancer insurance and a leader in the industry, our team and sales partners show up every day to help ease the burden, providing financial protection with genuine compassion and care.

As an insurance company, our primary responsibility is to fulfill the promises we make to the policyholders while being responsive to the needs of shareholders. We generated strong capital and cash flows on an ongoing basis while maintaining our commitment to prudent liquidity and capital management. We continue to be pleased with our investments producing solid investment income. Our financial strength is the foundation that backs up our promise to our policyholders, balanced with the financial flexibility and tactical capital deployment.

I am very pleased with the company's financial strength, which supports our capital deployment. We treasure our 43 consecutive years of dividend increases and remain committed to extending this record.

Combining share repurchase and dividends, we delivered $1.3 billion back to the shareholders in the first quarter. In doing so, we have maintained our position among companies with the highest return on capital and the lowest cost of capital in the industry.

In today's complex health care environment, Aflac stands out as a trusted partner, combining relevant products, financial strength, a powerful brand and broad distribution to help consumers manage the financial strain of out-of-pocket medical expenses. The ongoing foundational strengths of our business and our capacity for continued growth in Japan and the United States, two of the largest life insurance markets in the world, support our leading position and build on our momentum.

I will now turn the program over to Max to cover more details of the financial results. Max?

Thank you, Dan. For the first quarter of 2026, adjusted earnings per diluted share increased 6.6% year-over-year to $1.77, excluding effect of foreign currency in the quarter.

In this quarter, remeasurement gains on reserves totaled $82 million, reducing benefits, with $23 million or $0.04 per diluted share above plan. Variable investment income ran $14 million or $0.02 per diluted share below our long-term return expectations. Adjusted book value per share, excluding foreign currency remeasurement, increased 0.2%. The adjusted ROE was 12.8% and 16.4% excluding foreign currency remeasurement, a solid spread to our cost of capital. Overall, we view these results in the quarter as solid.

Starting with our Japan segment. Net earned premiums in yen terms for the quarter declined 3.8%. Aflac Japan's underlying earned premiums, which excludes the impact of reinsurance, paid-up policies and deferred profit liability declined 1.3%. We believe this metric provides a clearer insight into long-term premium trends.

Japan's total benefit ratio came in at 62.9% for the quarter, down 290 basis points year-over-year. We estimate the impact from reserve remeasurement gains exceeding plan to be approximately 70 basis points. We continue to have favorable trends in cancer and hospitalization.

While persistency was down, it remains strong and in line with our expectations at 92.8%. We continue to see an uptick in lapse and reissue on our cancer insurance product. Lapses on our first sector savings block remained low and in line with previous periods despite the increase in yen interest rates. Our expense ratio in Japan was 19.5% for the quarter, down 10 basis points year-over-year.

For the quarter, adjusted net investment income in yen terms was up 4%, primarily driven by higher U.S. dollar fixed rate income on higher volume and higher variable net investment income compared to last year, partially offset by lower dollar-denominated floating rate income due to lower volume and rates as well as reduced call income.

The pretax margin for Japan in the quarter was 35%, up 320 basis points year-over-year, a very good result.

Turning to U.S. results. Net earned premiums were up 3.5%. Premium persistency remained solid at 79.3%. Our total benefit ratio came in at 47.2%, 50 basis points lower than Q1 2025, driven by favorable incurred claims for individual voluntary benefits products and group disability. We estimate that reserve remeasurement gains impacted benefit ratio by approximately 230 basis points in the quarter, which is about 80 basis points above plan.

Our expense ratio in the U.S. was 38.3%, up 70 basis points year-over-year, primarily driven by higher DAC amortization and commissions along with timing of advertising and investment spend.

Adjusted net investment income in the U.S. was down 0.5% for the quarter, primarily driven by lower short-term rates, offset by higher variable net investment income.

Profitability in the U.S. segment was solid with a pretax margin of 20.4%, a 40 basis points decrease compared with a strong quarter a year ago.

Corporate & Other reported breakeven pretax adjusted earnings, down from a $43 million gain last year, driven by lower adjusted net investment income, higher interest expense and operating costs and runoff impacts from closed blocks of business.

Adjusted net investment income was $17 million lower than last year due to a combination of lower hedge benefits, partially offset by lower volume of tax credit investments.

Our tax credit investments impacted the net investment income line for U.S. GAAP purposes negatively by $5 million in the quarter with an associated credit to the tax line. There was no benefit in first quarter earnings from tax credit investments.

We are pleased with the overall performance of our investment portfolio. During the quarter, we recorded $19 million of charge-offs on our loan portfolio. Additionally, we did not foreclose on any properties in the period. We recorded $24 million of impairments on our real estate owned portfolio to reflect the continued depressed valuations in the commercial real estate markets. However, we continue to believe that the current distressed market does not reflect the true intrinsic value of our portfolio, which is why we continue to manage them through this cycle and maximize our recoveries.

For U.S. statutory, we recorded $12 million of impairments on invested assets and a $1 million valuation allowance on mortgage loans as an unrealized loss during the quarter. On our Japan FSA basis, securities impairment reversals led to a net realized gain of JPY 66 million in Q1. And we booked a valuation allowance of JPY 201 million related to transitional real estate loans. This is well within our expectations and has a limited impact on regulatory earnings and capital.

Effective March 31, Aflac Re Bermuda entered into a transaction, in which it assumed a block of whole life annuities from Japan Post Insurance. This transaction itself is immaterial to Aflac Inc.'s financials, but it marks a strategic milestone as we expand our reinsurance franchise, targeting the Japan market.

Aflac Inc. unencumbered liquidity stood at $3.4 billion, which was $2.4 billion above our minimum balance of $1 billion at the end of the quarter. Our adjusted leverage was 21.2% for the quarter, which is within our target range of 20% to 25%.

As we hold approximately 65% 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 estimated regulatory ESR of 227%. If including the undertaking specific parameter, or USP, this would add 16 points to the regulatory ratio and results in an ESR with USP of 243%. We estimate our combined RBC to be approximately 560%. These are strong capital ratios, which we actively monitor, stress and manage to withstand market volatility and 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 $315 million in Q1, offering good relative IRR on these capital deployments. We will continue to be flexible and tactical in the way 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.

I will now turn the call back over to David.

Thank you, Max. [Operator Instructions].

[Operator Instructions] And our first question comes from Tom Gallagher of Evercore ISI.

First question is just on capital generation. Max, can you talk about -- can you help quantify how much benefit you got from that external reinsurance deal? And were there any ESR headwinds that emerged in Japan that might have impacted things?

So the reinsurance transaction we executed in the first quarter with an external party. The impacts to capital were relatively small. This was a relatively small block in the scheme of -- compared to the overall enterprise. So it wasn't really meaningful to either the ESR or FSA earnings in the quarter. And in terms of the movements in the ESR, as you recall, we're down a little bit compared to the full year. The main driver of that is subsidiary dividends being moved up from Aflac Japan to the holding company in the quarter. Other than that, you have our sensitivities, and they work pretty well in terms of estimating the other impacts.

Obviously, higher yen rates has a slightly negative impact to the ESR because of the increased capital charge associated with mass lapse risk. At the same time, you also saw a little bit of a yen weakening that is benefiting the ESR. So relatively small impact from capital markets inputs to the ESR.

Okay. And then my follow-up is just can you -- I think there was a change in the lapse and reissue activity during the quarter, normally, it's much older policies, and it was less so this quarter. Can you talk about what does that mean for -- from an IRR perspective for Aflac when there's somewhat younger customers that are doing lapse and reissue? Are those still positive IRRs when you think about your economics?

Thank you, Tom. So when you have a policy that is a little bit shorter in its duration because that policy is now lapsing and now moving into a new policy, what tends to happen in that scenario is obviously the policyholder is doing this for -- in order to get a better coverage. And once you have gotten that better coverage, you're probably more likely to improve the persistency post the lapse and reissue activity. So when you think overall, we think when we analyze this through the totality of the overall block, relatively minor impacts on the IRRs.

There will be -- if you take a snapshot of one specific policy that just lapsed, obviously, that IRR is a little bit lower than originally assumed, but we now think about that new policy it is moving into, the duration of that policy is likely to be longer, and that might actually improve the IRR of that new policy that is being written. So that is sort of working a little bit as a balancing impact.

So the overall impact to IRRs across the whole in-force is expected to be quite minor.

The next question comes from Ryan Krueger of KBW.

I had a question on the Japan benefit ratio. It's towards the high end of your target in the quarter and a little bit above, I guess, excluding favorable experience. Can you just talk about the key drivers of expected improvement in the benefit ratio as the year goes on towards the 60% to 63% outlook?

Yes. Thank you, Ryan. So when we think about the different drivers being underlying experience, that being the lower net premium ratio established in the third quarter of last year, and then also different types of lapse activity, we would expect going forward, the favorable experience that we didn't have in this quarter, and we've had for a long time. We think that we will continue to generally have those trends in place.

When we think about the net premium ratio, that has been set more or less, and that's more driven by mix of business as it relates to the current year benefit ratio. And obviously, we will update our net premium ratio with our long-term assumption unlock in the third quarter of this year.

And then the last piece being the mix of lapsation. We did have a mix in this quarter with a little bit less of old aged cancer and a little bit higher lapsation of more recently issued policies. And when that happens, you naturally have less of an impact on the reported GAAP benefit ratio because the younger policies have less of a reserve being built up relative to old policies. Especially old policies with a CSV could have quite an impact on the reported benefit ratio given the release of those reserves.

So as we then think about these impacts and trends running through our results for the full year, we still feel very confident with the outlook range that we gave at the beginning of the year of 60% to 63% for the Japan benefit ratio.

Great. And then you did -- I know it was smaller as a starting point, but on the first third-party Japan reinsurance transaction, but could you talk a little bit about how big of an opportunity you think that is perhaps for Aflac, I guess, over time? And could that move the needle some on your growth in Japan?

Well, these transactions, while this one was a relatively small transaction, could be material to us over time. These can be pretty sizable blocks when executed, and they would then be immediately accretive to our earnings profile. So Japan, obviously, is a very sizable market. I don't think that we will target the whole market. We will be selective in the way we approach it, both in terms of the target niches and also the type of products and risks that we go after. But it's obvious to us that we think that we have a balance sheet that is quite attractive for counterparties to transact with a AA rating. We think that we have a certain expertise in how to navigate and transact in the Japanese markets, and we now built a platform that is ready to do so.

So we do think that adding also some risks, i.e., that being mortality, longevity risk and spread risks to our balance sheet can be quite attractive to us from our risk management standpoint as well. So there are many factors at play that makes this quite attractive from a financial standpoint for us. So I think this will be -- it will take time for this to build up, but over time, we certainly expect that this would be material to the company.

The next question comes from Wes Carmichael of Wells Fargo.

First question on Japan cancer sales Miraito, do you expect sales to sequentially improve in the next quarter relative to the first quarter? I know it's competing a bit now with the new medical product.

[Interpreted] This is Yoshizumi from Aflac Japan. Medical -- cancer insurance Miraito's momentum is continuing, and we expect the 2026 sales to be equivalent to the 2025. We have created a system whereby the entire 3 products, starting with the cancer reinsurance Miraito, medical insurance Anshin Palette, and Tsumitasu to be sold concurrently.

Appreciate that. And then second question just was on the corporate segment. I know there was breakeven in the quarter, maybe a little bit of impact from tax credits, but it's bounced around a little bit. I was wondering, Max, is there any help you can give us with an expected run rate of earnings power there? And I realize there's a few moving pieces.

Yes. So you tell me where short-term rates are going to go and I give you the answer is a little bit of the -- how this works. The main driver that is swinging our Corporate and Other segment around is the net investment income that we generate on our cash and liquid assets. So obviously, depending on how much capital we hold at the Holdco times, the short-term rates, to some extent, drives that.

The other component to it is we -- this is where we hold our internal -- sorry, all our reinsurance treaties and because these are runoff blocks, there's a natural decay roughly about 8% per year. So that also drives down the earnings contribution year-over-year unless we add and do more either internal or external transactions adding to the earnings of that segment.

So as we go into Q2 right now, I would say that I would expect this segment to be slightly negative in terms of pretax earnings given current volumes and rates and what we see from our reinsurance blocks.

Next question comes from Joel Hurwitz of Dowling & Partners.

Max, I wanted to go back to the external reinsurance transaction that you did with some of your first-sector business in Japan. If I look at the ceded premiums and the tick-up quarter-over-quarter, it looked like you had like a 1.5 point impact to net earned premium. Should we think that the earnings impact is similar to that premium impact over time? Or is there another way we should be thinking about earnings impact from that deal?

So on that transaction, it negatively impacted our Aflac Japan earnings in the first quarter by mid-single-digit U.S. dollars in millions. That transaction or that block of business will initially have a negative impact along those lines for the next couple of quarters, but then over time, it will go towards more of a zero impact. So in the near term, we expect a negative earnings impact from that ceded business and that it will go closer to zero over time as those policies reach paid-up status.

Got it. That's helpful. And then switching to the U.S. There were some headlines in the past month that a state regulator was forcing rate cuts on some of your products. Are you seeing pressure from other states? And just how should we think about a potential impact to top line or earnings in the U.S.?

Joel, this is Virgil. No, we're not seeing any additional pressure like that. As a matter of fact, in the U.S., I'm pleased with how we are looking going forward with the year. It's still -- we're still being consistent and balanced with our approach, but we're really seeing no material impacts at all.

The next question comes from Suneet Kamath of Jefferies.

Just wanted to start on strategy maybe with Dan. So this reinsurance opportunity in Japan sounds interesting, but I guess another read could be sort of it's an indication that maybe the core business over there has less growth than maybe it previously did, and you're looking for other opportunities to sort of stimulate growth. So just curious, is that not the right read of this?

No. What I would say is that we're always looking for opportunities. We -- our position on reinsurance was as we've taken a slow methodical approach by starting by doing a reinsurance with another company, then we ended up taking it internally. And what we've seen is success in the reinsurance business for us. And now the next thing is to do a deal with our biggest and closest partner, Japan Post, and then from there, we'll see where it goes.

We still believe there's a lot of opportunity to grow our business in Japan. And so this is a natural fit for us that we'll continue to watch, but what I like is evolution, not revolution. And so we continue to methodically take this on and continue to grow the business.

Got it. Okay. And then I guess for Virgil, last quarter, you gave us some good color in terms of the mix of sales, sort of the group business versus kind of the core agent business. Just wondering if you could give us an update on what happened here in the first quarter, and how you think things will trend for the balance of the year?

Yes. Thank you. So I was mentioning this in, overall, I'm pleased with the quarter. It's consistent, it's balanced. The color I gave on the group business, I'll give you some more insight, very similar. So in the quarter, if you look at what we file as group products, that would include our Dental and Vision line, our Core VB, and then you look at what we've been doing now with our group Life and Absence Disability. If you add those 3 categories up, we're up about 12.4% for the quarter.

What we've been calling buy-to-bills, this is the investment we made with the Dental and Vision property. What we made, we were calling it Palette, we'll just call it group Life Absence and Disability, and then with our direct-to-consumer platform that we refer to as consumer markets. When you add the 3 of those to -- those 3 entities up to the buy-to-bills, we were up 25% for the quarter.

So strong performance, very, very pleased with those. If you look at the Dental and Vision property, I fell on the sword, maybe a couple -- over a year ago and tell you that we were going to invest in improving that business and get it back going. So we're up 52% for the quarter. Strong performance. I believe that the -- you'll continue to see solid performance in those categories. And again, I am pleased with how we're trending. And overall, you add in a point of the fact that we still have consistent, strong persistency, 79.3%, and that is how you're seeing, though, the overall increase in our premium income at 3.5%. If you look at the premium income, since the pandemic, we've seen steady increase. And now I'm pleased with where we're sitting with that metric.

But is the core business, like the agent business shrinking still? Or like what's going on with that piece?

Yes. That's why you don't see the overall tremendous growth that you've seen in just the group space. That particular business, we've got some investments we're doing right now to try to get growth out of that business, but what you're seeing right now is slightly down to flat. What's going to improve that is our continued focus on recruiting agents, and then making sure we convert those agents. So in the first quarter, we had a 16% conversion rate of new agents. That's where I continue to focus, and we continue to have strong productivity. The productivity with our agent group was about 8%. So that's our continued focus, but you're right, we're not seeing growth out of our core traditional business.

We've also invested in improving and enhancing our enrollment process. What that really means is we've made it easier for new agents to be onboarded and have given them tools where they can go out and sell quickly and get going. We all know that when you're in a market where you're having people come on that are getting paid commission, the best thing to do is get money in their hands as quickly as possible and get some accounts in the book.

There's a metric that monitor behind the scenes, called new agent success. And what that really measures is can we get an agent to produce about 25,000 in the first 3 months and add 3 new accounts, and that metric is up also 8%. So I think we're heading in the right direction. But with the market going toward group product, and then group product continuing to go toward the smaller employee groups down now to 100 and some below 100 lines, we just had to continue to make sure that we are putting innovative product and technology, and that's what we're investing in.

Next question comes from Jack Matten of BMO Capital Markets.

Just a follow-up on the U.S. business. I guess, just given there's been some kind of incremental impacts from inflation and higher gas prices in recent months, is Aflac seeing anything changing around consumer behavior for voluntary products or regarding agent recruiting? I mean, it sounds like you just like your persistency has been stable so far, but just wondering if there's any other perspective you'd offer. So I think one of your peers caught out somewhat lower VB persistency.

Thank you for the question. No, you can see our persistency has maintained consistent and actually, we had been showing steady increase. So that 79.3% is strong. So we haven't seen an impact of that. Recruiting is tough in the market. It's not easy, but however, I can tell you that we're going to be on track to recruit about consistent with what we've been for the last 2 or 3 years. We've been at that 10,000 to 11,000 range now. That's what I expect to see again this year. But again, the focus would be on taking those, and making sure, we convert and making sure we maintain those going forward. But we're not seeing any material impact that that's worthy of calling out.

Got it. That's helpful. And then maybe just a follow-up on the Japan business growth outlook. I mean, Aflac has been seeing very strong sales growth following the marketing transformation you all did and the new product introductions over the past year. But the underlying earned premium growth rate still hasn't got to tick higher. So just wondering what, if anything, you think would need to change that inflection to occur?

Yoshizumi? Well, I'll take it, I guess. Go ahead.

[Interpreted] Excuse me, could you say that question once again, please?

Yes. I mean just in light of the strong sales growth that Aflac has had over the past year or so, it's been impressive, but the underlying kind of earned premium growth rate still hasn't ticked higher. So just wondering what would need to change that inflection to occur?

Maybe I can kick it off and maybe Aflac can add to the answer. If you look at the profile of earned premium, we are currently sort of running a relatively predictable lapsation in about roughly JPY 90 billion right now. And that means that in order to get back to earned premium growth, that's the kind of sales level that you basically need to get to in order to achieve zero or flat in-force period-over-period on an annual basis. So that's what we need to get to. Obviously, Aflac Japan has a strategy that they're executing on. And in that, we have a line of sight of getting to that level. So over time, we do expect to get to both flat and into the growth mode as it relates to earned premium as well. But for the time being, we have been sort of hovering in this range of negative 1% to 2% on the underlying earned premium, and that's what we expect for the full year.

[Interpreted] This is Koide speaking from Aflac Japan. Our midterm management strategy is to grow the new business. And by doing so, we aim to stop the stagnation of the earned premium.

The next question comes from Wilma Burdis of Raymond James.

Leverage has been declining again. Does Aflac have plans to raise any debt? And if so, could you talk a little bit about uses of capital? I think in addition to that, you have quite a bit of excess capital. So maybe just talk a little bit about that.

Yes. Thank you, Wilma. So leverage down to 21.2%. That is partially a function of the yen-dollar exchange rate. As you may recall, we hold about 2/3 of our debt denominated in yen and 1/3 in U.S. dollars. And this is a part of our enterprise FX hedging program that we run in order to neutralize the impact from the yen-dollar exchange rate to the overall enterprise. What that means is that as we operate within the leverage corridor of 20% to 25%, we have significant benefits from borrowing in yen, that being from a lowering risk standpoint as it relates to FX to enterprise, also accessing a broader investor base, and also accessing lower interest rates, all of those very beneficial to us. But what it also means is that it does expose our leverage ratio to volatility in the yen-dollar exchange rate. So we need to stress test that and make sure that we can -- we don't necessarily breach the leverage corridor even in a significant yen strengthening scenario.

So that's why we always sort of stress test that under different scenarios, especially when we are looking to add new debt to our capital structure.

At this point in time, we don't have any real plans to increase our leverage per se. We have significant capital and liquidity at the holding company in order to deploy that into our operations and also back to shareholders. And we have significant flexibility across the company as it relates to the capital that we hold inside of the regulated entities. And layer on top of that, the ability to then also utilize reinsurance to both create in the near term more capital and eventually further liquidity available to the holding company gives us -- puts us in a very strong position to execute whatever plans we want to execute on.

Aflac has so much excess capital. That's really the #1 question I get is there what can you do with that? Is pursuing these external reinsurance deals something that you think you could deploy more sizable amounts of capital? And if so, what would you look for in a larger deal?

So as it relates to our external reinsurance strategy, that is something that will consume capital. That being said, I don't expect it to be consuming that much capital that we would alter our capital deployment back to shareholders as we have pursued over the last couple of years. This is more as an add-on strategy. And if we can do that at good IRRs and grow our overall business and earnings power, we think that, that can be quite beneficial overall to the company. And certainly also, it would diversify our earnings stream a little bit and also diversify the risk profile of the company, all of those being ultimately positive.

The next question comes from Pablo Singzon of JPMorgan.

So first on the U.S. benefits ratio, sort of the reverse of Ryan's question. So 1Q was much better than your outlook. Is there any reason why the benefit ratio should increase from here? Or this is your view that claims are just too good in 1Q?

Thank you, Pablo. So the benefit ratio guidance for the full year remains 48% to 52%. In the first quarter, we did benefit from remeasurement gains that was over and above our internal expectations by about 80 basis points. So on an underlying basis, if I add back those 80 basis points, puts our first quarter underlying benefit ratio spot on 48%, i.e., at the very low end of the full year range.

In this quarter, we did benefit both from favorable experience on cancer, but we also benefited from a low benefit ratio on our group disability block as well. This is something that can be quite volatile from quarter-to-quarter. So I would keep that in mind.

So while we're very encouraged by the start of the year, we still think that 48% to 52% is a good range for the full year for our U.S. benefit ratio.

And then my second question, other group insurance companies have started talking more about the family. Can you talk about your current involvement in the product? Today, I think you will see admin services. And if there are any goals or intentions to eventually start fully insuring risk at some point in the future?

This is Virgil again. So yes, let me just give you a little bit more color on our overall block and what we do. Of course, our focus is on the administrative service portion. We provide services for more than about 3 million constituents out there. The main thing we talk about is the services we provide for the state of Connecticut. We won and added now in the State of Maine, but we also oversee and provide services for other entities, other business entities. Inside those business entities, though, if you look at that, we do provide insurance coverage also. So we get about -- approximately about $40 million in premium on that side of the business is not material to our overall U.S. block. But from an administrative services fee, we get probably about $90 million from that side. So it kind of gives you a little bit more color into the size and again, is providing services for about more than 3 million constituents overall.

Overall, this has been very good for our overall book of business. We've been able to demonstrate that we are certainly serious and a player in this space. We provide high touch, very high standard of service. It's excellence that we provide, and we have been able to achieve and get good feedback from where we're providing those administrative services. And we look cautiously to expand where necessary out in the market because it's been a good business for us.

The next question is a follow-up from Tom Gallagher of Evercore ISI.

Just wanted to try and tie a few things together from different responses I heard to make sure I am understanding this correctly. Max, the number to get to flat premium growth in Japan you said would require around JPY 90 billion of yen sales for the year. Did I understand that part correctly?

Yes, you did.

Okay. And then I think the earlier response on the expectation for Japan sales for '26 was the same level as '25, which was JPY 74 billion. So that would leave you about JPY 15 billion, JPY 16 billion short. Is that the right math to think about here?

Well, let me just say, this is Dan. I think the number will be higher than last year's number.

Got you. So Dan, you expect -- and if you wouldn't mind opining a little bit further on that, Dan. What are you thinking overall relative to JPY 74 billion was the baseline for '25? How do you -- what's your best guess for how that emerges in '26?

Well I would say closer to JPY 80 billion. That's what I'd like. I'm not going to say that the company won't be satisfied with a little less, but I'd like JPY 80 billion.

And you want to talk a little bit about the product, Dan?

Yes, go ahead.

Yes. Just to say, you can see just looking at consistency now with the growth we're seeing in the new cancer product. You can also see though that Anshin Palette, the medical product we introduced to the market, has come out strong in Q1. So we are very encouraged by the new sales of those two products. And then we continue to be focused on Tsumitasu. Tsumitasu came out very strong for us, but we still -- we're adjusting our rates where necessary, and we've still been a major player in there. So when you combine those three things, I think that's what has us all encouraged about what we're seeing with Aflac Japan.

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

Thank you, Andrea, and thank you all for joining us this morning for our call. If you have any additional questions, please reach out to the Investor and Rating Agency Relations team. We'll be happy to follow up, and we look forward to talking to you soon. Have a great day.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.

All right. Thank you, everyone, for joining us this morning. So -- very pleased to have Aflac with us. So my name is Michael Ward. I'm the North American life insurance analyst at UBS. So to my left, I have Dave -- Virgil Miller, President of Aflac Inc; and David Young, SVP of Capital Markets. I figured we could maybe start with any quick remarks that you guys have write off of 4Q earnings and into 2026.

Yes. Good morning, everyone. I'm Virgil Miller, and first, let me just say that coming off the year, I'm very pleased with 2025 we had. When you think about Aflac, we're really operating in two of the largest insurance markets in the world. Starting with what we do over in Japan, we had a real focus on getting our sales growth back in line. You know that you got to be very creative in that market, especially with the aging population, and we've been able to do that with the introduction of our Tsumitasu product year before, and then this year, a focus on our cancer insurance, Miraito, we saw solid growth in that product line and then by the introduction of our new medical product toward the end of the year. So continue to reinvent ourselves in that market.

In the U.S. market, I'm very pleased to say that we're seeing tremendous growth in our group side outpacing the market, our group products? Although we had an overall 3% increase, our traditional business, we've got -- we put much more focus on that going this year, but we're seeing growth with all of our investments on the properties that we bought with our life absence of disability.

So growth is a focus for us at Aflac. We continue, though, to maintain strong discipline for all of the rest of our metrics when it comes to management expenses and delivering shareholder value backed by way of profit and making sure that we run a sound overall business model that people can trust and our consistency to deliver each and every year. David?

Yes, thank you, and thank you for having us, Mike. It's been a strong year, I think, to add to what Virgil said. We continue to consistently deliver in terms of the cash flows that we deploy back to our shareholders as well as into the growth of the company. We had a record year in terms of what we did, in terms of the repurchase $3.5 billion that we deployed back to share repurchase our shareholders and then also continued our record 43 consecutive years of dividend increases. And that led to about $4.8 billion, nearly $4.8 billion that we deployed to our shareholders. So we're excited about that and excited for 2026.

Great. Thank you guys. So I thought we could maybe start with Japan. And I guess at a high level, I'm curious how do you guys think about business growth given the shrinking and aging population there?

Thank you, Michael. I -- as part of my opening, I mentioned that when you think about the aging population, this is not new. We've been talking about this for years now. What we've had to do, though, is be innovative with how we go to market and the products that we're offering. So if you think about Aflac, first of all, we are the pioneers of the third sector market. We still dominate in the cancer insurance part of the market, and we continue to leverage that as an anchor for Aflac. And we added our new product, Miraito, which has really taken off. And now we're focused on our medical insurance. In that medical insurance market, one of the ways you have to be able to do in Japan is, first attract the younger audience. So we've made sure we're going after the younger audience, but also the way we design the product there allows us to be able to sell to existing customers. Whether you have Aflac or not, you're able to compartmentalize or buy benefits that are important of value to the consumer.

It was very creative how we did that. And then the last thing I would say, though, is making sure though in that first sector market where the FSA of Japan is encouraging, encouraging all Japanese residents to make sure at a young age, they began to invest and consume products, not necessarily savings or deposit type of products, but products that build value over the years. And that's what we offer with our Tsumitasu product. That Tsumitasu allows you to buy it, buy it with a fixed rate at the time of sale and thus, let it grow with you over the years. And that product also has taken off. So this gives us the ability to go after the younger part of the population, sell to existing customers. And then with the Tsumitasu, we also offer our cancer and medical insurance. So the creativity that we have in the market is what you're seeing now and the ability to give us the sales growth that we've had in 2 consecutive years.

So I guess maybe thinking through that, right, the -- you guys, like you said, we were pioneers in third sector, right? I think the first sector growth has been impressive, too. But thinking about the competitive environment for both and how that has evolved, wondering if you could kind of comment on that, I think. Are you seeing competitors come out with the first sector and then add the medical add-ons, right? Is that happening? Or...

Yes. There is some competition in the first sector market, of course, a lot of life insurers there. But with the Tsumitasu, we think our product is unique. We -- the way we design it gives us flexibility to also be able to adjust rates. As the -- as interest rates change in Japan, we actually did a rate change in September. Also, we believe that's going to have another boost to sales there. We've designed it in that flexible manner. But the competition is there, but you got to remember also is that we're very unique about how we distribute.

In Japan, we focus on distributing Tsumitasu with our bank alliances. We have very strong bank alliances there. We've increased the number of banks that also distribute Aflac products. And then by way of our other products, we still believe in our agency force there. Our agency force has been trained on Tsumitasu. But when they offer Tsumitasu, they're also introducing our third sector products. And then finally, I'll say we continue to have our alliances with Japan Post. And so that gives us the ability to not only have creative products, but strong, strong distribution in Japan. Dave, you got anything you want to add to that?

Yes. I would say that it's -- Tsumitasu is a yen product, and we don't do dollar product as some of the wealth management type firms do. So it fills a gap in a country where it's been very cash deposit rich and you have the government encouraging individuals to go out and invest as Virgil stated. But it is a good product for somebody that's maybe not going to make that leap all the way into like an equity-linked product, something of that sort. So good asset formation product that also introduces that concept of I may need a medical policy or a cancer policy. It already comes with nursing benefit options. And you can convert cash surrender value later to additional medical coverage as well. So it gives some optionality there that's a value to the individuals. And I think we've got a good product. We haven't really seen anything in the market, as Virgil said. So given where rates are, too, in Japan on that long end of the curve, a real opportunity, especially through banks. So we look forward to continuing to sell Tsumitasu in 2026.

Yes. No. I mean I actually just remembered this, but last year, I was reading about the sort of state of retirement savings in Japan on Reddit. There was this forum, it was either translated or written in English, but there was like 700 people debating whether or not they should be saving for their own retirement, right, versus relying on the system or is it a waste? And it was just fascinating seeing those people debate that in the different arguments, but I think it makes total sense.

Mike, that's what makes Japan so unique. As I've spent so much time there, of course, I grew up in insurance, have 35 years in the U.S. market. And if you think about it, the Japanese consumer is just much more educated on insurance. All you have to do is look at the penetration rates. The percent of the population that carries insurance, and it gets back to the overall government health care system, people know exactly how much they're going to be out of pocket and be prepared for it. And now they began to push it down at a much younger age to say, get prepared. And it's encouraged by the government. The government is saying, "You need to know what you're going to be out of pocket and you need to start creating savings and value earlier in life." And that really helps the population there.

Yes. So maybe just thinking through, right, something that's been topical lately is the rise in JGB yields, potential rate hikes. And then, of course, yen volatility. You guys seem a little bit more insulated from a business model perspective. I just thought maybe you guys could run through that a little bit.

I'll start, David. And I would say if you think about our products though, our products are not necessarily designed to be interest rate sensitive. Tsumitasu is really the only one. And the key on Tsumitasu again, is that we're locking in a fixed rate at the time of sale. The rest of all products, they don't build cash surrender. They are not really influenced as much by rate change throughout. And with Tsumitasu, as I mentioned before, what we did was design it in a way that we have the ability and have to be able to change our rates. So we feel that we're not really materially impacted by rate change.

Yes. Virgil is absolutely right. In terms of -- we have a real opportunity to, as I mentioned, with what's going on with the JGB yields on the longer end of the curve, they haven't been at that level in quite some time. So an opportunity to sell more Tsumitasu in that way. But I think when you look at the core of the business in terms of interest rates, as Virgil noted, those are fixed benefits. So when you buy a cancer insurance policy or medical policy, the day that you signed that agreement you're locked in at those different fixed benefits. What that means is, down the road, you're exposed to the medical inflation risk, even though you have the government -- the government insurance, you're on the hook for let's say, roughly 30% of the expenses associated with that. So as medical inflation rises and you still have that fixed benefit that's traveling flat, you're going to need to keep up with the trends and that means buying additional coverage or enhancing your coverage. And that's why you see a lot of lapse and reissue when we come out with a new medical product or a new cancer insurance product, those are individuals enhancing the coverage that they have. So we have an opportunity in that way.

As I mentioned earlier, too, we don't sell FX product. It's all again based in Japan. So FX doesn't impact us in that way. In terms of where it does impact us, it would be like our ESR, the new economic solvency ratio. And that ratio is impacted by the yen-dollar exchange rate. But we're able to mitigate that risk some, and you saw the slide probably with our earnings release that addressed the different sensitivities of that ratio. And we are able to mitigate that through matching the asset and liability duration there. So the better that is, the less sensitive you'll be. So that's how we are sensitive to the FX. And I think on the rates, the other side of the balance sheet, it presents opportunities for the switch trade that you hear Brad Dyslin, our Chief Investment Officer. He has spoken to that some, where we might switch into higher-yielding JGBs or maybe investment-grade credit, so there are opportunities on the asset side of the balance sheet as well.

Great. Last one, I would say, on Japan, just thinking through the distribution and the evolution of distribution post pandemic specifically, given some of the challenges faced. Just curious how have you been addressing those challenges? And how much has it recovered would you say?

I would say that -- I wouldn't put a percentage on it might, but I feel confident that we are very near recovered. So absolutely, we were impacted in Japan. And as we talk about the U.S. later, certainly impacted in the U.S. But here's why I would caveat what I'm saying is that with the agency model this year, we were able to successfully recruit. I think the number is like 1,300 between agents and agencies to make sure that we're still dedicated to that channel. The point I will make on that is that we did it in two ways. We did it through really assisting from headquarters, meaning Aflac Japan headquarters perspective, enabling a help on recruitment and then having the local agencies go out and recruit on their own. So we are pleased with what we sell by way of that.

Secondly, we continue to have our alliance partners there. We're still in good standing with Japan Post. We still work with Dai-ichi Life there. And like I said, we were able to bring on more banks this year in 2025, also partnering and selling in Aflac. Dan Amos went over himself and met with some of the regional banks, and we were successful in getting more of them to offer our products. So distribution is absolutely recovering from the impact it had on the pre-pandemic. And we're excited about the new products that we've introduced.

The banks are excited about the Tsumitasu product, the cancer product that we have. The agents have rallied behind that. And now they're excited in the fourth quarter when we launched our new medical product, Anshin Palette. It will be something that is competitive out in the market. Now the medical market is very competitive. If you look at the market share, it's spread throughout. A lot of competition, but the product we introduced though is absolutely competitive. And as I mentioned before, can allow you to sell to existing and a younger population out there for it. So...

So maybe I thought we could sort of take that same question and then pivot over to the U.S. side. And just wondering about the kind of the sales and competitive environment in the U.S.

Yes, very competitive in the U.S. If you look -- I used to follow how many actual companies have filed to sell supplemental and voluntary benefits. The number continues to go up. I would say this, as far as our agency force, we're still committed to it. Now for 2 consecutive years, I've been able to increase the number of new recruits and new agents that we've been able to bring on board, but I'm more really pleased with the conversion rate. A lot of people want to come into this business and sell product but can they actually convert and become true sellers for Aflac, that was up 16%. When we really took a hit coming out of pandemic is our veterans. Many of them retired, many of them retired. And then some of them in full transparency could not adjust to the changes in the market. They were used to selling Aflac traditional product. And now the market is dominated by group product and many, many more brokers selling the group product, but also selling in the small market. The group products used to be mainly in cases over 5,000 employees. Now you'll see group products coming down below 100 employee size, and that really disrupted a part of the agency for us. Having said that though, the ones that have stayed now in the game have reinvented themselves and now are adding more as consultative sellers and have become small brokers themselves and are you leveraging our traditional products, but also can sell group where necessary. And that's what I've seen. So -- what you've seen in the last couple of years, Mike, has been a 16% productivity rate. And that's what I'm really focused on is those that are with us continue to become more and more productive. And then I will say this, knowing that the broker market, though, is now 80% of total sales in this U.S. market, we certainly have forged strong relationship with brokers.

Two years in a row now, the brokers selling Aflac have outsold my agency channel. More than 60% of our sales this year came by way of broker relationships. Now a lot of that also has to do with our new product introduction. If you look at the products we bought and introduced a few years ago, our life absence disability, we branded it [ LAD or Platts ]. That part of the business has just had tremendous growth. Another 11% growth last year. We've taken off -- we've been able to beat incumbents that have been in that business 20-plus years, and we have really made a name for ourselves in that space. So that's helping with group sales.

Then we'll also recover our dental and vision property. As you know, I was very transparent to say we had some operational challenges over a year ago, that's recovered. And we had a 48.8% increase in sales last year, we're back on track. So that is what you'll see by way of continued growth in the growth market. If you combine our group products together, we grew 14%, that's 3x the actual market last year.

I'm wondering how do you see the product suite, the breadth in the U.S.? Are you happy with it today? Are there certain products you would like to grow more than others or any additional innovations that are coming?

Yes. I would tell you that -- I'll break it down by distribution. So with our agency channel, the anchor product is still our cancer insurance. We're still #1 in cancer. We're still #1 in supplemental health, meaning if you look at our cancer product, our accident product, our hospital indemnity product, our critical illness products, we lead in all those categories. We're making sure that our agents are fully equipped with innovative products that they can go out and compete with. What we've done and what I've invested in last year in 2026, though is streamlining and improving the enrollment process. As you think about it, our agents like to and are more comfortable selling face-to-face, you get a higher penetration rate. However, though, many employers just won't give the time that you need to spend time with their employee base. So we have really made an effort to streamline that process. And this year, I've launched a new application that has been filed, cutting-edge [ bar none ], it doesn't exist in the industry that can actually allow an agent to enroll you in 1 minute. I don't want to get too excited about this. I still have a lot of marketing and sales in me. But you can actually enroll some one in one minute. That is going to be a differentiator in the market, giving them more a chance to compete and speed when they're face-to-face.

The other thing I would tell you is that beyond product innovation and then innovation within the enrollment technology piece, we're continuing to make sure, though, that we recruit and we compensate fairly in the market. And where they can, we're introducing them to our broker relationships to be fulfillment and let them be able to enroll for our broker partners. So this gives them a full breadth to be able to earn a good living in this space.

Okay. So I mean it inspires a broader question about technology and AI. So wondering how do you utilize AI, whether it's internally in the organization or in distribution, claim management, curious about that.

Yes. Let me pivot back. One of the beauties that I have in my role in -- with Aflac is I get a chance to see across everything. And I will tell you, for AI, we're a little bit more advanced over in Japan. One of the reasons why is remember, here in the United States, we're dealing with all the state regulators. And so therefore, we're filed separately in every single state. Well, when you're dealing with the single entity of the FSA in Japan, it gives us more flexibility. And you have the FSA encouraging Japanese corporations to use AI, we've been able to make a lot more progress there. We have to spend a lot of time over here, building the foundation and making sure that we file our products differently here in the U.S. So let me start over in Japan, I will say to you that a couple of focus areas that we're doing over there is really within the enrollment process.

We are leveraging AI to make the agents more efficient. AI is taking care of a lot of the back office administrative work, and we've also introduced bots and avatars that you can actually complete an AI enrollment through the full process over in Japan. We haven't leveraged that in the U.S. What we've done in the U.S. is try to be more efficient and effective at how we do it using automation, but not replacing the people aspect of it.

Now I will tell you this though, in the U.S., when you hear me talk about consumer markets or direct to consumer. About 3, 4 years ago, we worked with the Department of Nebraska to actually file digital products. You can actually buy our products digitally online right now without any agent interaction, it's self-guided.

What is your definition of AI? Well, that is digital, and that is using AI techniques behind the scene. Mostly what people are talking about AI now is the introduction of this Avatar, self-guided or chat bots. And that we haven't fully gone to. I am still relying on those agents. And I'm still relying on those brokers because as we always see in the supplemental business, our products are sold, not bought. You need a fully educated consumer to understand what they bought to really understand the value of what they have.

Yes, that's really interesting. I think those bots are sometimes a little bit frustrating to when you're dealing with support and whatnot. All right. So I guess just thinking through some of the dynamics in the U.S., right. We have medical inflation has been a topic. It seems like cancer incidence is picking up at younger ages. At the same time, there's other novel kind of treatments, which is fascinating. Unemployment has been in focus, but not necessarily out of whack, which is good. But these -- I would think these different kind of dynamics impact demand and I guess, expenses for the group business. And just wondering if you could walk us through those impacts at all.

When you think about medical cost rising or medical inflation, you add that with increasing high deductibles on major medical and inflation, it actually plays into our hands about why supplemental insurance is so important. We actually leveraged that as part of the sales process. It makes the value of what we're offering even more important to us. So I can tell you, Mike. I have not seen an impact that has negatively affected us at this point. Now of course, you start going into a recession, people start holding on to the purse strings that's different. But from a standpoint of really realizing the value of what voluntary benefits, supplemental insurance means, this helps really improve our story. And this is why you'll see -- you've seen so many other carriers in our space, including major medical carriers that are really out selling and pushing supplemental products themselves because everyone realizes that you need additional insurance to really cover these things.

So this year, as I look back in 2025, with the unemployment, again, we were successful in meeting our recruiting objectives. With using this, we sold $1.6 billion last year, one of the highest sales years on record for Aflac U.S. And so therefore, I really do not see any negative impact. David, I know we monitor a lot of this. You do a lot of monitoring for us. Anything you want to add to that?

No, I think you hit the nail on the head in regard to medical inflation and what that does for us, especially in Japan, that's a big driver usually of sales that encourages individuals to go out and seek that protection that they're going to need. And I would say that we haven't really seen the impact of unemployment. We noted that on our last call. And we noted earlier, too, interest rates really doesn't come into play so much on our products except for maybe on Tsumitasu, which we have the ability to reprice and a very flexible in doing that. We did that in September and would look to do that as necessary to in the future. So we continue to keep our finger on the pulse, but no material impacts that we've seen thus far.

Okay. So maybe if we just touch on capital. You guys have pretty significant excess capital and produce a lot of cash. I was wondering if you could sort of walk us through how you think about deploying that capital through, of course, repurchases, M&A or funding organic growth opportunities?

Yes. First, I know many people in the room, you guys know Max Broden. I have to take a moment and give him just a quick shout out here from the stage. He's done a fantastic job and a great CFO of Aflac. What Max has been able to do to generate excess capital has been brilliant. I mean, starting with just really what we've done in Bermuda. With Aflac Bermuda RE, what Max did was create a strategy that basically says we're going to take the balance sheet of Japan and then move it into Bermuda, which really has freed up additional excess capital for us also.

Right now, we're at about 6%, but I expect us to continue to push towards that 10% range, and then we'll take a step back and reevaluate. My point on that, though, is your point, Mike, we do have the capital. We stand ready to be able to deploy. David mentioned earlier, we first look at our shareholders. Our CEO, Dan Amos, is the longest tenure CEO active now. His 36-year tenure CEO, one of his most proud stats is the ability to return an increase in dividends. So when David noted $1.2 billion last year in dividends back to shareholders. That's the first thing we look at. Then we look at our share repurchase, $3.5 billion. And then what I do, Max said this on the call the other day, everything is driven through strategy. What I'm really looking at is, are there any gaps that we need to fill by way of M&A. We don't just do M&A. We did not go out to just build our company inorganically. We are an organic driven organization. However, though, I will tell you that we stand ready and have the capital necessary if there is a gap we need to fill. And under my leadership as President, I've been on record, and I spoke to our board. We just came off our board meetings yesterday. We are always active in the market to be out looking to see is there anything that would fit any needs we may have. So we're not just sitting complacent either.

Right now, I can tell you that we're pleased with what we have in our product portfolio. We are pleased with the businesses that we still have. Remember, in the U.S., we're still scaling our dental and vision property. It's not at full scale. There's a tremendous amount of opportunity there. That's what you're going to see us really push this year. I expect a nugget increase in dental and vision sales, the same with our lab business. This is perhaps when the fastest-growing life absence disability business. You go back and trace any other company out there, I don't think anyone can say they've gotten to over $0.5 billion as quick as we did in sales. With the brand we have, we've been able to win administrative relationships with the state of Connecticut for absence and also the state of Maine. No one else, I don't think has ever done that before. So I say that to tell you that there's a tremendous opportunity here before we look outside.

I am looking to make sure you see the smile on my face, Mike. I want everybody know we don't just sit idle though. David has been an integral part in us building out a corporate development regime and strength within the organization. We have corporate ventures. So we do meet regularly to see if there's a gap in organization, we stand ready, willing and able to be in the market if necessary.

I love it.

Was that a circle answer, Mike? No.

Yes. No. I mean, did you have -- I was just going to -- I was wondering like how does -- what is the target, what do the opportunities look like? Like have you gone -- if you're willing to share, like have you gone through -- evaluated specific targets and determined maybe they're too small, too large? Do you have -- I wouldn't think that you have a target kind of size maybe valuations are different. But I'm just wondering what those opportunities could look like.

I would say to you this, that what we did before was we felt we had product gaps. And to be competitive in the group space and to be competitive in the larger case market specific to the U.S. here, we needed to expand our product portfolio. So internally, we made a decision that we will go out and acquire that part of the business. That's why we came up. Now when Fred Crawford was here as President. Fred's strategy was by the bill. That was intentional. Let's get something small, let's build it, and that's what you're seeing us do now. I don't see a product gap we have. I'm constantly looking at technology though. What you asked me the question earlier, Mike, by way of AI, and I did finish to say what we do internally. Every single partner that we have though that does leverage AI, we bring it into our shop also. Internally, I have rolled out assist tools for all employees to make them more efficient and better though. So we're leveraging AI to make the employees better and ultimately more efficient to be able to deliver great customer value.

Back to the point of your question, though, is I am sitting now saying that if we needed to do something, we'll be looking at a larger scale opportunity, right, to fill any type of gap we have. We just haven't identified a strategic gap that I feel that is of immediate urgent need for us.

Yes. I would just add to that, too. We have tended to succeed based on our focus, too, and we've focused on supplemental health. And we have not really gotten spread out when Dan Amos shortly after becoming CEO. One of his first tasks was shutting down a lot of the international operations. Why? Because we were not very focused. So he's very good at maintaining focus and encouraging the team to be focused. And we're in a -- as Max noted on the call, a bit of a niche business because of that. And anything that we would do would need to make operational and strategic sense, a good fit from that has to meet those standards first and then the financial because we have the financial to make a good acquisition if we needed to. We have plenty of liquidity, et cetera. So I think that's one thing to keep in mind. That's the only thing that I would add.

The only thing I'd say, David, to your point, too, is what we try to do, Michael, is leverage our strengths. So you guys -- you analyze Aflac, what are our strengths? Well, the brand. The brand is the strength of financial stability and our capital, their strengths, right? So when I go back and I mentioned earlier, what we did Aflac Bermuda RE, that was a strength. That's not -- we're not a reinsurer, right? But we were able to branch and leverage current talent that we have in house, the brand and the strength of what we do and our reputation in Japan to be able to go further with that. So it's going to be something that we are able to leverage who we are.

Great. So I did want to just take a minute in the last few minutes here to see if there's any questions in the audience. And just for the operators, my little iPad thing here, I clicked it off by accident. So if you could help me with the pass code over here just to see if there's virtual questions. But any questions in the audience for Aflac?

I know we didn't answer everything, Mike.

Yes. No, a lot is going on. But so I guess while we just checked for the virtual, I'm curious maybe we can kind of top off this conversation Virgil with. It seems like you're pretty passionate about, obviously, the Aflac story, but into '26, it's exciting to see what you guys will do. But just wondering if you have any kind of concluding remarks you'd like to make, I think 4Q was pretty strong, sales focus, margin improvement, right? The U.S. seems like a good opportunity, too. But anything else there?

Yes. Here's why I'm passionate. We have the strongest and most recognized brand in the market in Japan. When I go over to Japan, you should go with me one day. When I go over to Japan and I meet with other corporations, I actually went with the Governor of Georgia back in October. One of my other duties, we bring economic development to the state of Georgia being one of the largest companies there, and I was working with him. We went around seeing some of the businesses in Japan at new business in Georgia, like YKK, Yamaha, corporations like that. And when I walked in, he introduced me as a part of the Georgia allies, and they laughed and they said, no, he's the Aflac guy. The brand is so recognized in Japan and so powerful that we are able to make sure that our products are known throughout every household, the brand matters. But it's more than just a brand it's what we do. What we've been able to do is I'm so proud of what Aflac Japan, they created a strategy called living in your own way, where they are really trying to meet societal needs, starting with someone that's a young adult all the way through introducing products like nursing care. So our Tsumitasu product attacks a younger audience. Our cancer and medical products throughout life and then on nursing care, as you start thinking about as you start aging and getting older, they have developed that and it really reaches the society, and we built the entire ecosystem around that. So when you think about cancer insurance, we're not just selling you insurance that pays this expenses. We're also introducing middle care, consultative services things that help you get to and from the doctor, services that help you get nutrition, get food, everything else. And by the way, we've adopted that in the U.S., a lot of that same ecosystem. So we're not just selling insurance. We're trying to make a difference and trying to help create a healthier Japan and a healthier America. That's why I get passionate and excited about. I believe in what we're doing. Fast forward though, there's an opportunity to continue to grow with the innovation we've done in Japan, but there's a tremendous underpenetrated opportunity here in the U.S. And I believe we have the right product set. You will see us put a strong focus on dental and vision products this year. You're going to see us continue to push hard in the larger case space without life absence and disability. And one of the things you're going some do, I know you guys see a lot of Aflac commercials, it's intentional. In an industry where insurance in many cases, is not trusted, people still do not trust insurance. We've created a brand that is light hearted where people can trust us. You got to see me push harder and store to Aflac's product this year, talking more about what the products mean to individuals. there's a tremendous -- we have the strongest reputation in the industry bar none in the U.S., and you're going to see me continue to capitalize and drive that. So I believe the growth opportunity that is right here. I'm expecting solid growth this year in the U.S. The capital management I mentioned that is done by our financial team, led by Max Broden, you're going to see us continue to return shareholder value with a solid performance.

One of the reasons that Dan, when we talk about M&A, we're very careful about it. You know what? Why do you believe in Aflac because we're consistent and we deliver we do whatever we're going to do. I want to make sure that consistency continues throughout. The last thing I'll close with though is when I mentioned the two largest segments, Japan and the U.S. But let's not forget about how we also bring in ad revenue. Brad Dyslin has done a great job driving net investment income. I'm very proud of what he's doing and leading our GI fastened up in New York City. And then also, again, keep an eye on Bermuda and what we're doing there, we will continue to take more of the Japan balance sheet. I expect us to continue to move toward that 10% mark, and that will continue to put more capital in our hands to be able to make wise decisions with. That was a long closing. I'm just excited, though, I want you to feel it.

I definitely do.

Yes.

Thank you guys so much.

Thank you.

Thank you, everyone.

Good morning, everyone, and welcome to the Aflac Incorporated Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please also note today's event is being recorded.

I would now like to turn the floor over to David Young, Vice President of Capital Markets. Please go ahead.

Good morning, and welcome. Thank you for joining us for Aflac Incorporated's Fourth Quarter 2025 Earnings Call. This morning, Dan Amos, Chairman, 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?

Thank you, David, and good morning, everyone. We're glad you joined us. Aflac Incorporated reported fourth quarter net earnings per diluted share of $2.64, and adjusted earnings per diluted share of $1.57. For the year, Aflac Incorporated reported net earnings per diluted share of $6.82, and adjusted earnings per diluted share of $7.49. Max will expand upon these strong results for the quarter in a moment. But before he does, I'd like to comment on our operations.

Beginning with Japan, I am very pleased with Aflac Japan sales increase of 15.7% for the fourth quarter and 16% for 2025. These strong sales results were driven largely by the remarkable 5.6% sales increase mainly due to Miraito, our latest cancer insurance product launched in March. While still early, we are also excited about the positive reception of our newest medical product, Anshin Palette, has received since its late December introduction.

As part of our ongoing strategy, we also continue to emphasize and promote the importance of third sector protection, to new and younger customers with our innovative first sector product, Tsumitasu, which was repriced in September. While premium persistency reflected lapses tied to the launch of Miraito, it still remains strong at 93.1% for the year. Our success with so many policyholders who realize the value of Aflac's products and keep them as a testament to Aflac's reputation, our strategy and our customers' recognition of the value of our products.

By maintaining this level of persistency while adding new premium through sales, we look to offset the impact of reinsurance and policies reaching paid-up status in the future, maintaining strong persistency continues to be vital to the future of Aflac Japan.

For the year, we also saw an increase in sales through each distribution channel. Being where the customer wants to buy insurance has always been an important competitive strength of our growth strategy in Japan. Our broadened networks of distribution channels, including agencies, alliance partners and banks are dedicated to continually optimizing opportunities to help provide financial protection to Japanese consumers. We will continue to work hard to support each channel as we evolve to meet customers' changing needs. Overall, I believe we have put in place the right people and the strategy to meet our customers' financial protection needs through their different stages of life.

Turning to Aflac U.S. We generated nearly $1.6 billion in new sales in 2025, over 1/3 of which came from the fourth quarter. More importantly, we maintained strong premium persistency of 79.2% and increased net earned premiums by 2.9% for 2025. We continue to focus on driving our 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 shortly.

In both Japan and the United States, consumers continue to face financial hardships due to increasing out-of-pocket medical expenses. That is exactly where we come in as partners to be there when our policyholders need us most. As the pioneer of cancer insurance and the leader in the industry, our management teams, employees and sales networks approach every day as a chance to help our policyholders fill the gap during challenging times, providing not just financial protection, 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 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 is the foundation that backs up our promise to our policyholders, balanced with the financial flexibility and tactical capital deployment.

I am very pleased with the company's financial strength, which supports our capital deployment including the Board's decision to increase the first quarter of 2026 dividend by 5.2%. In 2025, Aflac Incorporated deployed a record $3.5 billion to repurchase 33 million shares of our stock and paid dividends of $1.2 billion. We treasure our 43 consecutive years of dividend increases and remain committed to extending this record. Combining share repurchase and dividends, we delivered nearly $4.8 billion back to the shareholders in 2025. In doing so, 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 3 significant milestones for Aflac. The 70th year since the company's founding, the 30th anniversary of what is now Aflac cancer and blood disorder center of Children's Healthcare of Atlanta, and the 25th anniversary of the Aflac Duck. Each of these noteworthy milestones demonstrate the staying power of the financial protection Aflac's products help provide and the privilege of helping enrich the lives of millions of people. In today's complex health care environment, our relevant products, financial strength, powerful brand and broad distribution network uniquely positions Aflac as the ideal partner for consumers as they navigate the financial strain from out-of-pocket medical costs, the enduring foundational strengths of our business and our capacity for continued growth in Japan and the U.S., 2 of the largest life insurance markets in the world, support our leading position and build on our momentum.

I will now turn the program over to Max to cover more details of the financial results. Max?

Thank you, Dan. For the fourth quarter of 2025, adjusted earnings per diluted share increased 0.6% year-over-year to $1.57, excluding effect of foreign currency in the quarter. In this quarter, remeasurement gains on reserves totaled $36 million, reducing benefits. Variable investment income ran $12 million below our long-term return expectations. Adjusted book value per share, excluding foreign currency remeasurement, increased 0.5%. The adjusted ROE was 11.7% and 14.5%, excluding foreign currency remeasurement, a solid spread to our cost of capital. Overall, we view these results in the quarter as solid.

Starting with our Japan segment. Net earned premiums in yen terms for the quarter declined 1.9%. The Aflac Japan's underlying earned premiums, which excludes the impact of deferred profit liability, paid out policies and reinsurance declined 1.2%. We believe this metric provides a clear insight into long-term premium trends. Japan's total benefit ratio came in at 65% for the quarter, down 150 basis points year-over-year. We estimate the impact from the reserve remeasurement gains to be approximately 110 basis points favorable to the benefit ratio in Q4 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 93.1%. 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 insurance product, but overall lapses remain within our expectations. Lapses on our first sector savings block remained low and in line with previous periods despite the increase in yen interest rates.

Our expense ratio in Japan was 22% for the quarter, up 120 basis points year-over-year, driven primarily by sales promotion expenses associated with higher sales. For the quarter, adjusted net investment income in yen terms was down 3.9%, primarily driven by lower floating rate income on our U.S. dollar book and lower variable investment income partially offset by higher U.S. dollar fixed income due to higher volume. The pretax margin for Japan in the quarter was 31.3%, down 30 basis points year-over-year, a very good result.

Now turning to U.S. results. Net earned premiums were up 4%, while premium persistency declined slightly by 10 basis points year-over-year. It remains strong at 79.2%. Our total benefit ratio came in at 48.6%, 230 basis points higher than Q4 2024, driven by prior year endorsements and higher claims activity on our individual voluntary block as well as a higher benefit ratio on group life and disability. We estimate that reserve remeasurement gains impacted a benefit ratio by approximately 140 basis points in the quarter. Our expense ratio in the U.S. was 40.4%, up 10 basis points year-over-year, primarily driven by timing of spend from previous quarters.

Our growth initiatives, group life and disability, network dental and vision and direct-to-consumer increased the expense ratio by 60 basis points 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 down 2.8% for the quarter, primarily driven by a reduction in floating rate assets and corresponding rates. Profitability in the U.S. segment was solid with a pretax margin of 17.4%, a 230 basis point decrease compared with a stronger quarter a year ago.

In Corporate and Other, we recorded a pretax adjusted loss of $31 million in the quarter. Total premiums decreased on closed blocks of business. Adjusted net investment income was $1 million higher than last year due to a combination of lower volume of tax credit investments and higher asset balances. Our tax credit investments impacted a net investment income line for U.S. GAAP purposes negatively by $43 million in the quarter, with an associated credit to the tax line. The total fourth quarter earnings benefit from tax credit investments was $13 million. Adjusted earnings declined due to lower revenues and higher adjusted expenses driven primarily by higher costs pertaining to business operations and higher interest expense, partially offset by lower net benefits in claims. We continue to be pleased with the performance of our investment portfolio.

During the quarter, we did not record any charge-offs for the commercial real estate portfolio. Additionally, we did not foreclose on any properties in the period. On our portfolio of first lien senior secured middle market loans, we recorded charge-offs of $22 million in the quarter. For U.S. statutory, we recorded a $3 million valuation allowance on mortgage loans as an unrealized loss during the quarter.

On a Japan FSA basis, there were net realized gains of JPY 380 million for securities impairments in Q4, and we booked a valuation allowance of JPY 87 million related to transitional real estate loans. This is well within our expectations and has a limited impact on regulatory earnings and capital. In the third quarter of 2025, we enhanced our liquidity and capital flexibility by $2 billion with the creation of 2 off-balance sheet pre-capitalized trust that issued securities commonly referred to as PCAPs. With increased off-balance sheet capital resources and improved liquidity flexibility, we have lowered our minimum liquidity balance at the holding company by $750 million to $1 billion. This means that Aflac Inc. unencumbered liquidity stood at $4.1 billion, which was $3.1 billion above our minimum balance at the end of the quarter. The full PCAP facility remains undrawn.

Our adjusted leverage was 21.4% for the quarter, which is within our target range of 20% to 25%. As we hold approximately 63% 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 97% and an estimated regulatory ESR with the undertaking specific parameter or USP, of 253%. We estimate that the USP benefits the regulatory ESR by 18 points. We estimate our combined RBC to be 575%. These are strong capital ratios, which we actively monitor, stress, and managed to withstand market volatility and credit cycles as well as external shocks. We last updated our ESR sensitivities at our financial analysts briefing in December 2024. Since then, we have seen significant movements in both the dollar yen and yen interest rates. So we wanted to provide an updated estimates before the ESR comes into effect on March 31.

We have deliberately improved our ALM during this time, which has led to reduced exposure to interest rate risk. We generally have lowered our sensitivities to market risk factors. We've also refreshed the sensitivity analysis related to our combined RBC ratio in the U.S. I will characterize these refreshed estimates also as being in line with what we shared at Fab in December 2024.

Given the strength of our capital and liquidity, we repurchased $800 million of our own stock and paid dividends of $303 million in Q4. We offering good relative IRR on these capital deployments. We will continue to be flexible and tactical in the way 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.

Before concluding, I would like to address our 2026 outlook. At our 2024 financial analyst briefing, I provided ranges for net earned premiums, benefits and expense ratios and pretax profit margin for each segment for 2025 through 2027. These ranges remain substantially intact for 2026, but with a couple of exceptions. For Aflac Japan, we expect underlying earned premiums to decline 1% to 2% in 2026. And we also expect the expense ratio to be in the 20% to 23% range. However, we expect the benefit ratio in Japan to be in the 60% to 63% range and the pretax profit margin to be in the 33% to 36% range.

In the U.S., we continue to expect net earned premium growth to be in the lower end of the 3% to 6% range. We also expect the benefit ratio for 2026 to be in the 48% to 52% range and the expense ratio to be in the 36% to 39% range as we continue to scale new business lines. At the same time, we expect pretax profit margin for 2026 to be in the range of 17% to 20%.

Thank you. I will now turn the call back over to David for Q&A.

Thank you, Max. [Operator Instructions] We'll now take the first question.

[Operator Instructions] Our first question today comes from Wes Carmichael from Wells Fargo.

I had a question on the Japan business. And Max, I think you touched on this a little bit in your prepared remarks. But in particular, in the savings products ways per sector, we've seen super loan yields in Japan rise pretty considerably. And I think more broadly, there's some concern that we could see additional, I guess, surrenders with interest-sensitive products. So curious if you expect higher levels of surrender going forward? I know that was pretty stable recently.

Thank you, Wes, for the question. Yes, obviously, we've seen quite significant moves up, especially at the long end of the young yield curve lightly. And if everybody is 100% efficient in their behavior, you would expect both demand and potentially a lapsation of in-force policies to increase somewhat. We have not experienced that yet, but obviously, it's something that we closely monitor and prepare the company for it.

Got it. And my follow-up is just on capital. It seems like you've got a lot of flexibility in terms of regulatory solvency in Japan and the U.S., but also at the parent 2, and you continue to be pretty tactical with the buyback. But curious, if once ESR is printed in 2026, is there any change to the thinking around M&A or capital deployment just given the capital flexibility you have? And maybe what could be incremental for you?

From a capital standpoint, we've been traveling with significant capital for quite some time, and we continue to both enhance and increase the flexibility of both the sources and how we can use that as well. When it comes to M&A, that's predominantly an operational and strategic question, and that secondarily is a financial question. So the way we evaluate M&A, it really goes through those lenses and it needs to tick all those boxes. But the fact of the matter is, do we have capital available if we wanted to do something? That is absolutely true. But I would also acknowledge that we are operating in a relatively narrow niche, both in the United States and in Japan and to sort of find operational and strategic targets within those niches is relatively difficult to find. So we continue to obviously evaluate things. But for the time being, we're very happy with the businesses that we have.

Our next question comes from John Barnidge from Piper Sandler.

My question is around Japan. Can you maybe talk about the lower benefit ratio indebted in the guidance, and I think it's based on Japan new business versus the in-force block. I know there's been some repricing and new products being introduced. But how enduring does that benefit seem to be?

Thank you, John. So there's a couple of factors that is pushing our benefit ratio down on a GAAP basis in 2026. The first one, I would put in a more permanent category, and that is as we updated our actuarial assumptions in the third quarter of 2025, we lowered the net premium ratio by about 130 basis points. That is for the full in-force block and that was obviously a one-timer in the third quarter, but it also feeds through into the future net premium ratio as well. So that is directly impacting the benefit ratio for future period by 130 basis points lower, all things being equal.

The other impact is with new product introductions that we've seen on our cancer product. And as we now introduce our medical product, we've seen an elevation of lapse and reissue activity when those product introductions take place. When you have lapse and reissue increase, the old policies that lapses, we will then release the reserves associated with those policies and it runs through our GAAP financials, lowering the benefit ratio. And generally speaking, we have lower reserves on our older policies than the new policies that we are reissuing. So that also has an impact for us.

The last piece is if you go back and analyze our full in-force, we did sell quite a lot of life insurance savings policies in the years 2010 through 2016, and this is the [indiscernible] product. That waste product runs through to our GAAP financials with a very high benefit ratio. On an economic basis, it carries a significantly lower benefit ratio. But on a GAAP basis it's very high. That block obviously is in runoff. And as that block shrinks, then obviously, the mix impact is such that our total benefit ratio is then lower. So I will characterize those 3 factors as the main factors for the lower benefit ratio expected in 2026.

Thanks, Max. And my related follow-up, sticking with Japan on distribution, it looks a lot like Tsumitasu got repriced and Anshin Palette got introduced. Can you talk about what you see as the total addressable market for these new products? And then within the context of Miraito and ability, do you need to reprice that?

[Interpreted] This is Yoshizumi speaking from Marketing and Sales division of Aflac Japan. As you mentioned, we went through a rate revision last September. And since then, sales are growing steadily. And the purpose of launching Tsumitasu is to respond to the citizens' needs of asset formation as the government is also promoting people to shift from savings to investment. So we -- our purpose was to encourage those young and middle-aged generation to promote such activities. So our market audience will be those -- the individual customers who seek for yen-denominated level payment products.

But in fact, actually, Tsumitasu is also gaining popularity from middle age to older generation. This is a result from gaining attention and clarity from affluent customers who prefer to pay with that or discounted advanced premium option. One of Tsumitasu strength is the fact that we can change the premium rate in a timely manner with agility. So going forward, whenever we see a necessity given the interest rate given the interest rate situation, when time comes, we will increase or decrease our premium rate as necessary. That's all from me.

This is Dan. Let me just make a couple of comments about sales to have a more concise way of you looking at it. Miraito, our newest cancer policy, did terrific, better than we even thought. And we're -- we feel like, it was a product that was wanted and needed by the consumers, and that's what's driving it. Saying that, we had enormous sales in 2025. And we would expect sales to be more level, where I think you'll see an increase in sales will be at the medical product. And also the potential is for Tsumitasu, depending on what interest rates do. But that has the potential. But overall, cumulatively, we expect a good year in Aflac Japan in regard to sales and the job they're doing. And I want to personally thank all of them on the other end from Japan for the job that they did in 2025 in setting an enormous record for us to work toward again in 2026.

Our next question comes from Joel Hurwitz from Dowling & Partners.

I wanted to touch on U.S. sales. So the overall growth tracked pretty in line with what you guys saw in the first 3 quarters of the year, but it looks like the supplemental health growth was better, while disability sales were down. Virgil, can you just talk about what you saw in terms of sales in the quarters? And I guess, any color on how the group life and disability and dental sales were versus expectations?

Yes. Thank you, Joel. Yes, let me just give an overview of sort of the performance throughout, and I'll give you a little bit more detail on some of the numbers behind the scenes. Again, overall for the year, we did $1.6 billion overall. So I'm pleased with that sales number, how we came out. And when you asked about the buy-to-bill specifically, they made up 20% of that overall number. So what am I calling the buy-to-bill? Just a reminder, the life absence and disability. And overall, for the year, that line of business was up 11.3%. Network dental and vision, but just a dental product itself a network was up 48.8% for the year. And then our direct-to-consumer platform we refer to as consumer markets was up 10.5%. So that's where I get the combined 20% of total of the $1.6 billion. So overall, I am very pleased with how those businesses performed and a lot of that sales in that life and disability with sales of our life products, to your point. But again, definitely overall good performance.

The only thing I would say to you is when you look at the year, it was pretty much consistent. We ended up overall 3.1%, but we did have good earned premium growth of 4% during the quarter, right at 2.9% to 3% for the year. Persistency remained strong, 79.2%. So when I look at the overall look at a good, solid balance performance for the year for us.

Okay. Great. And then, Max, just a quick one on ESR. In your prepared remarks, you had said that the uplift from the USP was 18 points. I think the last time you disclosed it a couple of quarters ago, it was 30 points can you just take us through the drivers of the decline in that?

The main driver of that decline is related to the level of yen interest rates. So as yen interest rates go higher, the impact from the USP tends to -- will decline a little bit.

Our next question comes from Jack Matten from BMO.

I just had one follow-up on the Japan benefit ratio. Any way for us to think about the kind of the statutory or economic margin change that you're seeing? I know there's different dynamics between how the ways product accounting works, and there's -- the net premium ratio change is also a big driver. But the GAAP update -- but just wondering, putting all together, you still seeing a better trend on a statutory margin basis?

Yes. So the main difference between the benefit ratio and the U.S. GAAP benefit ratio, it relates to the net premium ratio. So what I referenced there was that the net premium ratio on a U.S. GAAP basis will lower our benefit ratio by roughly 130 basis points in 2026 relative to the first 3 quarters of 2025. That impact will not occur on an FSA earnings basis, but the other drivers will. So think about it this way that essentially, when you look at the decline in the benefit ratio in 2026 over 2025, about 1/3 of that is driven by the lower net premium ratio. The other 2/3 will occur both on a U.S. GAAP basis and on an FSA earnings basis.

That's helpful. And then just a follow-up on the -- on your Bermuda entity. I mean, any change to your kind of outlook and how you expect to use that entity over time? I know you've kind of talked in the past about reinsuring up to 10% of your in-force in Japan. Is that limit something you're still evaluating? Or could it be revised higher over time?

Yes. So today, we've seen that roughly 6% of our Aflac Japan balance sheet to Bermuda. We have a midterm target to get to 10%. We do not think of that as an absolute limit. I think over time, we will risk assess that number and evaluate if there's a higher internal limit that would make sense for us. The bottom line is that we see significant capacity for continuing seeding business between our subsidiary in Japan and our reinsurance affiliate in Bermuda.

Our next question comes from Suneet Kamath from Jefferies.

That was helpful color on the Japan benefit ratio, Max. I appreciate that. Just wondering if you could maybe do the same for the U.S. benefit ratio because the guide is 48% to 52%, I believe. And it looks like you've been traveling kind of more in the mid-40% range. So I don't know if you're assuming some reversion to the mean or something, but just some color on that would be helpful.

So there's a couple of factors going on impacting the benefit ratio in the U.S. And some of them are for specific lines of business, and some of it is driven by mix of business as well. So we have, as outlined in the script, we have actively increased the benefit ratios on a number of products, utilizing endorsements also increasing benefits. This applies specifically to our cancer product in the U.S. on an individual basis. It also applies to our accident policy. These products were running very low during the pandemic due to low claims utilization, and we have actively gone in and increased those future benefit ratios associated with those products. So that in itself will continue to push our benefit ratio slightly higher.

At the same time, when you look at the total benefit ratio, there's a mix impact as well. Virgil just outlined that the sales of group life and disability and dental and vision specifically are increasing quite significantly for us. These businesses are gradually becoming an increased proportion of our total in-force and they carry a higher benefit ratio than our core voluntary benefits products. So what that means is that over time, that mix impact will move our benefit ratio slightly higher as well. And you see some of that happening in 2026.

Okay. Got it. And then I guess maybe for Virgil or Dan, we're hearing a lot more about this sort of K-shaped economy and sort of given your target market. Just wondering what sort of impact do you expect in terms of both consumer behavior, but also in terms of agent recruiting potential?

Yes. This is Virgil. Let me start -- let me work backwards [indiscernible] which you just said about the age of recruiting. So first, I would say, we were up for the year with our career recruiting. To your point, on the environment, we certainly monitor inflationary rates. We monitor unemployment rate. We look at any material impact. Of course, we look at anything related to interest rates in U.S. dollar rates. But I can't tell you right now to have any material impact on us this year. What we did was we put a deliberate focus on our career channel. We are dedicated and still believe in the agency force that we have out there. We increased it this year in new recruits.

We were able to have a higher conversion rate than we normally have. So 16% of those converted into sellers as we go through that process. And then the last thing I'd say is we increased the productivity. So I totally agree with you that there's a volatility in the market, if you look at the these lands, but they had no material impact on us.

The other thing I would point out too, though, is that we're also looking at things that we can do to make sure that consumers get access to our products. You see us continue to be dedicated to making sure we have a strong brand out in the market we know that there were some changes this year, about 22 million Americans were affected by ACA. We still sell our products alongside major medical we do not want to see people go uninsured, but you need to [indiscernible] a major medical plan alongside our supplemental health. And we did see an increase, though, in activity coming from that group going through our direct rate consumer channel. So we want to make sure that we offer our products however people need to get access to them. And we did have a 10.5% increase in that channel itself.

So overall, I would tell you, no material impact. We are certainly making sure that our distribution is still network through our agency force. We remain dedicated to it. We recruitment and conversion. We have strong relationships with our broker channel Again, we continue to see increases in broker sales and group sales year-over-year-over-year.

So Dan, any further comment?

I think we're expecting 2026 to be a good year for us, and we're looking forward.

Our next question comes from Tom Gallagher from Evercore ISI.

First question is back to Virgil on the U.S. I heard Max's comment that you've had significant increases in group sales. Can you talk about what kind of levels we're talking about here for group versus nongroup sales? Yes, I'm just curious because I'm wondering if there's like explosive growth in group, what's happening to your voluntary benefits because the total sales number is still pretty low?

Yes. Thank you for that question. Yes. So let me start with the voluntary benefits of traditional products. And remember, we are carrying probably when -- not probably. We're carrying a large block that other competitors just don't have, which is a great thing for Aflac. That block is certainly produced for Aflac many, many years. It delivers high profitability ranges. We are still committed to that mainly driven through our agency force. I want to make sure I state that and we stand committed. We're continuing to enhance our products there with revising our accident and our cancer products in that space.

But what you're seeing, though, overall is that our traditional business has been flat to negative for the past for years, including last year. So when you have that anchor of a core business, you don't see the tremendous explosive growth that you are seeing that we are seeing, though, on the group side. So if you look at isolated just on group policies and products themselves that we file as group benefits, the overall growth would have been 14%. We would have been much higher than the industry or any competition. And going underneath that, I'll be more specific [indiscernible] some of the numbers.

The network dental product is filed as a group benefit, it was up 48.8%. Our life absence disability, if you were to combine that block of business, was up 11.3%. And then the original traditional group benefits we bought, you remember, we purchased Continental American, it's now Aflac Group chassis, more core VB was up 11.7%. So again, solid growth in the group space, driven by brokers. Our broker relationships are very strong.

And then you can see I'm very, very pleased with those numbers. The focus continues to be 2 things for us: a, we're going to unify those channels though. One of the things that we can do a better job of and we're focused on in 2026 is making sure that group lands that we give one unified experience. We're investing in a unified experience through platform and technology and also how we go to market. And that is one of the things we will continue to work on and deliver.

But then the second thing, we're making some additional investment in the traditional business. We're going to continue to enhance our products. We're going to continue to recruit, but we're also enhancing the technology. We've improved our enrollment platform that we just released in the first quarter of this year, and we're expecting that to be a benefit in that particular channel.

This is Dan. I want to make one other comment, and that is, as we reflect back over the COVID period, and you look at our distribution channel, it wasn't the product that changed things. It was the number of producers out in the field force selling for us. They were pulled away to a degree because it was total commissions and they were shut down and replacing those people has taken some time, but we are having success with that. And we've been working on the quality of the producers and they've been producing at a faster pace than our old new producers. And so that's to give you some context on why that old channel has slowed down. So it's part of recruiting, recruiting, recruiting.

Okay. My follow-up is on Japan. I guess listening, Dan, to you describe the sales outlook in Japan for '26. It sounds pretty good, which follows a very good '25. Curious why that's not translating to better earned premium growth? We're still in that negative 1% to 2% range on a core basis. Are we more likely to see an inflection in 2027?

So Tom, it's -- we're somewhat a victim of very strong persistency. So if you think about Japan, it's a very, very, very large in-force block -- and the new sales that we're adding each year is relatively small relative to the total in-force block because of the high persistency that we have. So it takes quite some time for increased sales to sort of get to that level where you're really adding growth to the overall in-force block. COVID had a couple of years where our sales dropped quite significantly, and the delta between sales and lapses was significant, and we are closing in on that gap now. And once that turns positive, it's eventually when we are going to have net earned premium growth in Japan. So we see that within a reasonable future. But even going into 2026, we still expect that lapses will be greater than total sales.

Our next question comes from Alex Scott from Barclays.

I just had a follow-up on the Japan premium growth. I know you guided to sort of the underlying growth. But could you talk about any of the more, I guess, nonunderlying or noncore parts of it, just so we making sure we understand how the guidance kind of looks with the actual premiums that will come in because I know there's some paid-up policies and maybe reinsurance impact. I just want to make sure I have that clear.

So in the guidance that we gave on negative 1% to negative 2% on that metric, just to go back to the fourth quarter, we were at the lower end of that or the better end of it at negative 1.2%. So what we adjust for is the deferred profit liability impacts, any paid-up impact and then also any reinsurance. So if we execute any reinsurance throughout the year, that is not contemplated in that guidance. So for example, if we were to decide to move any significant block of business seating from Aflac Japan to Aflac Bermuda, then obviously, the net earned premiums is expected to be impacted in Aflac Japan.

That being said, those earned premiums would show up in the Bermuda's legal entity instead and show up in the corporate and other segment. So it's just premiums out of one pocket into the other, so to speak. So it wouldn't impact the total premiums for the total enterprise. But the 3 components that really differs between the net earned premiums that was negative 1.9% in the fourth quarter and the underlying of 1.2%, the vast majority of that is paid-up status, and then a little component of that is the deferred profit liability. There was very little impact from reinsurance in the fourth quarter.

So is it fair to take that delta between what we saw in 4Q on underlying versus actual and assuming no more reinsurance, that's a fair way to think about the difference that we potentially see in '26? Is that right?

That is a -- I would expect that impact to be slightly smaller, and the reason for that is that we have a declining balance of paid-up impact coming through.

Got it. Okay. That's all helpful. And then as a follow-up, I wanted to ask about technology, and obviously, we're getting a lot of questions from clients on artificial intelligence and how it affects different areas of our markets. I'd be interested in your take on what you see, obviously, the opportunities, there's also risks of disintermediation here or there. And then maybe separately, if you could just talk about any kind of exposure that you're focused on in the investment portfolio, like software and so forth.

Why don't I start with the last part there, Alex. Obviously, the software is getting a lot of attention now with all that's going on in the AI world. In our credit portfolio, we have about 1.5% of total exposure to software-related companies. About half of that is in our middle market loan portfolio. Where you'll recall, this is a very well diversified portfolio, all first lien senior secured positions, very small average sizes of about $15 million. And then the other half is in our investment grade -- is investment-grade exposure and carries an A- rating. So there's a lot to like about these software companies from a credit standpoint. We're well aware of the threat from AI, and we're watching it very closely. But right now, we feel very comfortable with our overall exposure to software.

And this is Virgil. Let me give it to you from an operational standpoint, what we're doing within our businesses. So I spent a lot of time last year in Japan. First, I want to commend our Aflac Japan team. We are making investments in exploring how we can leverage AI in a variety of different ways there, working very strongly with the FSA. And I would say to you that we're focused a lot on the enrollment process of how we distribute our products. We're also looking at it by way of what AI could do, by way of product innovation and some of the learnings that we've learned through our Japan counterparts, we're leveraging here also in the U.S.

For the U.S., what we focused on is, first, looking throughout our company and how AI can assist in making people better at what we do. What we're saying is that technology -- we're not looking to replace the people. It's a high-touch business when it comes to delivering on that promise and paying claims. We want to make sure that AI is assisting us with that. So what we've done is where we can automate some of the more routine processes within the claims area, a larger percentage of our claims, especially in all the traditional business, more than 60% is automated, using a lot of the machine learning techniques. We apply AI to actually give the claims adjudicator advice on what to look for, but we do not deny or have any claim fully adjudicated by automation without a final person making that decision.

We're also looking at, though, how we can help with our enrollment process here in the U.S. So what I mentioned that we're rolling out some enhanced automation in our enrollment that's going to make our agents more efficient as they meet with consumers face-to-face, a lot of how we prepared that technology was done through AI in the background of how we were able to get it to market so fast -- normal -- much faster than normal process before.

So I will conclude just by saying, we are certainly looking at how we can leverage AI going forward. It is a part of our DNA. But right now, it's more in an assist role as far as how we're leveraging it as part of our rollout.

And with that, ladies and gentlemen, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to David Young for any closing remarks.

Thank you, Jamie, and thank you all for joining us today. I hope you'll mark your calendars also for December 3 to join us for our financial analyst briefing, and we'll be sending out more information in that -- in regard to that closer to that date. In the interim, if you have any questions, please reach out to Investor Relations. We'll get back to you or try and help and respond to your questions as soon as we can. Thank you all for joining. Have a good day.

And with that, ladies and gentlemen, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

Good day, and welcome to the Aflac Incorporated 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.

Good morning, and welcome. Thank you for joining us for Aflac Incorporated's Third Quarter 2025 Earnings Call. This morning, Dan Amos, Chairman, 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, 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?

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 Marico, 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 an 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 maintain 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 climate 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 two other significant milestones for Aflac. The 30th anniversary of what is now known as the Aflac answer in 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, two 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?

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 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 per capital. Overall, we view these results in the quarter as very good.

Starting with our Japan segment. Net turned 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 related to treatment 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 in 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 in 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 theme 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 pre-time 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 investment and higher asset balances, which included the impact of the internal reinsurance transaction in Q4 '24. Our tax credit investment impacted 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 cost 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 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 impairment 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 trust that each securities commonly referred as PCAP. 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 in 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 60%. These are strong capital ratios, which we actively monitor, stress and managed 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%, 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%.

Thank you. I will now turn the call over to David.

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 will now take the first question.

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

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?

Joel, this is [indiscernible] 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 product I will tell you, though, that our focus is to continue to grow our average week of producers and looking for an increase in recruiting this year. Having said that, along with recruit incomes conversions, we had an 8% increase in converting those recruits into producers for us and we saw overall productivity of 16%.

We are seeing very strong production, though in the investments we made by the 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 the paid family medical leave program. It's really a testament to the type of service we provide 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 Mason, getting our veterans, active really drive, as you pointed out, the individual products.

Overall, I would say 1 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, though, the overall strong performance that we had with profitability, which exceeded our expectations.

Got it. That's helpful. And then maybe shifting just to Japan sales, there were 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?

Yoshizumi, would you mind taking that question? .

[Interpreted] My name is Yoshizumi in charge of Sales and Marketing. I am very pleased to say 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 [indiscernible]. And first of all, 1 of the feature that is not available by others is a fact that we have flexible protection design [indiscernible] and this whole product can be customized through entire people, including those who already have cancer reinsurance and who doesn't have any cancer insurance today. And it's appealing also to the younger and Middle East generation and also the people of all ages. And we 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 class.

So this is a very unique cancer insurance to APAC, and this product can be provided to the customers. We have the 50 years of history. And in all the distribution channels, it is showing a great result. And shifting to Tsumitasu, we have the revision. And we started to see a solid growth in sales from September. So the 2 main products, Tsumitasu and Merito, these are driving our sales performance. And we expect that this momentum to sustain in the fourth quarter as well.

And related to channels, our main same channel is associated channels. Japan Post Group, which is a reliance 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 a year by doing well in the fourth quarter. That's all for me.

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 Bank. 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 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 Merito 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 2x during the quarter and also pump up everyone and try to just talk about what we can do and add 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.

The next question comes from Tom Gallagher of Evercore ISI.

My first question is just a follow-up on the repricing of the policies in September. Did you say that was Merito, and how -- 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?

Tom, the repricing related to Tsumitasu and what we did was, as yields have increased throughout the year, we increased the assumed interest on the product and move 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.

But nothing with cash.

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

Yes. No repricing on cancer.

Got you. And just for my follow-up, 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 1 product at a time company. And now you have 2 doing pretty well. If you think about the launch of a third product and do you think that can translate into over JPY 80 billion sales from a ballpark perspective to where we could get to overall premium growth flattening or even maybe beginning to grow.

[Interpreted] This is Koide speaking for 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 [indiscernible] and nursing care. And the 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 to launch the 3 brands to 3 products concurrently and support them tightly. So with this new organization or transformation, we saw a positive result even by launching Merito, 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 current of the sales of Merito 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.

Comment about what was just covered. And that is the Merito 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 account 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 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 asked a question.

[Interpreted] may I ask one more thing. This is Koide speaking. By the way, our alliance partner sells cancer reinsurance only. So this partner will not be impacted by the new launch of medical reinsurance. 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.

The next question comes from John Barnidge of Piper Sandler.

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 this effort?

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 -- 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 right. .

Max, anything you want to add to that?

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.

Well, I would say that you got 1 of the businesses is running have turned to profitability here, 2 or not. That being said, it will still be some time until we reach target profitability one thing is just to breakeven. We want to get these businesses to adequate profitability overall, and that will still take a few years.

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.

I'll say 2 things to that, John. The first is that we had to make sure we've got the right product set available to them. making sure that we are giving what we call a unified experience. So the trajectors you're seeing and the positive what we're seeing on our lab products -- the brokers are accepting that. We are driving a level of service that is top-notch. As I mentioned before, our brand is very strong in that area now, and we'll win in 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. It's not just about making it as an underwriting offer is be 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, is mainly still driven by our agents. So we are open for business and asking the brokers now to move it in some of the 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 bid deals.

And John, let me make sure. There was a second part -- what was the second part of your question?

Yes, I think you covered the first part from the organic. I was asking inorganic good scale there.

Thank you for that, John. I will tell you that, as I've taken over now in a role as President of Corporation, I've worked at the high to scenes with all our leadership teams are primarily Max and I are making sure that we've got a strong corporate development arm. My point on that is that we're going to make sure we got the right rigor and discipline to be looking out of 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 to come 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. .

The next question comes from Ryan Krueger of KBW.

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 you 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?

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 every type of opportunity when huge opportunity is sitting right in front of us. with our life opens 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.

There's just a huge opportunity in both of those markets. Those products continue to be desire out there for consumers. And so therefore, that is our focus. Now having said that, when you mentioned the word small, 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 of our technology. But when it comes to like looking at blocks of business or other opportunities out there, our focus will stay here but we will have a 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 are the pioneers of this supplemental stage. We are 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.

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 and administration, et cetera. So recognize all of that, I would say that I don't think necessarily that our views or opinions have really changed.

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

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. I think that's -- as we sit here today, post the current unlocking given the experience that we have, that still holds. .

The next question comes from Wilma Burdis of Raymond James.

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.

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 recognized 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 105 relative to the dollar. If those bonds mature today, at 150. That is close to 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.

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 run rate.

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 again 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 our core underlying base. And then on top of that, you have the FX gains and any sort of gain coming through as it relates to reinsurance on top of that as well.

In terms of buybacks, our philosophy has 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.

The next question comes from Suneet Kamath Knot of Jefferies. .

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. .

Save 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, 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 absence disability products, it's actually a positive that we are growing faster than what we had anticipated. And we are also continuing to force 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'll hear me say though is that what you're seeing and it's in the fab documents, there is a weaker average weaker producer number that we have currently today. And with the weaker average we can produce they're currently mostly driving our individual products. That's why you're seeing an overperformance of 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 recurring 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 of 16%. And 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. .

Okay. All right. That makes sense. And then maybe a follow-up on the U.S. gulf 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 was pretty important. And a few years ago, we talked about $1.8 billion kind of target. Just wondering what needs to happen to get to some level of sales like that? .

Yes. So if you go back to start with the buy the 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, and 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 annual sales production from dental right now. My goal is to recover that, pick that back up. fit is strong this year and then going to 2026, getting closer to the numbers that we had originally predicted years ago. The second point I would tell you is, is the bundling. We mentioned that it's not trying to be best in dental. It is the ability to bundle deal with PV products -- if I look at my numbers in the third quarter, about $85 to do. So every time we sold $1 of dental, $85 or $0.85 worth of VB was sold. That is exactly what we're looking for. the more dental we will get the sale 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. .

This is Dan. Let me add 1 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. The it's writing that business didn't make any sense because number 1 is there was too much turnover to the point to where our claims were low. Another thing that made it, it 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 because it's not good for anybody. It's not good for the company. It's what -- 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 it -- that's what I've seen about cleaning things up and making them more profitable too with the bias -- they 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.

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? .

Well, what I mean by 6 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 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 air-conditioned room working day to day and just counting numbers. That's the safest 1 we can give the best rate too. And a lot of people were not writing what I'll just call less for persistence in business and less profitable business .

In, we've 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. .

He said it better than me. .

The next question comes from Jimmy Bhullar of JPMorgan.

I had a couple of questions on the U.S. business as well. So first, just in terms of claims trends, it seemed 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, the 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 pure group that's driving the tick -- so the question just on what you're seeing in terms of claims trends in supplemental proceeds .

Yes, 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 First of all, we went through actively around of endorsements and benefit enhancements of our underlying policies. This applies to our cancer product. It 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 for 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.

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

No. I wouldn't say so.

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 realized Dental was a weak spot but it's been recovering. And if I think about your sales in the past couple of years, you had, I think, 5% growth in '23. It was a slight decline in 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 would expect longer term? Or is this a business that over time should be going faster than what it's been growing at?

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 if I mentioned, now get into the broker market that are actually coming to sell it. And so we are giving 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 really talked 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're also they'll now start 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.

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

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 a recent experience trends.

So in our unlocked assumptions, that incorporates our up-to-date experience, it also assumes a little bit of further improvements 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.

Got it. And then a follow-up just wondering about your perspective around private credit given it's 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?

Sure. Thank you for the question, Jack. Private credit is not something that's new to us or to the industry by any means that 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 were 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 in aren't too concerned. We didn't have any exposure to the names that have been used lately, and we think our disciplined underwriting is going to allow us to do very well if and when the cycle does turn.

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

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.

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.]

Thank you for joining me as I 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, and I look forward to discussing our results in further detail on tomorrow's earnings call.

Good day, and welcome to the Aflac Incorporated Second Quarter 2025 Earnings Call. Please -- please note this event is being recorded. I would now like to turn the conference over to David Young. Please go ahead.

Good morning, and welcome. Thank you for joining us for Aflac Incorporated's Second 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?

Thank you, David, and good morning, everyone. We're glad you joined us. Aflac Incorporated reported net earnings per diluted share of $1.11 and adjusted earnings per diluted share of $1.78 for the second quarter of 2025. We believe that these are solid results for the quarter, leading to a very good first half of the year. Max will expand upon these results in a moment. But before he does, I'd like to comment on our operations.

Beginning with Aflac Japan, I am very pleased with Aflac Japan's 23.2% year-over-year sales increase, especially the 53% increase in the cancer insurance sales. These strong sales were driven largely as expected, by sales of our newest cancer insurance product, MRO. They include the final stage of the launch of Japan Post Insurance and Japan Post in April. We also saw positive overall sales growth across all distribution channels. This positive results also reflects our new marketing and sales structure in Japan that integrates members of the actuarial, IT and policy service into agile teams focused on bringing a specific product line to the market like cancer, medical, asset formation and nursing care.

We also continue to introduce the need for the third sector protection to new and younger customers with our innovative first sector product, Sumitas, which has third sector optional benefits. Overall, I believe we have the right strategy to meet our customers' financial protection needs throughout their different life stages.

Our ability to maintain strong premium persistency is a testament to our strategy, Aflac's reputation and our customer recognition of the value of our products. By maintaining this level of persistency and adding new premium through sales, we are partially offsetting the impact of reinsurance and policies reaching paid-up status. Maintaining strong persistency will 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, 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 $340 million in new sales during the second quarter, which was a 2.7% year-over-year increase. More importantly, we maintained strong premium persistency of 79.2% and increased net earned premium of 3.4%. We continue to see momentum within all areas of our group business, especially our group life and disability as well as our network dental. In addition, we believe our efforts to drive more profitable growth with a stronger underwriting discipline have contributed to our strong premium persistency and 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 the consumers need the products and solutions Aflac offers more than ever. For our policyholders who've become claimants, Aflac is more than an insurance company. We are a partner in health, a supporter of families during their times of need and 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 continue to generate strong capital and cash flows while maintaining our commitment to prudent liquidity and capital management.

We have been very pleased with our investments, which have continued to produce solid net investment income. As an insurance company, our primary responsibility is to fill the promises we make to the policyholders while being responsive to the needs of our shareholders. Our solid portfolio supports our promise to the policyholders as does our commitment to maintaining strong capital ratios. We balance this financial strength and tactical capital deployment. I am happy with how management has handled capital deployment and liquidity. In the second quarter, Aflac Incorporated deployed $829 million in capital to repurchase 7.9 million shares of our stock and paid dividends of $312 million. Combined with dividends, that means that we delivered $1.1 billion back to the shareholders in the second quarter of 2025.

Additionally, we treasure our track record of 42 consecutive years of dividend growth. 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 marks 3 important milestones for Aflac. In June, we just celebrated the 30th anniversary of what is now known as the Aflac Cancer and Blood Disorders Center of Children's Healthcare of Atlanta. We look forward to celebrating the 70th anniversary of the company's founding in November. And we also are celebrating the 25th anniversary of the Aflac Duck this year. Even though these milestones are noteworthy, it's not the number of years that matters most. It's the privilege of benefiting the lives of millions of people we are reminded that one thing has not changed since the founding in 1955, families and individuals still seek to protect themselves from financial hardship that not even the best health care insurance can cover.

Today's complex health care environment has produced incredible medical advancements that have come with incredible costs. It's more important than ever for people to have a partner in their time of need. We believe our approach to offering relevant products makes us that 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. On an ongoing basis, we are taking actions to reinforce our leading position in building on our momentum.

I'll now turn the program over to Max to cover more details of the financial results. Max?

Thank you, Dan. I will now provide a financial update on Aflac Incorporated's results. For the second quarter of 2025, adjusted earnings per diluted share decreased 2.7% year-over-year to $1.78 with a $0.04 positive impact from FX in the quarter.

In this quarter, remeasurement gains on reserves totaled $37 million, reducing benefits. Variable investment income ran at $35 million below our long-term return expectations, while one make whole call generated income of $35 million. Adjusted book value per share, excluding foreign currency remeasurement, increased 5.2%. The adjusted ROE was 13.7% and 16.4%, excluding foreign currency remeasurement, an acceptable spread to our cost of capital. Overall, we view these results in the quarter as solid.

Starting with our Japan segment. Net earned premiums for the quarter declined 4.8% Aflac Japan's underlying earned premiums which excludes the impact of deferred profit liability, paid up policies and reinsurance declined 1.1%. We believe this metric better provides insight into our long-term premium trends. Japan's total benefit ratio came in at 66.5% for the quarter, down 40 basis points year-over-year. The third sector benefit ratio was 57.4% for the quarter, also down approximately 40 basis points year-over-year. We estimate the impact from remeasurement gains to be 83 basis points favorable to the benefit ratio in Q2 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 at 93.7%, which was up approximately 40 basis points year-over-year, in line with our expectations.

Our expense ratio in Japan was 20.6% for the quarter, up 280 basis points year-over-year, driven primarily by an increase in technology expenses.

For the quarter, adjusted net investment income in yen terms was down 10.5%, primarily driven by lower floating rate income, the impact of foreign currency on U.S. dollar investments in yen terms and lower variable investment income, somewhat offset by higher call income and higher returns on U.S. dollar fixed rate portfolios. The pretax margin for Japan in the quarter was 32%, down 330 basis points year-over-year, but a very good result.

Turning to U.S. results. Net earned premium was up 3.4%, and Persistency increased 50 basis points year-over-year to 79.2%. Our total benefit ratio came in at 47.3%, 60 basis points higher than Q2 2024, driven by business mix. We estimate that remeasurement gains were in line with a year ago and favorably impacted the benefit ratio by 160 basis points in the quarter as claims have remained below our long-term expectations. In the quarter, we benefited from favorable underwriting on our small but growing long-term disability block.

Our expense ratio in the U.S. was 36.3%, down 60 basis points year-over-year, primarily driven by platforms, improving scale and continual focus on expense efficiency. Our growth initiatives, group life and disability, network dental and vision and direct-to-consumer increased our total expense ratio by 70 basis points for the quarter. This is in line with our expectations, and we would expect this impact to decrease as we continue to approach scale.

Adjusted net investment income in the U.S. was down 5% for the quarter, primarily driven by lower floating rate income.

Profitability in the U.S. segment was very strong with a pretax margin of 22.5%, a 20 basis points decline compared with a strong quarter a year ago.

In our Corporate segment, we recorded a pretax gain of $20 million. Adjusted net investment income was $37 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 of 2024. Our tax credit investments impacted the corporate net investment income line for U.S. GAAP purposes negatively by $8 million in the quarter with an associated credit to the tax line. The net impact to our bottom line was a positive $1 million in the quarter. To date, these investments are performing well and in line with our expectations.

Higher total adjusted revenues were offset by higher total benefits and adjusted expenses of $90 million, driven primarily by internal reinsurance activity, higher costs pertaining to business operations and higher interest expense.

During the quarter, we raised debt of JPY 150 billion, which translates into slightly over $1 billion to prefund our 2026 maturities and to create liquidity and capital flexibility at the parent company. This debt issuance, combined with a significant dividend from Aflac Japan, increased our unencumbered holding company liquidity to $5.1 billion, which is $3.4 billion above our minimum balance.

Our capital position remains strong, and we ended the quarter with an SMR above 900% and an estimated regulatory ESR about 240%, following the previously mentioned dividend. 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.

We repurchased $829 million of our own stock and paid dividends of $312 million in Q2, 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.

During the quarter, we increased our CECL reserves associated with our commercial real estate portfolio by $33 million net of charge-offs as property values remain at distressed valuations. We also foreclosed on 3 loans, adding them to our real estate owned portfolio, consistent with our strategy for maximizing recovery values. Our portfolio of first lien senior secured middle market loans continue to perform well with decreased CECL reserves of $23 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 no security impairments in Q2, but we did book a net realized gain of JPY 70 million related to transitional real estate loans. This is well within our expectations and has a limited impact on regulatory earnings and capital.

Our leverage was 22.5% for the quarter, which is within our target range of 20% to 25%. As we hold approximately 65% 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. I would like to reiterate our approach to managing foreign currency exposure.

Fundamentally, we sized our unhedged U.S. dollar exposure to the estimated economic surplus associated with our Japanese business. At the end of Q2, we held $27.1 billion of U.S. dollar assets in our Japan general account, forward contracts at Inc. with a notional balance of $1.9 billion and $5.7 billion of yen-denominated debt.

We also hold $25 billion notional of out-of-the-money put options, which provide tail protection against a large appreciation in the yen. Adding this up, we feel we are very well positioned on an economic basis.

Thank you. I will now turn the call over to David.

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 will now take the first question.

[Operator Instructions] And our first question comes from Ryan Krueger from KBW.

My first question was on cancer sales. You obviously had a really nice pickup following the launch of the Morocco product. My question is more on how long you think the benefit from the new product could have on sales, understanding that you tend to get the biggest benefit initially, but do you think you'll continue to see stronger cancer sales for the balance of the year because of the new product launch?

[Interpreted] We are feeling the product has got the traction and it is doing very well so far. [indiscernible] diverse customers and maintaining high competitiveness. The biggest feature of [indiscernible] is its flexible protection design. And normally, the cancer reinsurance offer that other companies were generally offered are offered as one package. So that means even if the policyholder is not requiring particular coverage, it is already included to what they buy.

But when it comes to Aflac Merito, customers can purchase only the necessary coverage that is how flexible it is designed. So for those who are wishing to have a rich coverage, they can buy a lot of coverage. And for those who already have enough coverage, they can buy a minimum level of coverage. People can purchase the policy in a customized way. That is the biggest characteristic of Merito. And also Marito carries the coverage that was not available by Aflac in the past. So that was about the product characteristics.

And along with that, is product carriers are supporting service, which is called [indiscernible] cancer consultation service. And this has been developed, thanks to our 50 years of expertise and the relationship with a specialist. And this consultation support is not available outside of Aflac. So that was another characteristic. And therefore, the performance is that at all channels, we are plus year-on-year and also positive versus the plan. So we anticipate the strong performance to continue for the time being and longer than that of the past cancer insurance products. So let me reiterate once again that it has got a traction and it is successful so far. Thank you.

And then one separate question on Japan investment income, it seems like even if you make the adjustments for FX and II and make whole, just that there was seem to be a step-up in the NII in Japan. Can you give a little bit more color on things your trajectory there? And if this quarter is sustainable going forward?

Sure. Thank you, Ryan. We did have a nice strong second quarter. It was a nice improvement over first quarter. And there were a few things that drove this. The largest contributor was our variable NII from our alternatives book. That was about half of the improvement. There's a little bit of seasonality there in second quarter because of the timing of some of the marks we get on fourth quarter comes in a little bit late in the first half of the year. but we also just had better marks on the portfolio overall. There's the make-whole, which you mentioned. That was a nice pickup second quarter over first quarter. And then the rest was a combination of things.

We accelerated some deployment. We pulled forward some activity to capture attractive opportunities that we saw in the first half. And then we were quite active in what we call switch trades, where we sold lower yielding JGBs, and we bought current yield JGBs at the current higher yields. And we also swapped into some nice credit assets to pick up yield there.

In terms of the outlook for third quarter, we do think you should probably adjust for the make whole, although we had 2 this year, those are the one-off items that are very difficult for us to predict with any certainty. On the variable NII, we are optimistic that we'll see a good solid second half of the year. There's a lot of reasons to be optimistic for a pickup there, but that does remain very difficult to predict Q-on-Q. And then the benefit from the acceleration in the switch trade should continue to roll through for the back half of the year. So net-net, we think we're very well positioned for a solid third quarter.

Our next question comes from Suneet Kamath from Jefferies.

Max, I wanted to ask on ESR for a minute. One of your competitors disclosed their view that some of the companies in Japan are using sort of adjusted metrics that aren't true to the FSAs, I guess, formulas. Just wanted to get your thoughts on that and how you're approaching this ESR as you give us the disclosure every quarter.

Thank you, Suneet. And I'll kick it off and also ask if Steve Beaver in Japan have any comments as well. So ESR overall, you have today 3 versions of ESR. You have the regulatory ESR, you have the regulatory ESR with USP and we have the internal models. We use the regulatory model with USP. The reason why is because this is what we believe that we should manage to. And that gives us the opportunity to adjust the regulatory model, using risk factors that are specific to our business. And that means that they are more realistic on our business than the regulatory model is.

Right now, that gives us roughly an uplift over the regulatory model of about 30 points. And over time, we would hope that there will be an approval of our internal model as well, which obviously is closer to the real economics of the underlying business because they're in the internal model, we would use our full internal experience. So we believe that this is the right approach, and this is the right model to use.

Okay. That's helpful. And then I guess on the cancer sales, can you just talk about how much of an impact was lapse reissue, if at all, in the quarter? And are you targeting these sales to newer customers? Or are you sort of going back to your in-force customer base and selling the cancer policy?

Let me kick it off on that and Japan might want to give some more color. The early data that we have on labor reissue indicates that we are roughly in line or slightly below our internal expectations. So we have not seen a spike greater than what we normally would expect when we have a refreshed product out in the marketplace as it relates to lapse and reissue. Now you always have a little bit of an uptick, and that is expected. But so far, the data is indicating that we are in line with our expectations. That there is always a little bit of a lag though, and that means that as we go into the third quarter, we wouldn't be surprised if we see a little bit of an uptick in lapsation.

Jason, do you want to take the next question?

[Interpreted] Let me answer from the sales perspective from Japan. We are selling both to our existing customers and new customers. And for existing customers, we can offer additional coverage that the policyholders do not have presence. And with this flexible nature of this product, we can develop the new customer base. And one of the characteristics of this Merito is the plan for children, the premiums are extremely low and they can enroll to this service. They can continue enrolling until the children becomes the age of 23. And they can switch the policy into the regular cancer insurance. And this product is gaining a great deal of attention from customers. And we are seeing new enrollment, especially from the younger and middle-aged customers. By leveraging such characteristics that I just mentioned, we anticipate to expand the new expander business to new policyholders in the future, too. Thank you for your question.

Next question comes from Jack Matten from BMO.

Just one on the remeasurement gains that you've been continuing to see in both Japan and the U.S. I guess given or should we be thinking about any kind of change in your assumptions as part of be unlocking next quarter. And just curious, in Japan, do your assumptions assume kind of further improvement in cancer and hospitalization trends? Or are you already assuming some degree of improvement, but the actual experiences continues to be even better than your expectations?

So let me just remind you of our policy. So each quarter, we true up the experience in that quarter. And that will then flow through as remanagement gain losses in that reported quarter. And then obviously, in the third quarter of each year, we unlock our actarial assumptions as it relates to our forward-looking assumptions. When we look forward, and I'm going to go back to 2020 -- Q3 of 2024. In our assumptions that we set back then, there is a small improvement in forward-looking trend of hospitalization trends in Japan. It's relatively small, but it is not flat. There is a small, small improvement expected in those assumptions that we incorporated when we set those actuarial assumptions in 2024. And obviously, we will often these assumptions in the next quarter.

Got it. It makes sense. And maybe just 1 on capital deployment. You're running with, I think, $3.4 billion above your target at the holding company, healthy levels the subs, too. I guess can you just remind us where graphic might be interested in terms of potential M&A.? I don't know if something to accelerate growth in the U.S. group business is a priority. Maybe after M&A, any kind of alternatives that you'd be thinking about in terms of capital deployment?

Well, our philosophy as it relates to capital deployment is that it is a function of the capital generation that we see from the operating companies going forward. the capital that we have at hand and the future capital generation. And then we try to deploy that firsthand into our operations and grow where we can grow at good IRRs. And then we also use capital to extend our business, and that can be evaluating M&A. But that is predominantly lately that has come through as deploying capital back to shareholders through dividends and buybacks, and we believe that we have achieved very good IRRs on those capital deployment actions.

The next question comes from Jimmy Bhullar from JPMorgan.

So I had a question first on U.S. sales. we thought the business would be growing the last couple of years, but its sales have actually consistently been weaker than expected. I think last year, you were down. This year, they've been positive, but fairly sluggish low single digit. So maybe, Virgil, you could just talk about what's going on in business and just general expectations for sales results over the next year or so?

Yes. Thank you, Jimmy. Let me give a macro view first and just say that we're continuing to take some deliberate actions to drive long-term sustainable value. So some of this is some deliberate intentional actions where we are really looking to get the right type of business that we want on the books. And you can see that when you look at our overall performance for the quarter.

When you look at our earned premium band up 3.4%, we look at the persistency, we continue to move on that. It was up about 50 basis points for the quarter. But then you look at our expense ratio. Expense ratio is 1 of the best we've had in about 5 quarters in a row. I'm really looking at the overall totality. Now the 2.7% increase for the quarter was certainly at the low end of our range. What I'm expecting, Jimmy, is a stronger second half, really driven by 4 quarter bookings.

Our pipeline looks strong. We're seeing good performance in our lab business. We have built a strong reputation there. You may have seen a press release we did it recently where we are now taking over with the State of Maine for PML management, just like we're currently doing with a renewal for the state of Connecticut. So we're also pleased with the performance we saw with our dental property. I had mentioned before that we had some operational concerns that we have now overcome strong momentum, double-digit growth in the first half of the year. I expect that to continue throughout the second half, and we continue to see a bright spot what our consumer markets are to direct the consumer platform.

So all in all, I expect to see a stronger second half, driven really by 4 quarter enrollment -- our focus will be, though, on recruiting. We've got to pick it up in our traditional business. That's driven by our career channel. I'm looking to increase. Right now, we're relatively flat for the first half of the year. I'm looking to put up some positive numbers with recruitment, convert those, and they could continue to see the trend that we have a higher productivity that were given out of our feel. So over now, I hope that helps, Jimmy. And just let me know if you have any more questions on that.

No. And just maybe a little bit on the dental product. Has it gotten to what you'd expect to be a normal level of sales for that business? Or is it still -- there's a catch-up related to the platform change?

Yes. I would tell you, during the second quarter, again, because of the underperformance last year, this -- you have to be careful with the numbers. Now we were up 43%. But again, it's on a small base last year. I will tell you, we're certainly at a high range of my expectations for this year, and I'm expecting that to continue. I think it's important, Jimmy, to note that dental and vision is part of the overall strategy we have going forward. So I think it's a number you can look to that we're counting on. We think it because it's the #1 -- #2 choice among consumers. It's a door opener for us. in the supplemental area by putting it in first.

So I think monitoring that, you will be important as we believe it is, and we're monitoring it even weekly to see how it's picking up because we're frustrated with some of the issues we had early on and that's that learning curve that you have when you get into things new. And we're glad we're there. We're glad that hopefully all the major issues are behind us and that we'll just see positive going forward with it.

Our next question comes from Elyse Greenspan from Wells Fargo.

My first question, I guess, is on the expense ratio within Japan. That's trended favorable, I guess, relative to your guide and I think expenses are somewhat typically higher in the back half. So just how are you thinking about that ratio trending from here over the course of the year?

So we still expect to be within our guidance range of 20% to 23% for that expense ratio. Obviously, in the first half, we are at the lower end of that range. That includes, obviously, a product refreshment, marketing campaign associated with our cancer launch. So as we look out into the second half, there are some continued technology projects that will continue to drive expenses higher year-over-year. But in terms of the range of 20% to 23%, it would probably be in the middle or lower end of that range.

And then my second question, I guess, goes back to capital. Obviously, elevated holdco cash right now. Is there sort of a time period that you guys would look to take that down? Whether that's organic, inorganic growth as well as repurchases? And how should we think about, I guess, buybacks in the second half of the year? Should we think about that elevated relative to the first half, just given the higher holdco cash?

So the timing of it right now, you have a U.S. dollar yield curve that is essentially flat, which means that the so-called , if you can call it, the tax of holding cash right now is not what it used to be. So we're earning a decent yield on that cash. Obviously, the yields are below our cost of equity capital, which means that over time, we would certainly expect to deploy the capital. But the rush to do so is not necessarily there to the same extent that it may have been in the past when yields were much, much lower at the short end of the yield curve.

So I think we're in a very good spot. In fact, we did intentionally move up in terms of holdco cash this quarter through the debt issuance that we did. This was a debt issuance that we did denominated in yen. We had room for having more yen debt on our balance sheet. That helps with our overall foreign exchange exposure. And it also gives us a positive carry, so if you think about our cost of that debt, it's about $230 million, $235 million, and we can invest in low 4s in U.S. dollars right now. So we actually have a positive carry on. So it made sense for us to prefunded those debt maturities and go early.

As it relates to deployment going forward, it continues to be our capital deployment process. we will look across the company and the enterprise to look for where we have opportunities to deploy capital at good IRRs that being organically or deploying it into tactically into dividends and buybacks.

The next question comes from Tom Gallagher from Evercore ISI.

One on Japan sales and then a follow-up on ESR. So I guess my question is JPY 21 billion sales, that's -- if I annualize that we're back to pre-pandemic levels now. I don't want to get ahead of ourselves here. It was one very good quarter. But can you provide some perspective on how you're viewing this? I mean do you think there was a big kind of onetime benefit? Or do you think we might see a higher level of sales sustained here for a while? Because the other thing I noticed was your Sumitas product also held up. Normally, when you see a new product launch like the cancer product, you see a falloff of some of the other products, but you do seem to -- there's some sustainability in the Sumitas as well.

But anyway, main question on all of that is where do you see -- do you think it's sustainable? And if so, what does it mean for premium revenue growth? Is it a game changer? Or is it too early to tell whether we might start to see a flattening out or actually improvement or growth on earned premium in '26, '27 from what you're seeing right now?

[Interpreted] Thank you for your question. This is Yoshizumi, in charge of sales. Yes, we are aiming to make a recovery to the level of pre-COVID in terms of sales. And one of the initiatives in order to further increase our sales is to focus on the cancer reinsurance Merito, which is doing very well so far. We will be continuing to make effort throughout the channel. And Sumitas, which is supporting that sale. And Sumitas is also maintaining a certain level of sales. And the Sumitas also being successful means that there is a positive contribution to the third sector products. We are not recommending distributors to offer or sell Sumitas on a stand-alone basis. We instruct and train them so that they will always offer together with the third sector product when they sell Sumitas. And with that effort, not only Sumitas but also the third sector sales is growing.

And about the medical insurance, a competition is very intensified in this market. And the medical insurance sales is yet to reach to an expected level. However, any new product requires regulatory approval, but we expect to launch a new medical product within a year, which will carry the similar characteristic with Merito.

And another point about the channel. Our main state channel associated channel. And associated channels are doing very well, and their sales are growing. And from 2 years ago, we started an effort to reinforce our solicitors. And last year, we hired 1,100 agents. And this year, we are trying to be at the same level or more. Of course, a number of agents will have an impact to our productivity.

And also about the organization. In this January, we have brought out a major marketing and sales transformation. Led by the new Chief Marketing Officer, we are working in a data-driven methodology and those are conducting an end-to-end initiative with agility. With this all in mind, we expect that we reach to the pre-COVID level as early as possible. So I am confident that the 2025 sales will exceed that of 2024. That's all. Thank you for your question.

Do you want to go ahead and add?

Well, I was just going to say that. Just Tom, keep in mind that our forward guidance for earned premium still remains negative 1% to negative 2% for the guidance period. Obviously, we're very encouraged by the launch of Merit. And in Q2, we were down on earned premium by 1.1%. So it's certainly pushing us towards the lower end of that range. But clearly, we still remain in negative territory. SP1 But I want to say that as I've been watching Japan all these years, there was a shift, in my opinion, in marketing and sales in terms of the job that they are doing. They are doing a better job overall than they were doing 1.5 years ago. And they had a wake-up call when we saw the stock drop a little bit and we had some discussions about it and things pick back up.

And I think as we said just a minute ago, we had a new Director of Marketing. We -- the Marito product is different in that their outside forces that are helping us with people on how to deliver the product and to make sure they've got abilities to talk to people and work through processes from doctors to whatever it might be. It's just a little bit of a shift. I don't think we know exactly how long or what. But my sense is it is -- we are better today than we have been in a long time, and we are prepared. And the Marita product is also doing very well for us and is bringing on younger people, which is one of the things we hope would happen, and that has been reinforced that it has helped and will continue to help.

Saying that, as Mac said, we are cautious about the number change because it's such a big number to move. But all in all, I think we're writing better business and we're growing, and we'll just have to monitor it going forward. But I am -- I give them kudos for the job that they've done in terms of picking back up the pace and turning things around.

Just one quick follow-up on ESR, if I could. Max, are you managing to $170 million to $230 million, including the internal modeling benefits? Or should I knock 30 points off of that until you get the FSA to approve those? So in other words, is the real number for now $210 million plus, which would put you in the middle of your range? Or are you still well in excess of your range that you're managing to? I just want to understand how you're thinking about that.

Yes. So the range is based with our -- including of our USP. So the $170 million to $230 million includes the USP, and that's what we obviously are managing towards.

The next question comes from John Barnidge from Piper Sandler.

My question is on the distribution for the Mariato product. Was it completely rolled out in totality by the end of 2Q '25 for all distribution that will be selling it?

[Interpreted] Let me take that question. Do you mean that whether we are rolling out to all channels? This is to confirm your question.

Whether it's been rolled out to all channels that it's planned to be rolled out to by the end of the second quarter?

[Interpreted] So the answer is yes to that question. We launched Merito on March 17. And for bank channel in Japan Post, we have started to offer this in April. So it is available at all channels now by launching in March and also in April.

Great. And then my follow-up question, how do you think about the frequency with needing to refresh products, now that you're trying to bundle products and solutions together? Is it an annual and every other year cycle? I'm asking maybe in relation to the product that you introduced in late last year that hold quite well. How should we be thinking about the refresh cycle for that?

[Interpreted] For cancer insurance, the cycle is in 3 years. And for medical insurance, the refresh cycle in 2 years. And the prerequisite is to get the FCC approval.

The next question comes from Wes Carmichael from Autonomous Research.

I had one follow-up on the ESR again. In MAX, you confirmed using the USP this undertaking specific parameter and that adding about 30 points I guess, can I just get maybe a little bit of color on what that USP adjustment is in your view of the likelihood and timing of that? And then, I guess, separately, the internal model you mentioned, is that time line a few years down the road? Or how should we think about that?

Yes. So just to remind everybody, the USP gives an uplift of about 30 points. We do expect to have that approved by March 31, 2026, or very shortly thereafter. Again, we think we're in a very good shape in order to have all of those approvals done. So that's why we feel confident that we can continue to manage and report out based on these metrics.

As it relates to the full internal approval of -- sorry, full approval of our internal model, I think we will have something similar to the rollout of Solvency II where it will take some time until that is the case. And that is why we have chosen to -- even though we obviously produce, and we also use it for management decisions our internal model today already. We will not report out on the internal model that has been approved. And I think we're quite some time away from that.

Got it. That's helpful. And maybe just a macro question on Japan. But we've obviously seen long JGB rates march pretty significantly higher this year. Seen a bit in strengthening, even if that's reversed a little bit, I guess, more recently. But just curious, overall, on your view of first sector savings products in this environment, is the macro changing that either at the margin or materially your appetite to sell additional products outside of the sector?

Well, let me make first a comment and then I'll let like Japan will also comment on it. But clearly, higher yen yields is good for our yen-denominated savings products and especially at the long end of the curve. Keep in mind that what we are selling is a product that is priced off of the long end of the curve, a lot of the savings products that goes into retirement accounts being sold by banks, asset managers, et cetera, they price their products from the short end of the curve. So with the steepening of the yield curve, it creates an advantage for life insurance companies to manufacture and sell long duration yen-denominated products. So from that standpoint, what we've seen recently in the market is beneficial for our products.

[Interpreted] This is Koide speaking from Aflac Japan. Let's Japan side comment a little bit. Financial markets are stabilizing and recovering from the yen shop appreciation in stock prices declined in early April.

Additionally, after the late July announcement of the agreement reached in the U.S. Japan tariff and trade negotiations, house prices have risen to a near record high. However, uncertainly related to U.S. trade policies centered on high tariffs continue. As the implications for exports and global production becomes clearer, we will closely monitor potential risk to the domestic economy, particularly regarding household income and consumer sentiment along with the possibility of further market volatility.

And as regards to the impact of asset formation products. With uncertainty and volatility in the markets, customers may look towards Sumitas, which offer a stable yen-denominated long-term fixed rate asset formation. This will also mean that this dynamic may drive competitors to consider offering similar products to Sumitas, which will contribute to increased competition. We regularly monitor interest rate and competitive environment trends and are prepared to revise premiums in an azure manner. With this agility manner, we have decided to revise the premium rate for Sumitas, and we will continue to quickly monitor the trends in the financial market and respond promptly as needed. That's all.

The next question comes from Wilma Burdis from Raymond James.

Was there any pause in U.S. sales due to the data breach that happened in the quarter?

This is Virgil. No, we saw no impact. We are not seeing anything material that comes to operational to our financials. We are operational currently and continue to service our customers.

Okay. And some of your competitors have afforded higher claims due to the increasing cost of cancer treatments. Is it correct that Aflac wouldn't be exposed to this type of inflation due to the fixed benefit nature of the products? And could this increase the attractiveness of the product, given expensive but effective treatments are becoming more widely available?

Yes, as you -- Wilma, as you pointed out, we are primarily exposed to frequency of cancer diagnosis, not necessarily the severity of treatments or cost of treatment. They tend to fall on the primary insurance coverage that policyholders have our car products are supplemental and because we sell our products with predefined benefits with premiums that do not increase over the for the lifetime of the policy. That means that we are not necessarily exposed to the inflation risk and, therefore, the severity that some other insurance companies that sell other types of health insurers are seeing.

Well, one of the things that we do carry out is when we revamp or change our new product, we take into account any new treatments that are out there to make sure we're paying for those particular treatments if possible, that are approved by the American Medical Association and whatever. So as these new things are coming, we're updating our policies and allowing them to buy it if they want to buy the additional coverage for that. So that's very important. And that's how go back and rework our accounts and add additional business to that by taking care of that.

What people ask me, what if you find a cure for cancer? And my answer is they're finding cures every day for cancer, but it's the treatment of those cures that we have to cover. And that's what we do in our business and want to continue to do going forward.

The next question comes from Alex Scott from Barclays.

I wanted to ask about the larger dividend out of Japan. -- it seemed more significant this quarter. I just wanted to see if any -- is there anything underlying that's kind of changing the dividend policy there? And does it have any impact on appetite for reinsurance, the way that you guys have done towards the end of the year and just decision-making around that?

Yes. Alex, there's really no change in either the appetite for reinsurance or dividend policy here. It's primarily a function of very strong regulatory FSA results. And we closed the books for the fiscal year of 2025 on March 31, 2025. And because of those strong results, we then pay the final dividend in Q2 of 2026 as a function of that. So it's really a function of very strong results that we had in the previous year on an FSA earnings basis.

Got it. Okay. That's helpful. And then maybe my last one on some of the things you're doing to invest in digitization in Japan, just if can you comment a little bit more about that. Is that something that can be sped up just given, I think, the more advanced tools using AI around some of the things you need to take policy forms and maybe digest them into a system, et cetera?

[Interpreted] This is Koide from Aflac Asia. We're working on the 2 areas under digital transformation. One area is to improve the customer experience value. We are providing various types of digital services to our customers, associates and our employees. So therefore, we're making sure to incorporate the new GenAI. And this GenAI is making a great deal of contribution, not only to our employees, but also to part of our associates, and they use this tool to improve their productivity. And just from this month, we have started to roll out the digital human avatar services to respond to part of the inquiries sent from our customers. We believe this service will increase the overall customer experience or services as this human avatar will be able to respond to customers' inquiries 24/7.

Another point is to -- is regarding the operation efficiency improvement by utilizing the DX. And we are now moving ahead of our original schedule in terms of the implementation of the GenAI and its evolvement. For the policy administration services, when the operation expand, we had to increase the resources or costs. However, along with the utilization of DX, even if the operation expands, we do not increase the people as the DX will do the job by itself. So this will contribute to our cost reduction. That's all for me.

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

Thank you, and thank you all for joining us today. We hope that you will reach out to us if you have any follow-up questions, and we look forward to talking to you then. Have a great rest of your day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

Thank you for joining me as I provide a financial update on Aflac Incorporated's results. For the second quarter of 2025, adjusted earnings per diluted share decreased 2.7% year-over-year to $1.78 with a $0.04 positive impact from FX in the quarter. In this quarter, remeasurement gains on reserves totaled $37 million, reducing benefits.

Variable investment income ran at $35 million below our long-term return expectations. While one make-whole call generated income of $35 million. Adjusted book value per share, excluding foreign currency remeasurement, increased 5.2%. The adjusted ROE was 13.7% and 16.4%, excluding foreign currency remeasurement, an acceptable spread to our cost of capital. Overall, we view these results in the quarter as solid.

Starting with our Japan segment. Net earned premiums for the quarter declined 4.8%. Aflac Japan's underlying earned premiums, which excludes the impact of deferred profit liability, paid-up policies and reinsurance declined 1.1%. We believe this metric better provides insight into our long-term premium trends. Japan's total benefit ratio came in at 66.5% for the quarter, down 40 basis points year-over-year. The third sector benefit ratio was 57.4% for the quarter, also down approximately 40 basis points year-over-year. We estimate the impact from remeasurement gains to be 83 basis points favorable to the benefit ratio in Q2 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 at 93.7%, which was up approximately 40 basis points year-over-year, in line with our expectations. Our expense ratio in Japan was 20.6% for the quarter, up 280 basis points year-over-year, driven primarily by an increase in technology expenses.

For the quarter, adjusted net investment income in yen terms was down 10.5%, primarily driven by lower floating rate income, the impact of foreign currency on U.S. dollar investments in yen terms and lower variable investment income, somewhat offset by higher call income and higher returns on U.S. dollar fixed rate portfolios. The pretax margin for Japan in the quarter was 32%, down 330 basis points year-over-year, but a very good result.

Turning to U.S. results. Net earned premium was up 3.4%. Persistency increased 50 basis points year-over-year to 79.2%. Our total benefit ratio came in at 47.3%, 60 basis points higher than Q2 2024, driven by business mix. We estimate that remeasurement gains were in line with a year ago and favorably impacted the benefit ratio by 160 basis points in the quarter as claims have remained below our long-term expectations.

In the quarter, we benefited from favorable underwriting on our small but growing long-term disability block. Our expense ratio in the U.S. was 36.3%, down 60 basis points year-over-year, primarily driven by platforms improving scale and continual focus on expense efficiency. Our growth initiatives, group life and disability, network dental, vision and direct-to-consumer increased our total expense ratio by 70 basis points for the quarter. This is in line with our expectations, and we would expect this impact to decrease as we continue to approach scale.

Adjusted net investment income in the U.S. was down 5% for the quarter, primarily driven by lower floating rate income. Profitability in the U.S. segment was very strong with a pretax margin of 22.5%, a 20 basis points decline compared with a strong quarter a year ago.

In our Corporate segment, we recorded a pretax gain of $20 million. Adjusted net investment income was $37 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 of 2024. Our tax credit investments impacted the corporate net investment income line for U.S. GAAP purposes negatively by $8 million in the quarter with an associated credit to the tax line.

The net impact to our bottom line was a positive $1 million in the quarter. To date, these investments are performing well and in line with our expectations. Higher total adjusted revenues were offset by higher total benefits and adjusted expenses of $90 million, driven primarily by internal reinsurance activity, higher costs pertaining to business operations and higher interest expense.

During the quarter, we raised debt of JPY 150 billion, which translates into slightly over $1 billion. to prefund our 2026 maturities and to create liquidity and capital flexibility at the parent company. This debt issuance, combined with a significant dividend from Aflac Japan, increased our unencumbered holding company liquidity to $5.1 billion, which is $3.4 billion above our minimum balance.

Our capital position remains strong, and we ended the quarter with an SMR above 900% and an estimated regulatory ESR above 240%, following the previously mentioned dividend.

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. We repurchased $829 million of our own stock and paid dividends of $312 million in Q2, 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.

During the quarter, we increased our CECL reserves associated with our commercial real estate portfolio by $33 million net of charge-offs as property values remain at distressed valuations. We also foreclosed on 3 loans, adding them to our real estate owned portfolio, consistent with our strategy for maximizing recovery values. Our portfolio of first lien senior secured middle market loans continued to perform well with decreased CECL reserves of $23 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 no security impairments in Q2, but we did book a net realized gain of JPY 17 million related to transitional real estate loans. This is well within our expectations and has a limited impact on regulatory earnings and capital. Our leverage was 22.5% for the quarter, which is within our target range of 20% to 25%. As we hold approximately 65% 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.

I would like to reiterate our approach to managing foreign currency exposure. Fundamentally, we size our unhedged U.S. dollar exposure to the estimated economic surplus associated with our Japanese business. At the end of Q2, we held $27.1 billion of U.S. dollar assets in our Japan general account, forward contracts at Inc. with a notional balance of $1.9 billion and $5.7 billion of yen-denominated debt. We also hold $25 billion notional of out-of-the-money put options, which provide tail protection against a large appreciation in the yen. Adding this up, we feel we are very well positioned on an economic basis. Thank you, and I look forward to discussing our results in further detail on tomorrow's earnings call.